exv4w1



 



EXHIBIT 4.1


2003 STOCK COMPENSATION PLAN



of



LJ INTERNATIONAL INC.



(a British Virgin Islands international business company)



 






 


TABLE OF CONTENTS



* * *



2003 STOCK COMPENSATION PLAN



of



LJ INTERNATIONAL INC.




	 	 	 	 	 	 	 	 	 	 	 	 	 
	SECTION	 	SUBJECT	 	PAGE
	 	1.	 	 	Purpose of Plan	 	 	1	 
	 	2.	 	 	Stock Subject to the Plan	 	 	2	 
	 	3.	 	 	Administration of the Plan	 	 	2	 
	 	 	 	 	(a)	 	General	 	 	2	 
	 	 	 	 	(b)	 	Changes in Law Applicable	 	 	5	 
	 	4.	 	 	Type of Awards Under the Plan	 	 	5	 
	 	5.	 	 	Persons to Whom Options Shall Be Granted	 	 	5	 
	 	 	 	 	(a)	 	Nonqualified Options	 	 	5	 
	 	 	 	 	(b)	 	Incentive Options	 	 	5	 
	 	6.	 	 	Factors to Be Considered in Granting Options	 	 	6	 
	 	7.	 	 	Time of Granting Options	 	 	6	 
	 	8.	 	 	Terms and Conditions of Options	 	 	6	 
	 	 	 	 	(a)	 	Number of Shares	 	 	6	 
	 	 	 	 	(b)	 	Type of Option	 	 	7	 
	 	 	 	 	(c)	 	Option Period	 	 	7	 
	 	 	 	 	 	 	(1)
	 	General
	 	 	7	 
	 	 	 	 	 	 	(2)
	 	Termination of Employment
	 	 	7	 
	 	 	 	 	 	 	(3)
	 	Cessation of Service as Director
or Advisor
	 	 	7	 
	 	 	 	 	 	 	(4)
	 	Disability
	 	 	8	 
	 	 	 	 	 	 	(5)
	 	Death
	 	 	8	 



 






 




	 	 	 	 	 	 	 	 	 	 	 	 	 
	SECTION	 	SUBJECT	 	PAGE
	 	 	 	 	 	 	(6)
	 	Acceleration and Exercise Upon
Change of Control
	 	 	9	 
	 	 	 	 	(d)	 	Option Prices	 	 	11	 
	 	 	 	 	 	 	(1)
	 	Nonqualified Options
	 	 	11	 
	 	 	 	 	 	 	(2)
	 	Incentive Options
	 	 	11	 
	 	 	 	 	 	 	(3)
	 	Determination of Fair Market
Value
	 	 	12	 
	 	 	 	 	(e)	 	Exercise of Options	 	 	12	 
	 	 	 	 	(f)	 	Nontransferability of Options	 	 	13	 
	 	 	 	 	(g)	 	Limitations on 10% Shareholders	 	 	14	 
	 	 	 	 	(h)	 	Compliance with Securities Laws	 	 	14	 
	 	 	 	 	(i)	 	Additional Provisions	 	 	15	 
	 	9.	 	 	Medium and Time of Payment	 	 	16	 
	 	10.	 	 	Rights as a Shareholder	 	 	17	 
	 	11.	 	 	Optionee’s Agreement to Serve	 	 	17	 
	 	12.	 	 	Adjustments on Changes in Capitalization	 	 	18	 
	 	 	 	 	(a)	 	Changes in Capitalization	 	 	18	 
	 	 	 	 	(b)	 	Reorganization,
Dissolution or Liquidation	 	 	18	 
	 	 	 	 	(c)	 	Change in Par Value	 	 	19	 
	 	 	 	 	(d)	 	Notice of Adjustments	 	 	19	 
	 	 	 	 	(e)	 	Effect Upon Holder of Option	 	 	19	 
	 	 	 	 	(f)	 	Right of Company to Make Adjustments	 	 	21	 
	 	13.	 	 	Investment Purpose	 	 	21	 
	 	14.	 	 	No Obligation to Exercise Option	 	 	22	 
	 	15.	 	 	Modification, Extension, and Renewal
of Options	 	 	22	 
	 	16.	 	 	Effective Date of the Plan	 	 	22	 
	 	17.	 	 	Termination of the Plan	 	 	22	 
	 	18.	 	 	Amendment of the Plan	 	 	23	 
	 	19.	 	 	Withholding	 	 	23	 
	 	20.	 	 	Indemnification of Committee	 	 	24	 



(ii)






 




	 	 	 	 	 	 	 	 	 	 	 	 	 
	SECTION	 	SUBJECT	 	PAGE
	 	21.	 	 	Application of Funds	 	 	24	 
	 	22.	 	 	Governing Law	 	 	24	 



(iii)






 


2003 STOCK COMPENSATION PLAN

OF

LJ INTERNATIONAL INC.



