Document:

Salary Continuation Agreement

  Exhibit 10.56
 SALARY CONTINUATION
AGREEMENT
 THIS SALARY CONTINUATION AGREEMENT (the “Agreement”) is made and entered into effective as of October 1, 2002 by and between Charles
& Colvard, Ltd., a North Carolina company with its principal office at 3800 Gateway Boulevard, Suite 311, Morrisville, North Carolina, 27560 (the “Company), and Dennis M. Reed, an individual currently residing in Cary, North Carolina
(“Employee”).
 Statement of Purpose
 Employee is
presently employed by the Company as Vice President of Sales. Employee and the Company desire to provide for continued salary payments to Employee in the event Employee is terminated by the Company without cause, all subject to the terms and
conditions of this Agreement. 
 Therefore, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company and Employee agree as follows: 
 1.        Salary. The annual salary of Employee is $ 150,000 (the “Initial Annual Salary”) to be paid in accordance with the Company’s payroll
practices as in existence from time to time. 
 2.        Salary
Continuation. In the event Employee is terminated by the Company within eighteen months of Employee’s October 1, 2002 date of hire for any reason other than Just Cause (as defined in Section 3 below), the Company shall
pay to Employee, for a period of twelve (12) months following such termination, the Initial Annual Salary, in accordance with the Company’s normal payroll practices. 
 3.        Termination for Just Cause. The Company shall have the right to terminate the Employee’s
employment under this Agreement at any time without cause, which termination shall be effective immediately, but shall be subject to Section 2 of this Agreement. In the event the Employee’s employment is terminated for Just Cause, the Employee
shall have no right to receive compensation under this Agreement for any period after such termination other than compensation or other benefits already accrued and owing to Employee. Termination for “Just Cause” shall include termination
for the Employee’s personal dishonesty, gross incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation (other than
traffic violations
 

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  or similar offenses), written Company policy or final cease-and-desist order, conviction of a felony or of a misdemeanor involving moral turpitude, unethical
business practices in connection with the Company’s business, misappropriation of the Company’s assets (determined on a reasonable basis), disability or material breach of any other provision of this Agreement. The determination of whether
“Just Cause” exists for termination shall be made by the Board of Directors of the Company in its sole discretion. For purposes of this section, the term “disability” means the inability of Employee, due to the condition of her
physical, mental or emotional health, to satisfactorily perform the duties of her employment hereunder for a continuous three month period; provided further that if the Company furnishes long term disability insurance for the Employee, the term
“disability” shall mean that continuous period sufficient to allow for the long term disability payments to commence pursuant to the Company’s long term disability insurance policy. 
 4.        Change of Control. In the event of a Change of Control of the Company at any time
after the date hereof, Employee may voluntarily terminate employment with Company up until six (6) weeks after the Change of Control for “Good Reason” and, subject to Section 6, (y) be entitled to receive in a lump sum (i) any compensation
due but not yet paid through the date of termination and (ii) in lieu of any further salary payments from the date of termination to the end of the then existing term, an amount equal to the Initial Annual Salary times 2.99, and (z) shall continue
to participate in the same group hospitalization plan, health care plan, dental care plan, life or other insurance or death benefit plan, and any other present or future similar group employee benefit plan or program for which officers of the
Company generally are eligible, or comparable plans or coverage, for a period of two years following termination of employment by the Employee, on the same terms as were in effect either (A) at the date of such termination, or (B) if such plans and
programs in effect prior to the Change of Control of Company are, considered together as a whole, materially more generous to the officers of Company, then at the date of the Change of Control. Any equity based incentive compensation (including but
not limited to stock options, SARs, etc.) shall fully vest and be immediately exercisable in full upon a Change in Control, not withstanding any provision in any applicable plan. Any such benefits shall be paid by the Company to the same extent as
they were so paid prior to the termination or the Change of Control of Company. 
 “Good Reason” shall mean the occurrence of any of the following
events without the Employee’s express written consent: 
 

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  (i)       the assignment to the Employee
of duties inconsistent with the position and status of the Employee with the Company immediately prior to the Change of Control;
 (ii)      a reduction by the Company in the Employee’s pay grade or base salary as then in effect, or the exclusion of Employee from participation in Company’s
benefit plans in which he previously participated as in effect at the date hereof or as the same may be increased from time to time during the Term; 
 (iii)     an involuntary relocation of the Employee more than 50 miles from the location where the Employee worked immediately prior to the Change in
Control or the breach by the Company of any material provision of this Agreement; or
 (iv)     any purported termination of the employment of Employee by Company which is not effected in accordance with this Agreement. 
 A “Change of Control” shall be deemed to have occurred if (i) any person or group of persons (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934) together with its affiliates,
excluding employee benefit plans of the Company, becomes, directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934) of securities of the Company representing 20% or more
of the combined voting power of the Company’s then outstanding securities; or (ii) during the then existing term of the Agreement, as a result of a tender offer or exchange offer for the purchase of securities of the Company (other than such an
offer by the Company for its own securities), or as a result of a proxy contest, merger, consolidation or sale of assets, or as a result of any combination of the foregoing, individuals who at the beginning of any year period during such term
constitute the Company’s Board of Directors, plus new directors whose election by the Company’s shareholders is approved by a vote of at least two-thirds of the outstanding voting shares of the Company, cease for any reason during such
year period to constitute at least two-thirds of the members of such Board of Directors; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation or entity regardless of which entity is the
survivor, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the
surviving entity) at least 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the shareholders of the
 

