Document:

OPTION AGREEMENT

 

This
Agreement, effective as of February 28, 2014 (the “Effective Date”), is between the University
of Massachusetts (“University”), a public institution of higher education of the Commonwealth of Massachusetts, as
represented by its Amherst campus, and Amarantus Bioscience Holdings, Inc. (“Company”), a Nevada corporation.

 

RECITALS

 

Whereas,
University is a joint owner by assignment, together with the Company, of the intellectual property rights as described in University’s
invention disclosure number UMA 14-006, entitled “MANF as a Therapeutic Agent for the Production of Mammalian Sensory Cells”;

 

Whereas, Company is
engaged in business relating to the development and commercialization of products that can use or incorporate University’s
intellectual property rights and has the capability of developing commercial applications of the intellectual property;

 

Whereas,
Company desires to obtain an option to negotiate an exclusive license, which will include the terms in EXHIBIT B, to University’s
intellectual property rights, and University is willing to grant that option under the following conditions so that these intellectual
property rights may be developed to their fullest and the benefits enjoyed by the general public; and

 

Whereas,
the license that is granted in this Agreement promotes the development of publicly funded intellectual property to practical application
for the public good.

 

Therefore,
University and Company agree as follows:

 

	1.	Exclusive License Option.

 

1.1.          Definitions.

 

(a)          “Field”
means all fields.

 

(b)          “Patent
Rights” means the United States and foreign patents and patent applications set forth on Exhibit A, which shall
be updated when information becomes available, including any divisional, continuation, and continuation-in-part applications to
the extent the claims are directed to subject matter specifically described in the parent application, and foreign equivalents
thereof, as well as any patents issued thereon or reissues, reexaminations, or extensions thereof. Neither Party will file a continuation-in-part
application without the consent of the other Party.

 

1.2.          Grant
of Option Right. University grants Company a first option to obtain a worldwide, royalty-bearing, exclusive license (with the
right to sublicense) under its commercial rights in the Patent Rights in the Field (the “Option Right”). Company may
exercise the Option Right upon written notice to University which is received by University within eighteen (18) months after the
Effective Date (the “Option Period”).

 

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(a)          If
Company elects not to exercise the Option Right, or fails to exercise the Option Right during the Option Period, University may
license its commercial rights under the relevant Patent Right to any third party.

 

(b)          If
Company does elect to exercise the Option Right, University and Company shall negotiate in good faith a license agreement containing
commercially reasonable terms and conditions. If University and Company are unable to reach agreement within four (4) months after
Company exercises the Option Right, University may offer its rights in the relevant Patent Right to any third parties.

 

1.3.          Limited
License. For the term of this Agreement, University grants Company a license to the Patent Rights solely for purposes of carrying
out the obligations and purposes of this Agreement.

 

1.4.          Warranty
Disclaimer. University represents that its employees have assigned or agree to assign to University their entire right, title,
and interest in the Patent Rights and that it has authority to grant the option right set forth in this Agreement. UNIVERSITY MAKES
NO OTHER WARRANTIES CONCERNING THE PATENT RIGHTS, INCLUDING WITHOUT LIMITATION ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. Specifically, University makes no warranty or representation (a) regarding the validity or
scope of the Patent Rights, (b) that exploitation of the Patent Rights will not infringe any patents or other intellectual property
rights of a third party, or (c) that any third party is not currently infringing or will not infringe the Patent Rights.

 

	2.	Company Obligations.

 

2.1.          Development
Plan. Prior to the end of the Option Period, COMPANY shall deliver to University a written development plan in form and substance
satisfactory to University.         

 

2.2.          Extension.
Company may extend the Option Period for and additional six (6) months upon (a) demonstration to the satisfaction of the University
of continued progress in evaluating the business opportunity that is presented by the Patent Rights and (b) payment of Five Thousand
Dollars ($5,000) to University.

 

	3.	Consideration for Grant of Rights.

 

Option Fee.
In consideration of the rights granted Company under this Agreement, Company shall pay to University on the Effective Date an option
fee of One Thousand Dollars ($1,000). If option fee is not paid in full within fifteen (15) days of the Effective Date of this
Agreement, the Agreement shall automatically terminate. The option fee payment is nonrefundable and is not creditable against any
other payments due to University under this Agreement.

 

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	4.	Patents

 

4.1           Maintenance
of Patent Rights.

 

(a) University has primary
responsibility at the expense of Company for the preparation, filing, prosecution, and maintenance of all Patent Rights, using
patent counsel reasonably acceptable to Company. University shall consult with Company as to the preparation, filing, prosecution,
and maintenance of all Patent Rights reasonably prior to any deadline or action with the United States Patent & Trademark Office
or any foreign patent office, shall furnish Company with copies of relevant documents reasonably in advance of consultation, and
shall consider in good faith any comments of Company on any of the foregoing.

