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INDEMNIFICATION
AGREEMENT
AGREEMENT, effective as of
between Charles & Colvard, Ltd., a North Carolina
corporation (the “Company”), and
(the “Indemnitee”).
WHEREAS, it is essential that
the Company attract and maintain responsible, qualified directors
and officers; and
WHEREAS, the Indemnitee is a
director and/or officer of the Company; and
WHEREAS, the Amended and
Restated Bylaws of the Company (the “Bylaws”), subject
to certain conditions, provide that any person who at any time
serves or has served as a director or officer of the Company or of
any wholly owned subsidiary of the Company shall have the right to
be indemnified and held harmless by the Company to the fullest
extent from time to time permitted by law against all liabilities
and litigation expenses in the event a claim shall be made or
threatened against that person in, or that person is made or
threatened to be made a party to, any proceeding arising out of
that person’s status as such or that person’s
activities in any such capacity; and
WHEREAS, the Bylaws and the
North Carolina Business Corporation Act, by their nonexclusive
nature, allow for contracts between the Company and its directors
and officers with respect to indemnification, which may include,
without limitation, provisions for recovery of reasonable costs,
expenses and attorney fees and provisions establishing reasonable
procedures for determining and enforcing indemnification
rights.
WHEREAS, in order to induce
Indemnitee to continue to serve as a director and/or officer of the
Company and in part to provide Indemnitee with specific contractual
assurance that the protection promised by the Bylaws will be
available to the Indemnitee (regardless of, among other things, any
amendment to or revocation of the Bylaws or any change in the
composition of the Company’s Board of Directors (the
“Board”) or any acquisition transaction involving the
Company), the Company wishes to provide in this Agreement for the
indemnification of and the advancement of expenses to the
Indemnitee to the fullest extent permitted by law and as set forth
in this Agreement, and, to the extent insurance is maintained, for
the continued coverage of Indemnitee under the Company’s
directors’ and officers’ liability insurance
policies.
NOW, THEREFORE, in
consideration of the premises and of the Indemnitee continuing to
serve the Company directly or, at its request, another enterprise,
and intending to be legally bound hereby, the parties hereto do
hereby covenant and agree as follows:
1. CERTAIN
DEFINITIONS
(a) “ Change of
Control ” means if after the date hereof (i) a
report on Schedule 13D shall be filed with the Securities and
Exchange Commission pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”) disclosing that any person, other than the Company or
any employee benefit plan sponsored by the Company, is the
beneficial owner (as the term is defined in Rule 13d-3 under the
Exchange Act) directly or indirectly, of twenty percent or more of
the total voting power represented by the Company’s then
outstanding Voting Securities (calculated as provided in paragraph
(d) of Rule 13d-3 under the Exchange Act in the case of rights
to acquire Voting Securities); or (ii) any person, other than
the Company or any employee benefit plan sponsored by the Company,
shall purchase shares pursuant to a tender offer or exchange offer
to acquire any Voting Securities of the Company (or securities
convertible into such Voting Securities) for cash, securities or
any other consideration, provided that after consummation of the
offer, the person in question is the beneficial owner, directly or
indirectly, of twenty percent or more of the total voting power
represented by the Company’s then outstanding Voting
Securities (all as calculated under clause (i)); or (iii) the
shareholders of the Company shall approve (A) any
consolidation or merger of the Company in which the Company is not
the continuing or surviving corporation (other than a merger of the
Company in which holders of the shares of common stock of the
Company, no par value per share (the “Common Shares”)
immediately prior to the merger have the same proportionate
ownership of Common Shares of the surviving corporation immediately
after the merger as immediately before), or pursuant to which
Common Shares of the Company would be converted into cash,
securities or other property, or (B) any sale, lease, exchange
or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the
Company; or (iv) there shall have been a change in the
composition of the Board at any time during any consecutive
twenty-four month period such that “continuing
directors” cease for any reason to constitute at least a
majority of the Board. For purposes of this clause,
“continuing directors” means those members of the Board
who either were directors at the beginning of such consecutive
twenty-four month period or were elected by or on the nomination or
recommendation of at least a majority of the then-existing Board.
So long as there has not been a Change in Control within the
meaning of clause (iv), the Board may adopt by a majority vote of
the “continuing directors” a resolution to the effect
that a prior Change of Control within the meaning of clauses
(i) or (ii) is no longer applicable for the purposes of
future Expenses in connection with future Proceedings to which this
Agreement relates.