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  Company approve a plan of complete liquidation or winding-up of the Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets; or (v) any event which the Company’s Board of Directors determines should constitute a Change of Control. 
 5.        Employee’s Right to Payments. In receiving any payments required pursuant to this Agreement, Employee shall not be
obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee hereunder, and such amounts shall not be reduced or terminated whether or not the Employee obtains other employment. 

6.        Reduction in Agreement Payments. Notwithstanding
anything in this Agreement to the contrary, if any of the payments provided for under this Agreement (the “Agreement Payments”), together with any other payments that the Employee has the right to receive (such other payments together with
the Agreement Payments are referred to as the “Total Payments”), would constitute a “parachute payment” as defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”) (a “Parachute
Payment”), the Agreement Payments shall be reduced by the smallest amount necessary so that no portion of such Total Payments would be Parachute Payments. In the event the Company shall make an Agreement Payment to the Employee that would
constitute a Parachute Payment, the Employee shall return such payment to the Company (together with interest at the rate set forth in Section 1274(b)(2)(B) of the Code). For purposes of determining whether and the extent to which the Total Payments
constitute Parachute Payments, no portion of the Total Payments the receipt of which Employee has effectively waived in writing shall be taken into account. 
 7.        Entire Agreement. This Agreement contains the entire agreement of the parties with respect to the subject matter of this
Agreement and supersedes any prior agreements between them, whether written or oral. 
 8.        Waiver. The failure of either party to insist in any one or more instance, upon performance of the terms and conditions of this Agreement, shall
not be construed as a waiver or a relinquishment of any right granted hereunder or of the future performance of any such term or condition. 
 9.        Notices. Any notice to be given under this Agreement shall be deemed sufficient if addressed in writing and delivered personally, by telefax with
receipt acknowledged, or by
 

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  registered or certified U.S. mail to the address first above appearing, or to such other address as a party may designate by notice from time to time.

 10.      Severability. In the event that any provision of
any paragraph of this Agreement shall be deemed to be invalid or unenforceable for any reason whatsoever, it is agreed such invalidity or unenforceability shall not affect any other provision of such paragraph or of this Agreement, and the remaining
terms, covenants, restrictions or provisions in such paragraph and in this Agreement shall remain in full force and effect and any court of competent jurisdiction may so modify the objectionable provision as to make it valid, reasonable and
enforceable. 
 11.      Amendment. This Agreement may be
amended only by an agreement in writing signed by each of the parties hereto. 
 12.      Arbitration. Any controversy or claim arising out of or relating to this Agreement, or breach thereof, shall be settled by arbitration in Raleigh, North Carolina in accordance with the expedited procedures of the Rules
of the American Arbitration Association, and judgment upon the award may be rendered by the arbitrator and may be entered in any court having jurisdiction thereof.
 13.      Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of North Carolina. Each of the
parties hereto irrevocably submits to the exclusive jurisdiction of the courts located in North Carolina for the purposes of any suit, action or other proceeding contemplated hereby or any transaction contemplated hereby.
 14.      Benefit. This Agreement shall be binding upon and inure to the benefit of
and shall be enforceable by and against the Company, its successors and assigns, and Employee, her heirs, beneficiaries and legal representatives. It is agreed that the rights and obligations of Employee may not be delegated or assigned except as
may be specifically agreed to by the parties hereto.
 [Signature page to follow]
 

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

  

	  
 	  
 	 CHARLES & COLVARD, LTD.
 
	 
 
 
 	  
 	 By: 
 	 
 /s/ ROBERT S. THOMAS
 
	  
 	  
 	  
 	 
 
	  
 	  
 	  
 	 Robert S. Thomas, President
 

  

	  
 	  
 	  
 	 EMPLOYEE
 
	 
 
 
 	  
 	  
 	 
 /s/ DENNIS M. REED
 
	  
 	  
 	  
 	 
 
	  
 	  
 	  
 	 Dennis M. Reed
 

 

6Executive Compensation Plan

 
Exhibit 10.57

 
CHARLES & COLVARD, LTD.

