Document:

Exhibit
10.7

 

XUEDA EDUCATION GROUP

 

AMENDED AND RESTATED 2009 EQUITY
INCENTIVE PLAN

 

1.                                       Purpose
of the Plan

 

The
purpose of the Plan is to aid the Company and its Affiliates in recruiting and
retaining key employees, directors or consultants of outstanding ability and to
motivate such employees, directors or consultants to exert their best efforts
on behalf of the Company and its Affiliates by providing incentives through the
granting of Awards.  The Company expects that
it will benefit from the added interest which such key employees, directors or
consultants will have in the welfare of the Company as a result of their
proprietary interest in the Company’s success.

 

2.                                       Definitions

 

The
following capitalized terms used in the Plan have the respective meanings set
forth in this Section:

 

(a)                                  Applicable Laws: All laws, statutes, regulations, ordinances, rules or
governmental requirements that are applicable to this Plan or any Award granted
pursuant to this Plan, including but not limited to applicable laws of the
People’s Republic of China, the United States and the Cayman Islands,  and the rules and requirements of any
applicable national securities exchange.

 

(b)                                 Act:  The U.S.
Securities Exchange Act of 1934, as amended, or any successor thereto.

 

(c)                                  Affiliate:  With
respect to the Company, any entity directly or indirectly controlling,
controlled by, or under common control with, the Company.

 

(d)                                 Award:  An Option,
Stock Appreciation Right or Other Stock-Based Award granted pursuant to the
Plan.

 

(e)                                  Beneficial Owner:  A “beneficial
owner”, as such term is defined in Rule 13d-3 under the Act (or any
successor rule thereto).

 

(f)                                    Board:  The board
of directors of the Company.

 

(g)                                 Change in Control:  The
occurrence of any of the following events:

 

(i) the sale or
disposition, in one or a series of related transactions, of all or
substantially all, of the assets of the Company to any “person” or “group” (as
such terms are defined in Sections 13(d)(3) or 14(d)(2) of the Act)
other than the Permitted Holders;

 

(ii) any person or
group, other than the Permitted Holders, is or becomes the Beneficial Owner
(except that a person shall be deemed to have “beneficial 

 

 

ownership” of all shares
that any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total voting power of the voting stock of the Company (or any
entity which controls the Company), including by way of merger, consolidation,
tender or exchange offer or otherwise; or

 

(iii) during any
period of two consecutive years, individuals who at the beginning of such
period constituted the Board (together with any new directors whose election by
such Board or whose nomination for election by the shareholders of the Company
was approved by a vote of a majority of the directors of the Company, then
still in office, who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board, then in office.

 

(h)                                 Code:  The U.S.
Internal Revenue Code of 1986, as amended, or any successor thereto.

 

(i)                                     Committee:  The
compensation committee of the Board (or a subcommittee thereof as provided under
Section 4), or such other committee of the Board (including, without
limitation, the full Board) to which the Board has delegated power to act under
or pursuant to the provisions of the Plan. 
For the avoidance of doubt, the Board shall at all times be authorized
to act as the Committee under or pursuant to any provisions of the Plan.

 

(j)                                     Company:  Xueda
Education Group, a company incorporated under the laws of the Cayman Islands.

 

(k)                                  Disability:  The term “Disability”
shall have the meaning given to such term in any employment agreement between
the Company or any of its Affiliates and the applicable Participant, or if no
such Employment Agreement exists or if “Disability” is not defined therein,
then Disability shall have the meaning ascribed to such term under Section 409A(a)(2)(C)(i) of
the Code for all purposes, except to the extent necessary for qualification of
Options as ISOs, then Disability shall mean the permanent and total disability
of a person within the meaning of Section 22(e)(3) of the Code.  Without limiting the foregoing and except as
otherwise provided in a Participant’s Employment Agreement, the existence of a
Disability shall be determined by the Committee in good faith in accordance
with Applicable Law.

 

(l)                                     Effective Date:  The date
the Board approves the Plan, or such other date as is designated by the Board.

