MEADE INSTRUMENTS CORP, 10-K, 1998-05-29

MEADE INSTRUMENTS CORP
10-K, 1998-05-29
OPTICAL INSTRUMENTS & LENSES

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K
(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NO. 0-22183

MEADE INSTRUMENTS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

------------------------

<TABLE>
<S> <C>
DELAWARE 95-2988062
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION)

6001 OAK CANYON, IRVINE, CALIFORNIA 92620
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 451-1450

------------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE PER SHARE
(TITLE OF CLASS)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of May 27, 1998, there were outstanding 7,875,500 shares of the
Registrant's common stock, par value $0.01 per share ("common stock"), which is
the only class of common stock of the Registrant. As of May 27, 1998 the
aggregate market value of the shares of common stock held by non-affiliates of
the Registrant, computed based on the closing sale price of $11.00 per share as
reported by Nasdaq, was approximately $46.5 million.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the 1998 Annual Meeting of Stockholders of the
Registrant which will be filed with the Securities and Exchange Commission not
later than 120 days after February 28, 1998.

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<PAGE> 2

PART I

ITEM 1. BUSINESS

GENERAL

Meade Instruments is a leading designer and distributor of telescopes and
accessories for the beginning to serious amateur astronomer. Management believes
that the Company is recognized for its expertise in telescope innovation and the
high quality of its products. Meade has successfully introduced a wide range of
new products, resulting in what the Company believes to be the broadest and most
complete line of telescopes available. The Company offers more than 40 different
telescope models with several different optical configurations, as well as more
than 250 accessory products. The Company's telescopes range in aperture from 2
to 16 inches and in retail price from less than $100 to more than $15,000.

Since its founding in 1972, Meade has strived to develop a reputation for
providing the amateur astronomer with technically sophisticated products at
competitive prices. Meade manufactures the complete line of its advanced
astronomical telescopes in Irvine, California, including the production of the
optical systems, which are critical components of telescopes. Combining its
manufacturing expertise with its dedication to innovation, quality and value,
Meade has developed and produced some of the industry's most technologically
advanced consumer telescopes at affordable prices. Although professional and
institutional applications of Meade's telescopes are not Meade's primary market,
the Company's Schmidt-Cassegrain telescopes are used by many universities,
scientific laboratories and aerospace companies, including the University of
California, Los Alamos National Laboratory, Lawrence Livermore Laboratory,
National Radio Astronomy Observatory and NASA/Aames Research. The Company has
capitalized on its brand name recognition among serious amateur astronomers to
market successfully its less-expensive telescopes to beginning and intermediate
amateur astronomers. Meade has become a major supplier of telescopes to such
retailers as The Nature Company, Service Merchandise, Natural Wonders, Wal-Mart
and J.C. Penney. To complement its extensive line of telescopes and leverage its
distribution system, in 1996, the Company introduced a complete line of
binoculars to be sold under the Meade brand name.

Meade was sold by its founder and current Chief Executive Officer to a
private investor in 1986 and was then reacquired by the Company's current senior
management in 1991. After reacquisition, management reemphasized the importance
of research and development for new products and product enhancements. Meade
also significantly broadened the Company's less-expensive telescope line and
negotiated an exclusive arrangement with a Taiwanese company (the "Taiwanese
Factory") to manufacture substantially all of the Company's less-expensive
telescopes in accordance with the Company's proprietary designs. Meade also
increased the marketing of its products by advertising in periodicals directed
to amateur astronomers and by providing greater support to the Company's
dealers, specialty retailers, foreign distributors, mass merchandisers, and the
end users of Meade's products. Emphasis on research and development, enhancing
the Company's less-expensive telescope line, targeted marketing and end user
support continues. The Company committed over $800,000 to research and
development during fiscal 1998, with the majority of those expenditures centered
on the development of the Company's less-expensive telescope lines. Recently,
Meade has expanded its print advertising campaign into more than two dozen
consumer magazines in order to reach a broader segment of the consumer market.
Meade also publishes a comprehensive, full-color, high quality product catalogue
which provides significant product exposure to the serious amateur astronomer.
In addition, Meade publishes an abridged version of its product catalogue aimed
at the casual observer or general consumer with an interest in celestial or
terrestrial observing.

In the United States and Canada, the Company distributes its products
through a network of more than 500 specialty retailers and mass merchandisers,
which offer Meade's products in more than 1,000 retail store locations. The
Company also sells certain of its telescope models to selected national mail
order dealers. Meade sells its products internationally through a network of
approximately 30 foreign distributors, many of which service retail locations in
their respective countries. Export sales accounted for approximately 19% of the
Company's net sales for the fiscal year ended February 28, 1998. The Company
intends to continue to

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pursue an integrated strategy of product line expansion, aggressive marketing,
further expansion into the binocular market and expansion of the Company's
distribution network.

INDUSTRY OVERVIEW

Market-size data for the telescope and binocular industries is difficult to
obtain because many of the companies in the industries are either private or
subsidiaries or divisions of larger public companies. The Company believes that
the overall size of the telescope market is driven, in part, by the introduction
of new products.

The telescope industry is generally divided into two categories (i)
advanced astronomical telescopes for serious amateur astronomers who consider
astronomy to be an important leisure activity and (ii) less-expensive telescopes
for beginning to intermediate amateur astronomers. The market for advanced
astronomical or higher-end telescopes is characterized by frequent technological
developments, including the relatively recent introduction of electronic and
computer-aided features. Serious amateur astronomers demand that the optical,
electronic and mechanical performance of the telescopes and accessories they
purchase be of very high quality. This high-end telescope market, while smaller
than the less-expensive telescope market, continues to drive the technological
advances in the industry. Management believes that overall consumer awareness is
increased by the advances made in the high-end telescope market.

Within the industry, manufacturers generally offer three types of
telescopes (a) refracting telescopes, which use a lens at the upper end of the
optical tube to collect light, (b) reflecting telescopes, which use a concave
mirror as the primary optical element and (c) catadioptric (mirror-lens)
telescopes, which employ a combination of mirrors and lenses to form the image.
Each type has its own advantages: refractors are easy to maintain, yield sharp
images and are relatively inexpensive in smaller apertures; reflectors generally
are the lowest-cost means of purchasing larger apertures and are well suited to
the intermediate amateur astronomer; and mirror-lens telescopes are more
portable in larger apertures and are popular among serious amateur astronomers.

COMPETITIVE STRENGTHS

Meade believes that it derives significant benefits from its position as a
leading designer and distributor of telescopes and related products. These
benefits include its ability to offer its customers one of the most innovative,
broadest product lines available, embodying both high quality and value. The
Company attributes its success to the following competitive strengths:

New Products/Research and Development. Meade places a primary emphasis on
product innovation and quality through its research and development efforts. The
Company currently employs nine engineers on-site, developing new products,
technological advances and improvements to existing products, in an effort to
remain the industry leader. The Company is able to obtain additional benefits by
out-sourcing certain research and development services to supplement its
internal expertise. Because of this dedication to research and development, the
Company has been able to introduce many new products over time and has been able
to take advantage of certain market opportunities as they have occurred. See
"Business -- Products." Meade believes that the members of its senior level
management are among the most experienced in the telescope industry. The
Company's three most experienced officers have been employed in this industry
for an average of about 20 years. The Company, its management and its employees
are dedicated to the goal of producing technically superior yet
price-competitive products for the amateur astronomer and have been responsible
for some of the industry's most technically advanced consumer telescopes.

Broadest Line of Products. The Company's strategy has been to leverage its
brand name recognition and reputation for high-end telescopes to facilitate the
sales of its less-expensive telescopes. As a result, the Company believes it
currently has the most complete line of telescopes available, including more
than 40 different telescope models with several different optical configurations
as well as more than 250 accessory products. The Company's telescopes range in
aperture from 2 to 16 inches and in retail price from less than $100 to more
than $15,000.

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Optical Systems Expertise. Meade has made substantial investments to
develop an expertise in optical engineering, providing it with the ability to
produce high quality optics on-site. Meade employs highly skilled opticians who
use sophisticated manufacturing techniques and equipment, including specialized
optical polishing machines and vacuum-coating machines, to produce what the
Company believes to be the highest quality optics available in the consumer
telescope market.

Quality Control. Meade's manufacturing and engineering personnel coordinate
the manufacturing process in order to ensure that product quality is maintained
at a high level within an efficient cost structure. The Company has in place
quality controls covering all aspects of the manufacturing process of its
products, from each product's precision optical system to its final assembly and
testing. The Company manufactures all of its high-end advanced telescopes in its
manufacturing facility in Irvine, California, while most of the Company's
less-expensive telescopes are manufactured for the Company in Taiwan through an
exclusive arrangement with the Taiwanese Factory. This exclusive arrangement
provides the Company with the ability to exert control over the telescope
manufacturing process to ensure the quality and performance of its less-
expensive products. To support this arrangement, Meade regularly commits one of
its United States based quality control engineers to the Taiwanese Factory.

Broad Distribution Network. The Company's sales force works closely with
specialty retailers, distributors and mass merchandisers on product quality,
technical knowledge and customer service. Meade has its own on-site graphic arts
department to work with specialty retailers, distributors and mass merchandisers
to produce print advertising, hang-tags for displays within retail outlets, and
other point-of-sale support. This capability provides the Company's customers
with a comprehensive marketing program to assist in their sales efforts. As a
result of these efforts, Meade has become a major supplier of telescopes to such
retailers as The Nature Company, Service Merchandise, Natural Wonders, Wal-Mart,
J.C. Penney and Discovery Channel Stores. Meade also has an expanding
international presence. Export sales have grown from $4.2 million for the fiscal
year ended February 28, 1995 to $11.3 million for the fiscal year ended February
28, 1998.

Superior Customer Service. Meade believes that its high levels of customer
service and technical support are important factors that differentiate it from
its competitors. In an effort to provide each of the Company's customers with
post-sale service and to relieve them of the burden of such service, Meade has
established multiple dedicated toll-free telephone numbers so that its customers
and end users can call the Company's support personnel with any questions
relating to its products. The Company's experience is that product returns from
first-time telescope users have been historically higher than necessary for the
industry because such first-time customers are often unfamiliar with assembly
procedures and telescope operation. The Company believes that providing this
toll-free assistance reduces product returns by better educating first-time
users. In addition, in an effort to simplify assembly of the Company's products,
Meade pre-assembles a substantial portion of its telescopes prior to packaging.
Meade also makes available to telescope owners astronomical software and other
product enhancements.

PRODUCTS

Meade has developed and expanded its product line to include a full line of
telescopes and accessories for the beginning, intermediate and serious amateur
astronomer. Moreover, in addition to adding new products, the Company
continually refines and improves its existing products. Certain of Meade's
products are described in greater detail below:

Advanced Astronomical Telescopes. Among the Company's most sophisticated
products are its LX series Schmidt-Cassegrain and Maksutov-Cassegrain
telescopes, which incorporate an optical system that provides high-quality
resolution, contrast and light transmission. The LX series offers the serious
amateur a broad range of products from the economical 8" LX10 to the
state-of-the-art 16" LX200. The model LX200 telescopes, also available in 7, 8,
10, and 12-inch apertures, are the most popular of the Company's telescopes
among serious amateur astronomers. The LX200 telescopes feature a built-in
computer library of 64,350 celestial objects. These objects are catalogued in
the Company's proprietary hand-held keypad electronic command center, which
operates the computerized control system for the LX200 telescopes. By entering
any of the celestial objects into the keypad, the telescope automatically
locates and tracks the selected object. Also

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well received by the serious amateur market is the Company's line of Starfinder
telescopes. These larger-aperture reflecting telescopes are economically priced
and offer views of a wide range of celestial objects. During fiscal 1998, the
Company introduced its LXD500 series, a mid-priced line of telescopes on
equatorial mounts. These telescopes offer the serious amateur, with a preference
for an equatorial mount, a telescope ready for a wide range of advanced
photographic and visual applications. The advanced astronomical telescopes
collectively represented approximately 5% of telescope units shipped and
approximately 25% of the Company's net sales for the fiscal year ended February
28, 1998.

Entry-Level Telescopes. Designed specifically for the beginning to
intermediate amateur astronomer or terrestrial observer, the Company's
less-expensive 60mm to 114mm refracting and reflecting telescopes, as well as
the ETX mirror-lens telescope, include some of the features of the more advanced
telescopes at economical prices. The Company also offers several variations of
its small refracting and reflecting telescopes for distribution on an exclusive
basis of selected models to specific specialty retailers. These telescope models
comprise the lower-price end of the Company's product line. Sales of these
telescopes comprised approximately 95% of the Company's telescope units shipped
and approximately 56% of the Company's net sales for the fiscal year ended
February 28, 1998.

Binoculars. The Company recently introduced a complete line of consumer
binoculars that will initially be sold through the Company's existing
distribution network. The binoculars sold by the Company are purchased from
manufacturers outside the United States. Binoculars represented approximately 5%
of the Company's net sales for the fiscal year ended February 28, 1998.

Accessories. The Company also offers accessories for each of its telescope
series which range from additional eyepieces and camera adapters to CCD
autoguider/imagers and celestial observation software. Approximately 250
accessory products are currently available from the Company. Sales of
accessories represented approximately 14% of the Company's net sales for the
fiscal year ended February 28, 1998.

SALES AND MARKETING

The Company's telescopes and accessories are sold through a domestic
network of mail order dealers, specialty retailers and mass merchandisers and
through an international network of foreign distributors. The Company's high-end
products are generally sold through mail order dealers or single and multiple
location specialty retailers, while Meade's less-expensive products are sold in
a similar manner but are also sold through mass merchandisers. The Company
maintains direct contact with its larger domestic dealers and foreign
distributors through the Company's sales professionals. A network of independent
representatives is used to maintain contact with its smaller specialty
retailers.

The Company's sales force works closely with its dealers, specialty
retailers, distributors and mass merchandisers on product quality, technical
knowledge and customer service. The Company employs seven persons in sales
positions, all of whom have significant industry experience. These individuals
advise the Company's specialty retailers about the quality features of the
Company's products and provide answers to questions from specialty retailers as
well as directly from amateur astronomers. The Company stresses service to both
its customers and end users by providing marketing assistance in the form of
hang-tags, catalogue layouts and other print media as well as dedicated toll
free customer service telephone numbers. The Company believes toll free
telephone numbers help reduce the number of product returns from end users who
are generally unfamiliar with the assembly and operation of telescopes. In an
effort to further simplify assembly and use of the Company's products, Meade
preassembles a substantial portion of its telescopes prior to packaging. See
"Business -- Competitive Strengths -- Superior Customer Service." The Company's
products are regularly advertised in most major domestic and international
telescope and astronomy-related magazines and periodicals with comprehensive,
full color, technically informative advertisements which present a consistent
message of innovation and quality about the Company and its products. In
addition, the Company has recently launched an aggressive marketing program
aimed at expanding the existing telescope market through more traditional
consumer oriented print media. The Company's dedication to providing a high
level of customer service is one factor that management believes sets Meade
apart from its competition.

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CUSTOMERS

The Company markets its products domestically through a network of mail
order dealers, specialty retailers and mass merchandisers and internationally
through a network of foreign distributors. Included among the Company's
customers are the following retail outlets, mass merchandisers and foreign
distributors: The Nature Company, Natural Wonders, Service Merchandise, MIC
International Corp. (Japan), Astrocom GmbH (Germany), Wal-Mart, J.C. Penney and
Discovery Channel Stores. Generally, other than the recent addition of mass
merchandisers such as Service Merchandise and Wal-Mart, the Company's major
customers have not materially changed during the past three fiscal years.

During fiscal 1998, the Company sold its products to mail order dealers and
to more than 500 specialty retailers and mass merchandisers which offer Meade's
products in over 1,000 retail store outlets. During that period, Service
Merchandise and The Nature Company ("TNC"), the Company's largest customers,
accounted for approximately 14% and 12%, respectively, of the Company's net
sales. No customer other than Service Merchandise and TNC has accounted for more
than 10% of the Company's net sales during the last three fiscal years. The
Company's ten largest customers, in the aggregate, accounted for approximately
54% of the Company's net sales in fiscal 1998. The loss of, or the failure to
replace, any significant portion of the sales made to any significant customer
could adversely affect results of operations of the Company to the extent the
Company did not replace any such lost sales with increased sales to existing or
new customers.

OPERATIONS

Materials and Supplies. The Company purchases high grade optical glass in
order to avoid imperfections that can degrade optical performance. Lenses and
mirrors for the Company's domestically manufactured telescopes are individually
polished and hand-figured by a master optician to achieve a high level of
resolution. The Company purchases metal telescope components from numerous
foundries, metal stamping and metal working companies. The Company's LX200
series telescopes require additional installation of the computerized drive and
celestial object database circuit board. The components of the board are
purchased from various suppliers and assembled by third party vendors and by
certain of the Company's manufacturing personnel. The boards are installed at
the Company's manufacturing facility and undergo a rigorous burn-in period prior
to shipment to customers.

Polishing and Hand Figuring. After a Schmidt-Cassegrain,
Maksutov-Cassegrain, ED-refractor or Newtonian glass surface is fine ground, the
mirror or lens is polished for up to 16 hours to obtain full transmission or
reflectivity. It is at this point that the Company's opticians perform the final
lens or mirror shaping (a process called figuring).