2001 EXECUTIVE COMPENSATION PLAN, 
AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 13, 2003 
PLAN SUMMARY

 

	1.	 	Purpose. The purpose of the 2001 Executive Compensation Plan, as amended and restated effective May 20, 2002 and February 13, 2003 (the “Plan”), is
to provide selected key employees of Charles & Colvard, Ltd. (the “Company”) with incentive awards in the form of cash payments and/or bonus option grants (each, an “award” and collectively, “awards”) based upon
attainment of performance goals, thereby promoting a closer identification of the participants’ interests with the interests of the Company and its shareholders, and further stimulating such participants’ efforts to enhance the efficiency,
profitability, growth and value of the Company. The Plan was adopted in fiscal year 2001 and may continue in effect for future years, as modified by the Compensation Committee (the “Committee”) of the Board of Directors (the
“Board”) or by the Board in its or their discretion. (For the purposes herein, the “Committee” shall be interpreted to mean the Board if in fact the Board takes the indicated action.) 

 

	2.	 	Eligibility. Key employees of the Company selected by the Committee shall be eligible to participate (each, a “participant”). Eligible participants
shall be selected to participate on an annual or other periodic basis as determined by the Committee. For the 2003 plan year, the key employees eligible to participate in the Plan shall be the Chief Executive Officer, Chief Financial Officer, Vice
President of Sales, Vice President of Manufacturing, Vice President of Brand Development and Industry Relations, Director of Marketing, Director of Domestic Sales, Director of International Sales, Director of Information Technology and such other
key employees as may be selected by the Committee to participate in the Plan; provided, however, that the Committee shall have sole discretion to determine eligibility for Plan participation and participation in the Plan for any single plan year
shall not guarantee eligibility to participate in any other plan year. Nothing contained in the Plan or the terms of any award will be construed as conferring upon any participant the right to continue in the employment of the Company or as imposing
upon the Company the obligation to continue to employ a participant. Awards granted under the Plan may not be assigned or transferred by a participant to any other person or entity. (For the purposes of the Plan, a “plan year” shall
coincide with the particular fiscal year of the Company.) A participant must be employed by the Company at December 31 of the applicable plan year to be eligible for a bonus for that plan year. 

 

	3.	 	Administration of the Plan. The Plan will be administered by the Committee. The Committee is vested with the authority to determine eligibility, grant awards
and establish and modify performance criteria. In addition, without limiting the foregoing, the Committee has full authority in its discretion to take any action with respect to the Plan including, without limitation, the authority (i) to determine
all matters relating to 

 
awards,
including selection of individuals to be granted awards, the types of awards, the number of shares of the Company’s common stock (the “Common Stock”), if any, subject to an award, and all terms, conditions, restrictions and
limitations of an award; and (ii) to construe and interpret the Plan and any instruments 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. All determinations of the Committee with respect to the Plan will be final and binding on the Company and all persons having or claiming an interest in any award granted under the Plan. No
member of the Committee shall be liable while acting as administrator for any action or determination made in good faith with respect to the Plan or any award. 
 

	4.	 	Nature of Awards. Awards granted under the Plan may consist of cash bonuses and/or bonuses in the form of option grants (“option bonuses”). The
terms of option bonuses will be governed by the terms of the 1997 Omnibus Stock Plan of C3, Inc., as amended (the “1997 Plan”), or any other stock incentive plan which may apply to such option bonuses and shall be subject to the terms and
conditions of such plan and the respective award agreement. 

 

	5.	 	Determination of Awards. The Committee will establish those performance goals (each, a “goal”) which shall apply to the determination of awards, if
any, to be made with respect to a participant for any plan year. A participant’s ability to earn an award for a particular plan year will be based on the Company’s attainment of the goals for that plan year. The goals and any other factors
which may apply with respect to the grant of awards during a plan year shall be determined by the Committee and may differ from the goals applicable in other plan years; provided, however, that, unless the Committee determines otherwise, all awards
which may be earned by Plan participants during any particular plan year will be determined based on the same goals. 

 

	6.	 	Determination of Cash Bonuses. 

 

	 	(a)	 	General. The Company shall establish a cash bonus pool (the “cash bonus pool”), which will be used to fund cash awards earned under the Plan. The
cash bonus pool will be funded in the event that the Company achieves its annual operating goals for the particular plan year, which for 2003 shall consist of the operating income goal (“income goal”) and carat shipments goal
(“shipment goal”) as set out in the Company’s annual business plan, as approved by the Board. The maximum cash bonus to be earned in any plan year by a participant is $500,000 per year during the first three years of employment with
the Company, $1,000,000 per year during the next succeeding three years of employment with the Company and $2,500,000 per year thereafter. 