 

(b)          If
University desires to abandon any patent or patent application within the Patent Rights, University shall provide Company with
at least sixty (60) days prior notice of the intended abandonment, and Company may, at its expense, prepare, file, prosecute, and
maintain the relevant Patent Rights.

 

(c)          University
shall consult with Company as to the jurisdictions in which to file, prosecute, and maintain Patent Rights. Notwithstanding the
foregoing, Company shall have the right (but not the obligation) to elect to file, prosecute, and maintain Patent Rights in any
jurisdiction not selected by University.

 

4.2           Cooperation.
Each party shall provide reasonable cooperation in the preparation, filing, prosecution, and maintenance of all Patent Rights.
Cooperation includes, without limitation, promptly informing the other party of matters that may affect the preparation, filing,
prosecution, or maintenance of Patent Rights (such as, becoming aware of an additional inventor who is not listed as an inventor
in a patent application).

 

4.3           Payment
of Patent Expenses.

 

(a)          Upon
Effective Date, Company shall remit a retainer fee of Fifteen Thousand Dollars ($15,000) to cover initial patent expenses to be
incurred by the University in connection with obtaining the Patent Rights.

 

(b)          For
all patent-related expenses in excess of Fifteen Thousand Dollars ($15,000) that are incurred by University pursuant to Section
4.1, Company and University shall mutually agree on retainers to be provided by Company to University counsel. If Company and University
agree not to provide patent counsel with any additional retainers, Company shall reimburse University within thirty (30) days after
University invoices Company for all excess patent expenses incurred by University pursuant to Section 4.1.

 

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	5.	Information Exchange.

 

5.1.          Purpose.
During the term of this Agreement, Company and University are likely to exchange information relating to the Patent Rights and
their potential commercial exploitation by Company. The following provisions are intended to protect the confidential or proprietary
information of each party during this period of information exchange.

 

5.2.          Definition
of Confidential Information. “Confidential Information” means any confidential or proprietary information disclosed
by one party to the other party in connection with this Agreement, provided that the information is specifically designated as
confidential. Confidential Information that is disclosed in writing shall be marked with a legend indicating its confidential status
(such as, “Confidential” or “Proprietary”). Confidential Information that is disclosed orally or visually
shall be documented in a written notice prepared by the disclosing party and delivered to the receiving party as soon as possible
within thirty (30) days of the date of disclosure, summarizing the Confidential Information disclosed to the receiving party and
referencing the time and place of disclosure.

 

5.3.          Obligations.
For two (2) years after disclosure of any portion of Confidential Information, the receiving party (a) shall maintain the Confidential
Information in confidence, except that the receiving party may disclose or permit the disclosure of Confidential Information to
its trustees or directors, officers, employees, consultants, and advisors who are obligated to maintain the confidential nature
of Confidential Information and who need to know Confidential Information for the purposes of this Agreement; (b) may use Confidential
Information solely for purposes of this Agreement; and (c) may allow its trustees or directors, officers, employees, consultants,
and advisors to reproduce Confidential Information only to the extent necessary for purposes of this Agreement, with all reproductions
being Confidential Information.

 

5.4.          Exceptions.
The obligations of the receiving party under Section 5.3. above do not apply to the extent the receiving party can demonstrate
that Confidential Information (a) was in the public domain prior to the time of its disclosure under this Agreement; (b) entered
the public domain after the time of its disclosure under this Agreement through means other than an unauthorized disclosure resulting
from an act or omission by the receiving party; (c) was already known or independently developed or discovered by the receiving
party without use of the Confidential Information; (d) is or was disclosed to the receiving party at any time by a third party
with no fiduciary relationship with the disclosing party and with no obligation of confidentiality with respect to the Confidential
Information; or (e) is required to be disclosed to comply with applicable laws, regulations, or a court or administrative order,
provided that the receiving party provides to the disclosing party reasonable prior written notice of the disclosure.

 

5.5.          Ownership
and Return. The receiving party acknowledges that the disclosing party (or any third party entrusting its own information to
the disclosing party) owns its Confidential Information in the possession of the receiving party. Upon the expiration or termination
of this Agreement or at the request of the disclosing party, the receiving party shall return to the disclosing party all originals,
copies, and summaries of documents, materials, and other tangible manifestations of Confidential Information in the possession
or control of the receiving party. However, the receiving party may retain one (1) copy of the Confidential Information solely
for the purpose of monitoring its obligations under this Agreement.

 

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	6.	Term and Termination.

 

6.1.          Term. 
Unless earlier terminated in accordance with the provisions herein or upon execution of a license agreement contemplated herein,
this Agreement begins on the Effective Date and remains in effect for eighteen (18) months, or twenty four (24) months in the event
Company has elected to exercise the Option Right pursuant to Section 2.2.

 

6.2.          Failure
to Exercise Option Right. If Company fails to exercise the Option Right during the Option Period, this Agreement shall terminate
upon the conclusion of the Option Period.