     1.     Purpose of Plan. This 2003 Stock Compensation Plan (“Plan”) is
intended to encourage ownership of the common stock of LJ INTERNATIONAL INC., a
British Virgin Islands international business company, (“Company”) by certain
officers, directors, employees and advisors of the Company or any Subsidiary or
Subsidiaries of the Company (as hereinafter defined) in order to provide
additional incentive for such persons to promote the success and the business
of the Company or its Subsidiaries and to encourage them to remain in the
employ of the Company or its Subsidiaries by providing such persons an
opportunity to benefit from any appreciation of the common stock of the Company
through the issuance of stock options to such persons in accordance with the
terms of the Plan. It is further intended that options granted pursuant to
this Plan shall constitute either incentive stock options (“Incentive Options”)
within the meaning of Section 422 (formerly Section 422A) of the Internal
Revenue Code of 1986, as amended (“Code”), or options which do not constitute
Incentive Options (“Nonqualified Options”) as determined by the Committee (as
hereinafter defined) at the time of issuance of such options. Incentive
Options and Nonqualified Options are herein sometimes referred to collectively
as “Options.” As used herein, the term Subsidiary or Subsidiaries shall mean
any corporation (other than the employer corporation) in an unbroken chain of
corporations beginning with the employer corporation if, at the time of
granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty


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percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.


     2.     Stock Subject to the Plan. Subject to adjustment as provided in
Section 12 hereof, there will be reserved for the use upon the exercise of
Options to be granted from time to time under the Plan, an aggregate of four
million (4,000,000) shares of the common stock, $.01 par value, of the Company
(“Common Stock”), which shares in whole or in part shall be authorized, but
unissued, shares of the Common Stock or issued shares of Common Stock which
shall have been reacquired by the Company as determined from time to time by
the Board of Directors of the Company (“Board of Directors”). To determine the
number of shares of Common Stock available at any time for the granting of
Options under the Plan, there shall be deducted from the total number of
reserved shares of Common Stock, the number of shares of Common Stock in
respect of which Options have been granted pursuant to the Plan which remain
outstanding or which have been exercised. If and to the extent that any Option
to purchase reserved shares shall not be exercised by the optionee for any
reason or if such Option to purchase shall terminate as provided herein, such
shares which have not been so purchased hereunder shall again become available
for the purposes of the Plan unless the Plan shall have been terminated, but
such unpurchased shares shall not be deemed to increase the aggregate number of
shares specified above to be reserved for purposes of the Plan (subject to
adjustment as provided in Section 12 hereof).


     3.     Administration of the Plan.


          (a) General. The Plan shall be administered by the full Board of
Directors or by a Compensation Committee (“Committee”) appointed by the Board
of Directors, which



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Committee shall consist solely of not less than two (2) non-employee
Directors. All references in this Plan to the Committee shall be deemed to
refer instead to the full Board of Directors at any time there is not a
committee qualified to act hereunder. The Board of Directors may from time to
time appoint members of the Committee in substitution for or in addition to
members previously appointed and may fill vacancies, however caused, in the
Committee. If the Board of Directors does not designate a Chairman of the
Committee, the Committee shall select one of its members as its Chairman. The
Committee shall hold its meetings at such times and places at it shall deem
advisable. A majority of its members shall constitute a quorum. Any action of
the Committee shall be taken by a majority vote of its members at a meeting at
which a quorum is present. Notwithstanding the preceding, any action of the
Committee may be taken without a meeting by a written consent signed by all of
the members, and any action so taken shall be deemed fully as effective as if
it had been taken by a vote of the members present in person at the meeting
duly called and held. The Committee may appoint a Secretary, shall keep
minutes of its meetings, and shall make such rules and regulations for the
conduct of its business at it shall deem advisable.


     The Committee shall have the sole authority and power, subject to the
express provisions and limitations of the Plan, to construe the Plan and option
agreements granted hereunder, and to adopt, prescribe, amend, and rescind rules
and regulations relating to the Plan, and to make all determinations necessary
or advisable for administering the Plan, including, but not limited to, (i) who
shall be granted Options under the Plan, (ii) the term of each Option, (iii)
the number of shares covered by such Option, (iv) whether the Option shall
constitute an Incentive Option or a Nonqualified Option, (v) the exercise price
for the purchase of the shares of the Common Stock


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covered by the Option, (vi) the period during which the Option may be
exercised, (vii) whether the right to purchase the number of shares covered by
the Option shall be fully vested on issuance of the Option so that such shares
may be purchased in full at one time or whether the right to purchase such
shares shall become vested over a period of time so that such shares may only
be purchased in installments, and (viii) the time or times at which Options
shall be granted. The Committee’s determinations under the Plan, including the
above enumerated determinations, need not be uniform and may be made by it
selectively among the persons who receive, or are eligible to receive, Options
under the Plan, whether or not such persons are similarly situated.