 

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	 	(b)	 	2003 Plan Year. For the 2003 plan year, the provisions which follow shall apply with respect to the award of cash bonuses; provided, however, that the
Committee shall have full discretion to modify the goals and any other performance or other factors applicable to the determination of Plan awards for any subsequent plan year and shall not be bound by the provisions applicable for the 2003 plan
year. 

 

	 	(i)	 	Following the 2003 plan year, if the Committee determines that the income goal has been met, five percent (5%) of the Company’s operating income will be
contributed to the cash bonus pool from which cash bonuses for the 2003 plan year may be distributed. 

 

	 	(ii)	 	If both the income goal and the shipments goal have been met at the end of the 2003 plan year, an additional five percent (5%) of the Company’s operating income
will be added to the cash bonus pool. 

 

	 	(iii)	 	If both the income goal and the shipments goal have been met at the end of the 2003 plan year, fifteen percent (15%) of all pre-bonus, operating income in excess of
the income goal will be added to the cash bonus pool for the 2003 plan year. 

 

	 	(iv)	 	If the income goal is not met at the end of the 2003 plan year, the Committee (based on recommendations by the CEO) may in its discretion determine what amount, if
any, will be contributed to the cash bonus pool and be payable to any eligible participant. 

 

	 	(v)	 	The cash bonus pool if earned and payable will be paid 35% to the CEO and 16.25% to each of the CFO, Vice President of Manufacturing, Vice President of Sales and
Vice President of Brand Development and Industry Relations. 

 

	 	(vi)	 	The Sales and Marketing Directors, who are eligible for cash commission payments, and the Director of Information Technology, who participates in the quarterly bonus
pool for non-officer employees, will not participate in cash bonuses, if any, in 2003. 

 

	7.	 	Determination of Option Bonuses. 

 

	 	(a)	 	General. The Company shall establish an option bonus pool (the “option pool”) which will be used to fund option awards earned under the Plan.
Options from the option pool shall be awarded in the event the Company achieves its income goal for the particular year. Nothing in the terms of the Plan shall limit the authority of the Company to grant stock options or other stock-based awards
under the 1997 Plan or other applicable plan.  

	

 
 

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	 	(b)	 	2003 Plan Year. For the 2003 plan year, the provisions which follow shall apply with respect to the award of option bonuses; provided, however, that the
Committee shall have full discretion to modify the goals and any other performance or other factors applicable to the determination of Plan awards for any subsequent plan year and shall not be bound by the provisions applicable for the 2003 plan
year. 

 

	 	(i)	 	For the 2003 plan year, the option bonus pool shall consist of options for 150,000 shares of the Common Stock. 

 

	 	(ii)	 	If the income goal has been met at the end of the 2003, the option pool will be distributed as follows: 40,000 options to the CEO, 20,000 options to each of the CFO,
Vice President of Manufacturing, Vice President of Sales and Vice President of Brand Development and Industry Relations, 9,000 options to the Director of Information Technology and 7,000 options to each of the Director of Marketing, Director of
Domestic Sales and Director of International Sales. Any options granted will have an option price equal to the closing sales price on the last trading day immediately prior to the Company’s public announcement of the 2003 financial results,
will vest immediately and will be exercisable over ten years. 

 

	 	(iii)	 	If the income goal is not met at the end of the 2003 plan year, the Committee (based on recommendations by the CEO) may in its discretion determine the option
grants, if any, that will be awarded to any eligible participant. 

 

	8.	 	Timing of Awards. Unless the Committee determines otherwise, cash bonuses will be distributed as soon as practical following the completion of the annual
audit for the respective preceding fiscal year by the Company’s independent accountants. Except to the extent that the terms of the 1997 Plan (or other applicable plan) provide otherwise, and unless the Committee determines otherwise, option
bonuses will be granted as of the last trading day immediately preceding the public announcement of the Company’s financial performance for the respective preceding fiscal year. 

 

	9.	 	Option Bonus Adjustments. Option bonuses will be adjusted proportionately in the event of any stock splits or similar adjustments occurring after the adoption
of the Plan and prior to the end of fiscal year 2003 and may be subject to further adjustment in the event of any stock splits or other capital adjustments which occur after the end of the fiscal year, subject to the terms of the 1997 Plan or other
applicable plan and the Committee’s discretion thereunder. 

 

	10.	 	Proration of Awards. To the extent a participant is employed by the Company for less than the full fiscal year, the bonus to which the participant is
otherwise entitled shall be prorated to reflect the percentage of the fiscal year that the participant was employed by the Company. 

 

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	11.	 	Amendment. The Plan and any award granted under the Plan may be amended or terminated at any time by the Committee; provided, however, that (i) amendment or
termination of an outstanding award may not, without the consent of the participant, adversely affect the rights of the participant with respect to such award; and (ii) approval of an amendment to the Plan by the shareholders of the Company shall be
required in the event shareholder approval of such amendment is required by applicable law. 

 

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