Optical Testing. As each of the Company's ED-refractor, Maksutov-Cassegrain
optical set, Schmidt-Cassegrain optical set, or parabolic Newtonian primary
mirror progresses through the grinding, polishing and hand-figuring stages of
development, it is repeatedly tested and re-tested for irregularities,
smoothness of figure and correction.

Optical Alignment and Centration. Finished, individually-matched
Maksutov-Cassegrain and Schmidt-Cassegrain optical sets and matched ED-refractor
doublet objective lenses are sent to the optical alignment and centration
department, where each optical set is placed into a special optical tube that
permits rotation of the optical elements about their optical axes. With optimal
orientation fixed, each optics set is placed into machined housings of an
optical tube or collimation lens cell. The optical system is once again tested
and only after passing this final test is an optical tube system ready to be
used.

Most of the Company's less-expensive telescopes are manufactured
exclusively for the Company in Taiwan. Since 1990, the Company has worked
closely with the Taiwanese Factory, developing proprietary telescope designs and
instructing the Taiwanese Factory's personnel in the production of telescopes
that meet the Company's quality standards. In January 1995, in order to assure a
reliable flow of products to meet the Company's increasing requirements, and in
order to ensure the Company would be able to exert sufficient control over the
manufacturing process and thus ensure that its quality standards are maintained,
the Company and the Taiwanese Factory entered into a supply agreement ("the 1995
agreement") wherein the

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Taiwanese Factory agreed to manufacture telescopes exclusively for sale through
Meade and wherein Meade agreed to purchase essentially all of its less-expensive
telescopes from the Taiwanese Factory. The 1995 agreement expired on May 5,
1998. As of that date, the Company and the Taiwanese Factory entered into a new
supply agreement with exclusivity provisions that are similar to those of the
1995 agreement. The Company owns many of the designs and optical machine tooling
used by the Taiwanese Factory and regularly sends manufacturing and engineering
personnel to the manufacturing facility in Taiwan to ensure that high quality
telescopes are produced.

COMPETITION

The telescope and binocular industries are highly competitive and sensitive
to consumer needs and preferences. In the telescope market, Meade competes in
the United States and Canada with Celestron, Bushnell, Tasco and Simmons and, to
a lesser extent, with other significantly smaller companies which service niche
markets. In Europe and Japan, the Company competes primarily with Celestron,
Bresser Optik GmbH, and Vixen Optical Industries, Ltd., and with other smaller
regional telescope importers and manufacturers. In addition, some of the
Company's current and potential competitors in the telescope market may possess
greater financial or technical resources and competitive cost advantages due to
a number of factors, including, without limitation, lower taxes and
substantially lower costs of labor associated with manufacturing.

In the binocular market, which is generally more competitive than the
telescope market, with a greater number of competitors at each price point, the
Company competes primarily with Bushnell, Tasco, Nikon Inc., Canon Inc., Minolta
Camera, Co., Ltd., Pentax Corporation, Simmons and various smaller manufacturers
and resellers. Many of these competitors in the binocular market have
significantly greater brand name recognition and financial and technical
resources than those of the Company, and many have long-standing positions,
customer relationships and established brand names in their respective markets.

EMPLOYEES

As of February 28, 1998, Meade had 305 full-time employees. The Company
believes that it offers competitive compensation and other benefits and that its
employee relations are good. None of the Company's employees is represented by a
union. The success of the Company's future operations depends in large part on
the Company's ability to attract and retain highly skilled technical, marketing
and management personnel. There can be no assurance that the Company will be
successful in attracting and retaining such key personnel.

In order to enable its employees to share in the Company's growth and
prosperity, Meade established the Meade Instruments Corp. Employee Stock
Ownership Plan, effective March 1, 1996 (the "ESOP"). The ESOP provides
participating employees an opportunity to receive beneficial ownership of
Meade's common stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

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EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are the names, ages, titles and present and past positions
of the persons serving as executive officers of the Company as of May 15, 1998:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John C. Diebel............................. 54 Chairman of the Board and Chief Executive
Officer
Steven G. Murdock.......................... 46 President, Chief Operating Officer,
Secretary, Director
Joseph A. Gordon, Jr....................... 48 Senior Vice President -- North American
Sales, Director
Brent W. Christensen....................... 39 Vice President -- Finance and Chief
Financial Officer
Mark D. Peterson........................... 36 Vice President and General Counsel
Kenneth W. Baun............................ 50 Vice President -- Engineering
Robert A. Wood, III........................ 37 Vice President -- Manufacturing
</TABLE>

John C. Diebel founded Meade Instruments Corp. in 1972. He has been the
Chairman of the Board and Chief Executive Officer of the Company for the
majority of the time since December 1975. Prior to founding the Company, Mr.
Diebel worked as an engineer for TRW Inc. and Hughes Aircraft Co. Mr. Diebel
graduated from the California Institute of Technology with BS and MS degrees in
electrical engineering and received his Ph.D. degree in electrical engineering
from the University of Southern California.

Steven G. Murdock, a director of the Company since April 1996, has been the
Company's President and Chief Operating Officer since October 1990. From May
1980 to October 1990, Mr. Murdock was the Company's Vice President of Optics.
From November 1968 to May 1980, Mr. Murdock worked as the optical manager for
Coulter Optical, Inc., an optics manufacturer. Mr. Murdock received his BS
degree in business administration from California State University at
Northridge.

Joseph A. Gordon, Jr., a director of the Company since April 1996, has been
the Company's Senior Vice President -- North American Sales since June 1995.
From December 1984 to June 1995, he worked as the Company's Vice
President -- North American Sales. From January 1981 to December 1984, Mr.
Gordon was the Vice President of Sales at Celestron. Mr. Gordon graduated from
the University of Cincinnati with a BS degree in marketing.

Brent W. Christensen has been the Company's Vice President -- Finance since
June 1995 and Chief Financial Officer since April 1996. From August 1993 to June
1995, he worked as the Company's controller. Mr. Christensen is a Certified
Public Accountant, and from January 1985 to August 1993, he worked as an audit
manager with Ernst & Young LLP. Mr. Christensen received his BA degree in
business administration from California State University at Fullerton.

Mark D. Peterson has been the Company's Vice President and General Counsel
since October 1997. From October 1991 to October 1997, Mr. Peterson was an
attorney with O'Melveny & Myers LLP, specializing in corporate and securities
law. Mr. Peterson received a BS degree in accounting from Brigham Young
University and a JD degree from the University of California -- Berkeley, Boalt
Hall School of Law.

Kenneth W. Baun has been the Company's Vice President -- Engineering since
June 1995. From March 1995 to June 1995, he worked as an engineering manager for
the Company. From 1991 to 1995, Mr. Baun was the President of Summit Instruments
Corp., a producer of disk drive test equipment. In addition, from 1973 to 1980,
Mr. Baun worked as an engineering department manager at UNISYS. Mr. Baun
received his BA degree in electrical engineering and his MS degree in computer
science from the University of California at Los Angeles.

Robert A. Wood, III has been the Company's Vice President -- Manufacturing
since June 1995. From March 1991 to June 1995, he was the Company's
Manager-Optics. From October 1988 to March 1991, he

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worked as a project engineer for the Company. Mr. Wood received his BS degree in
electronics engineering technology from Brigham Young University.

ITEM 2. PROPERTIES

The Company leases a 161,000 square foot manufacturing, distribution and
corporate facility located in Irvine, California. The lease expires in September
2007. Net lease expenses on the facility are approximately $75,000 per month,
with fixed increases of approximately 3% per year.

ITEM 3. LEGAL PROCEEDINGS

Meade Instruments Corporation v. Reddwarf Starware, LLC, aka Reddwarf
Instruments, LLC ("Reddwarf"), Civil No. SACV 98-240 GLT, United States District
Court for the Central District of California. Action for declaratory relief
initiated by a complaint filed March 16, 1998, by the Company for declaratory
judgment of non-infringement of Reddwarf's U.S. Patent No. 4,764,881, for
declaratory judgment that Reddwarf's patent is invalid, void, and unenforceable,
and for an injunction and damages under Federal antitrust statutes and for an
injunction and other relief under California unfair competition statutes.

Reddwarf Starware, LLC v. Meade Instruments Corp. and Discovery
Communications, Inc., d.b.a. The Nature Company, Civil No. 98-480-A, United
States District Court for the Eastern District of Virginia. Acton for alleged
patent infringement initiated by a complaint filed April 2, 1998, by Reddwarf
alleging infringement by the Company's LX200 series telescope system (and
unspecified other products) of Reddwarf's U.S. Patent No. 4,764,881. The
complaint further alleges that the infringement is willful and seeks unspecified
damages, an injunction, and other relief against the Company.

The Company vigorously contests these allegations and will pursue its
defenses either in the context of its action for declaratory judgment of
non-infringement and invalidity in the United States District Court for the
Central District of California, or in the context of a counterclaim for
declaratory judgment of non-infringement and for declaratory judgment that
Reddwarf's patent is invalid, void, and unenforceable in the United States
District Court of the Eastern District of Virginia. Settlement efforts to date
have been unsuccessful and no further settlement negotiations have been
scheduled. Investigations by the Company's patent counsel to date reveal facts
that, in such counsel's opinion, give the Company meritorious defenses against
Reddwarf's patent. However, due to the uncertainties of litigation, the Company
is unable to provide an evaluation of the likelihood of an unfavorable outcome
in the case, or an estimate of the amount of potential loss in the event of an
unfavorable outcome.

The Company is also involved from time to time in litigation incidental to
its business. Management believes that the outcome of current litigation will
not have a material adverse effect on the Company.

Prior to the reacquisition of the Company by certain members of its senior
management, Meade agreed to be bound by the provisions of an order ("Order") of
the United States Federal Trade Commission ("FTC") prohibiting the Company from
making certain acquisitions. The Order provides that Meade shall not acquire,
without the prior approval of the FTC, any stock, equity interest or assets,
other than purchases of manufactured product in the ordinary course of business,
of any company engaged in the manufacture or sale of Schmidt-Cassegrain
telescopes with apertures of 8 to 11 inches in the United States. The Order is
effective until August 30, 2001.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of the fiscal year covered by this report.

8
<PAGE> 10

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's initial public offering was completed on April 14, 1997 (the
"Offering"), and from that date to the present, the Company's common stock has
been listed on the Nasdaq National Market under the symbol "MEAD." The high and
low sales prices on a per share basis for the Company's common stock during each
quarterly period for the fiscal year ended February 28, 1998 were:

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28, 1998: HIGH LOW
----------------------------- ---- ---
<S> <C> <C>
Fourth quarter............................................ $10.00 $8.63
Third quarter............................................. $10.75 $7.63
Second quarter............................................ $ 8.63 $6.88
First quarter............................................. $ 7.75 $6.25
</TABLE>

The reported closing sales price of the Company's common stock on the
Nasdaq National Market on May 15, 1998 was $10.56. As of May 15, 1998, there
were 35 holders of record of the Company's common stock.

Other than dividends paid to the Company's ESOP in August 1996, the Company
has not paid any cash dividends on its common stock and does not anticipate
declaring or paying any dividends on its common stock in the foreseeable future.
Although the Company intends to make future contributions to the ESOP upon Board
approval, no dividends (other than dividends paid to all holders of common
stock) will be paid to the ESOP with respect to future periods.

9
<PAGE> 11

ITEM 6. SELECTED FINANCIAL DATA

SELECTED FINANCIAL INFORMATION
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND WEIGHTED AVERAGE SHARE AMOUNTS)

The following data have been derived from the Company's audited financial
statements, including the balance sheets at February 28, 1997 and 1998 and the
statements of income for the three years ended February 28, 1998 and the notes
thereto appearing elsewhere herein.

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28(29),
--------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales...................................... $ 16,628 $ 24,934 $ 29,770 $ 47,151 $ 59,905
Cost of sales.................................. 11,670 17,040 20,054 31,845 38,245
---------- ---------- ---------- ---------- ----------
Gross profit................................. 4,958 7,894 9,716 15,306 21,660
Selling expenses............................... 1,565 2,035 2,832 4,759 6,771
General and administrative expenses (1)........ 1,378 2,118 2,951 5,970 6,564
Research and development expenses.............. 425 423 518 628 854
Amortization of deferred credit................ (53) -- -- -- --
---------- ---------- ---------- ---------- ----------
Operating income............................. 1,643 3,318 3,415 3,949 7,471
Interest expense............................... 493 470 659 1,657 1,034
---------- ---------- ---------- ---------- ----------
Income before income taxes................... 1,150 2,848 2,756 2,292 6,437
Income taxes................................... 110 797 1,200 960 2,702
---------- ---------- ---------- ---------- ----------
Net income..................................... 1,040 2,051 1,556 1,332 3,735
Accretion on redeemable preferred stock(2)..... -- -- -- (4,310) (374)
---------- ---------- ---------- ---------- ----------
Net income (loss) available to common
stockholders................................. $ 1,040 $ 2,051 $ 1,556 $ (2,978) $ 3,361
========== ========== ========== ========== ==========
Per share information:
Net income before adjustment to net income
available per common share................... $ 0.23 $ 0.45 $ 0.34 $ 0.34 $ 0.58
Accretion on redeemable preferred stock(2)..... -- -- -- (1.10) (0.06)
---------- ---------- ---------- ---------- ----------
Net income (loss) per share available to common
stockholders -- basic and diluted............ $ 0.23 $ 0.45 $ 0.34 $ (0.76) $ 0.52
========== ========== ========== ========== ==========
Weighted average common shares outstanding --
basic........................................ 4,571,000 4,571,000 4,571,000 3,938,000 6,410,000
========== ========== ========== ========== ==========
Weighted average common shares outstanding --
diluted...................................... 4,571,000 4,571,000 4,571,000 3,938,000 6,458,000
========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Working capital................................ $ 1,176 $ 3,358 $ 4,183 $ 6,252 $ 15,417
Total assets................................... 7,992 10,197 13,035 20,524 24,592
Total current liabilities...................... 6,153 5,827 7,364 11,775 5,829
Long-term debt, net of current portion......... 571 650 450 6,599 --
Redeemable preferred stock..................... -- -- -- 6,490 --
Stockholders' equity (deficit)................. 1,164 3,215 4,771 (4,952) 18,422
</TABLE>

- ---------------
(1) General and administrative expenses for the fiscal years ended February 28,
1997 and 1998 included ESOP contribution expenses of $2.0 million and $1.1
million, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

(2) Represents accretion reflecting original issue discount and accrued
dividends on the redeemable preferred stock. In January 1997 the Company
entered into a binding agreement to redeem its redeemable preferred stock
earlier than the original mandatory redemption date. The accretion was
accelerated in the fiscal year ended February 28, 1997 to reflect the new
redemption date (April 14, 1997) and the Company recorded an additional $3.4
million in accelerated accretion on the redeemable preferred stock

10
<PAGE> 12

pursuant to the redemption agreement (resulting in an aggregate $4.3 million
accretion for fiscal 1997). The Company recorded a final accretion adjustment of
approximately $374,000 during the first quarter of fiscal 1998 related to the
redemption of the redeemable preferred stock.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis of the Company's financial condition
and results of operations is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Report.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain items
from the Company's statements of income as a percentage of net sales for the
periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28(29),
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0%
Cost of sales....................................... 67.4 67.5 63.8
----- ----- -----
Gross profit........................................ 32.6 32.5 36.2
Operating expenses:
Selling expenses.................................. 9.5 10.1 11.3
General and administrative expenses............... 9.9 12.6 11.0
Research and development expenses................. 1.7 1.4 1.4
----- ----- -----
Total operating expenses....................... 21.1 24.1 23.7
----- ----- -----
Income from operations.............................. 11.5 8.4 12.5
Interest expense.................................... 2.2 3.5 1.8
----- ----- -----
Income before income taxes.......................... 9.3 4.9 10.7
Provision for income taxes.......................... 4.0 2.1 4.5
----- ----- -----
Net income.......................................... 5.3 2.8 6.2
===== ===== =====
</TABLE>

FISCAL 1998 COMPARED TO FISCAL 1997

Net sales increased from $47.2 million in fiscal 1997 to $59.9 million in
fiscal 1998, an increase of 26.9%. This increase was primarily due to (i) an
increase of $7.0 million in net sales of entry-level telescopes, reflecting
demand for smaller aperture more affordable telescopes and (ii) a combined
increase of $4.8 million in net sales of binoculars and telescope accessories
reflecting a full year of binocular sales (binoculars were introduced in late
fiscal 1997) and increased demand for accessories.

Gross profit increased from $15.3 million (32.5% of net sales) in fiscal
1997 to $21.7 million (36.2% of net sales) in fiscal 1998, an increase of 41.8%.
Gross profit as a percentage of net sales improved due to a sales mix that
included strong demand for more profitable lines of domestically manufactured
product, as well as sales of accessories and binoculars which generally have
higher gross profit margin than the Company's other products.

Selling expenses increased from $4.8 million (10.1% of net sales) in fiscal
1997 to $6.8 million (11.3% of net sales) in fiscal 1998, an increase of 41.7%.
This increase principally reflects (i) higher advertising and other selling
expenses to support higher sales volumes for the 1998 fiscal year as compared to
the 1997 fiscal year, (ii) higher freight and other shipping costs due to higher
sales volumes in fiscal 1998 as compared to fiscal 1997 and (iii) higher selling
and shipping personnel expenses for fiscal 1998 as compared to fiscal 1997.