     The interpretation by the Committee of any provision of the Plan or of any
option agreement entered into hereunder with respect to any Incentive Option
shall be in accordance with Section 422 of the Code and the regulations issued
thereunder, as such section or regulations may be amended from time to time, in
order that the rights granted hereunder and under said option agreements shall
constitute “Incentive Stock Options” within the meaning of such section. The
interpretation and construction by the Committee of any provision of the Plan
or of any Option granted hereunder shall be final and conclusive, unless
otherwise determined by the Board of Directors. No member of the Board of
Directors or the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted under it. Upon
issuing an Option under the Plan, the Committee shall report to the Board of
Directors the name of the person granted the Option, whether the Option is an
Incentive Option or a Nonqualified Option, the number of shares of Common Stock
covered by the Option, and the terms and conditions of such Option.


Page 4






 


          (b) Changes in Law Applicable. If the laws relating to Incentive Options
or Nonqualified Options are changed, altered or amended during the term of the
Plan, the Board of Directors shall have full authority and power to alter or
amend the Plan with respect to Incentive Options or Nonqualified Options,
respectively, to conform to such changes in the law, unless the changes require
shareholder approval.



     4.     Type of Awards Under the Plan. Awards under the Plan shall be in the
form of Options.


     5.     Persons to Whom Options Shall Be Granted.


          (a) Nonqualified Options. Nonqualified Options shall be granted only to
officers, directors, employees and advisors of the Company or a Subsidiary who,
in the judgment of the Committee, are responsible for or contribute to the
management or success of the Company or a Subsidiary and who, at the time of
the granting of the Nonqualified Options, are either officers, directors,
employees or advisors of the Company or a Subsidiary.



          (b) Incentive Options. Incentive Options shall be granted only to
employees of the Company or a Subsidiary who, in the judgment of the Committee,

are responsible for or contribute to the management or success of the Company
or a Subsidiary and who, at the time of the granting of the Incentive Option
are an employee of either the Company or a Subsidiary pursuant to an effective
employment agreement. Subject to the provisions of Section 8(g) hereof, no
individual shall be granted an Incentive Option who, immediately before such
Incentive Option was granted, would own more than ten percent (10%) of the
total combined voting power or value of all classes of stock of the Company
(“10% Shareholder”).



Page 5






 


     6.     Factors to Be Considered in Granting Options. In making any
determination as to persons to whom Options shall be granted and as to the
number of shares to be covered by such Options, the Committee shall take into
account the duties and responsibilities of the respective officers, directors,
employees, or advisors, their current and potential contributions to the
success of the Company or a Subsidiary, and such other factors as the Committee
shall deem relevant in connection with accomplishing the purpose of the Plan.


     7.     Time of Granting Options. Neither anything contained in the Plan or in
any resolution adopted or to be adopted by the Board of Directors or the
Shareholders of the Company or a Subsidiary nor any action taken by the
Committee shall constitute the granting of any Option. The granting of an
Option shall be effected only when a written Option Agreement acceptable in
form and substance to the Committee, subject to the terms and conditions hereof
including those set forth in Section 8 hereof, shall have been duly executed
and delivered by or on behalf of the Company and the person to whom such Option
shall be granted. No person shall have any rights under the Plan until such
time, if any, as a written Option Agreement shall have been duly executed and
delivered as set forth in this Section 7.


     8.     Terms and Conditions of Options. All Options granted pursuant to this
Plan must be granted within ten (10) years from the date the Plan is adopted by
the Board of Directors of the Company. Each Option Agreement governing an
Option granted hereunder shall be subject to at least the following terms and
conditions, and shall contain such other terms and conditions, not inconsistent
therewith, that the Committee shall deem appropriate:


          (a) Number of Shares. Each Option shall state the number of shares of
Common Stock which it represents.



Page 6






 


          (b) Type of Option. Each Option shall state whether it is intended to be
an Incentive Option or a Nonqualified Option.



          (c) Option Period.



               (1) General. Each Option shall state the date upon which it is granted.
Each Option shall be exercisable in whole or in part during such period as is
provided under the terms of the Option subject to any vesting period set forth
in the Option, but in no event shall an Option be exercisable either in whole
or in part after the expiration of ten (10) years from the date of grant;
provided, however, if an Incentive Option is granted to a 10% Shareholder, such
Incentive Option shall not be exercisable more than five (5) years from the
date of grant thereof.



               (2) Termination of Employment. Except as otherwise provided in case of
Disability (as hereinafter defined), death or Change of Control (as hereinafter
defined), no Option shall be exercisable after an optionee who is an employee
of the Company or a Subsidiary ceases to be employed by the Company or a
Subsidiary as an employee; provided, however, that the Committee shall have the
right in its sole discretion, but not the obligation, to extend the exercise
period following the date of termination of such optionee’s employment;
provided further, however, that no Option shall be exercisable after the
expiration of ten (10) years from the date it is granted and provided further,
no Incentive Option granted to a 10% Shareholder shall be exercisable after the
expiration of five (5) years from the date it is granted.