 

6.3.          Termination
for Default. If either party commits a material breach of its obligations (specifically including nonpayment of any amounts
due to University) under this Agreement and fails to cure that breach within ten (10) days after receiving written notice, the
other party may terminate this Agreement immediately upon written notice to the party in breach.

 

6.4.          Effect
of Termination. The following provisions survive the expiration or termination of this Agreement: Articles 5 and 7; Sections
4.3, 8.1. and 8.6.

 

	7.	Dispute Resolution.

 

7.1.          Procedures
Mandatory. The parties shall resolve any dispute arising out of or relating to this Agreement solely by means of the procedures
set forth in this Article. These procedures constitute legally binding obligations that are essential provisions of this Agreement.
However, all procedures and deadlines specified in this Article may be modified by written agreement of the parties. If either
party fails to observe the procedures of this Article, the other party may bring an action for specific performance in any court
of competent jurisdiction.

 

7.2.          Dispute
Resolution Procedures.

 

(a)          Negotiation.
If there is a dispute arising out of or relating to this Agreement, the affected party shall notify the other party, and the parties
shall attempt in good faith to resolve the matter within ten (10) days after the date notice is received by the other party (the
“Notice Date”). The parties shall refer any disputes that are not resolved by good faith discussions to senior executives
of each party, who shall meet at a mutually acceptable time and location as soon as possible within thirty (30) days after the
Notice Date and attempt to negotiate a settlement.

 

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(b)          Mediation.
If the matter remains unresolved within sixty (60) days after the Notice Date, or if the senior executives fail to meet within
thirty (30) days after the Notice Date, either party may initiate mediation upon written notice to the other party, whereupon both
parties shall engage in a mediation proceeding under the then current CPR Institute for Dispute Resolution (“CPR”)
Model Procedure for Mediation of Business Disputes, except that specific provisions of this Section override inconsistent provisions
of the CPR Model Procedure. The mediator will be selected from the CPR Panels of Neutrals. If the parties cannot agree upon the
selection of a mediator within ninety (90) days after the Notice Date, then upon the request of either party, the CPR shall appoint
the mediator. The parties shall attempt to resolve the dispute through mediation until one of the following occurs: (i) the parties
reach a written settlement; (ii) the mediator notifies the parties in writing that they have reached an impasse; (iii) the parties
agree in writing that they have reached an impasse; or (iv) the parties have not reached a settlement within one hundred twenty
(120) days after the Notice Date.

 

(c)          Trial
Without Jury. If the parties fail to resolve the dispute through mediation, or if neither party elects to initiate mediation,
each party may pursue any other remedies legally available to resolve the dispute. However, the parties expressly waive the right
to a jury trial in the legal proceeding under this Subsection 7.2(c).

 

7.3.          Preservation
of Rights Pending Resolution.

 

(a)          Performance
to Continue. Each party shall continue to perform its obligations under this Agreement pending final resolution of any dispute
arising out of or relating to this Agreement. However, a party may suspend performance of its obligations during any period in
which the other party fails or refuses to perform its obligations.

 

(b)          Provisional
Remedies. Although the procedures specified in this Article are the exclusive procedures for resolution of disputes arising
out of or relating to this Agreement, either party may seek a preliminary injunction or other provisional equitable relief, if,
in its reasonable judgment, that action is necessary to avoid irreparable harm to itself or to preserve its rights under this Agreement.

 

(c)          Statute
of Limitations. The parties agree that all applicable statutes of limitation and time-based defenses (such as estoppel and
laches) are tolled while the procedures set forth in Subsections 7.2.(a) and 7.2.(b) are pending. The parties shall take any actions
necessary to effectuate this result.

 

	8.	Miscellaneous.

 

8.1.          Publicity
Restrictions. Company may not use the name of University or any of its trustees, officers, faculty, students, employees, or
agents, or any adaptation of their names, or any terms of this Agreement in any promotional material or other public announcement
or disclosure without the prior written consent of University. The foregoing notwithstanding, Company may disclose that information
without the consent of University in any prospectus, offering memorandum, or other document or filing required by applicable securities
laws or other applicable law or regulation, provided that Company gives University at least ten (10) days prior written notice
of the proposed text so the University may comment on the text.

 

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8.2.          Research
Funded by Grants.

 

(a)          Federal
Government. To the extent that any invention claimed in the Patent Rights has been funded by the federal government, this Agreement
and the grant of any rights in that invention is subject to and governed by federal law as set forth in 35 U.S.C. §§201-211,
and the regulations promulgated thereunder, as amended, or any successor statutes or regulations. If any term of this Agreement
fails to conform with those laws and regulations, the relevant term is invalid, and the parties shall modify the Agreement pursuant
to Section 8.8.