General and administrative expenses increased from $6.0 million (12.6% of
net sales) for the fiscal year ended February, 1997 to $6.6 million (11.0% of
net sales) for the 1998 fiscal year. Included in general and administrative
expenses were ESOP contribution expenses of $2.0 million (including a one-time
$995,000

11
<PAGE> 13

ESOP contribution charge for a dividend paid on the ESOP stock in August 1996)
and $1.1 million for the 1997 and 1998 fiscal years, respectively. General and
administrative expenses, excluding ESOP expenses, for the fiscal year ended
February 28, 1998 increased 37.5% over the prior year. This increase was
generally due to increases in personnel related costs, costs and expenses
related to moving to the Company's new facility, costs associated with being a
public company and general increases across a broad category of expenses to
support higher sales volumes during fiscal 1998.

Research and development expenses increased from $628,000 (1.4% of net
sales) in fiscal 1997 to $854,000 (1.4% of net sales) in fiscal 1998, an
increase of 36.0%. This increase was due to higher personnel related costs and
higher outside consulting costs during fiscal 1998 as compared to the prior
fiscal year.

Interest expense decreased from $1.7 million for the fiscal year ended
February 28, 1997 to $1.0 million for the 1998 fiscal year, a decrease of 41.2%.
Included in interest expense for the 1998 fiscal year is approximately $400,000
recognized pursuant to the write-off of previously capitalized debt issuance
costs related to bank term debt that was retired with the proceeds of the
Offering in April 1997. Interest expense for the 1998 fiscal year before the
write-off of $400,000 of debt issuance costs, decreased 64.7% compared to the
prior year due to lower average borrowings on the Company's line of credit and
the elimination of the long-term bank debt that was retired with the proceeds of
the Offering.

FISCAL 1997 COMPARED TO FISCAL 1996

Net sales increased from $29.8 million in fiscal 1996 to $47.2 million in
fiscal 1997, an increase of 58.4%. This increase was primarily due to (i) an
increase of $11.3 million in net sales of less-expensive telescopes, primarily
due to increases in sales to mass merchandisers, (ii) an increase of
approximately $4.0 million in net sales of new products introduced in late
fiscal 1996 and early fiscal 1997, including the ETX Astro Telescope, the LX50
and the LX10 lines of Schmidt-Cassegrain and Maksutov-Cassegrain telescopes and
(iii) an increase of $1.9 million in net sales of telescope accessories.

Gross profit increased from $9.7 million (32.6% of net sales) in fiscal
1996 to $15.3 million (32.5% of net sales) in fiscal 1997, an increase of 57.7%.
Gross profit as a percentage of net sales remained relatively constant as result
of variations in product mix.

Selling expenses increased from $2.8 million (9.5% of net sales) in fiscal
1996 to $4.8 million (10.1% of net sales) in fiscal 1997, an increase of 71.4%.
This increase principally reflects (i) higher advertising and other selling
expenses to support higher sales volumes for the 1997 fiscal year as compared to
the 1996 fiscal year, (ii) higher freight and other shipping costs due to higher
sales volumes in fiscal 1997 as compared to fiscal 1996 and (iii) higher costs
due to a net increase in selling and shipping personnel for fiscal 1997 as
compared to fiscal 1996.

General and administrative expenses increased from $3.0 million (9.9% of
net sales) in fiscal 1996 to $6.0 million (12.6% of net sales) in fiscal 1997,
an increase of 100%. Included in general and administrative expenses during
fiscal 1997 were ESOP contribution expenses of $2.0 million consisting of (i) an
accrual of $1.0 million related to the Company ESOP contribution and (ii)
dividends of $995,000 declared and paid on the Series B common stock held by the
ESOP. All shares of Series B common stock were converted into shares of common
stock as of the closing of the Offering. The dividends paid are treated as an
ESOP contribution as the dividends are used to repay the principal balance of a
loan payable by the ESOP to the Company. General and administrative expenses,
excluding ESOP expenses, increased from $3.0 million (9.9% of net sales) in
fiscal 1996 to $4.0 million (8.4% of net sales) in fiscal 1997, an increase of
33.3%. This increase principally reflects higher personnel-related costs and
general office costs in fiscal 1997 as compared to fiscal 1996. The decrease in
general and administrative expenses as a percentage of net sales in fiscal 1997
as compared to fiscal 1996 was primarily due to the relatively fixed nature of
the Company's general and administrative expenses.

Research and development expenses increased from $518,000 (1.7% of net
sales) in fiscal 1996 to $628,000 (1.4% of net sales) in fiscal 1997, an
increase of 21.2%. This increase was primarily due to higher

12
<PAGE> 14

personnel related costs and higher outside consulting costs during fiscal 1997
as compared to the prior fiscal year.

Interest expense increased from $659,000 for fiscal 1996 to $1.7 million
for fiscal 1997, an increase of 158.0%. This increase was principally due to (i)
interest expense on the bank term debt incurred in connection with the ESOP
recapitalization in April 1996 and (ii) increased average outstanding balances
on the bank line of credit to support higher receivables and inventories
associated with increased sales of less-expensive telescopes during fiscal 1997
as compared to fiscal 1996.

Income taxes decreased from $1.2 million (43.5% of income before income
taxes) for fiscal 1996 to $960,000 (41.9% of income before income taxes) for
fiscal 1997. The reduction in the tax rate for the fiscal year 1997 as compared
to fiscal 1996 was due to differences in the effect of expenses not deductible
for tax purposes in each period.

SEASONALITY AND QUARTERLY RESULTS OF OPERATIONS

The Company has experienced, and expects to continue to experience,
substantial fluctuations in its sales, gross margins and profitability from
quarter to quarter. Factors that influence these fluctuations include the volume
and timing of orders received, changes in the mix of products sold, market
acceptance of the Company's products, competitive pricing pressures, the
Company's ability to meet increasing demand and delivery schedules, the timing
and extent of research and development expenses, the timing and extent of
product development costs and the timing and extent of advertising expenditures.
In addition, a substantial portion of the Company's net sales and operating
income typically occurs in the third quarter of the Company's fiscal year
primarily due to disproportionately higher customer demand for less-expensive
telescopes during the holiday season. The Company has recently experienced
increased sales to mass merchandisers. Mass merchandisers, along with specialty
retailers, purchase a considerable amount of their inventories to satisfy such
seasonal customer demand. These purchasing patterns have caused the Company to
increase its level of inventory during its second and third quarters in response
to such demand or anticipated demand. As a result, the Company's working capital
requirements have correspondingly increased at such times.

The following tables (in thousands of dollars) present unaudited financial
results for each of the eight quarters in the period ended February 28, 1998.
The Company believes that all necessary adjustments have been included to
present fairly the quarterly information when read in conjunction with the
financial statements and notes included elsewhere in this Report. The operating
results for any quarter are not necessarily indicative of the results for any
subsequent quarter.

<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $7,166 $12,031 $19,769 $8,185 $12,735 $12,289 $24,105 $10,776
Gross profit........................ 2,154 3,926 6,619 2,607 4,209 4,402 8,961 4,088
ESOP contribution................... 250 1,245 250 250 250 250 300 300
Operating income (loss)............. 149 557 3,245 (2) 1,232 1,244 4,574 421
Net income (loss)................... $ (58) $ 53 $ 1,570 $ (233) $ 376 $ 633 $ 2,534 $ 192
</TABLE>

Quarterly results can be affected by a number of factors including the
timing of orders, production delays or inefficiencies, and raw materials
availability. See "Business -- Operations -- Materials and Supplies."

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations primarily through internally
generated cash flow, borrowings from banks and financial institutions and
proceeds from the Offering (in April 1997). For the fiscal year ended February
28, 1998, the Company generated cash flow from operations of $5.5 million. At
February 28, 1998, the Company had accounts receivable of $6.0 million,
inventory of $11.9 million and working capital of $15.4 million.

13
<PAGE> 15

Capital expenditures, including financed purchases of equipment, aggregated
$2,130,000, $613,000 and $664,000 for the fiscal years ended February 28, 1998,
February 28, 1997 and February 29, 1996, respectively. The Company had no
material capital expenditure commitments as of February 28, 1998.

The Company leases a 161,000 square foot manufacturing, distribution and
corporate facility. The lease expires in September 2007. Net lease expenses on
the new facility are approximately $75,000 per month, with fixed increases of
approximately 3% per year.

In April 1997 the Company completed the Offering which generated net
proceeds to the Company of approximately $18.0 million upon the sale of
2,875,500 shares of Common stock by the Company.

In April 1996, the Company entered into a five-year Loan and Security
Agreement with Fleet Capital Corporation ("Fleet") which provided for (i) a
$10.0 million revolving line of credit, secured by the Company's accounts
receivable and inventories and (ii) a $9.5 million term note (the "term note")
secured by the assets of the Company. The term note was repaid on April 14, 1997
with the proceeds of the Offering. As of January 15, 1998 the Company entered
into an Amended and Restated Loan and Security Agreement with Fleet which
provides a $20 million credit facility consisting of (i) a $15 million revolving
line of credit and (ii) a $5 million term note. The $20 million credit facility
is secured by a blanket lien on the assets of the Company.

In April 1996, the Company was recapitalized through the sale of redeemable
preferred stock to Churchill ESOP Capital Partners, A Minnesota Limited
Partnership ("Churchill"). For proceeds of $6.0 million, the Company sold 1,000
shares of newly-issued redeemable preferred stock to Churchill and issued a
warrant to Churchill to purchase 1,000,000 shares of common stock at $0.01 per
share. The warrant was exercised in full in April 1996. The redeemable preferred
stock was redeemed by the Company on April 14, 1997 with proceeds received from
the Offering. The redemption amount was approximately $6.9 million.

In April 1996, the Company made an $11.0 million term loan to the ESOP (the
"ESOP Loan"), the proceeds of which were used by the ESOP to purchase the
Company's Series B Common stock from senior management. The ESOP pledged the
stock back to the Company as security for the ESOP Loan. The ESOP Loan has a
ten-year term and bears interest at 6% per annum. Principal and interest are due
annually, subject to the Company making contributions to the ESOP to fund the
principal and interest payments.

Contributions to the ESOP are accounted for as a contribution expense on
the Company's income statement and are accrued quarterly based upon the expected
annual contribution amount. As quarterly contributions are accrued, the
corresponding shares are added to weighted average common shares outstanding and
unearned ESOP shares on the Company's Balance Sheet are reduced.

The ESOP uses the contributions to repay amounts due on the ESOP Loan. The
ESOP contribution expense is a net non-cash charge which is added back to net
income to arrive at cash flows provided by operating activities. As the Company
makes these non-cash contributions to the ESOP to fund the repayment of the ESOP
Loan, the Company will realize cash tax savings equal to the product of the tax
basis of the contributions multiplied by the applicable statutory tax rates in
effect at the time.

The dividend of $995,000 paid in August 1996 to the ESOP on the shares of
Series B Common stock was also accounted for as a contribution expense because
the dividends were used to repay the principal balance of the ESOP Loan. The
dividend and related repayment of a portion of the ESOP Loan resulted in the
release of approximately 136,000 shares of Series B common stock from unearned
ESOP shares. All shares of Series B common stock were converted into common
stock as of the closing of the Offering.

The Company believes that internally generated cash flow and borrowing
ability will be sufficient to meet its operating, working capital and capital
expenditure requirements through the next twelve months. In the event the
Company's plans require more capital than is presently anticipated, the
Company's remaining cash balances may be consumed and additional sources of
liquidity, such as debt or equity financings, may be required to meet its
capital needs. There can be no assurance that additional capital beyond the
amounts the Company currently requires will be available on reasonable terms, if
at all.

14
<PAGE> 16

INFLATION

The Company does not believe that inflation has had a material effect on
the results of operations during the past three years. There can be no assurance
that the Company's business will not be affected by inflation in the future.

NEW ACCOUNTING PRONOUNCEMENTS

Effective March 1, 1998, the Company adopted the Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS No.
130") and Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"). The adoption of SFAS No. 130 and SFAS No.
131 by the Company had no impact on the Company's financial statements.

FORWARD-LOOKING INFORMATION

The preceding "Business" section and this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section contain
various "forward looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, which represent the Company's reasonable
judgment concerning the future and are subject to risks and uncertainties that
could cause the Company's actual operating results and financial position to
differ materially, including the following: the Company's ability to reach new
market participants as a result of its increased advertising and marketing
efforts; the Company's ability to continue to develop and bring to market new
and innovative products; the Company's ability to retain and expand the
telescope, binocular and other optical products markets; the Company expanding
its distribution network; the Company experiencing fluctuations in its sales,
gross margins and profitability from quarter to quarter consistent with prior
periods; and the Company's expectation that it will have sufficient funds to
meet any working capital requirements during the foreseeable future with
internally generated cash flow and borrowing ability.

In addition to other information in this Report, the Company cautions that
certain factors, including without limitation the following, should be
considered carefully in evaluating the Company and its business and that such
factors may cause the Company's actual operating results to differ materially
from those set forth in the forward looking statements described above or to
otherwise be adversely affected: any significant decline in general economic
conditions or uncertainties regarding future economic prospects that affect
consumer spending; any general decline in the size of the telescope market or
any segment of the telescope market in which the Company competes, whether from
general economic conditions, a decrease in the popularity of telescopes or
otherwise; any inability to continue to design and manufacture products that
will achieve commercial success; any product designs being rendered obsolete
within a relatively short period of time as new products are introduced into the
market; any failure of the Company to penetrate the binocular market and achieve
meaningful sales; any unexpected termination or interruption of the Company's
manufacturing arrangements with the Taiwanese Factory; greater than anticipated
competition; any loss of, or the failure to replace, any significant portion of
the sales made to any significant customer of the Company; the inherent risks
associated with international sales, including variations in local economies,
fluctuating exchange rates (including conversion to Euros), increased difficulty
of inventory management, greater difficulty in accounts receivable collections,
costs and risks associated with localizing products for foreign countries,
changes in tariffs and other trade barriers, adverse foreign tax consequences,
cultural differences affecting product demand and customer service and burdens
of complying with a variety of foreign laws; and the inherent risks associated
with products manufactured by foreign suppliers located primarily in Taiwan,
Korea, Japan and the Peoples Republic of China, including, among other things,
imposition of quotas or trade sanctions, decline in the value of the U.S. dollar
against local currencies causing an effective increase in the price of finished
products and components or the decline in value of local currencies against the
U.S. dollar resulting in competitive products being manufactured for lower costs
and thus exerting downward pricing pressures on the Company's products, shipment
delays and the political instability between China and Taiwan.

15
<PAGE> 17

The Company is currently addressing a potential problem facing many users
of automated information systems. The widespread use of two-digit date computer
programs to perform computations and decision-making functions may cause
computer systems to malfunction in the year 2000, which could lead to business
delays and disruptions in the U.S. and internationally. The Company has made and
will continue to make modifications in its computer systems to address this
problem. The Company expects to complete these modifications prior to the end of
calendar 1999 at a cost that is not expected to be material to the operations of
the Company. However, due to the independent nature of computer systems, the
Company may be adversely impacted depending on whether or not other entities not
affiliated with the Company address this issue successfully.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information with respect to this item is set forth in "Index to Financial
Statements."

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to this item is incorporated by reference from the
Company's definitive Proxy Statement to be filed with the Commission within 120
days after the close of the Company's fiscal year. Information regarding
executive officers of the Company is set forth under the caption "Executive
Officers of the Registrant" in Item 1 hereof.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

(a) 1. The documents described in the "Index to Financial Statements" are
included in this report starting at page F-1.

2. All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.

3. Exhibits included or incorporated herein: See Exhibit Index.

(b) REPORTS ON FORM 8-K:

None.

16
<PAGE> 18

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Meade Instruments Corp.
Report of Independent Accountants......................... F-2
Balance Sheets............................................ F-3
Statements of Income...................................... F-4
Statements of Stockholders' Equity (Deficit).............. F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
</TABLE>

F-1
<PAGE> 19

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF MEADE INSTRUMENTS CORP.