               (3) Cessation of Service as Director or Advisor. Except as otherwise
provided in case of Disability, death or Change of Control, no Option shall be
exercisable after an optionee who was a director or advisor of the Company or a
Subsidiary ceases to be a director or advisor of the Company or a Subsidiary;
provided, however, that the Committee shall have the



Page 7






 


right in its sole discretion, but not the obligation, to extend the
exercise period following the date such optionee ceases to be a director or
advisor of the Company or a Subsidiary; provided further, however, that no
Option shall be exercisable after the expiration of ten (10) years from the
date it is granted.


               (4) Disability. If an optionee’s employment is terminated by reason of
the permanent and total Disability of such optionee or if an optionee who is a
director or advisor of the Company or a Subsidiary ceases to serve as a
director or advisor by reason of the permanent and total Disability of such
optionee, the Committee shall have the right in its sole discretion, but not
the obligation, to extend the exercise period following the date of termination
of the optionee’s employment or the date such optionee ceases to be a director
or advisor of the Company or a Subsidiary, as the case may be, subject to the
condition that no Option shall be exercisable after the expiration of ten (10)
years from the date it is granted and subject to the further condition that no
Incentive Option granted to a 10% Shareholder shall be exercisable after the
expiration of five (5) years from the date it is granted. For purposes of this
Plan, the term “Disability” shall mean the inability of the optionee to fulfill
such optionee’s obligations to the Company or a Subsidiary by reason of any
physical or mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not less than
twelve (12) months as determined by a physician acceptable to the Committee in
its sole discretion.



               (5) Death. If an optionee dies while in the employ of the Company or a
Subsidiary, or while serving as a director or advisor of the Company or a
Subsidiary, and shall not have fully exercised Options granted pursuant to the
Plan, such Options may be exercised in



Page 8






 


whole or in part at any time within one (1) year after the optionee’s
death, by the executors or administrators of the optionee’s estate or by any
person or persons who shall have acquired the Options directly from the
optionee by bequest or inheritance, but only to the extent that the optionee
was entitled to exercise such Option at the date of such optionee’s death,
subject to the condition that no Option shall be exercisable after the
expiration of ten (10) years from the date it is granted and subject to the
further condition that no Incentive Option granted to a 10% Shareholder shall
be exercisable after the expiration of five (5) years from the date it is
granted.


               (6) Acceleration and Exercise Upon Change of Control.



 Notwithstanding the
preceding provisions of this Section 8(c), if any Option granted under the Plan
provides for either (a) an incremental vesting period whereby such Option may
only be exercised in installments as such incremental vesting period is
satisfied or (b) a delayed vesting period whereby such Option may only be
exercised after the lapse of a specified period of time, such as after the
expiration of one (1) year, such vesting period shall be accelerated upon the
occurrence of a Change of Control (as hereinafter defined) of the Company, or a
threatened Change of Control of the Company as determined by the Committee, so
that such Option shall thereupon become exercisable immediately in part or its
entirety by the holder thereof, as such holder shall elect. For the purposes
of this Plan, a “Change of Control” shall be deemed to have occurred if:



                    (i) Any “person”, including a “group” as determined in accordance with
Section 13(d)(3) of the Securities Exchange Act of 1934 (“Exchange Act”) and
the Rules and Regulations promulgated thereunder, is or becomes, through one or
a series of related transactions or through one or more intermediaries, the
beneficial owner, directly or




Page 9









 



indirectly, of securities of the Company representing 25% or more
of the combined voting power of the Company’s then outstanding securities,
other than a person who is such a beneficial owner on the effective date of the
Plan and any affiliate of such person;



                    (ii) As a result of, or in connection with, any tender offer or exchange
offer, merger or other business combination, sale of assets or contested
election, or any combination of the foregoing transactions (“Transaction”), the
persons who were Directors of the Company before the Transaction shall cease to
constitute a majority of the Board of Directors of the Company or any successor
to the Company;



                    (iii) Following the effective date of the Plan, the Company is merged or
consolidated with another corporation and as a result of such merger or
consolidation less than 40% of the outstanding voting securities of the
surviving or resulting corporation shall then be owned in the aggregate by the
former stockholders of the Company, other than (x) any party to such merger or
consolidation, or (y) any affiliates of any such party;



                    (iv) A tender offer or exchange offer is made and consummated for the
ownership of securities of the Company representing 25% or more of the combined
voting power of the Company’s then outstanding voting securities; or



                    (v) The Company transfers more than 50% of its assets, or the last of a
series of transfers results in the transfer of more than 50% of the assets of
the Company, to another corporation that is not a wholly-owned corporation of
the Company. For purposes of this subsection 8(c)(6)(v), the determination of
what constitutes more than 50% of the assets of the Company shall be determined
based on the sum of the values attributed to (i) the Company’s



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real property as determined by an independent appraisal thereof, and (ii)
the net book value of all other assets of the Company, each taken as of the
date of the Transaction involved.