 

(b)          Other
Organizations. To the extent that any invention claimed in the Patent Rights has been partially funded by a non-profit organization
or state or local agency, this Agreement and the grant of any rights in that invention is subject to and governed by the terms
and conditions of the applicable research grant. If any term of this Agreement fails to conform with those terms and conditions,
the relevant term is invalid and the parties shall modify the term pursuant to Section 8.8.

 

8.3.          Tax-Exempt
Status. Company acknowledges that University, as a public institution of the Commonwealth of Massachusetts, holds the status
of an exempt organization under the Internal Revenue Code of 1986, as amended. Company also acknowledges that certain facilities
in which the Patent Rights were developed may have been financed through offerings of tax-exempt bonds. If the Internal Revenue
Service determines, or if counsel to University reasonably determines, that any term of this Agreement jeopardizes the tax-exempt
status of University or the bonds used to finance University facilities, the relevant term is invalid and the parties shall modify
the term in accordance with Section 8.8.

 

8.4.          Assignment.
This Agreement may not be assigned by either party without the prior written consent of the other party, which consent may not
be unreasonably withheld.

 

8.5.          Amendment
and Waiver. This Agreement may be amended, supplemented, or otherwise modified only by means of a written instrument signed
by both parties. Any waiver of any rights or failure to act in a specific instance relates only to that instance and may not be
construed as an agreement to waive any rights or fail to act in any other instance, whether or not similar.

 

8.6.          Governing
Law. This Agreement is governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. Each party
shall bring any legal action arising out of or in connection with this Agreement in the Massachusetts Superior Court in Suffolk
County.

 

8.7.          Notice.
Any notices required or permitted under this Agreement shall be in writing, shall specifically refer to this Agreement, and shall
be sent by recognized national overnight courier, or registered or certified mail, postage prepaid, return receipt requested, to
the following addresses:

 

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If to University:

 

Office of Commercial
Ventures and Intellectual Property

University of Massachusetts

715 North Pleasant
Street

Amherst, MA 01003-9304

 

Attention:     Director

 

If to Company:

 

Amarantus Bioscience
Holdings, Inc.

OTCQB: AMBS

675 Almanor Ave

Sunnyvale, CA 94085

 

Attention:     President

 

All notices under this Agreement are effective
upon receipt. A party may change its contact information immediately upon written notice to the other party in the manner provided
in this Section.

 

8.8.          Severability.
If any provision of this Agreement is held invalid or unenforceable for any reason, the invalidity or unenforceability does not
affect any other provision of this Agreement, and the parties shall negotiate in good faith to modify the Agreement to preserve
(to the extent possible) their original intent. If the parties fail to reach a modified agreement within sixty (60) days after
the relevant provision is held invalid or unenforceable, then the dispute shall be resolved in accordance with the procedures set
forth in Article 7. While the dispute is pending resolution, this Agreement shall be construed as if the provision were deleted
by agreement of the parties.

 

8.9.          Entire
Agreement. This Agreement, including Exhibit A, constitutes the entire agreement between the parties with respect to its subject
matter and supersedes all prior agreements or understandings between the parties relating to its subject matter.

 

[remainder of page intentionally
blank]

 

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The parties have caused
this Agreement to be executed by their duly authorized representatives as of the date first written above.

  

	UNIVERSITY OF MASSACHUSETTS	 	AMARANTUS BIOSCIENCE 

HOLDINGS, INC.
	 	 	 	 	 
	By:	 	 	By:	 
	 	 	 	 	 
	Name:	Fred Reinhart	 	Name:	Marc E. Faerber
	Title:	Director	 	Title:	CFO
	 	CVIP	 	 	 
	Date:	 	 	Date:	2/28/2014

 

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EXHIBIT A

  

List of Patent Rights

 

Patent applications to be filed based on UMA 14-006, entitled
“MANF as a Therapeutic Agent for the Production of Mammalian Sensory Cells”Exhibit 10.1

 

CHARLES & COLVARD, LTD.

SHORT-TERM INCENTIVE PLAN

 

Adopted April 17, 2014

 

The Charles & Colvard, Ltd. Short-Term
Incentive Plan (the “Plan”) is a compensatory bonus plan established by Charles & Colvard, Ltd. (the “Company”)
to provide performance-based cash bonuses to certain of the Company’s employees, including its executive officers.

 

Executive officers are eligible for annual
bonuses under the Plan based on achievement of certain threshold, target, and maximum goals set for individual Performance Measures
(as defined below) established by the Compensation Committee of the Company’s Board of Directors (the “Committee”)
each year. As a result, the actual bonus amounts paid, if any, under the Plan will vary depending on the Company’s achievement
of specified goals as well as certain individual performance objectives. The Plan’s performance cycle and performance goals
are concurrent with the Company’s fiscal year ending December 31st.