In our opinion, the accompanying balance sheets and the related statements
of income, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Meade Instruments Corp. at
February 28, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended February 28, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Costa Mesa, California
April 2, 1998

F-2
<PAGE> 20

MEADE INSTRUMENTS CORP.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1997 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 4,000 $ 1,649,000
Accounts receivable, less allowance for doubtful accounts
of $248,000 in 1997 and $485,000 in 1998............... 4,830,000 6,024,000
Inventories (Note 11)..................................... 12,077,000 11,910,000
Deferred income taxes..................................... 885,000 1,424,000
Prepaid expenses and other current assets................. 231,000 239,000
------------ -----------
Total current assets.............................. 18,027,000 21,246,000
Other assets................................................ 1,047,000 361,000
Property and equipment, net (Note 11)....................... 1,450,000 2,985,000
------------ -----------
$ 20,524,000 $24,592,000
============ ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank line of credit (Note 2).............................. $ 4,358,000
Current portion of long-term debt (Note 4)................ 1,584,000
Current portion of capital lease obligations (Note 5)..... 218,000 $ 205,000
Accounts payable.......................................... 2,195,000 1,326,000
Accrued liabilities(Note 11).............................. 2,358,000 2,692,000
Income taxes payable...................................... 1,062,000 1,606,000
------------ -----------
Total current liabilities......................... 11,775,000 5,829,000
------------ -----------
Long-term debt, net of current portion (Note 4)............. 6,599,000
------------ -----------
Long-term capital lease obligations, net of current portion
(Note 5).................................................. 547,000 341,000
------------ -----------
Deferred rent............................................... 65,000
------------ -----------
Commitments and contingencies(Note 5)
Redeemable Series A preferred stock; 1,000 shares
authorized, issued and outstanding (Note 6)............... 6,490,000
------------ -----------
Stockholders' equity (deficit):
Preferred stock; 999,000 shares authorized, none issued
and outstanding........................................
Common stock; $0.01 par value; 20,000,000 shares
authorized; 7,875,500 shares issued and outstanding at
February 28, 1998...................................... 79,000
Series A common stock; 15,000,000 shares authorized;
3,500,000 shares issued and outstanding at February 28,
1997................................................... 3,511,000
Series B common stock; 5,000,000 shares authorized;
1,500,000 shares issued and outstanding at February 28,
1997 (Note 7)..........................................
Additional paid-in capital................................ 21,445,000
Retained earnings......................................... 1,542,000 4,903,000
------------ -----------
5,053,000 26,427,000
Unearned ESOP shares (Note 7)............................. (10,005,000) (8,005,000)
------------ -----------
Total stockholders' equity (deficit).............. (4,952,000) 18,422,000
------------ -----------
$ 20,524,000 $24,592,000
============ ===========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE> 21

MEADE INSTRUMENTS CORP.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28(29),
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................... $29,770,000 $47,151,000 $59,905,000
Cost of sales....................................... 20,054,000 31,845,000 38,245,000
----------- ----------- -----------
Gross profit...................................... 9,716,000 15,306,000 21,660,000
Selling expenses.................................... 2,832,000 4,759,000 6,771,000
General and administrative expenses................. 2,951,000 5,970,000 6,564,000
Research and development expenses................... 518,000 628,000 854,000
----------- ----------- -----------
Operating income.................................. 3,415,000 3,949,000 7,471,000
Interest expense.................................... 659,000 1,657,000 1,034,000
----------- ----------- -----------
Income before income taxes........................ 2,756,000 2,292,000 6,437,000
Provision for income taxes (Note 8)................. 1,200,000 960,000 2,702,000
----------- ----------- -----------
Net income.......................................... 1,556,000 1,332,000 3,735,000
Accretion on redeemable preferred stock (Notes 1 and
6)................................................ 4,310,000 374,000
----------- ----------- -----------
Net income (loss) available to common
stockholders...................................... $ 1,556,000 $(2,978,000) $ 3,361,000
=========== =========== ===========
Net income (loss) per share available to common
stockholders -- basic and diluted................. $ 0.34 $ (0.76) $ 0.52
=========== =========== ===========
Weighted average common shares outstanding -- basic
(Note 1).......................................... 4,571,000 3,938,000 6,410,000
=========== =========== ===========
Weighted average common shares outstanding --diluted
(Note 1).......................................... 4,571,000 3,938,000 6,458,000
=========== =========== ===========
</TABLE>

See accompanying notes to financial statements.
F-4
<PAGE> 22

MEADE INSTRUMENTS CORP.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES B
COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL
------------------------ ----------------------- -------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
---------- ----------- ---------- ---------- ---------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28,
1995...................... 2,571,361 $ 1,000 1,500,000 $ $ $ $3,214,000
Net income.................. 1,556,000
---------- ----------- ---------- ---------- ---------- ------- ----------- ----------
Balance at February 29,
1996...................... 2,571,361 1,000 1,500,000 4,770,000
Redemption of Series A
common stock.............. (71,361) (250,000)
Purchase and exercise of
warrant for shares of
Series A common stock..... 1,000,000 3,510,000
Unearned ESOP shares........
Release of shares from
dividend payment on ESOP
acquisition loan..........
Accretion on redeemable
preferred stock........... (4,310,000)
Net income.................. 1,332,000
---------- ----------- ---------- ---------- ---------- ------- ----------- ----------
Balance at February 28,
1997...................... 3,500,000 3,511,000 1,500,000 1,542,000
Issuance of common stock at
initial public offering,
net of offering costs..... 2,876,000 29,000 21,345,000
Conversion of Series A and B
common stock to common
stock..................... (3,500,000) (3,511,000) (1,500,000) 5,000,000 50,000
Release of ESOP shares...... 100,000
Accretion on redeemable
preferred stock........... (374,000)
Net income.................. 3,735,000
---------- ----------- ---------- ---------- ---------- ------- ----------- ----------
Balance at February 28,
1998...................... $ $ 7,876,000 $79,000 $21,445,000 $4,903,000
========== =========== ========== ========== ========== ======= =========== ==========

UNEARNED
ESOP SHARES TOTAL
------------ ------------
<S> <C> <C>
Balance at February 28,
1995...................... $ $ 3,215,000
Net income.................. 1,556,000
------------ ------------
Balance at February 29,
1996...................... 4,771,000
Redemption of Series A
common stock.............. (250,000)
Purchase and exercise of
warrant for shares of
Series A common stock..... 3,510,000
Unearned ESOP shares........ (11,000,000) (11,000,000)
Release of shares from
dividend payment on ESOP
acquisition loan.......... 995,000 995,000
Accretion on redeemable
preferred stock........... (4,310,000)
Net income.................. 1,332,000
------------ ------------
Balance at February 28,
1997...................... (10,005,000) (4,952,000)
Issuance of common stock at
initial public offering,
net of offering costs..... 21,374,000
Conversion of Series A and B
common stock to common
stock..................... (3,461,000)
Release of ESOP shares...... 2,000,000 2,100,000
Accretion on redeemable
preferred stock........... (374,000)
Net income.................. 3,735,000
------------ ------------
Balance at February 28,
1998...................... $ (8,005,000) $ 18,422,000
============ ============
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE> 23

MEADE INSTRUMENTS CORP.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28(29),
------------------------------------------
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 1,556,000 $ 1,332,000 $ 3,735,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization.................... 300,000 659,000 513,000
Debt issuance costs.............................. 400,000
ESOP contribution................................ 1,995,000 1,100,000
Changes in assets and liabilities:
Accounts receivable........................... (1,153,000) (291,000) (1,194,000)
Inventories................................... (1,035,000) (5,615,000) 167,000
Deferred income taxes......................... (104,000) (555,000) (539,000)
Prepaid expenses and other current assets..... (109,000) (18,000) (8,000)
Other assets.................................. (112,000) (1,392,000) 303,000
Accounts payable.............................. 154,000 789,000 (869,000)
Accrued liabilities........................... (33,000) 495,000 1,334,000
Income taxes payable.......................... 362,000 440,000 544,000
----------- ------------ -----------
Net cash provided by (used in) operating
activities............................. (174,000) (2,161,000) 5,486,000
----------- ------------ -----------
Cash flows from investing activities:
Capital expenditures.......................... (247,000) (169,000) (2,130,000)
----------- ------------ -----------
Net cash used in investing activities.... (247,000) (169,000) (2,130,000)
----------- ------------ -----------
Cash flows from financing activities:
Payments on long-term debt.................... (200,000) (1,967,000) (8,183,000)
Proceeds from long-term debt.................. 9,500,000
Net borrowings (payments) under bank line of
credit...................................... 718,000 2,231,000 (4,358,000)
Payments on notes payable to related
parties..................................... (2,000,000)
Net proceeds from issuance of common stock.... 17,913,000
Redemption of common stock.................... (250,000)
Issuance of preferred stock................... 2,500,000
Redemption of preferred stock................. (6,864,000)
Purchase and exercise of warrant for common
stock....................................... 3,510,000
Unearned ESOP shares.......................... (11,000,000)
Payment of dividend on Series B common
stock....................................... (995,000)
Payment received on ESOP acquisition loan..... 995,000
Payments under capital lease obligations...... (136,000) (193,000) (219,000)
----------- ------------ -----------
Net cash provided by (used in) financing
activities............................. 382,000 2,331,000 (1,711,000)
----------- ------------ -----------
Net increase (decrease) in cash.................... (39,000) 1,000 1,645,000
Cash at beginning of year.......................... 42,000 3,000 4,000
----------- ------------ -----------
Cash at end of year................................ $ 3,000 $ 4,000 $ 1,649,000
=========== ============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest...................................... $ 639,000 $ 1,696,000 $ 500,000
Income taxes.................................. $ 940,000 $ 1,075,000 $ 2,699,000
Non-cash financing activities:
Capital lease obligations..................... $ 417,000 $ 444,000
Accretion on redeemable preferred stock....... $ 4,310,000 $ 374,000
Release of unearned ESOP shares............... $ 2,000,000
</TABLE>

See accompanying notes to financial statements.
F-6
<PAGE> 24

MEADE INSTRUMENTS CORP.

NOTES TO FINANCIAL STATEMENTS

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

Meade Instruments Corp. (the "Company"), a Delaware corporation,
manufactures, imports and distributes telescopes and telescope accessories,
binoculars and microscopes.

In April 1996, the Company effected a recapitalization pursuant to which
the Company's stockholders exchanged their common stock for 2,571,361 shares of
Series A and 1,500,000 shares of Series B common stock. The accompanying
financial statements have been retroactively adjusted to give effect to this
transaction. The Company redeemed 71,361 shares of Series A common stock for
$250,000. The Company also issued 1,000 shares of redeemable Series A preferred
stock and a warrant to purchase 1,000,000 shares of Series A common stock at
$0.01 per share for $6.0 million in the aggregate. The warrant was exercised
immediately upon purchase of the Series A preferred stock. The Company allocated
$2.5 million of the proceeds as the fair value of the Series A preferred stock
and $3.5 million as the fair value of the Series A common stock. Also in April
1996, the Company's newly-formed Employee Stock Ownership Plan ("ESOP")
purchased all of the outstanding shares of Series B common stock (1,500,000
shares) from the existing stockholders. The ESOP financed the purchase through
the proceeds of an $11.0 million term loan from the Company.

In April 1997 the Company completed an initial public offering of 3,875,500
shares of common stock (including the underwriters' over-allotment option). The
offering included 2,875,500 newly issued shares of common stock and 1 million
shares of common stock held by the Company's then preferred stockholder. The
offering raised approximately $18.0 million for the Company (after underwriting
discounts and offering expenses). Net proceeds from the offering were used to
redeem approximately $6.9 million of outstanding Series A preferred stock,
including accrued dividends, and to repay approximately $11.1 million of
existing bank term and revolving debt. Prior to the closing of the offering, the
Company reincorporated into a Delaware corporation pursuant to a merger with and
into a newly-formed and wholly-owned Delaware subsidiary, with the Delaware
subsidiary being the surviving corporation. All of the outstanding shares of the
Series A and Series B common stock and Series A preferred stock of the Company
were exchanged on a ratio of one for one with shares of Series A and Series B
common stock and Series A preferred stock of the Delaware subsidiary as part of
the reincorporation. All shares of Series A and Series B common stock were
converted into shares of common stock upon completion of the initial public
offering.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Sales are recorded when products are shipped.

Inventories

Inventories are stated at the lower of cost, as determined using the
first-in, first-out ("FIFO") method, or market. Costs include materials, labor
and manufacturing overhead.

Property and equipment

Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets which range
from three to seven years. Properties held under capital leases are recorded at
the present value of the noncancellable lease payments over the term of the
lease and are amortized over the shorter of the lease term or the estimated
useful lives of the assets.

F-7
<PAGE> 25
MEADE INSTRUMENTS CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Income taxes

The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates that will be in effect when the
differences are expected to reverse. The Company files its tax return for the
year ending August 31, rather than for the financial reporting period ending the
last day of February.

Advertising

The Company expenses the production costs of advertising as incurred. For
the years ended February 29, 1996 and February 28, 1997 and 1998, the Company
incurred advertising expenses of approximately $1.0 million, $2.1 million and
$3.0 million, respectively.

Research and development

Expenditures for research and development costs are charged to expense as
incurred.

Net income per share

In fiscal year 1998 the Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings per Share" ("SFAS No. 128") and related
interpretations, which required a change in the method used to compute earnings
per share. Under this new standard, primary and fully diluted earnings per share
were replaced with "Basic" and "Diluted" earnings per share. Basic earnings per
share amounts exclude the dilutive effect of potential common shares. Basic
earnings per share is based upon the weighted-average number of common shares
outstanding. Diluted earnings per share is based upon the weighted-average
number of common shares and dilutive potential common shares outstanding.
Potential common shares are outstanding stock options under the Company's stock
incentive plan which are included under the treasury stock method.

The following is a reconciliation of the numerators and the denominators of
the basic and diluted earnings per share computations for net income available
to common stockholders for the fiscal year ended February 28, 1998. For the
fiscal years ended 1997 and 1996 there were no dilutive securities.

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28, 1998
------------------------------------
PER SHARE
INCOME SHARES AMOUNT
---------- --------- ---------
<S> <C> <C> <C>
Basic EPS:
Net income available to common
stockholders............................ $3,361,000 6,410,000 $0.52
========== =====
Effect of dilutive securities:
Stock options........................... 48,000
---------
Diluted EPS:
Net income available to common
stockholders............................ $3,361,000 6,458,000 $0.52
========== ========= =====
</TABLE>

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to
concentration of credit risk, are principally accounts receivable. The Company
maintains an allowance for doubtful accounts but historically has not
experienced any significant losses related to individual customers or groups of
customers in any particular industry or geographic area.

F-8
<PAGE> 26
MEADE INSTRUMENTS CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Fair value of financial instruments

The carrying amounts of cash, accounts receivable, prepaid expenses and
other current assets, accounts payable, accrued liabilities, and short-term
loans approximate fair value due to the short maturity of these instruments.

Use of estimates in the preparation of financial statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
respective reporting periods. Actual results could differ from those estimates.

Long-lived assets

Long-lived assets are reviewed whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company reviews the recoverability of long-lived assets and intangible assets by
comparing the estimated future cash flows on a undiscounted basis to the net
book value of the assets. In the event projected undiscounted cash flows are
less than the net book value of the assets, the carrying value of the assets are
written down to their fair value, less costs to sell. Assets that are to be
disposed of are measured at the lower of cost or fair value, less costs to sell.

Reclassifications

Certain reclassifications have been made to conform the 1996 and 1997
information to the 1998 presentation.

2. BANK DEBT

In April 1996, the Company replaced its existing revolving line of credit
with a $10.0 million line of credit secured by receivables and inventory. The
line of credit bore interest at the bank's base rate (8.25% at February 28,
1997) plus 0.5%, interest payable monthly in arrears. In April 1996, the Company
also borrowed $9.5 million evidenced by a term note (Note 4). The Loan and
Security Agreement between the bank and the Company, which governed the line of
credit and term note, contained certain financial covenants including minimum
working capital, minimum profitability, and minimum interest and debt coverage
ratios.

In January 1998, the Company amended its existing loan agreements. The
amended agreement provides a $20 million facility consisting of (i) a $15
million revolving line of credit which bears interest at the bank's base rate
(8.5% at February 28, 1998) less .25% with a LIBOR plus 1.50% option, interest
payable monthly in arrears and (ii) a $5 million term note bearing interest at
the bank's base rate with a LIBOR plus 2.00% option, interest payable monthly in
arrears. The Amended and Restated Loan and Security Agreement (the "Loan
Agreement"), between the bank and the Company, which governs the line of credit
and term note facilities, contains certain financial covenants consisting of
minimum profitability and maximum debt-to-equity ratios. The Loan Agreement is
secured by a blanket lien on the assets of the Company.

3. NOTES PAYABLE TO RELATED PARTIES

In July 1993, the Company borrowed $1.5 million from a stockholder
evidenced by a subordinated promissory note payable. Also, payable to
stockholders were subordinated notes payable totaling $500,000. The notes
payable were repaid in full in April 1996.

F-9
<PAGE> 27
MEADE INSTRUMENTS CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. LONG-TERM DEBT

As of February 28, 1997, the company had a note payable to a bank in the
amount of $8,183,000 of which $6,599,000 was reflected as long term and the
remaining balance of $1,584,000 was shown as the current portion on the
accompanying balance sheet. The note bore interest at the bank's base rate
(8.25% at February 28, 1997) plus .75% payable monthly, principal payments were
due in defined quarterly amounts totaling $1,584,000 annually for five years
commencing July 1996. This note was paid in its entirety with proceeds from the
initial public offering in April 1997. Approximately $400,000 of previously
capitalized debt issuance costs related to this note were written off and
presented as a component of interest expense for the year ended February 28,
1998.

5. COMMITMENTS AND CONTINGENCIES

The Company is obligated under certain long-term noncancellable leases and
other noncancellable agreements for its office and manufacturing facilities and
certain equipment and machinery. Aggregate future minimum commitments under
noncancellable leases and other agreements at February 28, 1998 that have
remaining terms in excess of one year are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL OPERATING
----------- -------- -----------
<S> <C> <C>
1999................................................ $252,000 $ 1,034,000
2000................................................ 226,000 1,034,000
2001................................................ 96,000 1,034,000
2002................................................ 58,000 1,086,000
2003................................................ 1,035,000
Thereafter.......................................... 5,059,000
-------- -----------
Net minimum lease payments.......................... 632,000 $10,282,000
===========
Less amount representing interest................... (85,000)
--------
Capital lease obligations........................... $547,000
========
</TABLE>

For the years ended February 29, 1996, February 28, 1997 and 1998, the
Company incurred rent expense of $373,000, $602,000 and $698,000, respectively.

In December 1996, the Company executed a lease commencing October 1, 1997
for its office and manufacturing facilities. The lease term is ten years,
extendable for an additional ten years (two terms of five years each) at the
Company's option. Aggregate future minimum lease commitments for this lease are
included in the schedule above. Such commitments are subject to 9% increases at
the beginning of the months 31, 61 and 91.