     In addition, upon a Change of Control, any Options previously granted
under the Plan to the extent not already exercised may be exercised in whole or
in part either immediately or at any time during the term of the Option as such
holder shall elect.


          (d) Option Prices.



               (1) Nonqualified Options. The purchase price or prices of the shares of
the Common Stock which shall be offered to any person under the Plan and
covered by a Nonqualified Option shall be the price determined by the Committee
at the time of granting of the Nonqualified Option, which price may be less
than, equal to or greater than one hundred percent (100%) of the fair market
value of the Common Stock at the time of granting the Nonqualified Option.



               (2) Incentive Options. The purchase price or prices of the shares of the
Common Stock which shall be offered to any person under the Plan and covered by
an Incentive Option shall be the price determined by the Committee at the time
of granting of the Incentive Option, which price may be less than, equal to or
greater than one hundred percent (100%) of the fair market value of the Common
Stock at the time of granting the Incentive Option; provided, however, if an
Incentive Option is granted to a 10% Shareholder, the purchase price of the
shares of the Common Stock of the Company covered by such Incentive Option may
not be less than one hundred ten percent (110%) of the fair market value of
such shares on the day the Incentive Option is granted.



Page 11 






 



               (3) Determination of Fair Market Value. During such time as the Common
Stock of the Company is not listed upon an established stock exchange, the fair
market value per share shall be deemed to be the closing bid price of the
Common Stock on The Nasdaq Stock Market, Inc. (“Nasdaq”) on the day the Option
is granted, as reported by Nasdaq, if the Common Stock is so quoted, and if not
so quoted, the average of the “bid” and “ask” prices of the Common Stock on the
Electronic Bulletin Board on the day the Option is granted, as reported by the
National Association of Securities Dealers, Inc. If the Common Stock is listed
upon an established stock exchange or exchanges, such fair market value shall
be deemed to be the closing price of the Common Stock on such stock exchange or
exchanges on the day the Option is granted or, if no sale of the Common Stock
of the Company shall have been made on an established stock exchange on such
day, on the next preceding day on which there was a sale of such stock. If
there is no market price for the Common Stock, then the Board of Directors and
the Committee may, after taking all relevant facts into consideration,
determine the fair market value of the Common Stock.



          (e) Exercise of Options. To the extent that a holder of an Option has a
current right to exercise, the Option may be exercised from time to time by
written notice to the Company at its principal place of business. Such notice
shall state the election to exercise the Option, the number of whole shares in
respect of which it is being exercised, shall be signed by the person or
persons so exercising the Option, and shall contain any investment
representation required by Section 8(i) hereof. Such notice shall be
accompanied by payment of the full purchase price of such shares and by the
Option Agreement evidencing the Option. In addition, if the Option shall be
exercised, pursuant to Section 8(c)(4) or Section 8(c)(5) hereof, by any



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person or persons other than the optionee, such notice shall also be
accompanied by appropriate proof of the right of such person or persons to
exercise the Option. The Company shall deliver a certificate or certificates
representing such shares as soon as practicable after the aforesaid notice and
payment of such shares shall be received. The certificate or certificates for
the shares as to which the Option shall have been so exercised shall be
registered in the name of the person or persons so exercising the Option. In
the event the Option shall not be exercised in full, the Secretary of the
Company shall endorse or cause to be endorsed on the Option Agreement the
number of shares which has been exercised thereunder and the number of shares
that remains exercisable under the Option and return such Option Agreement to
the holder thereof.



          (f) Nontransferability of Options. An Option granted pursuant to the Plan
shall be exercisable only by the optionee or the optionee’s court appointed
guardian as set forth in Section 8(c)(4) hereof during the optionee’s lifetime
and shall not be assignable or transferable by the optionee otherwise than by
Will, the laws of descent and distribution, or as permitted by the rules and
regulations of the Securities and Exchange Commission. An Option granted
pursuant to the Plan shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise other than by Will, the laws of
descent and distribution, or as permitted by the rules and regulations of the
Securities and Exchange Commission) and shall not be subject to execution,
attachment, or similar process. Any attempted transfer, assignment, pledge,
hypothecation, or other disposition of any Option or of any rights granted
thereunder contrary to the foregoing provisions of this Section 8(f), or the
levy of any attachment or similar process upon an Option or such rights, shall
be null and void.




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          (g) Limitations on 10% Shareholders. No Incentive Option may be granted
under the Plan to any 10% Shareholder unless (i) such Incentive Option is
granted at an option price not less than one hundred ten percent (110%) of the
fair market value of the shares on the day the Incentive Option is granted and
(ii) such Incentive Option expires on a date not later than five (5) years from
the date the Incentive Option is granted.