 

(m)                               Employment:  The term “Employment”
as used herein shall be deemed to refer to (i) a Participant’s employment
if the Participant is an employee of the Company or any of its Affiliates, (ii) a
Participant’s services as a consultant, if the Participant is consultant to the
Company or its Affiliates and (iii) a Participant’s services as an 

 

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non-employee
director of the Board or the board of directors (or equivalent governing body)
of any Affiliate of the Company.

 

(n)                                 Fair Market Value:  The
term “Fair Market Value” shall mean, as of any date, the value of a Share
determined as follows: (i) if there should be a public market for the
Shares on such date, the closing price of the Shares as reported on such date
on the Composite Tape of the principal national securities exchange on which
such Shares are listed or admitted to trading, or if the Shares are not listed
or admitted on any national securities exchange, the arithmetic mean of the per
Share closing bid price and per Share closing asked price on such date as
quoted on the New York Stock Exchange (the “NYSE”) (or such market in which
such prices are regularly quoted), or, if no sale of Shares shall have been
reported on the Composite Tape of any national securities exchange or quoted on
the NYSE (or such other market) on such date, then the immediately preceding
date on which sales of the Shares have been so reported or quoted shall be
used, and (ii) if there should not be a public market for the Shares on
such date, then Fair Market Value shall be the price that would be paid by a
willing buyer to an unaffiliated willing seller, disregarding any discount for
minority interest or restrictions on transfer of the Shares, as determined in
good faith by the Board (or a committee thereof) in a manner consistent with
its past practices.  Notwithstanding
anything to the contrary herein, the “Fair Market Value” of the Shares shall at
all times be determined in a manner intended to be consistent with Section 409A
of the Code (and the regulations and guidance promulgated thereunder), as may
be amended from time to time, and the same method shall be used by the Company
for determining all applicable income tax consequences resulting from the
exercise of an Option.

 

(o)                                 ISO:  An Option
that is also an incentive stock option granted pursuant to Section 6(d) of
the Plan.

 

(p)                                 LSAR:  A limited
stock appreciation right granted pursuant to Section 7(d) of the
Plan.

 

(q)                                 Officer: The term “Officer” shall mean a person who is an
officer of the Company within the meaning of Section 16 of the Act.

 

(r)                                    Other Stock-Based Awards: 
Awards granted pursuant to Section 8 of the Plan.

 

(s)                                  Option:  A stock
option granted pursuant to Section 6 of the Plan.

 

(t)                                    Option Price:  The
purchase price per Share of an Option, as determined pursuant to Section 6(a) of
the Plan.

 

(u)                                 Participant:  An
employee, director or consultant who is selected by the Committee to
participate in the Plan.

 

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(v)                                 Permitted Holder: means, as of the date of determination, (i) any
employee benefit plan (or trust forming a part thereof) maintained by (A) the
Company or (B) any corporation or other Person of which a majority of its
voting power of its voting equity securities or equity interest is owned,
directly or indirectly, by the Company, or (ii) any stockholder of the
Company who, together with its affiliates, owns 50% or more of the total voting
power of all classes of voting stock of the Company as of the Effective Date,
or any affiliate(s) of such stockholder.

 

(w)                               Person:  A “person”,
as such term is used for purposes of Section 13(d) or 14(d) of
the Act (or any successor section thereto).

 

(x)                                   Plan:  This Xueda
Education Group Amended and Restated 2009 Equity Incentive Plan.

 

(y)                                 Shares:  Ordinary
shares of the Company, par value US$0.0001 per share.

 

(z)                                   Share Limit: the total number of Shares which may be issued
under the Plan.

 

(aa)                            Stock Appreciation Right:  A
stock appreciation right granted pursuant to Section 7 of the Plan.

 

(bb)                          Subsidiary:  A
corporation or other entity of which a majority of the outstanding voting
shares or voting power is beneficially owned directly or indirectly by the
Company.