The Company is involved from time to time in litigation incidental to its
business. Management believes that the outcome of current litigation will not
have a material adverse effect on the Company.

On April 2, 1998 a complaint was filed against the Company alleging
infringement of a U.S. patent by the Company. Management believes this complaint
is without merit and intends to defend this action vigorously. The ultimate
liability of the Company under this action is not presently determinable. After
discussion with counsel, it is the opinion of management that such liability is
not expected to have a material effect on the Company's financial position or
results of operations.

6. REDEEMABLE PREFERRED STOCK

At February 28, 1997, the Series A preferred stock had a cumulative 14%
dividend per annum payable quarterly. The Company recorded the Series A
preferred stock at $2.5 million, its fair value, and recorded accretion to
increase the carrying value of the Series A preferred stock to the redemption
value of $6.0 million

F-10
<PAGE> 28
MEADE INSTRUMENTS CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

by April 23, 2001, the original redemption date, plus unpaid dividends. On
January 31, 1997, the Company entered into a binding agreement to redeem the
preferred stock earlier than the scheduled redemption date. The accretion was
accelerated in the fiscal year ended February 28, 1997 to reflect the new
redemption date (April 14, 1997) and the Company recorded an additional $3.4
million in accelerated accretion of the Series A preferred stock pursuant to the
new redemption agreement. Upon redemption of the Series A preferred stock on
April 14, 1997, the Company recorded a final accretion adjustment of $374,000.

7. EMPLOYEE STOCK OWNERSHIP PLAN

Adoption of the ESOP was effective March 1, 1996 and covers all employees
of the Company who meet certain service and eligibility requirements. Pursuant
to a Plan amendment the ESOP year ends on December 31 each year. A participant
becomes 100% vested in his ESOP account if, while employed at the Company, the
participant (i) reaches his 60th birthday, (ii) becomes disabled (as defined),
(iii) dies, or (iv) achieves five years of credited service (as defined).
Distributions of a participant's vested account are directed by the ESOP's
Administrative Committee. The Company provides a put option to any participant
who receives a distribution of Company stock, unless the stock is readily
tradable on an established market.

In April 1996, the ESOP purchased all of the outstanding shares of the
Company's Series B common stock (1,500,000 shares) held by the existing
stockholders for $11.0 million. The Series B common stock had a cumulative
dividend of $0.513 per share and a liquidation preference over the Series A
common stock. The ESOP financed the purchase of the Series B common stock (the
"financed shares") with the proceeds of an $11.0 million term loan (the
"acquisition loan") from the Company (all shares of Series A and B common stock
were converted into shares of common stock upon the completion of the initial
public offering, Note 1). The financed shares are held by the Meade Instruments
Corp. Employee Stock Ownership Trust (the "ESOP trust"). The ESOP pledged the
financed shares to the Company as security for the acquisition loan. The
financed shares were initially credited to a suspense account on the books of
the ESOP and will be allocated to the accounts of individual ESOP participants,
as of each plan year end, for payments made on the acquisition loan. The
acquisition loan has a ten year term and bears interest at 6% per annum.
Principal and interest is due annually, subject to the Company making
contributions to the ESOP to fund the principal and interest payments. The
release of financed shares from collateral is based on the ratio that the
payment of principal bears to the initial principal of the acquisition loan. The
Company accounts for its ESOP in accordance with Statement of Position 93-6.
Accordingly, the shares pledged as collateral are reported as unearned ESOP
shares in the balance sheet. As shares are committed to be released from
collateral, the Company records compensation expense, and the shares become
outstanding for net income per share purposes. Any dividends on allocated shares
are recorded as a reduction of retained earnings; any dividends on unallocated
ESOP shares are recorded as a reduction of debt and accrued interest.

For the years ended February 28, 1997 and 1998, the Company recognized ESOP
contribution expense of $1,995,000 and $1,100,000, respectively, including a
dividend payment in fiscal 1997 described below. In August 1996, the Company's
board of directors (i) authorized a contribution to the ESOP in the amount of
$237,000 to fund the interest payment due on the acquisition loan and (ii)
declared and paid a dividend on the Series B common stock in the amount of
$995,000. The ESOP trust used the proceeds of the contribution to pay the
semi-annual interest payment due on the acquisition loan. The ESOP used the
proceeds from the dividend to repay a portion of the acquisition loan. The
repayment released approximately 136,000 shares from collateral resulting in
$995,000 in ESOP contribution expense.

As of February 28, 1998, approximately 244,000 shares in the ESOP trust
have been allocated to individual participants. Allocation to individual
participant accounts are made in the ratio that the compensation of each
participant bears to the total compensation of all such participants. There are
approximately

F-11
<PAGE> 29
MEADE INSTRUMENTS CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

136,000 shares committed to be released as of February 28, 1998. Shares in
suspense at February 28, 1998 are 1,256,000.

The fair value of the common stock upon purchase from the existing
stockholders in April 1996 was determined to be $7.33 per share. Under the terms
of the ESOP, the fair value of the common stock at any plan year end is to be
determined by an independent appraiser so long as the stock is not readily
tradable on an established market. The fair value of the shares held by the ESOP
at February 28, 1998 was $9.50 per share, the market price as determined on the
Nasdaq National Market. At February 28, 1998, there is no repurchase obligation.

8. INCOME TAXES

Significant components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28(29),
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal.............................. $1,094,000 $1,264,000 $2,729,000
State................................ 210,000 251,000 512,000
---------- ---------- ----------
1,304,000 1,515,000 3,241,000
---------- ---------- ----------
Deferred:
Federal.............................. (87,000) (464,000) (454,000)
State................................ (17,000) (91,000) (85,000)
---------- ---------- ----------
(104,000) (555,000) (539,000)
---------- ---------- ----------
$1,200,000 $ 960,000 $2,702,000
========== ========== ==========
</TABLE>

The provision for income taxes differed from the amount computed by
applying the U.S. federal statutory rate to income before income taxes due to
the effects of the following:

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28(29),
---------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal income tax rate............................ 34.0% 34.0% 34.0%
State income taxes, net of federal income tax
benefit.......................................... 6.1 6.1 6.1
Other.............................................. 3.4 1.8 1.9
---- ---- ----
43.5% 41.9% 42.0%
==== ==== ====
</TABLE>

Deferred tax assets at February 28, 1997 and February 28, 1998 consist of
certain inventory, accounts receivable and other reserves as well as differences
in the bases of fixed assets which are measured differently for tax and
financial reporting purposes.

9. SIGNIFICANT CUSTOMERS AND FOREIGN SALES

The Company generated 12%, 11% and 12% of its revenue from one customer
during the years ended February 29, 1996, February 28, 1997 and February 28,
1998, respectively, and 12% and 14% of its revenue from another customer during
the years ended February 28, 1997 and 1998, respectively. Export sales
approximated $7.4 million, $9.2 million and $11.3 million for the years ended
February 29, 1996, February 28, 1997 and 1998, respectively. Included in export
sales are sales to Europe of $4.1 million, $5.4 million and $9.0 million in the
years ended February 29, 1996, February 28, 1997 and 1998, respectively.

F-12
<PAGE> 30
MEADE INSTRUMENTS CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. STOCK INCENTIVE PLAN

In February 1997, the Company's Board of Directors adopted the 1997 Stock
Incentive Plan (the "Plan"). The Plan provides for the grant of incentive and
non-qualified stock options, restricted stock, stock appreciation rights
("SARs"), and performance share awards to certain key employees (including
officers, whether or not directors) of the Company. Under the Plan, the Company
may grant options and other awards with respect to 750,000 shares of common
stock. Awards under the Plan generally vest after six months and become
exercisable over a four-year period, or as determined by the Compensation
Committee of the Board of Directors. Stock options generally remain exercisable
for a period of ten years from the date of grant. On March 9, 1997, the Board of
Directors granted, subject to the completion of the offering, non-qualified
stock options to purchase 230,000 shares of common stock to nine of the
Company's employees. The exercise price of the options was equal to the initial
public offering price of $7.00 per share. The options vest 25% after one year
and ratably over the following 36 months. The Company's two new non-employee
directors were granted 5,000 options each, at an exercise price equal to the
initial public offering price of $7.00 per share. The directors' options vest in
equal annual amounts over three years. During fiscal 1998, the Board of
Directors granted, to several company employees, non-qualified options to
purchase an additional 395,000 shares of common stock (net of 20,000
forfeitures). The exercise price of the options was equal to the market price at
the grant date and become exercisable 25% after one year and ratably over the
following 36 months.

In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which requires that companies with stock-based compensation plans
either recognize compensation expense based on the fair value of options granted
or continue to apply the existing accounting rules and disclose pro forma net
income and earnings per share assuming the fair value method had been applied.
The Company has chosen to continue applying Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for the fixed stock option plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans, consistent with the method prescribed by SFAS No. 123, the Company's net
income available to common stockholders and earnings per share would have been
reduced to the pro forma amounts indicated below. The pro forma disclosures are
not representative of the effects on net income available to common stockholders
and earnings per share in future years.

<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28,
1998
------------
<S> <C>
Net income available to common stockholders:
As reported............................................ $3,361,000
Pro forma.............................................. $3,243,000
Earnings per share:
Basic --
As reported............................................ $ 0.52
Pro forma.............................................. $ 0.51
Diluted --
As reported............................................ $ 0.52
Pro forma.............................................. $ 0.51
</TABLE>

F-13
<PAGE> 31
MEADE INSTRUMENTS CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The fair value of the Company's stock options used to compute pro forma net
income and earnings per share disclosures is the estimated present value at
grant date using the Black-Scholes option pricing model. The following
weighted-average assumptions were used for 1998: expected volatility of 32.4%, a
risk-free interest rate of 6.5%, no expected dividends, and an expected term of
4 years. The weighted average fair value of the Company's stock options granted
in 1998 is $2.77.

<TABLE>
<CAPTION>
WEIGHTED
OPTION AVERAGE
SHARES EXERCISE PRICE
------- --------------
<S> <C> <C>
Granted............................................ 645,000 $7.845
Forfeited.......................................... (20,000) $7.250
------- ------
Options outstanding at February 28, 1998........... 625,000 $7.864
======= ======
</TABLE>

<TABLE>
<CAPTION>
RANGE OF NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING REMAINING CONTRACTUAL LIFE
- --------------- ----------- --------------------------
<S> <C> <C>
$7.0000 230,000 9.1 years
$7.2500 90,000 9.4 years
$7.8125 10,000 9.4 years
$7.6250 35,000 9.5 years
$8.8750 260,000 9.9 years
</TABLE>

At February 28, 1998, outstanding options for common stock held by Company
employees totaled 625,000, of which 365,000 were vested. The option prices range
from $7.00 to $8.875 per share and are exercisable over periods ending no later
than 2008. There are no options outstanding for any prior years. There were no
exercisable stock options at February 28, 1998.

11. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS

The composition of inventories is as follows:

<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1997 1998
------------ ------------
<S> <C> <C>
Raw materials...................................... $ 3,095,000 $ 2,780,000
Work in process.................................... 1,407,000 1,819,000
Finished goods..................................... 7,575,000 7,311,000
----------- -----------
$12,077,000 $11,910,000
=========== ===========
</TABLE>

The composition of property and equipment is as follows:

<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1997 1998
------------ ------------
<S> <C> <C>
Molds and dies..................................... $ 720,000 $ 743,000
Machinery and equipment............................ 1,320,000 2,094,000
Furniture and fixtures............................. 41,000 269,000
Autos and trucks................................... 77,000 104,000
Leasehold improvements............................. 315,000 1,091,000
----------- -----------
2,473,000 4,301,000
Less accumulated depreciation and amortization..... (1,023,000) (1,316,000)
----------- -----------
$ 1,450,000 $ 2,985,000
=========== ===========
</TABLE>

The gross value of assets under capital leases included in machinery and
equipment above is $1.2 million at February 28, 1997 and 1998.

F-14
<PAGE> 32
MEADE INSTRUMENTS CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The composition of accrued liabilities is as follows:

<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1997 1998
------------ ------------
<S> <C> <C>
ESOP expenses....................................... $1,000,000
Salaries, wages, bonuses and other associated
payroll costs..................................... 647,000 779,000
Advertising, cooperative advertising, shows and
convention expenses............................... 274,000 526,000
Professional fees................................... 173,000 379,000
Other............................................... 264,000 1,008,000
---------- ----------
$2,358,000 $2,692,000
========== ==========
</TABLE>

F-15
<PAGE> 33

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: May 29, 1998
MEADE INSTRUMENTS CORP.

By: /s/ JOHN C. DIEBEL

------------------------------------
John C. Diebel
Chairman of the Board
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ JOHN C. DIEBEL Chairman of the Board and May 29, 1998
- -------------------------------------------------------- Chief Executive Officer
John C. Diebel (Principal Executive
Officer)

/s/ STEVEN G. MURDOCK Director, President, Chief May 29, 1998
- -------------------------------------------------------- Operating Officer and
Steven G. Murdock Secretary

/s/ BRENT W. CHRISTENSEN Vice President -- Finance May 29, 1998
- -------------------------------------------------------- and Chief Financial
Brent W. Christensen Officer (Principal
Financial and Accounting
Officer)

/s/ JOSEPH A. GORDON, JR. Director and Senior Vice May 29, 1998
- -------------------------------------------------------- President -- North
Joseph A. Gordon, Jr. American Sales

Director May , 1998
- --------------------------------------------------------
Timothy C. McQuay

Director May , 1998
- --------------------------------------------------------
Harry L. Casari
</TABLE>

F-16
<PAGE> 34

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT INCORPORATION
NUMBER DESCRIPTION OF EXHIBIT REFERENCE
-------- ---------------------- -------------
<S> <C> <C>
3.1+ Certificate of Incorporation of the Company, as amended..... (b)
3.2+ Bylaws of the Company....................................... (b)
4.1+ Specimen stock certificate.................................. (d)
10.1+ Form of Directors' and Officers' Indemnity Agreement........ (b)
10.7+ Industrial Lease (Single Tenant; Net; Stand-Alone), dated
December 20, 1996, between The Irvine Company and the
Company..................................................... (a)
10.13+ Meade Instruments Corp. Employee Stock Ownership Plan (the
"ESOP"), effective as of March 1, 1996, together with Form
of Amendments No. 1 and No. 2 to the ESOP................... (a)(b)
10.14 Employee Stock Ownership Trust Agreement, as Amended and
Restated as of April 9, 1997, between the Company and Wells
Fargo Bank, N.A. ...........................................
10.15+ Employee Stock Ownership Plan Loan and Pledge Agreement,
dated April 23, 1996, between the ESOP and the Company...... (a)
10.20+ Form of Trademark Distribution Agreement for EEC
Countries................................................... (a)
10.21+ Form of Trademark Distribution Agreement for Non-EEC
Countries................................................... (a)
10.24+ Celtic Master Lease, dated as of February 23, 1995, by and
between the Company and Celtic Leasing Corp................. (b)
10.29+ Meade Instruments Corp. 1997 Stock Incentive Plan........... (b)
10.30+ Form of Agreement of Merger, by and between the Company and
the predecessor of the Company.............................. (b)
10.31+ Preferred Stock Redemption Agreement, dated as of January
31, 1997, by and between the Company and Churchill.......... (b)
10.32 Amended and Restated Loan and Security Agreement, dates as
of January 15, 1998, by and between the Company and Fleet
Capital Corporation.........................................
10.33 Agreement, dated as of May 5, 1998, by and between the
Company and Weidy Opitcal Co., Ltd..........................
10.34 Form Employment Agreement, by and between the Company and
certain executive officers of the Company...................
10.35 Form Indemnification Agreement, by and between the Company
and each member of the Board of Directors and certain
executive officers of the Company...........................
10.36 Amendment No. 3 to Meade Instrument Corp. Employee Stock
Ownership Plan..............................................
10.37 Amendment No. 4 to Meade Instrument Corp. Employee Stock
Ownership Plan..............................................
10.38 Amendment No. 1 to ESOP Loan and Pledge Agreement...........
27.1 Financial Data Schedule.....................................
</TABLE>

- ---------------
+ Previously filed with the Securities and Exchange Commission as set forth
below:

(a) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-21123), as filed with the Securities and Exchange
Commission on February 4, 1997.

(b) Incorporated by reference to the Company's Amendment No. 1 to Registration
Statement on Form S-1 (Registration No. 333-21123), as filed with the
Securities and Exchange Commission on February 27, 1997.
<PAGE> 35

(c) Incorporated by reference to the Company's Amendment No. 2 to Registration
Statement on Form S-1 (Registration No. 333-21123), as filed with the
Securities and Exchange Commission on March 13, 1997.

(d) Incorporated by reference to the Company's Amendment No. 3 to Registration
Statement on Form S-1 (Registration No. 333-21123), as filed with the
Securities and Exchange Commission on March 25, 1997.

<PAGE> 1
EXHIBIT 10.14

MEADE INSTRUMENTS CORP.
-----------------------

EMPLOYEE STOCK OWNERSHIP TRUST AGREEMENT
----------------------------------------

As Amended and Restated as of April 9, 1997
-------------------------------------------

THIS AGREEMENT, by and between MEADE INSTRUMENTS CORP. (a California
corporation), hereinafter referred to as the "Company," and WELLS FARGO BANK,
N.A., hereinafter referred to as the "Trustee," to be effective as of April 9,
1997.

