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                                                                    Exhibit 10.7

                                                                       EXHIBIT A


                       PRECISION OPTICS CORPORATION, INC.

                               1997 INCENTIVE PLAN


1.       DEFINED TERMS

         Exhibit A, which is incorporated by reference, defines the terms used
in the Plan.

2.       IN GENERAL

         The Plan has been established to advance the interests of the Company
by giving selected Employees, directors and other persons (including both
individuals and entities) who provide services to the Company or its Affiliates
equity-based or cash incentives through the grant of Awards.

3.       ADMINISTRATION

         The Administrator has discretionary authority, subject only to the
express provisions of the Plan, to interpret the Plan; determine eligibility for
and grant Awards; determine, modify or waive the terms and conditions of any
Award; prescribe forms, rules and procedures (which it may modify or waive); and
otherwise do all things necessary to carry out the purposes of the Plan. Once an
Award has been communicated in writing to a Participant, the Administrator may
not, without the Participant's consent, alter the terms of the Award so as to
affect adversely the Participant's rights under the Award, unless the
Administrator expressly reserved the right to do so in writing at the time of
such communication. In the case of any Award intended to be eligible for the
performance-based compensation exception under Section 162(m), the Administrator
shall exercise its discretion consistent with qualifying the Award for such
exception. The Administrator may delegate to senior management the authority to
grant Awards, other than Awards to the President.



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4.       SHARES SUBJECT TO THE PLAN

         a.       A total of 1,200,000 shares of Stock have been reserved for
issuance under the Plan. The following shares of Stock will also be available
for future grants:

         (i)      shares of Stock remaining under an Award that terminates
                  without having been exercised in full (in the case of an Award
                  requiring exercise by a Participant for delivery of Stock);

         (ii)     shares of Stock subject to an Award, where cash is delivered
                  to a Participant in lieu of such shares;

         (iii)    shares of Restricted Stock that are forfeited to the Company;

         (iv)     shares of Stock tendered by a Participant to the Company as
                  payment upon exercise of an Award; and

         (v)      shares of Stock held back by the Company, or tendered by a
                  Participant to the Company, in satisfaction of tax withholding
                  requirements.

Stock delivered under the Plan may be authorized but unissued Stock or
previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan.

         b. The maximum number of shares of Stock for which Stock Options may be
granted to any person over the life of the Plan shall be 600,000. The maximum
number of shares of Stock subject to SARs granted to any person over the life of
the Plan shall be 600,000. For purposes of the preceding two sentences, the
repricing of a Stock Option or SAR shall be treated as a new grant to the extent
required under Section 162(m). The aggregate maximum number of shares of Stock
delivered to any person over the life of the Plan pursuant to Awards that are
not Stock Options or SARs shall also be 600,000. Subject to these limitations,
each person eligible to participate in the Plan shall be eligible in any year to
receive Awards covering up to the full number of shares of Stock then available
for Awards under the Plan.

5.       ELIGIBILITY AND PARTICIPATION

         The Administrator will select Participants from among those key
Employees, directors and other individuals or entities providing services to the
Company or its Affiliates who, in the opinion of the Administrator, are in a
position to make a significant contribution to the success



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of the Company and its Affiliates. Eligibility for ISOs is further limited to
those individuals whose employment status would qualify them for the tax
treatment described in Sections 421 and 422 of the Code.

6.       RULES APPLICABLE TO AWARDS

         a.       ALL AWARDS

                  (1) PERFORMANCE OBJECTIVES. Where rights under an Award depend
in whole or in part on attainment of performance objectives, actions by the
Company that have an effect, however material, on such performance objectives or
on the likelihood that they will be achieved will not be deemed an amendment or
alteration of the Award unless accomplished by a change in the express terms of
the Award or other action that is without substantial consequence except as it
affects the Award.

                  (2) ALTERNATIVE SETTLEMENT. The Company retains the right at
any time to extinguish rights under an Award in exchange for payment in cash,
Stock (subject to the limitations of Section 4) or other property on such terms
as the Administrator determines, provided the holder of the Award consents to
such exchange.