 

3.                                       Shares
Subject to the Plan

 

The
Share Limit shall initially be 11,146,151 and shall automatically increase on January 1
of each calendar year during the term of this Plan, commencing with January 1,
2011, by an amount equal to the lesser of (i) 1% of the total number of
Shares issued and outstanding on December 31 of the immediately preceding
calendar year or (ii) such number of Shares as may be established by the
Board or the Committee.   The Shares may
consist, in whole or in part, of authorized and unissued Shares or Shares
purchased on the open market.  The
issuance of Shares or the payment of cash upon the exercise of an Award or in
consideration of the cancellation or termination of an Award shall reduce the
Share Limit, as applicable.  Shares which
are subject to Awards which terminate or lapse without the payment of
consideration may be granted again under the Plan.

 

4.                                       Administration

 

The
Plan shall be administered by the Committee, which may delegate its duties and
powers in whole or in part to any subcommittee thereof consisting solely of at
least two individuals who are intended to qualify as “Non-Employee Directors”
within the meaning of Rule 16b-3 under the Act (or any successor rule thereto)
and an “independent director” as defined in NYSE
Rule 303A.02 (or any successor rule thereto).  Awards may, in the discretion of the
Committee, be made under the Plan in assumption of, or in substitution for,
outstanding awards 

 

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previously
granted by a company or other entity acquired by the Company or with which the
Company combines.  The number of Shares
underlying such substitute awards shall be counted against the aggregate number
of Shares available for Awards under the Plan. 
The Committee is authorized to interpret the Plan, to establish, amend
and rescind any rules and regulations relating to the Plan, and to make
any other determinations that it deems necessary or desirable for the
administration of the Plan.  The Committee
may correct any defect or supply any omission or reconcile any inconsistency in
the Plan in the manner and to the extent the Committee deems necessary or
desirable.  Any decision of the Committee
in the interpretation and administration of the Plan, as described herein,
shall lie within its sole and absolute discretion and shall be final,
conclusive and binding on all parties concerned (including, but not limited to,
Participants and their beneficiaries or successors).  The Committee shall have the full power and
authority to establish the terms and conditions of any Award consistent with
the provisions of the Plan and to waive any such terms and conditions at any
time (including, without limitation, accelerating or waiving any vesting
conditions).  The Committee shall require
payment of any amount it may determine to be necessary to withhold for any
applicable taxes as a result of the exercise, grant or vesting of an
Award.  To the extent permitted by the
Committee in an Award agreement or otherwise and, in each case, as permitted
under Applicable Law, a Participant may elect to pay a portion or all of any
withholding taxes (but no more than the minimum amount required to be withheld)
by (a) delivery in Shares, or (b) having Shares withheld by the
Company from any Shares that would have otherwise been received by the
Participant.

 

In
addition, the Board, in its sole discretion, may delegate to a one or more
Officers the authority to do one or both of the following: (A) to the
extent permitted under Applicable Law, designate employees who are not Officers
to be recipients of Awards, and (B) determine the number of Shares subject
to such Awards granted to such employees; provided, however, that
the Board resolutions regarding such delegation shall specify the total number
of Shares that may be subject to the Awards granted by such Officer and that
such Officer may not grant an Award to himself or herself.   Notwithstanding anything to the contrary
herein, the Board may not delegate to an Officer the authority to determine the
Fair Market Value of Shares subject to an Award.

 

5.                                       Limitations

 

No
Award may be granted under the Plan after the tenth anniversary of the
Effective Date, but Awards theretofore granted may extend beyond that date.

 

6.                                       Terms
and Conditions of Options

 

Options
granted under the Plan shall be, as determined by the Committee, non-qualified
or incentive stock options for U.S. federal income tax purposes, as evidenced
by the related Award agreements, and shall be subject to the foregoing and the
following terms and conditions and to such other terms and conditions, not
inconsistent therewith, as the Committee shall determine:

 

(a)                                  Option Price.  The Option
Price per Share shall be determined by the Committee, but shall not be less
than, (i) with respect to Options granted to individuals subject to
taxation in the United States, 100% of the Fair Market Value of a Share, and (ii) 

 

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with
respect to all other Options, 85% of the Fair Market Value of a Share, in each
case, on the date an Option is granted (other than where Options granted in
substitution of previously granted awards, as described in Section 4
hereof).