W I T N E S S E T H:
--------------------

WHEREAS, it is the policy of the Company to so finance and conduct its
operations as to enable its Employees to acquire stock ownership interests in
the Company; and

WHEREAS, the Company maintains the MEADE INSTRUMENTS CORP. EMPLOYEE
STOCK OWNERSHIP PLAN, hereinafter referred to as the "Plan," as a qualified
employee plan under Sections 401(a) and 4975(e)(7) of the Internal Revenue Code
of 1986; and

WHEREAS, it is desirable to amend and restate the Trust Agreement to
reflect amendments made to the Plan;

NOW, THEREFORE, the parties hereto do hereby amend and restate the
terms of the MEADE INSTRUMENTS CORP. EMPLOYEE STOCK OWNERSHIP TRUST AGREEMENT,
effective as of April 9, 1997, to read as follows:

A. The Trust Assets. The existing assets held by the Trustee in trust
under the Plan shall continue to be held by the Trustee hereunder. Employer
Contributions shall be paid to the Trustee from time to time in accordance with
the provisions of the Plan. All Employer Contributions and all investments
thereof, together with all accumulations, accruals, earnings and income with
respect thereto, shall be held by the Trustee in trust hereunder as the Trust
Assets. The Trust Assets shall be invested by the Trustee as directed by the
Committee (appointed by the Company to administer

<PAGE> 2

the Plan) pursuant to the terms of the Plan and this Trust Agreement. The
Trustee shall not be responsible for the maintaining of the records of
Participants' Accounts under the Plan, for the administration of the Plan or for
the computation of, or collection of, Employer Contributions. The Trustee shall
hold, invest, reinvest, manage, administer and distribute the Trust Assets, as
directed by the Committee and as provided herein and under the Plan, for the
exclusive benefit of Participants (and their Beneficiaries).

B. Investment of Trust Assets.

(1) As directed by the Committee, the Trustee shall invest and
reinvest the Trust Assets primarily (or exclusively) in Company Stock, in
accordance with the terms of the Plan and this Agreement. The Trustee may invest
and hold up to 100% of the Trust Assets in Company Stock, if so directed by the
Committee.

(2) As directed by the Committee, the Trustee may also place
Trust Assets in various deposit accounts offered by any bank (including the
Trustee) or savings and loan association, invest in other securities or
investments desirable for the Trust, or in any kind of investment fund
(including any common trust fund maintained by the Trustee), or Trust Assets may
be held temporarily in cash.

(3) The Committee shall have the responsibility and liability for
the prudence of investments directed by it under this Paragraph B. The Committee
may delegate to the Trustee the responsibility for investing Trust Assets other
than Company Stock.

(4) The Trustee may invest and reinvest the Trust Assets, or any
part thereof, in any one or more investment trust funds regularly maintained by
the Trustee for common investment of trust funds, the Declaration of Trust
therefore being made hereby a part of this Trust Agreement, and notwithstanding
any other provisions hereof, the Trustee may commingle said investment with
assets similarly invested by trusts similar hereto, by investing the same as a
part of one or more of such investment trust funds, all according to said
Declarations of Trust as now constituted and as amended from time to time.

-2-

<PAGE> 3

(5) In the event that the Committee directs the Trustee to
dispose of any Company Stock held as Trust Assets, under circumstances which
require registration and/or qualification of the securities under applicable
Federal or state securities laws, then the Company, at its own expense, will
take, or cause to be taken, any and all such actions as may be necessary or
appropriate to effect such registration and/or qualification.

C. Trustee's Powers. As directed by the Committee, the Trustee shall
have the authority and power to:

(1) contract or otherwise enter into transactions for the purpose
of acquiring or selling Company Stock, including transactions with the Company
or any Company shareholder, subject to the provisions of Section 5(a) and (e) of
the Plan;

(2) borrow from any lender (including the Company and affiliates
of the Trustee) to finance the acquisition of Company Stock, giving its note as
Trustee with such reasonable interest and security for the loan as may be
appropriate or necessary; provided that any such borrowing shall comply with the
provisions of Section 5(b) of the Plan;

(3) vote any stocks (including Company Stock as provided in
Section 8 of the Plan), bonds or other securities held in the Trust, or
otherwise consent to or request any action on the part of the issuer in person
or by proxy;

(4) sell, transfer, mortgage, pledge, lease or otherwise dispose
of, or grant options with respect to, Company Stock and other Trust Assets at
public or private sale;

(5) give general or specific proxies or powers of attorney with
or without powers of substitution;

(6) participate in reorganizations, recapitalizations,
consolidations, mergers and similar transactions with respect to Company Stock
or any other securities;

(7) exercise any options, subscription rights and conversion
privileges with respect to Company Stock and other Trust Assets;

(8) sue, defend, compromise, arbitrate or settle any suit or
legal proceeding or any claim due it or on which it may be liable;

-3-

<PAGE> 4

(9) exercise any of the powers of an owner with respect to
Company Stock and other Trust Assets;

(10) perform all acts which the Trustee shall deem necessary or
appropriate and exercise any and all powers and authority of the Trustee under
this Agreement.

The Committee may authorize the Trustee in writing to act on any matter
(or class of matters) with respect to which directions or instructions from the
Committee are called for hereunder without specific directions or other
instructions from the Committee.

D. Nominees. The Trustee may register any Company Stock or other
property held by it as Trust Assets hereunder in its own name or in the name of
its nominees, with or without the addition of words indicating that such
securities are held in a fiduciary capacity, and may hold any securities in
bearer form; but the books and records of the Trustee shall at all times reflect
that all such investments are part of the Trust.

E. Records. The Trustee shall keep accurate and detailed accounts of
all investments, receipts and disbursements and other transactions of the Trust,
and all accounts, books and records relating thereto shall be open to inspection
by any person designated by the Committee or the Company at all reasonable
times. The Trustee shall maintain such records, make such computations and
perform such ministerial acts as the Committee may from time to time reasonably
request.

F. Reports. Within a reasonable period of time after the last day of
each Plan Year, or following the removal or resignation of the Trustee, and as
of any other date specified by the Committee, the Trustee shall file a report
with the Committee. This report shall show all purchases, sales, receipts,
disbursements and other transactions effected by the Trustee during the year or
period for which the report is filed, and shall contain an exact description,
the cost as shown on the Trustee's books, and the fair market value as of the
end of such period, of every asset held in the Trust and the amount and nature
of each liability of the Trust.

-4-

<PAGE> 5

G. Distributions. The Trustee shall make distributions from the Trust,
at such times and in such amounts of Company Stock and/or cash, to the person
entitled thereto under the Plan, as the Committee directs in writing. Any
undistributed portion of a Participant's Capital Accumulation under the Plan
shall be retained in the Trust until the Committee directs its distribution. If
distribution is directed in Company Stock, the Trustee or the Committee shall
cause the Company or its transfer agent to issue an appropriate stock
certificate to the person entitled thereto, to be delivered to such person by
the Committee.

H. Signatures. All communications required hereunder from the Company
or the Committee to the Trustee shall be in writing signed by an officer of the
Company or a member of the Committee authorized to sign on its behalf. The
Committee shall authorize one or more of its members to sign on its behalf all
communications required hereunder between the Committee and the Trustee. The
Company shall at all times keep the Trustee advised of the names and specimen
signatures of all members of the Committee and the individuals authorized to
sign communications on behalf of the Committee. The Trustee shall be fully
protected in relying on any such communication and shall not be required to
verify the accuracy or validity thereof unless it has reasonable grounds to
doubt the authenticity of any signature. If, after request, the Trustee does not
receive instructions from the Committee on any matter in which instructions are
required hereunder, the Trustee shall act or refrain from acting as it may
determine. Except as otherwise specifically required by applicable law, the
Committee may sign any and all documents on behalf of the Plan and the Trust.

I. Expenses. The reasonable expenses incurred by the Trustee in the
performance of its duties, and all other proper administrative costs of the Plan
and Trust (including Trustee's fees), shall be charged to and paid out of the
Trust Assets. However, the Company may pay all or any portion of such expenses.
The Trustee shall be entitled to such reasonable compensation for its services
as may be agreed upon in writing from time to time between the Company and the
Trustee.

-5-

<PAGE> 6

J. Liability of Trustee. The Trustee shall not be liable for any action
it takes or refrains from taking in accordance with proper directions of the
Committee. The Trustee shall not be required to pay interest on any portion of
the Trust Assets which is held uninvested at the direction of the Committee. The
Company shall fully indemnify the Trustee and hold it harmless from loss or
liability, including reasonable legal fees, which the Trustee sustains in
discharging its duties and responsibilities under this Agreement, unless such
loss or liability results from the Trustee's breach of fiduciary responsibility
under ERISA. This would include any nonrecoverable consideration paid to acquire
Company Stock from, or not received in selling Company Stock to, a "party in
interest" or "disqualified person," which amount was later determined part of
"adequate consideration" or in excess thereof by the Internal Revenue Service or
other governmental authority.

K. Amendment and Termination. The Company (through its Board of
Directors) shall have the right at any time, by an instrument in writing, duly
executed and delivered to the Trustee, to modify, alter or amend this Agreement,
in whole or in part, and to terminate the Plan and Trust, in accordance with the
express provisions of Section 19 of the Plan. In no event, however, shall any
such amendment increase the duties, powers or liabilities of the Trustee
hereunder without its prior written consent.

L. Non-Reversion. Subject to the provisions of Paragraph K above and
Sections 4(d) and 19 of the Plan, this Trust is declared to be irrevocable, and
at no time shall any part of the Trust Assets revert to the Company or be used
for, or be diverted to, purposes other than for the exclusive benefit of
Participants (and their Beneficiaries). However, the Company may, by notice in
writing to the Trustee, direct that all or part of the Trust Assets be
transferred to a successor trustee under a trust which is for the exclusive
benefit of such Participants (and their Beneficiaries) and which satisfies the
requirements of Section 401(a) of the Code; and thereupon the Trust Assets, or
any part thereof, shall be paid over, transferred or assigned to said successor
trustee, free from the Trust created hereunder; provided, however, that no part
of the Trust Assets may be used to pay

-6-

<PAGE> 7

contributions of the Company under any other plan maintained for the benefit of
its Employees.

M. Resignation or Removal of Trustee. The Trustee may resign at any
time upon 60 days' written notice to the Company. The Trustee may be removed at
any time by the Company upon 30 days' written notice to the Trustee. The person
to whom notice is to be given may agree to waive the requirement of written
notice or to a shorter period of notice. Upon receipt of instructions or
directions from the Company or the Committee with which the Trustee is unable or
unwilling to comply, the Trustee may resign, upon notice in writing to the
Company given within a reasonable time under the circumstances then prevailing
after the receipt of such instructions or directions; and notwithstanding any
other provisions hereof, in that event the Trustee shall have no liability to
the Company, or to any Participant (or Beneficiary), for failure to comply with
such instructions or directions.

Upon resignation or removal of the Trustee, the Company's Board of
Directors shall appoint a successor trustee or trustees. The successor trustee
shall have the same powers and duties as are conferred upon the Trustee
hereunder, and the Trustee shall assign, transfer and pay over to the successor
trustee all the Trust Assets, together with such records or copies thereof as
may be necessary to the successor trustee.

N. Definition. The definition of certain terms in the Plan shall apply
to this Agreement wherever applicable. Each gender includes the other, and the
singular includes the plural.

O. Acceptance. The Trustee hereby accepts this Trust and agrees to hold
the existing Trust Assets, and all additions and accretions thereto, subject to
all the terms and conditions of the Plan and this Agreement. In the event that
any provision of this Agreement shall be held illegal or invalid for any reason,
the illegality or invalidity thereof shall not affect the remaining provisions
of this Agreement, but shall be fully severable, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had never been
inserted herein.

P. Conflict Between Plan and Trust Agreement. If there is a

-7-

<PAGE> 8

conflict between the terms of the Plan and this Agreement, the terms of this
Agreement shall be controlling with respect to the Trustee's powers, rights,
duties and liabilities.

IN WITNESS WHEREOF, the Company and the Trustee have caused this Trust
Agreement to be executed on this 9th day of April, 1997.

MEADE INSTRUMENTS CORP. WELLS FARGO BANK, N.A.

By /s/ Brent W. Christensen By /s/ Elyse Weiss
----------------------------- ---------------------------

-8-

<PAGE> 1
EXHIBIT 10.32

---------------------------------------

--------------------------

---------------------------------------

MEADE INSTRUMENTS CORP.

=======================================

AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

DATED: AS OF May 27, 1998

$20,000,000

=======================================

---------------------------------------

FLEET CAPITAL CORPORATION

---------------------------------------

<PAGE> 2

TABLE OF CONTENTS

Page

<S> <C>
SECTION 1. CREDIT FACILITY................................................................ 1
1.1 Revolving Credit Loans...................................................... 1
(a) Loans.............................................................. 1
(b) Use of Proceeds.................................................... 1
1.2 CapEx Loans................................................................. 2
(a) CapEx Loans........................................................ 2
(b) [Intentionally omitted]............................................ 2
1.3 Letters of Credit; LC Guaranties............................................ 2

SECTION 2. INTEREST, FEES AND CHARGES..................................................... 2
2.1 Interest.................................................................... 2
(a) Rates of Interest.................................................. 2
(b) Default Rate of Interest........................................... 3
(c) Maximum Interest................................................... 3
2.2 Computation of Interest and Fees............................................ 3
2.3 Rate Elections.............................................................. 4
2.4 LIBOR Option................................................................ 4
2.5 Letter of Credit and LC Guaranty Fees....................................... 5
2.6 Intentionally omitted]...................................................... 6
2.7 [intentionally omitted]..................................................... 6
2.8 Audit and Appraisal Fees.................................................... 6
2.9 Reimbursement of Expenses................................................... 6
2.10 Bank Charges................................................................ 7

SECTION 3. LOAN ADMINISTRATION............................................................ 7
3.1 Manner of Borrowing Revolving Credit Loans.................................. 7
(a) Loan Requests...................................................... 7
(b) Disbursement....................................................... 7
(c) Authorization...................................................... 8
3.2 Payments.................................................................... 8
(a) Principal.......................................................... 8
(b) Interest........................................................... 8
(c) Costs, Fees and Charges............................................ 9
(d) Other Obligations.................................................. 9
3.3 Mandatory Prepayments....................................................... 9
(a) Proceeds of Sale, Loss, Destruction, or Condemnation of Collateral. 9
(b) [intentionally omitted]............................................ 10
3.4 Application of Payments and Collections..................................... 10

</TABLE>

<PAGE> 3

<TABLE>
<CAPTION>
<S> <C>
3.5 All Loans to Constitute One Obligation...................................... 10
3.6 Loan Account................................................................ 10
3.7 Statements of Account....................................................... 10

SECTION 4. TERM AND TERMINATION........................................................... 10
4.1 Term of Agreement........................................................... 10
4.2 Termination................................................................. 11
(a) Termination by Lender.............................................. 11
(b) Termination by Borrower............................................ 11
(c) Termination Charges................................................ 11
(d) Effect of Termination.............................................. 11

SECTION 5. SECURITY INTERESTS............................................................. 12
5.1 Security Interest in Collateral............................................. 12
5.2 Lien Perfection; Further Assurances......................................... 12
5.3 [Intentionally omitted]..................................................... 13

SECTION 6. COLLATERAL ADMINISTRATION...................................................... 13
6.1 General..................................................................... 13
(a) Location of Collateral............................................. 13
(b) Insurance of Collateral............................................ 13
(c) Protection of Collateral........................................... 14
6.2 Administration of Accounts.................................................. 14
(a) Records of Accounts................................................ 14
(b) [Intentionally omitted]............................................ 14
(c) [Intentionally omitted]............................................ 14
(d) [Intentionally omitted]............................................ 14
(e) [Intentionally omitted]............................................ 14
(f) [Intentionally omitted]............................................ 14
6.3 Administration of Inventory................................................. 14
(a) Records and Reports of Inventory................................... 14
(b) [Intentionally omitted]............................................ 14
6.4 Administration of Equipment................................................. 14
(a) Records and Schedules of Equipment................................. 14
(b) Dispositions of Equipment.......................................... 15
6.5 Payment of Charges.......................................................... 15
6.6 Intentionally omitted....................................................... 15

SECTION 7. REPRESENTATIONS AND WARRANTIES................................................. 15
7.1 General Representations and Warranties...................................... 15
(a) Organization and Qualification..................................... 15
(b) Corporate Power and Authority...................................... 15
(c) Legally Enforceable Agreement...................................... 16
(d) Capital Structure.................................................. 16

</TABLE>

ii.