 

The Plan supersedes and replaces all prior
annual bonus plans or programs, including the

Company’s Amended and Restated Corporate Incentive Plan (as amended August 30, 2013), for all periods beginning on or after
January 1, 2014.

 

I.           Short-Term
Incentive Opportunity

 

A.      Purpose
and Objective

 

The Plan is intended to strengthen the Company’s pay for
performance philosophy by providing Eligible Employees (as defined below) the opportunity to earn significant cash bonuses upon
achieving annual Performance Measures established by the Committee to incent significant revenue growth and increase the overall
profitability of the Company. The Plan places a strong emphasis on individual accountability to both organizational and individual
performance objectives and is designed to ensure that a significant portion of Eligible Employees’ total cash compensation
is comprised of bonuses that remain “at risk” or unearned unless specific performance goals are attained. In addition,
the Plan is designed to ensure that the percentage of total compensation comprised of annual bonus awards increases with an employee’s
overall role and scope within the Company and an individual’s ability to directly impact the achievement of specific performance
goals. The Performance Measures used may vary from person to person under the Plan in order to tie each participant’s overall
compensation to achievement of those specific Performance Measures most directly within their scope. The Plan also provides the
Committee the flexibility and discretion to provide additional bonuses in recognition of extraordinary performance far exceeding
target levels as well as downward discretion to reduce bonuses otherwise payable under the Plan as circumstances warrant.

 

    	 

    	 

    

 

B.      Minimum
Annual EBITDA Threshold to Fund the Plan

 

The Company must achieve a minimum level of earnings before
interest, taxes, depreciation, and amortization (“EBITDA”) in order to fund the Plan and permit any payouts to be made
under the Plan for a particular year. This minimum annual EBITDA funding threshold shall be established by the Committee in consultation
with Company management each year. Provided the minimum annual EBITDA funding threshold is attained for a particular year, individual
bonuses under the Plan shall be calculated based upon the level of achievement toward specific Performance Measures established
by the Committee on an annual basis as further described below.

 

C.      Performance
Measures

 

Although the Committee may draw from any of the various “Performance
Measures” set forth in the Charles & Colvard, Ltd. 2008 Stock Incentive Plan adopted by the Company effective May 27,
2008 (the “2008 Plan”) in establishing individual Performance Measures under the Plan, the Committee has determined
that the most appropriate Performance Measures for tracking and rewarding short-term performance at the present time are: (1) EBITDA,
(2) revenues, and (3) certain personal objectives. The weighing of the Performance Measures as a component of an individual’s
overall bonus opportunity may vary from person-to-person and may vary from year-to-year depending upon the Committee’s determination
of the most appropriate Performance Measures.

 

The Committee has adopted the following Performance Measures
and their respective weightings for the Company’s executive officers because it believes these Performance Measures are key
indicators of the Company’s overall financial and operating results:

 

	Performance Measure	 	CEO	 	 	CFO	 	 	COO	 
	EBITDA	 	 	70	%	 	 	70	%	 	 	50	%
	Revenue	 	 	20	%	 	 	20	%	 	 	40	%
	Personal Objectives	 	 	10	%	 	 	10	%	 	 	10	%

 

The respective weightings of individual Performance Measures
for other Company employees shall be determined by the Committee upon consultation with Company management or delegated to the
Company’s executive officers as appropriate. The Committee shall establish specific performance targets or performance goals
for each of the Performance Measures along with personal objectives for executive officers each year in consultation with management.

 

D.      Target
Bonus Awards

 

The Committee has established the following percentages of applicable
officers’ Base Salary (as defined below) as overall targeted bonus awards under the Plan:

 

	Position	 	Targeted Bonus (as percentage of Base Salary)	 
	Chief Executive Officer (CEO)	 	 	50	%
	Chief Financial Officer (CFO)	 	 	45	%
	Chief Operating Officer (COO)	 	 	45	%
	Presidents and Below	 	 	40	%

 

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By way of illustration, when applying the weighted Performance
Measures to the CEO’s 50% targeted bonus award, the CEO’s overall bonus will consist of the following three targeted
bonus components: (1) an EBITDA component worth a total of 35% of Base Salary (e.g., 70% EBITDA component x 50% Base Salary = 35%
Base Salary), (2) a revenue component worth a total of 10% of Base Salary, and (3) a Personal Objectives component worth a total
of 5% of Base Salary assuming achievement at 100% of the targeted goals for each Performance Measure.

 

For purposes of this Plan, the term “Base Salary”
shall mean an Eligible Employee’s regular annualized base salary amount in effect as of the last day of the fiscal year for
which the bonus award is payable and shall exclude any other bonuses, commissions, reimbursements, equity compensation proceeds,
deferred compensation payments, disability benefits, fringe benefits, cash-outs, or other similar compensatory amounts included
in an Eligible Employee’s income for the applicable year.