 

(b)                                 Exercisability.  Options
granted under the Plan shall be exercisable at such time and upon such terms
and conditions as may be determined by the Committee, but in no event shall an
Option be exercisable more than ten years after the date it is granted.

 

(c)                                  Exercise of Options. 
Except as otherwise provided in the Plan or in an Award agreement, an
Option may be exercised for all, or from time to time any part, of the Shares
for which it is then exercisable.  For
purposes of this Section 6, the exercise date of an Option
shall be the later of the date a notice of exercise is received by the Company
and, if applicable, the date payment is received by the Company pursuant to
clauses (i), (ii), (iii) or (iv) in the following sentence.  The purchase price for the Shares as to which
an Option is exercised shall be paid to the Company in full at the time of
exercise at the election of the Participant (i) in cash or its
equivalent (e.g., by check), (ii) to the extent permitted by the
Committee, in Shares having a Fair Market Value equal to the aggregate Option
Price for the Shares being purchased and satisfying such other requirements as
may be imposed by the Committee; provided, that such Shares have been held by
the Participant for no less than six months (or such other period as
established from time to time by the Committee in order to avoid adverse
accounting treatment applying generally accepted accounting principles),
(iii) partly in cash and, to the extent permitted by the Committee
and subject to the other requirements and conditions set forth above in (ii),
partly in Shares, or (iv) if there is a public market for the Shares at
such time, through the delivery of irrevocable instructions to a broker to sell
Shares obtained upon the exercise of the Option and to deliver promptly to the
Company an amount out of the proceeds of such sale equal to the aggregate
Option Price for the Shares being purchased. 
No Participant shall have any rights to dividends or other rights of a
stockholder with respect to Shares subject to an Option until the Participant
has given written notice of exercise of the Option, paid in full for such
Shares and, if applicable, has satisfied any other conditions imposed by the
Committee pursuant to the Plan.

 

(d)                                 ISOs.  The
Committee may grant Options under the Plan that are intended to be ISOs.  Such ISOs shall comply with the requirements
of Section 422 of the Code (or any successor section thereto).  No ISO may be granted to any Participant who
at the time of such grant, owns more than ten percent of the total combined
voting power of all classes of stock of the Company or of any Subsidiary,
unless (i) the Option Price for such ISO is at least 110% of the Fair
Market Value of a Share on the date the ISO is granted and (ii) the date
on which such ISO terminates is a date not later than the day preceding the fifth
anniversary of the date on which the ISO is granted.  Any Participant who disposes of Shares
acquired upon the exercise of an ISO either (i) within two years after the
date of grant of such ISO or (ii) within one year after the transfer of
such Shares to the Participant, shall notify the Company of 

 

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such
disposition and of the amount realized upon such disposition.  All Options granted under the Plan are
intended to be nonqualified stock options, unless the applicable Award
agreement expressly states that the Option is intended to be an ISO.  If an Option is intended to be an ISO, and if
for any reason such Option (or portion thereof) shall not qualify as an ISO,
then, to the extent of such nonqualification, such Option (or portion thereof)
shall be regarded as a nonqualified stock option granted under the Plan;
provided that such Option (or portion thereof) otherwise complies with the Plan’s
requirements relating to nonqualified stock options.  In no event shall any member of the Board,
the Committee, the Company or any of its Affiliates (or their respective
employees, officers or directors) have any liability to any Participant (or any
other Person) due to the failure of an Option to qualify for any reason as an ISO.

 

(e)                                  Attestation.  Wherever
in this Plan or any agreement evidencing an Award a Participant is permitted to
pay the exercise price of an Option or taxes relating to the exercise of an
Option by delivering Shares, the Participant may, subject to procedures
satisfactory to the Committee, satisfy such delivery requirement by presenting
proof of beneficial ownership of such Shares, in which case the Company shall
treat the Option as exercised without further payment and shall withhold such
number of Shares from the Shares acquired by the exercise of the Option.