<PAGE> 4

<S> <C>
(e) Corporate Names.................................................... 16
(f) Business Locations; Agent for Process.............................. 16
(g) Title to Properties; Priority of Liens............................. 17
(h) Accounts........................................................... 17
(i) Equipment.......................................................... 18
(j) Financial Statements; Fiscal Year.................................. 18
(k) Full Disclosure.................................................... 18
(l) Solvent Financial Condition........................................ 19
(m) Surety Obligations................................................. 19
(n) Taxes.............................................................. 19
(o) Brokers............................................................ 19
(p) Patents, Trademarks, Copyrights, and Licenses...................... 19
(q) Governmental Consents.............................................. 19
(r) Compliance with Laws............................................... 19
(s) Restrictions....................................................... 20
(t) Litigation......................................................... 20
(u) No Defaults........................................................ 20
(v) Leases............................................................. 20
(w) Pension Plans...................................................... 20
(x) Trade Relations.................................................... 21
(y) Labor Relations.................................................... 21
(z) Inventory.......................................................... 21
(aa) ESOP Qualification................................................. 21
(ab) ESOP Loan.......................................................... 21
(ac) ESOP Trustee and Independent Financial Advisor..................... 21
7.2 Continuous Nature of Representations and Warranties......................... 21
7.3 Survival of Representations and Warranties.................................. 22

SECTION 8. COVENANTS AND CONTINUING AGREEMENTS............................................ 22
8.1 Affirmative Covenants....................................................... 22
(a) Visits and Inspections............................................. 22
(b) Notices............................................................ 22
(c) Financial Statements............................................... 22
(d) Landlord and Storage Agreements.................................... 23
(e) [Intentionally omitted]............................................ 24
(f) Projections........................................................ 24
8.2 Negative Covenants.......................................................... 24
(a) Mergers; Consolidations; Acquisitions.............................. 24
(b) Loans.............................................................. 24
(c) Total Indebtedness................................................. 24
(d) Affiliate Transactions............................................. 25
(e) Limitation on Liens................................................ 25
(f) Distributions...................................................... 26
(g) Capital Expenditures............................................... 26
</TABLE>

iii.
<PAGE> 5

<S> <C>
(h) Disposition of Assets.............................................. 26
(i) [Intentionally omitted]............................................ 26
(j) Bill-and-Hold Sales, Etc........................................... 26
(k) Restricted Investment.............................................. 26
(l) Leases............................................................. 27
(m) Tax Consolidation.................................................. 27
8.3 Specific Financial Covenants................................................ 27
(a) [intentionally omitted]............................................ 27
(b) Profitability...................................................... 27
(c) Total Senior Debt Coverage Ratio................................... 28
(d) [intentionally omitted]............................................ 28
(e) [intentionally omitted]............................................ 28
(f) [intentionally omitted]............................................ 28
(g) [intentionally omitted]............................................ 28
(h) [intentionally omitted]............................................ 28

SECTION 9. CONDITIONS PRECEDENT TO INITIAL CREDITS........................................ 28
9.1 Documentation............................................................... 29
9.2 Other Loan Documents. Each of the conditions precedent set forth in the other
Loan Documents shall have been satisfied.

9.3 Approvals and Consents...................................................... 29
9.4 Interim Financial Statements................................................ 29
9.5 Certified Documents of Borrower............................................. 29
9.6 Opinion of Counsel.......................................................... 30
9.7 Projections................................................................. 30

SECTION 9-A. CONDITIONS PRECEDENT TO ALL LOANS........................................... 30
9-A.1 No Default.................................................................. 30
9-A.2 Representations and Warranties.............................................. 30
9-A.3 No Litigation............................................................... 30

SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT............................. 30
10.1 Events of Default........................................................... 30
(a) Payment of Note.................................................... 31
(b) Payment of Other Obligations....................................... 31
(c) Misrepresentations................................................. 31
(d) Breach of Specific Covenants....................................... 31
(e) Breach of Other Covenants.......................................... 31
(f) Default Under Security Documents/Other Agreements/ ESOP Transactions
Documents.......................................................... 31
(g) Other Defaults..................................................... 31
(h) Uninsured Losses................................................... 32
(i) Adverse Changes.................................................... 32
</TABLE>

iv.

<PAGE> 6

<S> <C>
(j) Insolvency and Related Proceedings................................. 32
(k) Business Disruption................................................ 32
(l) Change of Ownership................................................ 32
(m) ERISA.............................................................. 32
(n) Challenge to Agreement............................................. 33
(o) [Intentionally omitted]............................................ 33
(p) Criminal Forfeiture................................................ 33
(q) Judgments.......................................................... 33
(r) ESOP Loan.......................................................... 33
10.2 Acceleration of the Obligations............................................. 33
10.3 Other Remedies.............................................................. 33
10.4 Remedies Cumulative; No Waiver.............................................. 35

SECTION 11. MISCELLANEOUS................................................................. 35
11.1 Power of Attorney........................................................... 35
11.2 Indemnity................................................................... 36
11.3 Modification of Agreement; Sale of Interest................................. 36
11.4 Severability................................................................ 37
11.5 Successors and Assigns...................................................... 37
11.6 Cumulative Effect; Conflict of Terms........................................ 37
11.7 Execution in Counterparts................................................... 37
11.8 Notice...................................................................... 38
11.9 Lender's Consent............................................................ 39
11.10 Credit Inquiries............................................................ 39
11.11 Time of Essence............................................................. 39
11.12 Entire Agreement............................................................ 39
11.13 Interpretation.............................................................. 39
11.14 GOVERNING LAW; CONSENT TO FORUM............................................. 39
11.15 WAIVERS BY BORROWER......................................................... 40
11.16 Confidentiality............................................................. 41

</TABLE>

<PAGE> 7

AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT

THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is made as of May
27, 1998, by and between FLEET CAPITAL CORPORATION ("Lender"), a Connecticut
corporation, with an office at 15260 Ventura Boulevard, Suite 1200, Sherman
Oaks, California 91403 and MEADE INSTRUMENTS CORP. ("Borrower"), a Delaware
corporation, with its chief executive office and principal place of business at
6001 Oak Canyon, Irvine, California 92620. Capitalized terms used in this
Agreement have the meanings assigned to them in Appendix A, General Definitions.
Accounting terms not otherwise specifically defined herein shall be construed in
accordance with GAAP consistently applied.

WHEREAS, Borrower and Lender are parties to the Existing Loan
Agreement; and

WHEREAS, Borrower has requested and Lender has agreed to amend and
restate the provisions of the Existing Loan Agreement as set forth herein.

NOW THEREFORE, the parties agree as follows:

SECTION 1. CREDIT FACILITY

Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a Total Credit Facility of up to Twenty Million
Dollars ($20,000,000) available upon Borrower's request therefor, as follows:

1.1 Revolving Credit Loans.

(a) Loans. Lender agrees, for so long as no Default or Event of
Default exists and subject to the satisfaction of the applicable conditions
precedent set forth in Sections 9 and 9A, to make Revolving Credit Loans to
Borrower from time to time, as requested by Borrower in the manner set forth in
subsection 3.1(a) hereof, up to a maximum principal amount at any time
outstanding equal to the Maximum Revolving Amount at such time minus the LC
Amount.

(b) Use of Proceeds. The Loans shall be used solely for: (1) the
refinancing of Borrower's obligations owing under the Existing Loan Agreement,
and (2) Borrower's general operating capital needs, in a manner consistent with
the provisions of this Agreement and all applicable laws.

<PAGE> 8

1.2 CapEx Loans.

(a) CapEx Loans. Lender agrees, for so long as no Default or
Event of Default exists, to make Loans ("CapEx Loans") to Borrower from time to
time from and after the Closing Date through the date that is 60 days prior to
the Original Term (or the applicable Renewal Term) to finance Borrower's making
of Capital Expenditures for use in its business. Each CapEx Loan shall be in a
principal amount of $500,000, or more, shall be secured by all of the Collateral
and shall be evidenced by a CapEx Note, which CapEx Note shall specify the rate
of interest and the repayment terms applicable to such CapEx Loan. The principal
amount of CapEx Loans to be made by Lender hereunder shall not exceed, in the
aggregate, $5,000,000.

(b) [Intentionally omitted]

1.3 Letters of Credit; LC Guaranties. Lender agrees, for so long
as no Default or Event of Default exists and subject to the satisfaction of the
applicable conditions precedent set forth in Sections 9 and 9A, and if requested
by Borrower, to (a) issue its, or cause to be issued its Affiliate's,
documentary Letters of Credit for the account of Borrower or (b) execute LC
Guaranties by which Lender shall guaranty the payment or performance by Borrower
of its reimbursement obligations with respect to documentary letters of credit
issued for Borrower's account by other Persons, provided that the LC Amount at
any time shall not exceed the lesser of (a) Three Million Dollars ($3,000,000),
and (b) the Maximum Revolving Amount minus the then aggregate outstanding
principal amount of Revolving Credit Loans. The parties agree that any Letters
of Credit or LC Guaranties outstanding under the Existing Loan Agreement
automatically shall be deemed to be outstanding under this Agreement as of the
Closing Date. No Letter of Credit or LC Guarantee may have an expiration date
that is after the last day of the Original Term or the then applicable Renewal
Term. Any amounts paid by Lender under any LC Guaranty or in connection with any
Letter of Credit shall be treated as Revolving Credit Loans, shall be secured by
all of the Collateral, and shall bear interest and be payable at the same rate
and in the same manner as Revolving Credit Loans.

SECTION 2. INTEREST, FEES AND CHARGES

2.1 Interest.

(a) Rates of Interest.

(a) CapEx Loans. Interest shall accrue on the CapEx Loans
in accordance with the terms of the CapEx Notes.

(b) Revolving Credit Loans. During all times that a Base
Rate Election is in effect, interest shall accrue on the
principal amount of the Base Rate Revolving Credit Portion
outstanding at the end of each day at a fluctuating rate per
annum equal to the Base Rate. The

<PAGE> 9

rate of interest shall increase or decrease by an amount equal to
any increase or decrease in the Base Rate, effective as of the
opening of business on the day that any such change in the Base
Rate occurs. During all times that a LIBOR Rate Election is in
effect, interest shall accrue on the principal amount of the
LIBOR Revolving Credit Portions outstanding at the end of each
day at a rate per annum equal to one and three-quarters percent
(1-3/4%) plus the LIBOR Rate applicable to the relevant LIBOR
Revolving Credit Portion for the corresponding LIBOR Period;
provided, however, that the foregoing rate of interest shall be
decreased (such decrease to occur permanentally, but only once)
by one-quarter of one percent (1/4%) if no Default or Event of
Default exists and if Borrower's annual audited financial
statements for any fiscal year ended after the date hereof and
delivered to Lender pursuant to subsection 8.1(c)(i) indicate
that Borrower achieved $8,000,000, or more, of EBITDA for the
fiscal year for which such statements were issued.

(b) Default Rate of Interest. Upon and after the occurrence of an
Event of Default, and during the continuation thereof, the principal amount of
all Loans shall bear interest at a rate per annum equal to two percent (2%)
above the interest rate otherwise applicable thereto (the "Default Rate").

(c) Maximum Interest. In no event whatsoever shall the aggregate
of all amounts deemed interest hereunder or under the CapEx Notes and charged or
collected pursuant to the terms of this Agreement or pursuant to the CapEx Notes
exceed the highest rate permissible under any law which a court of competent
jurisdiction shall, in a final determination, deem applicable hereto. If any
provisions of this Agreement or the CapEx Notes are in contravention of any such
law, such provisions shall be deemed amended to conform thereto.

2.2 Computation of Interest and Fees. Interest, Letter of Credit
and LC Guaranty fees hereunder shall be calculated daily and shall be computed
on the actual number of days elapsed over a year of three hundred sixty (360)
days. For the purpose of computing interest hereunder, all items of payment
received by Lender shall be deemed applied by Lender on account of the
Obligations (subject to final payment of such items) on the first Business Day
after receipt by Lender of such items in Lender's account located at Harris Bank
in Chicago, Illinois or such other account as Lender may designate by written
notice to Borrower.

2.3 Rate Elections. Unless a LIBOR Rate Election is in effect,
Borrower shall be deemed to have made an effective Base Rate Election.

2.4 LIBOR Option.

<PAGE> 10

(a) Upon the conditions that: (i) Lender shall have
received a LIBOR Request from Borrower at least 3 Business Days
prior to the first day of the LIBOR Period requested, (ii) there
shall have occurred no change in applicable law which would make
it unlawful for Lender to obtain deposits of U.S. dollars in the
London interbank foreign currency deposits market, (iii) as of
the date of the LIBOR Request and the first day of the LIBOR
Period, there shall exist no Default or Event of Default, (iv)
Lender is able to determine the LIBOR Rate in respect of the
requested LIBOR Period or Lender is able to obtain deposits of
U.S. dollars in the London interbank foreign currency deposits
market in the applicable amounts and for the requested LIBOR
Period, and (v) as of the first date of the LIBOR Period, there
are no more than 6 outstanding LIBOR Portions, including the
LIBOR Portion being requested; then interest on the LIBOR
Revolving Credit Portion and/or the LIBOR CapEx Portion requested
during the LIBOR Period requested will be based on the applicable
LIBOR Rate.

(b) Each LIBOR Request shall be irrevocable and binding on
Borrower. Borrower shall indemnify Lender for any loss, penalty,
or expense incurred by Lender due to failure on the part of
Borrower to fulfill, on or before the date specified in any LIBOR
Request, the applicable conditions set forth in this Agreement or
due to the prepayment of the applicable LIBOR Revolving Credit
Portion or LIBOR CapEx Portion prior to the last day of the
applicable LIBOR Period, including, without limitation, any loss
(including loss of anticipated profits) or expense incurred by
reason of the liquidation or redeployment of deposits or other
funds acquired by Lender to fund or maintain the requested LIBOR
Revolving Credit Portion and/or LIBOR CapEx Portion.

(c) If any Legal Requirement shall (i) make it unlawful for
Lender to fund through the purchase of U.S. dollar deposits any
LIBOR Revolving Credit Portion or LIBOR CapEx Portion, or
otherwise give effect to its obligations as contemplated under
this subsection 2.4, or (ii) shall impose on Lender any costs
based on or measured by the excess above a specified level of the
amount of a category of deposits or other liabilities of Lender
which includes deposits by reference to which the LIBOR Rate is
determined as provided herein or a category of extensions of
credit or other assets of Lender which includes any LIBOR
Revolving Credit Portion or LIBOR CapEx Portion, or (iii) shall
impose on Lender any restrictions on the amount of such a
category of liabilities or assets which Lender may hold, then, in
each such case, Lender may, by notice thereof to Borrower,
terminate the

<PAGE> 11

LIBOR Election. Any LIBOR Revolving Credit Portion and/or any
LIBOR CapEx Portion subject thereto shall immediately bear
interest thereafter at the rate and in the manner provided for
Base Rate Portions pursuant hereto. Borrower shall indemnify
Lender against any loss, penalty, or expense incurred by Lender
due to liquidation or redeployment of deposits or other funds
acquired by Lender to fund or maintain any LIBOR Revolving Credit
Portion and/or LIBOR CapEx Portion that is terminated hereunder.

(d) Lender shall receive payments of amounts of principal
and interest (i) on the Revolving Credit Loans with respect to
the LIBOR Revolving Credit Portions, and (ii) on the CapEx Notes
with respect to the LIBOR CapEx Portions, in each case, free and
clear of, and without deduction for, any Taxes. If (y) Lender
shall be subject to any Tax in respect of any LIBOR Revolving
Credit Portion or LIBOR CapEx Portion, or any part thereof or,
(z) Borrower shall be required to withhold or deduct any Tax from
any such amount, the LIBOR Rate applicable to such LIBOR
Revolving Credit Portion or LIBOR CapEx Portion shall be adjusted
by Lender to reflect all additional costs incurred by Lender in
connection with the payment by Lender or the withholding by
Borrower of such Tax and Borrower shall provide Lender with a
statement detailing the amount of any such Tax actually paid by
Borrower. Determination by Lender of the amount of such costs
shall, in the absence of manifest error, be conclusive. If after
any such adjustment any part of any Tax paid by Lender is
subsequently recovered by Lender, Lender shall reimburse Borrower
to the extent of the amount so recovered. A certificate of an
officer of Lender setting forth the amount of such recovery and
the basis therefore shall, in the absence of manifest error, be
conclusive.

2.5 Letter of Credit and LC Guaranty Fees. Borrower shall pay to
Lender:

(a) [Intentionally omitted]

(b) for documentary Letters of Credit and LC Guaranties of
documentary Letters of Credit, a fee equal to one-half of one
percent (0.50%) per annum of the face amount of each such Letter
of Credit or LC Guaranty, payable in arrears on the first day of
each month based on the amount available for drawing under such
Letter of Credit or LC Guaranty plus the normal and customary
charges associated with the issuance and administration of each
such Letter of Credit or LC Guaranty (which charges shall be
fully earned upon issuance, renewal or extension (as the case may
be) of each such Letter of Credit or LC Guaranty).

<PAGE> 12

2.6 [Intentionally omitted].

2.7 [Intentionally omitted].

2.8 Audit and Appraisal Fees. Borrower shall pay to Lender all
reasonable out-of-pocket costs and expenses incurred by Lender in connection
with audits and appraisals of Borrower's books and records of or relating to the
Collateral, plus all fees and expenses incurred by Lender in connection with any
appraisals of the Collateral commissioned by Lender and performed by third party
appraisers. All such fees, costs, and expenses shall be payable on the first day
of the month following the date of issuance by Lender of a request for payment
thereof to Borrower.