(b) “ Expenses
” mean expenses of every kind incurred in connection with a
Proceeding, including counsel fees. Expenses shall include, without
limitation, court costs, transcript costs, fees of experts, witness
fees, travel expenses, duplicating costs, printing and binding
costs, telephone and fax charges, postage, delivery service
charges, costs associated with procurement of surety bonds or loans
or other costs associated with the stay of a judgment, penalty or
fine, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, or being or
preparing to be a witness in a Proceeding.
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(c) “ Independent
Counsel ” means a lawyer or law firm that is experienced
in matters of corporation law and neither presently is, nor in the
past five years has been, retained to represent: (i) the
Company or the Indemnitee in any matter, or (ii) any other
party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term
“Independent Counsel” shall not include any person who,
under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing
either the Company or the Indemnitee in an action to determine
Indemnitee’s rights under this Agreement. Independent Counsel
may be, but need not be, a member(s) of the bar of the State of
North Carolina.
(d) “ Proceeding
” means any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative, and whether or not brought by or on behalf of the
Company, including all appeals therefrom. A
“Proceeding” may be instituted by another party, or by
or in the right of the Company, or by the Indemnitee. The term
“Proceeding” shall also include any preliminary inquiry
or investigation that the Indemnitee in good faith believes might
lead to the institution of a “Proceeding.”
(e) “ Reviewing
Party ” means any appropriate person or body consisting
of (i) a member or members of the Board; (ii) any other
person or body duly appointed by the Board who is not a party to
the particular Proceeding for which the Indemnitee is seeking
indemnification; or (iii) Independent Counsel.
(f) “ Voting
Securities ” means any securities of the Company that
vote generally in the election of directors.
2. TERM OF AGREEMENT :
This Agreement shall continue until and terminate upon the later of
(i) the tenth anniversary after the date that the Indemnitee
shall have ceased to serve as a director or officer of the Company
(or in any other capacity in respect of which he or she has rights
of indemnification hereunder); or (ii) the final termination
of all pending Proceedings in respect of which Indemnitee is
granted rights of indemnification or advancement of Expenses
hereunder, including any Proceeding commenced by the Indemnitee to
enforce the Indemnitee’s rights under this
Agreement.
3. RIGHT TO
INDEMNIFICATION AND ADVANCE; HOW DETERMINED IF UNSUCCESSFUL
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(a) Right to
Indemnification . Subject to Subsection (c) below, in the
event the Indemnitee was, is or becomes a party to or witness or
other participant in, or is threatened to be made a party to or
witness or other participant in, a Proceeding arising out of
Indemnitee’s present or former status as a director or
officer of the Company, or Indemnitee having served at the request
of the Company as a director, officer, employee, trustee, agent or
fiduciary of another corporation, joint venture, employee benefit
plan, trust or other enterprise, the Company shall indemnify the
Indemnitee to the fullest extent permitted by law in effect on the
date hereof (and to such greater extent as applicable law may
hereafter permit) against the obligation to pay any and all
Expenses, judgments, settlements, penalties, or fines (including
any interest assessed, and
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including any excise tax assessed with
respect to an employee benefit plan) incurred on account of or with
respect to such Proceeding. To the extent not previously paid by
Expense Advance under subsection (b) below, such
indemnification shall be made as soon as practicable after
determination that Indemnitee is entitled thereto, but in any event
no later than sixty (60) days after such determination. This
Agreement shall be effective as well with respect to any such
Proceedings that relate to acts or omissions occurring or allegedly
occurring prior to the execution of this Agreement, and regardless
of whether the Company may have been incorporated in a different
jurisdiction at the time of such acts or omissions.
(b) Expense Advance .
In connection with any such Proceeding, if so requested by the
Indemnitee, the Company shall advance, within ten
(10) business days of such request, any and all reasonable
Expenses to the Indemnitee (an “Expense Advance”),
subject to Subsection (c) below. The secretary shall promptly
forward notice of such request to all directors. Within 10 days
after forwarding of the request, any disinterested director may
call a meeting of all disinterested directors to review the
reasonableness of the Expenses so requested. No advance shall be
made if a majority of disinterested directors affirmatively
determines that an item or items of Expenses are unreasonable in
amount, but any remaining Expenses shall be advanced. An Expense
Advance shall be made without awaiting the results of the
Proceeding giving rise to the Expenses or the outcome of any
further Proceeding to determine the Indemnitee’s right to
indemnification hereunder, and without making any preliminary
determination as to the Indemnitee’s state of mind at the
time of the activities in question. Notwithstanding the foregoing,
the Company shall not be obligated to indemnify under this
Section 3 a person made a party to a Proceeding if
(i) the Indemnitee is not successful within the meaning of
Section 6 and (ii) the appropriate Reviewing Party
specified in subsection (e) below shall have affirmatively
determined (in a written opinion in any case in w
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