                  (3) TRANSFERABILITY OF AWARDS. Except as the Administrator
otherwise expressly provides, Awards (other than an Award in the form of an
outright transfer of cash or Unrestricted Stock) may not be transferred other
than by will or by the laws of descent and distribution. During a Participant's
lifetime an Award requiring exercise may be exercised only by the Participant
(or in the event of the Participant's incapacity, the person or persons legally
appointed to act on the Participant's behalf).

                  (4) VESTING, ETC. The Administrator may determine the time or
times at which an Award will vest (i.e., become free of forfeiture restrictions)
or become exercisable. Unless the Administrator expressly provides otherwise, an
Award requiring exercise will cease to be exercisable, and all other Awards to
the extent not already fully vested will be forfeited, immediately upon the
cessation (for any reason, including death) of the Participant's employment or
other service relationship with the Company and its Affiliates.

                  (5) TAXES. The Administrator will make such provision for the
withholding of taxes as it deems necessary. The Administrator may, but need not,
hold back shares of Stock from an Award or permit a Participant to tender
previously owned shares of Stock in satisfaction of tax withholding
requirements.



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                  (6) DIVIDEND EQUIVALENTS, ETC. The Administrator may provide
for the payment of amounts in lieu of cash dividends or other cash distributions
with respect to Stock subject to an Award.

                  (7) RIGHTS LIMITED. Nothing in the Plan shall be construed as
giving any person the right to continued employment or service with the Company
or its Affiliates, or any rights as a shareholder except as to shares of Stock
actually issued under the Plan. The loss of existing or potential profit in
Awards will not constitute an element of damages in the event of termination of
employment or service for any reason, even if the termination is in violation of
an obligation of the Company or Affiliate to the Participant.

                  (8) SECTION 162(m). In the case of an Award intended to be
eligible for the performance-based compensation exception under Section 162(m),
the Plan and such Award shall be construed to the maximum extent permitted by
law in a manner consistent with qualifying the Award for such exception.

         b.       AWARDS REQUIRING EXERCISE

                  (1) TIME AND MANNER OF EXERCISE. Unless the Administrator
expressly provides otherwise, (a) an Award requiring exercise by the holder will
not be deemed to have been exercised until the Administrator receives a written
notice of exercise (in form acceptable to the Administrator) signed by the
appropriate person and accompanied by any payment required under the Award; and
(b) if the Award is exercised by any person other than the Participant, the
Administrator may require satisfactory evidence that the person exercising the
Award has the right to do so.

                  (2) PAYMENT OF EXERCISE PRICE, IF ANY. Where the exercise of
an Award is to be accompanied by payment, the Administrator may determine the
required or permitted forms of payment either at or after the time of the Award,
subject to the following: (a) unless the Administrator expressly provides
otherwise, all payments will be by cash or check acceptable to the
Administrator; and (b) where shares of Stock issued under an Award are part of
an original issue of shares, the Award shall require an exercise price equal to
at least the par value of such shares.

                  (3) RELOAD AWARDS. The Administrator may provide that upon the
exercise of an Award, either by payment of cash or (if permitted under Section
6.b.(2) above) through the tender of previously owned shares of Stock, the
Participant or other person exercising the Award will automatically receive a
new Award of like kind covering a number of shares of Stock equal to the number
of shares of Stock for which the first Award was exercised.



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                  (4) ISOs. No ISO may be granted under the Plan after September
15, 2007, but ISOs previously granted may extend beyond that date.

         c.       AWARDS NOT REQUIRING EXERCISE

         Awards of Restricted Stock and Unrestricted Stock may be made in return
for either (i) services determined by the Administrator to have a value not less
than the par value of the awarded shares of Stock, or (ii) cash or other
property having a value not less than the par value of the awarded shares of
Stock plus such additional amounts (if any) as the Administrator may determine
payable in such combination and type of cash, other property (of any kind) or
services as the Administrator may determine.