          (h) Compliance with Securities Laws. The Plan and the grant and exercise
of the rights to purchase shares hereunder, and the Company’s obligations to
sell and deliver shares upon the exercise of rights to purchase shares, shall
be subject to all applicable federal, foreign and state laws, rules and
regulations, and to such approvals by any regulatory or governmental agency as
may, in the opinion of counsel for the Company, be required, and shall also be
subject to all applicable rules and regulations of any stock exchange upon
which the Common Stock of the Company may then be listed. At the time of
exercise of any Option, the Company may require the optionee to execute any
documents or take any action which may then be necessary to comply with the
Securities Act of 1933, as amended (“Securities Act”), and the rules and
regulations promulgated thereunder, or any other applicable federal or state
laws regulating the sale and issuance of securities, and the Company may, if it
deems necessary, include provisions in the stock option agreements to assure
such compliance. The Company may, from time to time, change its requirements
with respect to enforcing compliance with federal and state securities laws,
including the request for and enforcement of letters of investment intent, such
requirements to be determined by the Company in its judgment as necessary to
assure compliance with said laws. Such changes may be made with respect to any
particular Option or stock issued upon exercise thereof. Without limiting the
generality of the foregoing, if the



Page 14 






 



Common Stock issuable upon exercise of an Option granted under the Plan is
not registered under the Securities Act, the Company at the time of exercise
may require that the registered owner execute and deliver an investment
representation agreement to the Company in form acceptable to the Company and
its counsel, and the Company may place a legend on the certificate evidencing
such Common Stock restricting the transfer thereof, which legend shall be
substantially as follows:


	 	 	 
	 	THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW BUT HAVE BEEN ACQUIRED FOR THE
PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE
OFFERED, SOLD OR TRANSFERRED UNTIL EITHER (i) A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR
SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT
REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED OFFER, SALE OR TRANSFER.
	 




          (i) Additional Provisions. The Option Agreement authorized under the Plan
shall contain such other provisions as the Committee shall deem advisable,
including, without limitation, restrictions upon the exercise of the Option.
Any such Option Agreement with respect to an Incentive Option shall contain
such limitations and restrictions upon the exercise of the Incentive Option as
shall be necessary in order that the Option will be an “Incentive Stock Option”
as defined in Section 422 of the Code.



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     9.     Medium and Time of Payment. The purchase price of the shares of the
Common Stock as to which the Option shall be exercised shall be paid in full
either (i) in cash at the time
of exercise of the Option, (ii) by tendering to the Company shares of the
Company’s Common Stock having a fair market value (as of the date of receipt of
such shares by the Company) equal to the purchase price for the number of
shares of Common Stock purchased, or (iii) partly in cash and partly in shares
of the Company’s Common Stock valued at fair market value as of the date of
receipt of such shares by the Company. Cash payment for the shares of the
Common Stock purchased upon exercise of the Option shall be in the form of
either a cashier’s check, certified check or money order. Personal checks may
be submitted, but will not be considered as payment for the shares of the
Common Stock purchased and no certificate for such shares will be issued until
the personal check clears in normal banking channels. If a personal check is
not paid upon presentment by the Company, then the attempted exercise of the
Option will be null and void. In the event the optionee tenders shares of the
Company’s Common Stock in full or partial payment for the shares being
purchased pursuant to the Option, the shares of Common Stock so tendered shall
be accompanied by fully executed stock powers endorsed in favor of the Company
with the signature on such stock power being guaranteed. If an optionee
tenders shares, such optionee assumes sole and full responsibility for the tax
consequences, if any, to such optionee arising therefrom, including the
possible application of Code Section 424(c), or its successor Code section,
which negates any nonrecognition of income rule with respect to such
transferred shares, if such transferred shares have not been held for the
minimum statutory holding period to receive preferential tax treatment.


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     10.     Rights as a Shareholder. The holder of an Option shall have no rights
as a shareholder with respect to the shares covered by the Option until the due
exercise of the Option and the date of issuance of one or more stock
certificates to such holder for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property) or distributions or other rights for
which the record date is prior to the date such stock certificate is issued,
except as provided in Section 12 hereof.


     11.     Optionee’s Agreement to Serve. Each employee receiving an Option
shall, as one of the terms of the Option Agreement, agree that such employee
will remain in the employ of the Company or Subsidiary for a period of at least
one (1) year from the date on which the Option shall be granted to such
employee, and that such employee will, during such employment, devote such
employee’s time, energy, and skill to the service of the Company or a
Subsidiary as may be required by the management thereof, subject to vacations,
sick leaves, and military absences. Such employment, subject to the provisions
of any written contract between the Company or a Subsidiary and such employee,
shall be at the pleasure of the Board of Directors of the Company or a
Subsidiary, and at such compensation as the Company or a Subsidiary shall
reasonably determine. Any termination of such employee’s employment during the
period which the employee has agreed pursuant to the foregoing provisions of
this Section 11 to remain in employment that is either for cause or voluntary
on the part of the employee shall be deemed a violation by the employee of such
employee’s agreement. In the event of such violation, any Option or Options
held by such employee, to the extent not theretofore exercised, shall forthwith
terminate, unless otherwise determined by the Committee. Notwithstanding the
preceding, neither the action of the Company in establishing the Plan nor any
action taken by the Company,


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a Subsidiary or the Committee under the provisions
hereof shall be construed as granting the optionee the right to be retained in
the employ of the Company or a Subsidiary, or to limit or
restrict the right of the Company or a Subsidiary, as applicable, to
terminate the employment of any employee of the Company or a Subsidiary, with
or without cause.