 

7.                                       Terms
and Conditions of Stock Appreciation Rights

 

(a)                                  Grants.  The
Committee also may grant (i) a Stock Appreciation Right independent of an
Option or (ii) a Stock Appreciation Right in connection with an Option, or
a portion thereof.  A Stock Appreciation
Right granted pursuant to clause (ii) of the preceding sentence
(A) may be granted at the time the related Option is granted or at any
time prior to the exercise or cancellation of the related Option,
(B) shall cover the same number of Shares covered by an Option (or such
lesser number of Shares as the Committee may determine) and (C) shall be
subject to the same terms and conditions as such Option except for such
additional limitations as are contemplated by this Section 7 (or such
additional limitations as may be included in an Award agreement).

 

(b)                                 Terms.  The
exercise price per Share of a Stock Appreciation Right shall be an amount
determined by the Committee but in no event shall such amount be less than the
greater of (i) the Fair Market Value of a Share on the date the Stock
Appreciation Right is granted or, in the case of a Stock Appreciation Right
granted in conjunction with an Option, or a portion thereof, the Option Price
of the related Option and (ii) the minimum amount permitted by Applicable
Laws.  Each Stock Appreciation Right
granted independent of an Option shall entitle a Participant upon exercise to
an amount equal to (i) the excess of (A) the Fair Market Value on the
exercise date of one Share over (B) the exercise price per Share, times
(ii) the 

 

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number of Shares covered by the Stock Appreciation
Right.  Each Stock Appreciation Right
granted in conjunction with an Option, or a portion thereof, shall entitle a
Participant to surrender to the Company the unexercised Option, or any portion
thereof, and to receive from the Company in exchange therefore an amount equal
to (i) the excess of (A) the Fair Market Value on the exercise date
of one Share over (B) the Option Price per Share, times (ii) the
number of Shares covered by the Option, or portion thereof, which is
surrendered.  The date a notice of
exercise is received by the Company shall be the exercise date.  Payment shall be made in Shares or in cash,
or partly in Shares and partly in cash (any such Shares valued at such Fair
Market Value), all as shall be determined by the Committee.  Stock Appreciation Rights may be exercised
from time to time upon actual receipt by the Company of written notice of
exercise stating the number of Shares with respect to which the Stock
Appreciation Right is being exercised. 
No fractional Shares will be issued in payment for Stock Appreciation
Rights, but instead cash will be paid for a fraction or, if the Committee
should so determine, the number of Shares will be rounded downward to the next
whole Share.

 

(c)                                  Limitations.  The
Committee may impose, in its discretion, such conditions upon the
exercisability or transferability of Stock Appreciation Rights as it may deem
fit.

 

(d)                                 Limited Stock Appreciation Rights.  The
Committee may grant LSARs that are exercisable upon the occurrence of specified
contingent events.  Such LSARs may
provide for a different method of determining appreciation, may specify that
payment will be made only in cash and may provide that any related Awards are
not exercisable while such LSARs are exercisable.  Unless the context otherwise requires,
whenever the term “Stock Appreciation Right” is used in the Plan, such term
shall include LSARs.

 

8.                                       Other
Stock-Based Awards

 

The
Committee, in its sole discretion, may grant or sell Awards of Shares, Awards
of restricted Shares and Awards that are valued in whole or in part by
reference to, or are otherwise based on the Fair Market Value of, Shares (“Other
Stock-Based Awards”).  Such Other
Stock-Based Awards shall be in such form, and dependent on such conditions, as
the Committee shall determine, including, without limitation, the right to
receive, or vest with respect to, one or more Shares (or the equivalent cash
value of such Shares) upon the completion of a specified period of service, the
occurrence of an event and/or the attainment of performance objectives.  Other Stock-Based Awards may be granted alone
or in addition to any other Awards granted under the Plan.  Subject to the provisions of the Plan, the
Committee shall determine to whom and when Other Stock-Based Awards will be
made, the number of Shares to be awarded under (or otherwise related to) such
Other Stock-Based Awards; whether such Other Stock-Based Awards shall be
settled in cash, Shares or a combination of cash and Shares; and all other
terms and conditions of 

 

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such
Awards (including, without limitation, the vesting provisions thereof and
provisions ensuring that all Shares so awarded and issued shall be fully paid
and non-assessable).