 

E.      Sliding
Scale Used to Calculate Actual Bonus Payouts

 

Although the Committee established the above target bonus awards
as a percentage of Base Salary assuming 100% achievement of each of the target Performance Measures, the actual bonus payouts under
the Plan will be calculated using a sliding scale based upon the overall percentage of the targeted Performance Measure or target
goal achieved for the applicable year. The Plan requires a minimum performance threshold of 80% toward the target performance goal
under each Performance Measure before any bonus can be paid out for that particular component of the overall bonus payment. In
addition, the Plan caps the maximum performance level at 150% of a specified performance goal for each Performance Measure unless
the Committee elects to make an additional discretionary bonus award in cases of extraordinary performance.

 

For example, if the Company’s performance for a particular
year is at only 75% of a specified Performance Measure, there will be no bonus payouts for that Performance Measure under the Plan
for that year. On the other hand, if the Company’s performance attained 200% of a particular Performance Measure, the bonus
payout under the Plan will be capped at 150% of the target bonus amount for that Performance Measure. By way of further illustration,
in the event of 90% achievement of each of the Performance Measures for a particular year, the CEO would be entitled to 90% of
his targeted bonus award or a total cash bonus equal to 45% of Base Salary. Alternatively, in the case of 120% achievement of each
of the Performance Measures for a given year, the CEO would be entitled to 120% of his targeted bonus award or a total cash bonus
equal to 60% of Base Salary.

 

Under the Plan, each Performance Measure shall operate independently
of the other Performance Measures provided that the minimum annual EBITDA funding threshold has been achieved and payouts are permitted
under the Plan. Accordingly, an award may be paid under the Plan for a particular Performance Measure provided threshold performance
is achieved for that particular Performance Measure without regard to the results of the other Performance Measures. For example,
if the Company achieves at least the minimum EBITDA and Revenue thresholds for a year but an officer fails to meet the threshold
requirement for the officer’s personal objectives for that year, the officer may still be eligible to receive payments pursuant
to the EBITDA and Revenue components (with the targeted bonus amounts for each component calculated to be based on the actual percentage
of targeted performance goal actually achieved) even though the officer will not be eligible for a payment under the personal objectives
component of the bonus.

 

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Any of the Company’s performance levels on the Performance
Measures or the threshold EBITDA target may be adjusted for one-time events, including accounting charges not forecasted, as approved
by the Committee.

 

F.       Discretion
to Recognize Extraordinary Performance or Underachievement

The Committee may, in its sole discretion, make award payouts
or otherwise increase, reduce, or eliminate payouts that would otherwise be made under the Plan, including the discretion to make
bonus awards beyond the 150% cap generally applicable to bonus payouts under the Plan in the case of extraordinary performance.
 

 

G.      Coordination
with 2008 Stock Incentive Plan

 

Notwithstanding the foregoing, if the Committee determines that
it is in the best interests of the Company for the short-term bonus awards made pursuant to this Plan to comply with the performance-based
compensation exception to Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), the Committee
may, in its discretion, instead make such short-term incentive awards in the form of Performance Awards issued under and pursuant
to the appropriate Performance Measures set forth in the Charles & Colvard, Ltd. 2008 Stock Incentive Plan adopted by the Company
effective May 27, 2008 (the “2008 Plan”), or any successor equity incentive plan approved by the Company and its shareholders,
as applicable for purposes of complying with Code Section 162(m). The Plan shall be subject to the terms and conditions of the
2008 Plan or any successor equity incentive plan of the Company, as applicable.

 

II.          Terms
and Conditions of the Plan

 

A.           Administration
of the Plan

 

The Plan shall be administered by the independent members of
the Board or, upon the Board’s delegation, by the Compensation Committee of the Board (the “Committee”).

 

In addition to action by meeting in accordance with applicable
law, any action of the Committee with respect to the Plan may be taken by a written instrument signed by all of the members of
the Committee and any such action so taken by written consent shall be as fully effective as if it had been taken by a majority
of the members at a meeting duly held and called.

 

Subject to the provisions of the Plan, the Committee shall have
full and final authority in its discretion to take any action with respect to the Plan including, without limitation, authority
to:

 

(1)          determine all matters relating to
any awards under the Plan, including selection of individuals to be granted bonuses or awards, the Performance Measures to be used,
the mix and appropriate weighting of each Performance Measure as well as personal objectives to be used under the Plan, the types
of bonuses and awards, and all terms, conditions, restrictions and limitations of a bonus or award;

 

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(2)          prescribe the form or forms of any
agreements, if any, evidencing any awards granted under the Plan;

 

(3)          establish, amend and rescind rules
and regulations for administering the Plan;

 

(4)          construe and interpret the Plan
and any agreements evidencing awards granted under the Plan, to establish and interpret rules and regulations for administering
the Plan and to make all other determinations deemed necessary or advisable for administering the Plan; and

 

(5)          in its sole discretion, adjust the
EBITDA calculation for one-time events, including accounting charges not forecasted, as approved by the Committee.