7.       EFFECT OF CERTAIN TRANSACTIONS

         a.        MERGERS, ETC.

         In the event of (i) a consolidation or merger in which the Company is
not the surviving corporation or which results in the acquisition of a majority
of the Company's then outstanding voting common stock by a single person or
entity or by a group of persons and/or entities acting in concert, (ii) a sale
or transfer of all or substantially all the Company's assets, or (iii) a
dissolution or liquidation of the Company (any of the foregoing, a "covered
transaction"), all outstanding Awards requiring exercise will cease to be
exercisable, and all other Awards to the extent not fully vested (including
Awards subject to performance conditions not yet satisfied or determined) will
be forfeited, as of the effective time of the covered transaction; provided,
however, that immediately prior to the consummation of such covered transaction
the vesting or exercisability of Awards shall be accelerated unless, in the case
of any Award, the Administrator provides for one or more substitute or
replacement awards from, or the assumption of the existing Award by, the
acquiring entity (if any) or its affiliates.

         The Administrator may provide in the case of any Award that the
provisions of the preceding paragraph shall also apply to (i) mergers or
consolidations involving the Company that do not constitute a covered
transaction, or (ii) other transactions, not constituting a covered transaction,
that involve the acquisition of the Company's outstanding Stock.

         b.       CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO THE
                  STOCK

                  (1) BASIC ADJUSTMENT PROVISIONS. In the event of a stock
dividend, stock split or combination of shares, recapitalization or other change
in the Company's capital structure, the Administrator will make appropriate
adjustments to the maximum number of shares that



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may be delivered under the Plan under Section 4.a. and to the maximum share
limits described in Section 4.b., and will also make appropriate adjustments to
the number and kind of shares of stock or securities subject to Awards then
outstanding or subsequently granted, any exercise prices relating to Awards and
any other provision of Awards affected by such change.

                  (2) CERTAIN OTHER ADJUSTMENTS. The Administrator may also make
adjustments of the type described in paragraph (1) above to take into account
distributions to common stockholders other than stock dividends or normal cash
dividends, mergers, consolidations, acquisitions, dispositions or similar
corporate transactions, or any other event, if the Administrator determines that
adjustments are appropriate to avoid distortion in the operation of the Plan and
to preserve the value of Awards made hereunder; provided, that no such
adjustment shall be made to the maximum share limits described in Section 4.b.,
or otherwise to an Award intended to be eligible for the performance-based
exception under Section 162(m), except to the extent consistent with that
exception.

                  (3) CONTINUING APPLICATION OF PLAN TERMS. References in the
Plan to shares of Stock shall be construed to include any stock or securities
resulting from an adjustment pursuant to Section 7.b.(1) or 7.b.(2) above.

8.       CONDITIONS ON DELIVERY OF STOCK

         The Company will not be obligated to deliver any shares of Stock
pursuant to the Plan or to remove any restriction from shares of Stock
previously delivered under the Plan until: the Company's counsel has approved
all legal matters in connection with the issuance and delivery of such shares;
if the outstanding Stock is at the time of delivery listed on any stock exchange
or national market system, the shares to be delivered have been listed or
authorized to be listed on such exchange or system upon official notice of
issuance; and all conditions of the Award have been satisfied or waived. If the
sale of Stock has not been registered under the Securities Act of 1933, as
amended, the Company may require, as a condition to exercise of the Award, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act. The Company may require that
certificates evidencing Stock issued under the Plan bear an appropriate legend
reflecting any restriction on transfer applicable to such Stock.

9.       AMENDMENT AND TERMINATION

         Subject to the penultimate sentence of Section 3, the Administrator may
at any time or times amend the Plan or any outstanding Award for any purpose
which may at the time be permitted by law, or may at any time terminate the Plan
as to any further grants of Awards;



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provided, that (except to the extent expressly required or permitted by the
Plan) no such amendment will, without the approval of the stockholders of the
Company, effectuate a change for which stockholder approval is required in order
for the Plan to continue to qualify under Section 422 of the Code and for Awards
to be eligible for the performance-based exception under Section 162(m).