 

9.                                       Adjustments
Upon Certain Events

 

Notwithstanding
any other provisions in the Plan to the contrary, the following provisions shall
apply to all Awards granted under the Plan:

 

(a)                                  Generally.  In the
event of any change in the outstanding Shares after the Effective Date by
reason of any Share dividend or split, reorganization, recapitalization,
merger, consolidation, spin-off, combination or transaction or exchange of
Shares or other corporate exchange, or any cash dividend or distribution to
shareholders of Shares (other than regular cash dividends) or any transaction
similar to the foregoing, the Committee shall, in its sole discretion in good
faith and without liability to any person shall make such substitution or
adjustment, if any, as it deems to be equitable (subject to Section 17),
as to (i) the number or kind of Shares or other securities issued or
reserved for issuance pursuant to the Plan or pursuant to outstanding Awards, (ii) the
maximum number of Shares for which Options or Stock Appreciation Rights may be
granted during a calendar year to any Participant, (iii) the maximum
number of Shares for which Other Stock-Based Awards may be granted during a
calendar year to any Participant, (iv) the maximum amount of an Award that
is valued in whole or in part by reference to, or is otherwise based on the
Fair Market Value of, Shares that may be granted during a calendar year to any
Participant, (v) the Option Price or exercise price of any Stock
Appreciation Right and/or (vi) any other affected terms of such Awards; provided,
that, for the avoidance of doubt, in the case of the occurrence of any of event
that constitutes an “equity restructuring” (within the meaning of the Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 123
(revised 2004)), the Committee shall make an equitable adjustment to
outstanding Awards to reflect such event.

 

(b)                                 Change in Control. In the event of a Change in Control after
the Effective Date, the Committee may (subject to Section 17), but shall
not be obligated to, (i) accelerate, vest or cause the restrictions to
lapse with respect to all or any portion of an Award, (ii) cancel any
Award for fair value (as determined by the Committee in its sole discretion in
good faith) which, in the case of Options and Stock Appreciation Rights, may
equal the excess, if any, of value of the consideration to be paid in the
Change in Control transaction, directly or indirectly, to holders of the same
number of Shares subject to such Options or Stock Appreciation Rights (or, if
no consideration is paid in any such transaction, the Fair Market Value of the
Shares subject to such Options or Stock Appreciation Rights) over the aggregate
Option Price of such Options or exercise price of such Stock Appreciation
Rights, (iii) subject to any limitations or reductions as may be 

 

9

 

necessary to comply with Sections 424 or 409A of
the Code and, in each case, the applicable regulations thereunder, provide for
the issuance of substitute Awards that will preserve the rights under, and the
otherwise applicable terms of, any affected Awards previously granted hereunder
as determined by the Committee in its sole discretion in good faith, or (iv) provide
that for a period of at least 15 days prior to the Change in Control, such
Options shall be exercisable as to all Shares subject thereto (whether or not
vested) and that upon the occurrence of the Change in Control, such Options
shall terminate and be of no further force and effect.

 

10.                                 No
Right to Employment or Awards

 

The
granting of an Award under the Plan shall impose no obligation on the Company
or any Affiliate to continue the Employment of a Participant and shall not
lessen or affect the Company’s or any Affiliate’s right to terminate the
Employment of such Participant.  No
Participant or other Person shall have any claim to be granted any Award, and
there is no obligation for uniformity of treatment of Participants, or holders
or beneficiaries of Awards.  The terms
and conditions of Awards and the Committee’s determinations and interpretations
with respect thereto need not be the same with respect to each Participant
(whether or not such Participants are similarly situated).

 

11.                                 Successors
and Assigns

 

The
Plan shall be binding on all successors and assigns of the Company and each
Participant, including without limitation, the estate of each such Participant
and the executor, administrator or trustee of any such estate, and any receiver
or trustee in bankruptcy or representative of the creditors of any such
Participant.