 

In addition, except to the extent otherwise required under Code
Section 409A, related regulations or other guidance, the Committee shall have authority, in its sole discretion, to accelerate
the date that any award that was not otherwise exercisable or vested shall become exercisable or vested in whole or in part without
any obligation to accelerate such date with respect to any other awards granted to any recipient. The Committee also shall have
the authority and discretion to establish terms and conditions of awards (including but not limited to the establishment of subplans)
as the Committee determines to be necessary or appropriate to conform to the applicable requirements or practices of jurisdictions
outside of the United States.

 

B.           Eligible
Employees

 

Each of the Company’s executive officers employed at the
beginning of the Company’s fiscal year shall be eligible to participate in the Plan for that year. In addition to the Company’s
executive officers, no later than the first regularly scheduled meeting of the Committee coinciding with the Committee’s
adoption of the Plan and the first regularly scheduled meeting of the Committee in each subsequent fiscal year (the “Effective
Date”), the Committee shall expressly designate the employees eligible to participate in the Plan (such employees along with
the executive officers herein referred to as the “Eligible Employees”) for such fiscal year upon recommendation of
the Chief Executive Officer of the Company. Participation in the Plan in any one year does not guarantee the right to participate
in any other year.

 

The Committee shall have full authority and discretion to reduce
or eliminate all awards made pursuant to the Plan at any time.

 

Eligible Employees must be employed on the date awards are paid
pursuant to Section II.D. of the Plan in order to receive a payout. Notwithstanding the foregoing, the Committee may, in its sole
and exclusive discretion, provide for awards to be paid to Eligible Employees (or their heirs, as applicable) whose employment
with the Company has terminated due to death or Disability (as defined below) or for other exceptional reasons; provided, however,
that such bonus amounts, if any, be prorated based on the period of service rendered to the Company and expressly scheduled by
the Committee to be paid in the same calendar year other bonuses for the applicable fiscal year are to be paid under the Plan.
The term “Disability” for purposes of this Plan shall have the meaning ascribed to such term in Treasury Regulations
Section 1.409A-3(i)(4).

 

    	5

    	 

    

 

C.           Commencement
of Employment After Effective Date for a Particular Year 

 

Non-Officer Employees

 

Any non-officer employee of the Company who commences employment
with the Company after the Effective Date for a particular fiscal year may be designated an Eligible Employee for purposes of the
Plan for such fiscal year at the discretion of the Chief Executive Officer and upon concurrence of the Chairperson of the Committee;
provided that any non-officer employee who commences his/her employment during the fourth fiscal quarter of a year will not be
eligible to participate in the Plan for such fiscal year unless the Committee expressly approves such participation.

 

Executive Officers

 

Any executive officer of the Company who commences employment
with the Company after the Effective Date for a particular fiscal year may be designated an Eligible Employee for purposes of the
Plan for such fiscal year at the discretion and upon approval of the Committee.

 

Pro-Ration of Awards 

 

Any non-officer employee or executive officer who is designated
an Eligible Employee pursuant to this Section II.C. of the Plan after the Effective Date of a fiscal year will have any award amounts
for that fiscal year pro-rated in a manner as determined by the Committee.

 

D.           Timing
of Awards Under the Plan

 

As soon as practicable upon the completion of the annual audit
by the Company’s independent accountant and delivery of an audit opinion to the Company by such accountant for the applicable
fiscal year and the Committee’s review and certification of attainment of specified performance goals, as applicable, each
of the Eligible Employees shall be eligible to receive a cash bonus award as described in this Plan.

 

E.           Source
of Performance Awards 

 

Any Performance Awards made under the Plan shall be issued under
and pursuant to the 2008 Plan. With respect to any Performance Awards made under the Plan, all terms, conditions, and requirements
of such 2008 Plan are incorporated into the Plan by reference. For any Performance Awards, to the extent that there is a contradiction
between the Plan and the 2008 Plan or an ambiguity as to the provisions of the Plan, the terms of such 2008 Plan shall control.

 

    	6

    	 

    

 

F.           Compliance
with Code Section 409A 

 

The Plan is designed to permit awards under the Plan to be exempt
from regulation under Code Section 409A by generally requiring participants to remain employed with the Company through payment
of the awards and requiring that the Committee specify the year of payment in the event of bonuses paid out following separation
from service due to death or Disability or for other exceptional reasons as determined in the Committee’s sole discretion.
Notwithstanding any other provision in the Plan or an award to the contrary, if and to the extent that Section 409A of the Code
is deemed to apply to the Plan or any bonus or award granted under the Plan, it is the general intention of the Company that the
Plan and all such awards shall comply with Code Section 409A, related regulations or other guidance, and the Plan and any such
award shall, to the extent practicable, be construed in accordance therewith. Deferrals of cash distributable pursuant to the Plan
in a manner that would cause Code Section 409A to apply shall not be permitted. Without in any way limiting the effect of the foregoing,
in the event that Code Section 409A, related regulations or other guidance require that any special terms, provisions or conditions
be included in the Plan or any award, then such terms, provisions and conditions shall, to the extent practicable, be deemed to
be made a part of the Plan or award, as applicable. Further, in the event that the Plan or any award shall be deemed not to comply
with Code Section 409A or any related regulations or other guidance, then neither the Company, the Board nor its or their designees
or agents shall be liable to any participant or other person for actions, decisions or determinations made in good faith.