12.     Adjustments on Changes in Capitalization.


          (a) Changes in Capitalization. The number of shares of Common Stock
covered by the Plan, the number of shares of Common Stock covered by each
outstanding Option and the exercise price per share thereof specified in each
such Option shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock of the Company resulting from a
subdivision or consolidation of shares or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
shares effected without receipt of consideration by the Company after the date
the Option is granted, so that upon exercise of the Option, the optionee shall
receive the same number of shares the optionee would have received had the
optionee been the holder of all shares subject to such optionee’s outstanding
Option immediately before the effective date of such change in the number of
issued shares of the Common Stock of the Company.



          (b) Reorganization, Dissolution or Liquidation. A dissolution or
liquidation of the Company or a merger or consolidation in which the Company is
not the surviving corporation shall cause each outstanding Option to terminate
as of a date to be fixed by the Committee (which date shall be as of or prior
to the effective date of any such dissolution or liquidation or merger or
consolidation); provided, that not less than thirty (30) days written notice of
the date so fixed as such termination date shall be given to each optionee, and
each optionee




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shall, in such event, have the right, during the said period of
thirty (30) days preceding such
termination date, to exercise such optionee’s Option in whole or in part
in the manner herein set forth.



          (c) Change in Par Value. In the event of a change in the Common Stock of
the Company as presently constituted, which change is limited to a change of
all of its authorized shares with par value into the same number of shares with
a different par value or without par value, the shares resulting from any
change shall be deemed to be the Common Stock within the meaning of the Plan.



          (d) Notice of Adjustments. To the extent that the adjustments set forth
in the foregoing paragraphs of this Section 12 relate to stock or securities of
the Company, such adjustments, if any, shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive, provided
that each Incentive Option granted pursuant to this Plan shall not be adjusted
in a manner that causes the Incentive Option to fail to continue to qualify as
an “Incentive Stock Option” within the meaning of Section 422 of the Code. The
Company shall give timely notice of any adjustments made to each holder of an
Option under this Plan and such adjustments shall be effective and binding on
the optionee.



          (e) Effect Upon Holder of Option. Except as hereinbefore expressly
provided in this Section 12, the holder of an Option shall have no rights by
reason of any subdivision or consolidation of shares of stock of any class or
the payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class by reason of any dissolution,
liquidation, merger, reorganization, or consolidation, or spin-off of assets or
stock of another corporation. Any issue by the Company of shares of stock of
any class, or securities convertible




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into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Common Stock
subject to the Option. Without limiting the generality of the foregoing, no
adjustment shall be made with respect to the number or price of shares subject
to any Option granted hereunder upon the occurrence of any of the following
events:



               (1) The grant or exercise of any other options which may be granted or
exercised under any qualified or nonqualified stock option plan or under any
other employee benefit plan of the Company, whether or not such options were
outstanding on the date of grant of the Option or thereafter granted;



               (2) The sale of any shares of Common Stock in the Company’s initial or any
subsequent public offering, including, without limitation, shares sold upon the
exercise of any overallotment option granted to the underwriter in connection
with such offering;



               (3) The issuance, sale or exercise of any warrants to purchase shares of
Common Stock, whether or not such warrants were outstanding on the date of
grant of the Option or thereafter issued;



               (4) The issuance or sale of rights, promissory notes or other securities
convertible into shares of Common Stock in accordance with the terms of such
securities (“Convertible Securities”), whether or not such Convertible
Securities were outstanding on the date of grant of the Option or were
thereafter issued or sold;



               (5) The issuance or sale of Common Stock upon conversion or exchange of
any Convertible Securities, whether or not any adjustment in the purchase price
was made or required to be made upon the issuance or sale of such Convertible
Securities and



Page 20 






 



whether or not such Convertible Securities were outstanding on the date of
grant of the Option or were thereafter issued or sold; or



               (6) Upon any amendment to or change in the terms of any rights or warrants
to subscribe for or purchase, or options for the purchase of, Common Stock or
Convertible Securities or in the terms of any Convertible Securities,
including, but not limited to, any extension of any expiration date of any such
right, warrant or option, any change in any exercise or purchase price provided
for in any such right, warrant or option, any extension of any date through
which any Convertible Securities are convertible into or exchangeable for
Common Stock or any change in the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock.