 

12.                                 Nontransferability
of Awards

 

Unless expressly permitted by the Committee in an
award Agreement or otherwise in writing, 
and, in each case, to the extent permitted by Applicable Law, an Award
shall not be transferable or assignable by the applicable Participant other
than by will or by the laws of descent and distribution.  An Award exercisable after the death of a
Participant may be exercised by the legatees, personal representatives or
distributees of the Participant.

 

13.                                 Amendments
or Termination

 

The
Board may amend, alter or discontinue the Plan, but no amendment, alteration or
discontinuation shall be made, (a) without the approval of the
shareholders of the Company, if such action would (except as is provided in
Section 9 of the Plan) increase the total number of Shares reserved for
the purposes of the Plan or change the maximum number of Shares for which
Awards may be granted to any Participant, in
each case only to the extent such approval is required by the principal
national securities exchange on which the Shares are listed or admitted to
trading,  or (b) without the consent
of a Participant, if such action would diminish any of the rights of the
Participant under any Award theretofore granted to such Participant under the
Plan; provided, 

 

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however,
that the Committee may amend the Plan in such manner as it deems necessary to
permit the granting of Awards meeting the requirements of any Applicable Laws.

 

Without
limiting the generality of the foregoing, to the extent applicable,
notwithstanding anything herein to the contrary, this Plan and Awards issued
hereunder shall be interpreted in accordance with Section 409A of the Code
and Department of Treasury regulations and other interpretative guidance issued
thereunder, including without limitation any such regulations or other guidance
that may be issued after the Effective Date. 
Notwithstanding any provision of the Plan to the contrary, in the event
that the Committee determines that any amounts payable hereunder will be
taxable to a Participant under Section 409A of the Code and related
Department of Treasury guidance prior to payment to such Participant of such
amount, the Company may (a) adopt such amendments to the Plan and Awards
and appropriate policies and procedures, including amendments and policies with
retroactive effect, that the Committee determines necessary or appropriate to
preserve the intended tax treatment of the benefits provided by the Plan and
Awards hereunder and/or (b) take such other actions as the Committee
determines necessary or appropriate to comply with the requirements of Section 409A
of the Code.

 

14.                                 Multiple
Jurisdictions

 

In
order to assure the viability of Awards granted to Participants employed in
various jurisdictions, the Committee may, in its sole discretion, provide for
such special terms as it may consider necessary or appropriate to accommodate
differences in local law, tax policy or custom applicable in the jurisdiction
in which the Participant resides or is employed.  Moreover, the Committee may approve such
supplements to, amendments, restatements, or alternative versions of the Plan
as it may consider necessary or appropriate for such purposes without thereby
affecting the terms of the Plan as in effect for any other purpose; provided,
however, that no such supplements, amendments, restatements or alternative
versions shall increase the Share limitation contained in Section 3
hereof.  Notwithstanding the foregoing,
the Committee may not take any actions hereunder, and no Awards shall be
granted that would violate any Applicable Laws.

 

15.                                 Distribution
of Shares

 

The
obligation of the Company to make payments in Shares pursuant to an Award shall
be subject to all Applicable Laws and to any such approvals by government
agencies as may be required. 
Additionally, in the discretion of the Committee, American depositary
shares, or ADSs, may be distributed in lieu of Shares in settlement of any
Award, provided that the ADSs shall be of equal value to the Shares that would
have otherwise been distributed.  If the
number of Shares represented by an ADS is other than on a one-to-one basis, the
limitations contained in Section 3 shall be adjusted to reflect the
distribution of ADSs in lieu of Shares.