 

G.           Applicable
Law 

 

The Plan shall be governed by and construed in accordance with
the laws of the State of North Carolina, without regard to the conflicts of laws provisions of any state, and in accordance with
applicable federal laws of the United States.

 

H.           Amendment
and Termination of the Plan 

 

The Plan and any award may be amended or terminated at any time
by the Board or the Committee. No action to amend or terminate the Plan or an award shall permit the acceleration of the time or
schedule or any payment of amounts deemed to involve the deferral of compensation under Code Section 409A, except as may be otherwise
permitted under Section 409A, related regulations or other guidance.

 

Without limiting the effect of this Section II.H., the Board
shall have unilateral authority to amend the Plan and any award (without participant consent) to the extent necessary to comply
with applicable laws, rules or regulations or changes to applicable laws, rules or regulations (including but not limited to Code
Section 409A, federal securities laws or related regulations or other guidance).

 

    	7

    	 

    

 

I.           No
Right or Obligation of Continued Employment 

 

Nothing contained in the Plan shall require the Company or a
related corporation to continue the employment or service of an employee, nor shall any such individual be required to remain in
the employment or service of the Company or a related corporation. Except as otherwise expressly provided in the Plan (or 2008
Plan, if applicable), all rights of a participant with respect to any award shall terminate upon the participant’s termination
of employment or service with the Company.

 

J.           Compliance
with Laws 

 

The Board may impose such restrictions on any payments or awards
hereunder as it may deem advisable, including without limitation restrictions under the Securities Act of 1933, as amended (the
“Securities Act”), under the requirements of any stock exchange or similar organization and under any blue sky, state
or foreign securities laws. Notwithstanding any other Plan provision to the contrary, the Company shall not be obligated to issue,
deliver or transfer shares of common stock under the Plan, make any other distribution of benefits under the Plan or take any other
action, unless such delivery, distribution or action is in compliance with all applicable laws, rules and regulations (including
but not limited to the requirements of the Securities Act). In the event Performance Awards under the 2008 Plan, the Company may
cause a restrictive legend to be placed on any certificate issued hereunder in such form as may be prescribed from time to time
by applicable laws and regulations or as may be advised by legal counsel.

 

K.          Unfunded
Plan; No Effect on Other Plans 

 

The Plan shall be unfunded, and the Company shall not be required
to create a trust or segregate any assets that may at any time be represented by awards under the Plan. The Plan shall not establish
any fiduciary relationship between the Company and any employee or other person. Neither an employee nor any other person shall,
by reason of the Plan, acquire any right in or title to any assets, funds or property of the Company or any related corporation,
including, without limitation, any specific funds, assets or other property that the Company or any related corporation, in their
discretion, may set aside in anticipation of a liability under the Plan. A participant shall have only a contractual right to bonus
amounts, if any, payable under the Plan, unsecured by any assets of the Company or any related corporation. Nothing contained in
the Plan shall constitute a guarantee that the assets of such entities shall be sufficient to pay any benefits to any person.

 

The amount of any compensation deemed to be received by a participant
pursuant to an award shall not constitute compensation with respect to which any other employee benefits of such participant are
determined, including, without limitation, benefits under any bonus, pension, profit sharing, life insurance or salary continuation
plan, except as otherwise specifically provided by the terms of such plan or as may be determined by the Board or Committee.

 

The adoption of the Plan shall not affect any other compensation
plans in effect for the Company or any related corporation, nor shall the Plan preclude the Company from establishing any other
forms of compensation for employees or service providers of the Company or any related corporation.

 

    	8

    	 

    

 

L.           Withholding;
Tax Matters 

 

The Company shall withhold, or shall require the participant
to pay the Company in cash, the amount of any local, state, federal, foreign or other tax or other amount required by any governmental
authority to be withheld and paid over by the Company to such authority for the account of the participant.

 

The Company makes no warranties or representations with respect
to the tax consequences (including but not limited to, income tax consequences) related to the transactions contemplated by this
Plan. A participant should consult with his/her own attorney, accountant, and/or tax advisor regarding the decision to participate
in the Plan and the consequences thereof. The Company has no responsibility to take or refrain from taking any actions in order
to achieve a certain tax result for any participant.

 

    	9

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