          (f) Right of Company to Make Adjustments. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations, or changes of its capital
or business structure or to merge or to consolidate or to dissolve, liquidate
or sell, or transfer all or any part of its business or assets.



     13.     Investment Purpose. Each Option under the Plan shall be granted on
the condition that the purchase of the shares of stock thereunder shall be for
investment purposes, and not with a view to resale or distribution; provided,
however, that in the event the shares of stock subject to such Option are
registered under the Securities Act or in the event a resale of such shares of
stock without such registration would otherwise be permissible, such condition
shall be inoperative if in the opinion of counsel for the Company such
condition is not required under the Securities Act or any other applicable law,
regulation, or rule of any governmental agency.


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     14.     No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the optionee to exercise such Option.


     15.     Modification, Extension and Renewal of Options. Subject to the terms
and conditions and within the limitations of the Plan, the Committee and the
Board of Directors may modify, extend or renew outstanding Options granted
under the Plan, or accept the surrender of outstanding Options (to the extent
not theretofore exercised). With the approval of the Board of Directors, the
Company may modify any outstanding Options so as to specify a lower price or
accept the surrender of outstanding Options and authorize the granting of new
Options in substitution therefor specifying a lower price. Notwithstanding the
foregoing, however, no modification of an Option shall, without the consent of
the optionee, alter or impair any rights or obligations under any Option
theretofore granted under the Plan.


     16.     Effective Date of the Plan. The Plan shall become effective on the
date of execution hereof, which date is the date the Board of Directors
approved and adopted the Plan (“Effective Date”); provided, however, if the
Shareholders of the Company shall not have approved the Plan by the requisite
vote of the Shareholders within twelve (12) months after the Effective Date,
then the Plan shall terminate and all Options theretofore granted under the
Plan shall terminate and be null and void.


     17.     Termination of the Plan. This Plan shall terminate as of the
expiration of ten (10) years from the Effective Date. Options may be granted
under this Plan at any time and from time to time prior to its termination.
Any Option outstanding under the Plan at the time of its termination shall
remain in effect until the Option shall have been exercised or shall have
expired.


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     18.     Amendment of the Plan. The Plan may be terminated at any time by the
Board of Directors of the Company. The Board of Directors may at any time and
from time to time without obtaining the approval of the Shareholders of the
Company or a Subsidiary, modify or amend the Plan (including such form of
Option Agreement as hereinabove mentioned) in such respects as it shall deem
advisable in order that the Incentive Options granted under the Plan shall be
“Incentive Stock Options” as defined in Section 422 of the Code or to conform
to any change in the law, or in any other respect which shall not change: (a)
the maximum number of shares for which Options may be granted under the Plan,
except as provided in Section 12 hereof; or (b) the periods during which
Options may be granted or exercised; or (c) the provisions relating to the
determination of persons to whom Options shall be granted and the number of
shares to be covered by such Options; or (d) the provisions relating to
adjustments to be made upon changes in capitalization. The termination or any
modification or amendment of the Plan shall not, without the consent of the
person to whom any Option shall theretofore have been granted, affect that
person’s rights under an Option theretofore granted to such person. With the
consent of the person to whom such Option was granted, an outstanding Option
may be modified or amended by the Committee in such manner as it may deem
appropriate and consistent with the requirements and purpose of this Plan
applicable to the grant of a new Option on the date of modification or
amendment.


     19.     Withholding. Whenever an optionee shall recognize compensation income
as a result of the exercise of any Option granted under the Plan, the optionee
shall remit in cash to the Company or Subsidiary the minimum amount of federal
income and employment tax withholding, if any, which the Company or Subsidiary
is required to remit to the United States


Page 23 






 


Internal Revenue Service in accordance with the then current provisions of
the Code. The full amount of such withholding shall be paid by the optionee
simultaneously with the award or exercise of an Option, as applicable.


     20.     Indemnification of Committee. In addition to such other rights of
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys’ fees actually and necessarily
incurred in connection with the defense of any action, suit or proceedings, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan or any Option granted thereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is approved by independent
legal counsel selected by the Company) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for gross negligence or wilful misconduct in the
performance of his duties; provided that within sixty (60) days after
institution of any such action, suit or proceeding a Committee member shall in
writing offer the Company the opportunity, at its own expense, to pursue and
defend the same.


     21.     Application of Funds. The proceeds received by the Company from the
sale of Common Stock pursuant to Options granted hereunder will be used for
general corporate purposes.


     22.     Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the jurisdiction of incorporation of the Company.


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     EXECUTED effective this 1st day of July, 2003.



	 	 	 	 	 	 	 
	 	 	LJ INTERNATIONAL INC.
	 	 	 	 	 	 	 
	 	 	
By:
	 	/S/ YU CHUAN YIH	 	 
	 	 	 	 	
	 	 
	 	 	 	 	 	 	 
	 	 	 	 	YU CHUAN YIH,	 	 
	 	 	 	 	Chairman	 	 



ATTEST:




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