10.      NON-LIMITATION OF THE COMPANY'S RIGHTS

         The existence of the Plan or the grant of any Award shall not in any
way affect the Company's right to award a person bonuses or other compensation
in addition to Awards under the Plan.

11.      GOVERNING LAW

         The Plan shall be construed in accordance with the laws of the
Commonwealth of Massachusetts.



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                                    EXHIBIT A

                               DEFINITION OF TERMS


         The following terms, when used in the Plan, shall have the meanings and
be subject to the provisions set forth below:

         "ADMINISTRATOR": The Committee, if one has been appointed; otherwise
the Board.

         "AFFILIATE": Any corporation or other entity owning, directly or
indirectly, 50% or more of the outstanding Stock of the Company, or in which the
Company or any such corporation or other entity owns, directly or indirectly,
50% of the outstanding capital stock (determined by aggregate voting rights) or
other voting interests.

         "AWARD": Any of the following:

                  (i) Options ("Stock Options") entitling the recipient to
         acquire shares of Stock upon payment of the exercise price. Each Stock
         Option (except as otherwise expressly provided by the Committee
         consistent with continued qualification of the Stock Option as a
         performance-based award for purposes of Section 162(m), or unless the
         Committee expressly determines that such Stock Option is not subject to
         Section 162(m) or that the Stock Option is not intended to qualify for
         the performance-based exception under Section 162(m)) will have an
         exercise price equal to the fair market value of the Stock subject to
         the option, determined as of the date of grant, except that an ISO
         granted to an Employee described in Section 422(b)(6) of the Code will
         have an exercise price equal to 110% of such fair market value. The
         Administrator will determine the medium in which the exercise price is
         to be paid, the duration of the option, the time or times at which an
         option will become exercisable, provisions for continuation (if any) of
         option rights following termination of the Participant's employment
         with the Company and its Affiliates, and all other terms of the Stock
         Option. No Stock Option awarded under the Plan will be an ISO unless
         the Administrator expressly provides for ISO treatment.

                  (ii) Rights ("SARs") entitling the holder upon exercise to
         receive cash or Stock, as the Administrator determines, equal to a
         function (determined by the Administrator using such factors as it
         deems appropriate) of the amount by which the Stock has appreciated in
         value since the date of the Award.

                  (iii) Stock subject to restrictions ("Restricted Stock") under
         the Plan requiring that such Stock be redelivered to the Company if
         specified conditions are not satisfied. The conditions to be satisfied
         in connection with any Award of Restricted Stock, the

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         terms on which such Stock must be redelivered to the Company, the
         purchase price of such Stock, and all other terms shall be determined
         by the Administrator.

                  (iv) Stock not subject to any restrictions under the Plan
         ("Unrestricted Stock").

                  (v) A promise to deliver Stock or other securities in the
         future on such terms and conditions as the Administrator determines.

                  (vi) Securities (other than Stock Options) that are
         convertible into or exchangeable for Stock on such terms and conditions
         as the Administrator determines.

                  (vii) Cash bonuses tied to performance criteria as described
         at (viii) below ("Cash Performance Awards").