 

16.                                 Taxes

 

No
Shares shall be delivered under the Plan to any Participant until such
Participant has made arrangements acceptable to the Committee for the
satisfaction of any income and employment tax withholding obligations under any
Applicable Laws, in particular, the tax laws, rules, regulations and government
orders of the People’s Republic of China or the U.S. federal, 

 

11

 

state
or other local tax laws, as applicable. 
The Company and each of its Subsidiaries shall have the authority and
the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy federal, state, local and foreign
taxes (including the Participant’s payroll tax obligations, if any) required to
be withheld under any Applicable Laws with respect to any Award issued to the
Participant hereunder.  The Committee may
in its discretion and in satisfaction of the foregoing requirement allow a
Participant to elect to have the Company withhold Shares otherwise issuable
under an Award (or allow the return of Shares) having a Fair Market Value equal
to the sums required to be withheld. 
Notwithstanding any other provision of the Plan, the number of Shares
which may be withheld with respect to the issuance, vesting, exercise or
payment of any Award (or which may be repurchased from the Participant of such
Award after such Shares were acquired by the Participant from the Company) in
order to satisfy the Participant’s federal, state, local and other income and
payroll tax liabilities with respect to the issuance, vesting, exercise or
payment of the Award shall, unless specifically approved by the Committee, be
limited to the number of Shares which have a Fair Market Value on the date of
withholding or repurchase equal to the aggregate amount of such liabilities
based on the minimum statutory withholding rates for federal, state, local and
other income tax any payroll tax purposes that are applicable to such taxable
income.

 

17.                                 Section 409A

 

Notwithstanding
other provisions of this Plan or any Award agreements hereunder, no Award shall
be granted, deferred, accelerated, extended, paid out or modified under this
Plan in a manner that would result in the imposition of an additional tax under
Section 409A of the Code upon a Participant.  In the event that it is reasonably determined
by the Committee that, as a result of Section 409A of the Code, payments
in respect of any Award under the Plan may not be made at the time contemplated
by the terms of the Plan or the relevant Award agreement, as the case may be,
without causing the Participant holding such Award to be subject to taxation
under Section 409A of the Code, the Company will make such payment on the
first day that would not result in the Participant incurring any tax liability
under Section 409A of the Code.  The Company shall use commercially reasonable
efforts to implement the provisions of this Section 17 in good faith; provided
that neither the Company, the Committee nor any of the Company’s employees,
directors or representatives shall have any liability to any Participant with
respect to this Section 17.

 

18.                                 Choice
of Law

 

The
Plan shall be governed by and construed in accordance with the laws of the
Cayman Islands.

 

19.                                 Effectiveness
of the Plan

 

The
Plan shall be effective as of the Effective Date and shall terminate ten years later, subject to earlier termination by the Board pursuant to Section 13
hereof.

 

12EXHIBIT 10.2

 

ENDORSEMENT TO 10% SENIOR SECURED CONVERTIBLE NOTE

 

Precision Optics Corporation, Inc.

New York, New York

October 15, 2010

 

The
10% Senior Secured Convertible Note dated June 25, 2008 and amended
December 11, 2008, June 25, 2010 and July 26, 2010 (the “Note”)
of Precision Optics Corporation, Inc., a Massachusetts corporation (the “Company”),
payable to the order of Special Situations Private Equity Fund, L.P. (the “Holder”)
in an aggregate principal amount of $275,000 and to which the Endorsement is
affixed is hereby amended in the following respects:

 

1.             The term “Stated Maturity
Date” is hereby restated to be “November 15, 2010.”

 

2.             Except as
expressly amended by this Endorsement, the Note remains in full force and
effect and the Company hereby reconfirms its obligations thereunder.

 

IN
WITNESS WHEREOF, the Company has caused this Endorsement to be duly executed,
and the Holder has caused this Endorsement to be duly accepted, by their
respective duly authorized representatives as of the day and year first above
written.

 

 

	
   

  	
  PRECISION
  OPTICS CORPORATION, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Richard E. Forkey 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:
  Richard E. Forkey 

  
	
   

  	
   

  	
  Title:
  Chief Executive Officer

  

 

	
  Accepted:

  	
   

  
	
   

  	
   

  
	
  SPECIAL
  SITUATIONS PRIVATE EQUITY FUND, L.P.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Adam Stettner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:
  Adam Stettner

  	
   

  
	
   

  	
  Title:
  General Partner

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