                  (viii) Awards described in any of (i) through (vii) above
         where the right to exercisability, vesting or full enjoyment of the
         Award is conditioned in whole or in part on the satisfaction of
         specified performance criteria ("Performance Awards"). The Committee in
         its discretion may grant Performance Awards that are intended to
         qualify for the performance-based compensation exception under Section
         162(m) and Performance Awards that are not intended so to qualify. No
         more than $2,000,000 may be paid to any individual with respect to any
         Cash Performance Award. In applying the limitation of the preceding
         sentence: (A) multiple Cash Performance Awards to the same individual
         that are determined by reference to performance periods of one year or
         less ending with or within the same fiscal year of the Company shall be
         subject in the aggregate to one $2,000,000 limit, and (B) multiple Cash
         Performance Awards to the same individual that are determined by
         reference to one or more multi-year performance periods ending in the
         same fiscal year of the Company shall be subject in the aggregate to a
         separate limit of $2,000,000. With respect to any Performance Award
         other than a Cash Performance Award, Stock Option or SAR, the maximum
         award opportunity shall be 250,000 shares of Stock or their equivalent
         value in cash, subject to the limitations of Section 4.b. For the
         avoidance of doubt, any Performance Award of a type described in (i)
         through (vi) above shall be treated for purposes of this paragraph as a
         Performance Award that is not a Cash Performance Award, even if payment
         is made in cash.

                  In the case of a Performance Award intended to qualify as
         performance-based for the purposes of Section 162(m) (other than a
         Stock Option or SAR with an exercise price at least equal to the fair
         market value of the underlying Stock on the date of grant), the
         Committee shall in writing preestablish a specific performance goal
         (based solely on one or more qualified performance criteria or a
         combination of qualified performance criteria) no later than 90 days
         after the commencement of the period of

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         service to which the performance relates (or at such earlier time as is
         required to qualify the award as performance-based under Section
         162(m)). For purposes of the Plan, a qualified performance criterion is
         any of the following (determined either on a consolidated basis or, as
         the context permits, on a divisional, subsidiary, line of business or
         geographical basis or in combinations thereof): (i) sales; revenues;
         assets; expenses; earnings before or after deduction for all or any
         portion of interest, taxes, depreciation or amortization, whether or
         not on a continuing operations or an aggregate or per share basis;
         return on equity, investment, capital or assets; gross margin;
         inventory level or turns; one or more operating ratios; borrowing
         levels, leverage ratios or credit rating; market share; capital
         expenditures; cash flow; stock price; stockholder return; or other
         objective operating contributions; or (ii) acquisitions and
         divestitures (in whole or in part); joint ventures and strategic
         alliances; spin-offs, split-ups and the like; reorganizations;
         recapitalizations, restructurings, financings (issuance of debt or
         equity) and refinancings; or other transactions that involve a change
         in the equity ownership of the Company. Prior to payment of any
         Performance Award (other than a Stock Option or SAR with an exercise
         price at least equal to the fair market value of the underlying Stock
         on the date of grant) intended to qualify as performance-based under
         Section 162(m), the Committee shall certify whether the performance
         goal has been attained and such determination shall be final and
         conclusive. If the performance goal with respect to any such Award is
         not attained, no other Award shall be provided in substitution of the
         Performance Award.

                  (ix) Grants of cash, or loans, made in connection with other
         Awards in order to help defray in whole or in part the economic cost
         (including tax cost) of the Award to the Participant. The terms of any
         such grant or loan shall be determined by the Administrator.

Awards may be combined in the Administrator's discretion.

         "BOARD": The Board of Directors of the Company.

         "CODE": The U.S. Internal Revenue Code of 1986 as from time to time
amended and in effect, or any successor statute as from time to time in effect.

         "COMMITTEE": A committee of the Board comprised solely of two or more
outside directors within the meaning of Section 162(m). The Committee may
delegate ministerial tasks to such persons (including Employees) as it deems 
appropriate.

         "COMPANY": Precision Optics Corporation, Inc.

         "EMPLOYEE": Any person who is employed by the Company or an Affiliate.

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         "ISO": A Stock Option intended to be an "incentive stock option" within
the meaning of Section 422 of the Code.

         "PARTICIPANT": An Employee, director or other person providing services
to the Company or its Affiliates who is granted an Award under the Plan.

         "PLAN": Precision Optics Corporation, Inc. 1997 Incentive Plan as from
time to time amended and in effect.

         "SECTION 162(m)": Section 162(m) of the Code.

         "STOCK": Common stock of the Company, par value $.01 per share.