2.9 Reimbursement of Expenses. If, at any time or times
regardless of whether or not an Event of Default then exists, Lender incurs
legal or accounting expenses or any other costs or out-of-pocket expenses in
connection with (a) the negotiation and preparation of this Agreement or any of
the other Loan Documents, any amendment of or modification of this Agreement or
any of the other Loan Documents; (b) the administration of this Agreement or any
of the other Loan Documents and the transactions contemplated hereby and
thereby; (c) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Lender, Borrower or any other Person) in any way relating
to the Collateral, this Agreement or any of the other Loan Documents or
Borrower's affairs; (d) any attempt to enforce any rights of Lender against
Borrower or any other Person which may be obligated to Lender by virtue of this
Agreement or any of the other Loan Documents, including, without limitation, the
Account Debtors; or (e) any attempt to inspect, verify, protect, preserve,
restore, collect, sell, liquidate or otherwise dispose of or realize upon the
Collateral; then all such reasonable legal and accounting expenses, other costs
and out of pocket expenses of Lender shall be charged to Borrower. All amounts
chargeable to Borrower under this subsection 2.9 shall be Obligations secured by
all of the Collateral, shall be payable on demand to Lender, and shall bear
interest from the date such demand is made until paid in full at the rate
applicable to Revolving Credit Loans from time to time. Borrower also shall
reimburse Lender for expenses incurred by Lender in its administration of the
Collateral to the extent and in the manner provided in Section 6 hereof.

2.10 Bank Charges. Borrower shall pay to Lender, on demand, any
and all fees, costs or expenses which Lender pays to a bank or other similar
institution arising out of or in connection with (a) the forwarding by Lender to
Borrower or any other Person on behalf of Borrower of proceeds of loans made by
Lender to Borrower pursuant to this Agreement and (b) the depositing by Lender
for collection of any check or item of payment received by or delivered to
Lender on account of the Obligations.

<PAGE> 13

SECTION 3. LOAN ADMINISTRATION

3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under
the credit facility established pursuant to Section 1 hereof shall be as
follows:

(a) Loan Requests. A request for a Revolving Credit Loan shall be
made, or shall be deemed to be made, in the following manner: (i) Borrower may
give Lender notice of its intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the proposed borrowing date, no
later than 11:00 a.m. (Los Angeles time) on the proposed borrowing date,
provided, however, that no such request may be made at a time when the
conditions precedent set forth in Section 9A are not satisfied; and (ii) the
becoming due of any amount required to be paid under this Agreement or the CapEx
Notes, whether as interest or for any other Obligation, shall be deemed
irrevocably to be a request for a Revolving Credit Loan on the due date in the
amount required to pay such interest or other Obligation. As an accommodation to
Borrower, Lender may permit telephonic requests for loans and electronic
transmittal of instructions, authorizations, agreements or reports to Lender by
Borrower. Unless Borrower specifically directs Lender in writing not to accept
or act upon telephonic or electronic communications from Borrower, Lender shall
have no liability to Borrower for any loss or damage suffered by Borrower as a
result of Lender's honoring of any requests, execution of any instructions,
authorizations or agreements, or reliance on any reports communicated to it
telephonically or electronically and believed in good faith by Lender to have
been sent to Lender by Borrower, and Lender shall have no duty to verify the
origin of any such communication or the authority of the person sending it
(other than the employment of any standard verification methods used in the
ordinary course of business by Lender).

(b) Disbursement. Borrower hereby irrevocably authorizes Lender
to disburse the proceeds of each Revolving Credit Loan requested, or deemed to
be requested, pursuant to this subsection 3.1 as follows: (a) the proceeds of
each Revolving Credit Loan requested under subsection 3.1(a)(i) shall be
disbursed by Lender in lawful money of the United States of America in
immediately available funds, in the case of the initial borrowing, in accordance
with the terms of the written disbursement letter from Borrower, and in the case
of each subsequent borrowing, by wire transfer to such bank account as may be
agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to
a written direction from Borrower; and (b) the proceeds of each Revolving Credit
Loan requested under subsection 3.1(a)(ii) shall be disbursed by Lender by way
of direct payment of the relevant interest or other Obligation.

(c) Authorization. Borrower hereby irrevocably authorizes Lender,
in Lender's sole discretion, to advance to Borrower, and to charge to Borrower's
Loan Account hereunder as a Revolving Credit Loan, a sum sufficient to pay all
interest accrued on the Obligations during the immediately preceding month and
to pay all costs, fees, and expenses at any time owed by Borrower to Lender
hereunder.

<PAGE> 14

3.2 Payments. Except where evidenced by notes or other
instruments issued or made by Borrower to Lender (and accepted by Lender)
specifically containing payment provisions which are in conflict with this
subsection 3.2 (in which event the conflicting provisions of said notes or other
instruments shall govern and control), the Obligations shall be payable as
follows:

(a) Principal. Principal payable on account of Revolving Credit
Loans shall be payable by Borrower to Lender immediately upon the earliest of:
(i) the occurrence of an Event of Default in consequence of which Lender elects
to accelerate the maturity and payment of the Obligations; and (ii) termination
of this Agreement pursuant to Section 4 hereof; provided, however, that if an
Overadvance shall exist at any time, Borrower shall, on demand, repay the
Overadvance.

(b) Interest.

(i) Base Rate Revolving Credit Portion. Interest accrued on
Base Rate Revolving Credit Portions shall be due and payable on
the earliest of (A) the first calendar day of each month (for the
immediately preceding month), computed through the last calendar
day of the preceding month, (B) the occurrence of an Event of
Default in consequence of which Lender elects to accelerate the
maturity and payment of the Obligations, or (C) termination of
this Agreement pursuant to Section 4 hereof.

(ii) LIBOR Revolving Credit Portion. Interest accrued on
each LIBOR Revolving Credit Portion shall be due and payable on
the earliest of (i) the first calendar day of each month (for the
immediately preceding month), computed through the last calendar
day of the preceding month, (ii) the last day of the LIBOR Period
applicable to such LIBOR Revolving Credit Portion, (iii) the
occurrence of an Event of Default in consequence of which Lender
elects to accelerate the maturity and payment of the Obligations,
or (iv) termination of this Agreement pursuant to Section 4
hereof.

(c) Costs, Fees and Charges. Costs, fees and charges payable
pursuant to this Agreement shall be payable by Borrower as and when provided in
Section 2 hereof, to Lender or to any other Person designated by Lender in
writing.

(d) Other Obligations. The balance of the Obligations requiring
the payment of money, if any, shall be payable by Borrower to Lender as and when
provided in this Agreement, the Other Agreements or the Security Documents, or,
if not so specified, shall be charged to Borrower's Loan Account hereunder as a
Revolving Credit Loan.

<PAGE> 15

3.3 Mandatory Prepayments.

(a) Proceeds of Sale, Loss, Destruction, or Condemnation of
Collateral. Except as provided in subsection 6.4(b) hereof or except as provided
in the paragraph immediately following this paragraph, if Borrower sells any of
the Equipment, or if any of the Collateral is lost or destroyed or taken by
condemnation, Borrower shall pay to Lender, unless otherwise agreed by Lender,
as and when received by Borrower and as a mandatory prepayment of the CapEx
Loans, a sum equal to the proceeds (including insurance payments) received by
Borrower from such sale, loss, destruction, or condemnation.

If Borrower so elects, it may cause Lender to disburse any monies
actually received by Lender pursuant to the foregoing paragraph, but Lender only
shall be obligated to disburse such money for the repair, replacement, or
restoration of the Equipment or other Collateral that has been damaged, if all
of the following conditions are satisfied: (a) no Event of Default has occurred
and is continuing or would result from the disbursement or application of such
monies; (b) Borrower has cash, cash equivalents (items (iv) through (ix) of
Restricted Investments), unused Revolving Credit Loan availability, and/or
business interruption insurance proceeds in amounts sufficient, in Lender's
reasonable judgment, to ensure that Borrower will be able to make payment as and
when due of each of its direct Obligations that will be payable during the
period of such repair, replacement, or restoration; (c) Lender is reasonably
satisfied that the amount of such cash, cash equivalents, Revolving Credit Loan
availability, and/or insurance proceeds will be sufficient fully to repair,
replace, or restore the subject Equipment or other Collateral; (d) all
construction and completion of the repair, replacement, or restoration shall be
effected with reasonable promptness and shall be of a value (the "Replaced
Value") (i) at least equal to the value (the "Destroyed Value") of such items of
Property destroyed or condemned prior to such destruction or condemnation, or
(ii) of a value less than the Destroyed Value, so long as the difference between
the Destroyed Value and the Replaced Value is applied to the repayment of the
Obligations in such order as Lender shall deem appropriate; and (e) all monies
paid by Borrower to Lender may be commingled with other funds of Lender and will
not bear interest pending disbursement hereunder.

(b) [intentionally omitted].

3.4 Application of Payments and Collections. Borrower does hereby
irrevocably agree that, subject to subsection 3.2(a)(i), after the occurrence
and during the continuation of an Event of Default, Lender shall have the
continuing exclusive right to apply and reapply any and all such payments and
collections received at any time or times hereafter by Lender or its agent
against the Obligations, in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and records. If, as
the result of collections of Accounts as authorized by subsection 6.2(f) hereof,
a credit balance exists in the Loan Account, such credit balance shall not
accrue interest in favor of Borrower, but shall be available to Borrower at any
time or times for so long as no Default or Event of Default exists. Such credit
balance shall not be applied or be deemed to have

<PAGE> 16

been applied as a prepayment of the CapEx Loans, except that Lender may, at its
option, offset such credit balance against any of the Obligations upon and after
the occurrence of an Event of Default.

3.5 All Loans to Constitue One Obligation. The Loans shall
constitute one general Obligation of Borrower, and shall be secured by Lender's
Lien upon all of the Collateral.

3.6 Loan Account. Lender shall enter all Loans as debits to the
Loan Account and also shall record in the Loan Account all payments made by
Borrower on any Obligations and all proceeds of Collateral which are finally
paid to Lender, and may record therein, in accordance with customary accounting
practices, other debits and credits, including interest and all charges and
expenses properly chargeable to Borrower.

3.7 Statements of Account. Lender will account to Borrower
monthly with a statement of Loans, charges, and payments made pursuant to this
Agreement, and such account rendered by Lender shall be deemed final, binding
and conclusive upon Borrower unless Lender is notified by Borrower in writing to
the contrary within thirty (30) days of the date each accounting is mailed to
Borrower. Such notice only shall be deemed an objection to those items
specifically objected to therein.

SECTION 4. TERM AND TERMINATION

4.1 Term of Agreement. Subject to Lender's right to cease making
Loans to Borrower upon or after the occurrence of any Default or Event of
Default, this Agreement shall be in effect for a period from the date hereof
through and including April 23, 2001 (the "Original Term"), and this Agreement
automatically shall renew itself for one-year periods thereafter (the "Renewal
Terms"), unless terminated as provided in subsection 4.2 hereof.

4.2 Termination.

(a) Termination by Lender. Upon at least sixty (60) days prior
written notice to Borrower, Lender may terminate this Agreement as of the last
day of the Original Term or the then current Renewal Term, and Lender may
terminate this Agreement without notice upon or after the occurrence of an Event
of Default.

(b) Termination by Borrower. Upon at least sixty (60) days prior
written notice to Lender, Borrower may, at its option, terminate this Agreement;
provided, however, no such termination shall be effective until Borrower has
paid all of the Obligations in immediately available funds and all Letters of
Credit and LC Guaranties have expired or have been cash collateralized to
Lender's satisfaction. Any notice of termination given by Borrower shall be
irrevocable unless Lender otherwise agrees in writing, and Lender shall have no
obligation to make any Loans or issue or procure any Letters of Credit or LC

10.

<PAGE> 17

Guaranties on or after the termination date stated in such notice. Borrower may
elect to terminate this Agreement in its entirety only. Unless otherwise agreed
to by Lender, no section of this Agreement or type of Loan available hereunder
may be terminated singly.

(c) Termination Charges. At the effective date of termination of
this Agreement for any reason, Borrower shall pay to Lender (in addition to the
then outstanding principal, accrued interest, and other charges owing under the
terms of this Agreement and any of the other Loan Documents) as liquidated
damages for the loss of the bargain and not as a penalty, an amount ("Early
Termination Charge") equal to: (i) 1% of the Total Credit Facility if
termination occurs up to and including April 23, 1998; (ii) 1/2% of the Total
Credit Facility if termination occurs during on or after April 24, 1998 and up
to and including April 23, 1999; and (c) -0- if thereafter; provided, however,
that, if such termination occurs as a proximate result of: (y) the application
of the proceeds from a public offering of equity securities by Borrower, so long
as thereafter Lender continues to be the primary senior secured lender to
Borrower, or (z) a prepayment required under subsection 3.3(b) hereof, the Early
Termination Charge shall be zero (-0-). If termination occurs at any time after
April 24, 1999, no termination charge shall be payable.

(d) Effect of Termination. All of the Obligations shall be
immediately due and payable upon the termination date stated in any notice of
termination of this Agreement. All undertakings, agreements, covenants,
warranties and representations of Borrower contained in the Loan Documents shall
survive any such termination and Lender shall retain its Liens in the Collateral
and all of its rights and remedies under the Loan Documents notwithstanding such
termination until Borrower has paid the Obligations to Lender, in full, in
immediately available funds, together with the applicable Early Termination
Charge, if any. Notwithstanding the payment in full of the Obligations, Lender
shall not be required to terminate its security interests in the Collateral
unless, with respect to any loss or damage Lender may incur as a result of
dishonored checks or other items of payment received by Lender from Borrower or
any Account Debtor and applied to the Obligations, Lender shall, at its option,
(i) have received a written agreement, executed by Borrower and by any Person
whose loans or other advances to Borrower are used in whole or in part to
satisfy the Obligations, indemnifying Lender from any such loss or damage; or
(ii) have retained such monetary reserves and Liens on the Collateral for such
period of time as Lender, in its reasonable discretion, may deem necessary to
protect Lender from any such loss or damage.

SECTION 5. SECURITY INTERESTS

5.1 Security Interest in Collateral. To secure the prompt payment
and performance to Lender of the Obligations, Borrower hereby grants to Lender a
continuing Lien upon all of Borrower's assets, including all of the following
Property and interests in Property of Borrower, whether now owned or existing or
hereafter created, acquired or arising and wheresoever located:

11.
<PAGE> 18

(a) Accounts;

(b) Inventory;

(d) General Intangibles;

(e) All monies and other Property of any kind now or at any
time or times hereafter in the possession or under the control of
Lender or a bailee or Affiliate of Lender;

(f) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (a)
through (e) above, including, without limitation, proceeds of and
unearned premiums with respect to insurance policies insuring any
of the Collateral; and

(g) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and
other computer materials and records) of Borrower pertaining to
any of (a) through (f) above.

5.2 Lien Perfection; Further Assurances. Borrower shall execute
such UCC-1 financing statements as are required by the Code and such other
instruments, assignments or documents as are necessary to perfect Lender's Lien
upon any of the Collateral and shall take such other action as may be required
to perfect or to continue the perfection of Lender's Lien upon the Collateral.
Unless prohibited by applicable law, Borrower hereby authorizes Lender to
execute and file any such financing statement on Borrower's behalf. The parties
agree that a carbon, photographic, or other reproduction of this Agreement shall
be sufficient as a financing statement and may be filed in any appropriate
office in lieu thereof. At Lender's request, Borrower also shall promptly
execute or cause to be executed and shall deliver to Lender any and all
documents, instruments, and agreements deemed necessary by Lender to give effect
to or carry out the terms or intent of the Loan Documents.

5.3 [Intentionally omitted]

SECTION 6. COLLATERAL ADMINISTRATION

6.1 General.

(a) Location of Collateral. All Collateral, other than Inventory
in transit and motor vehicles, will at all times be kept by Borrower at one or
more of the business locations set forth in Exhibit 6.1.1 hereto and shall not,
without the prior written

12.

<PAGE> 19

approval of Lender, be moved therefrom except, prior to an Event of Default and
Lender's acceleration of the maturity of the Obligations in consequence thereof,
for (i) sales of Inventory in the ordinary course of business; and (ii) removals
in connection with dispositions of Equipment that are authorized by subsection
6.4(b) hereof.

(b) Insurance of Collateral. Borrower shall maintain and pay for
insurance upon all Collateral wherever located and with respect to Borrower's
business, covering casualty, hazard, public liability, and such other risks in
such amounts and with such insurance companies as are reasonably satisfactory to
Lender. Borrower shall deliver the originals of such policies to Lender with 438
BFU lender's loss payable endorsements or other satisfactory lender's loss
payable endorsements, naming Lender as sole loss payee and additional insured,
as appropriate. Each policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than thirty (30) days prior written
notice to Lender in the event of cancellation of the policy for any reason
whatsoever and a clause specifying that the interest of Lender shall not be
impaired or invalidated by any act or neglect of Borrower or the owner of the
Property or by the occupation of the premises for purposes more hazardous than
are permitted by said policy. If Borrower fails to provide and pay for such
insurance, Lender may, at its option, but shall not be required to, procure the
same and charge Borrower therefor. Borrower agrees to deliver to Lender,
promptly as rendered, true copies of all reports made in any reporting forms to
insurance companies.

(c) Protection of Collateral. All expenses of protecting,
storing, warehousing, insuring, handling, maintaining, and shipping the
Collateral, any and all excise, property, sales, and use taxes imposed by any
state, federal, or local authority on any of the Collateral or in respect of the
sale thereof shall be borne and paid by Borrower. If Borrower fails to promptly
pay any portion thereof when due, Lender may, at its option, but shall not be
required to, pay the same and charge Borrower therefor. Lender shall not be
liable or responsible in any way for the safekeeping of any of the Collateral or
for any loss or damage thereto (except for reasonable care in the custody
thereof while any Collateral is in Lender's actual possession) or for any
diminution in the value thereof, or for any act or default of any warehouseman,
carrier, forwarding agency, or other person whomsoever, but the same shall be at
Borrower's sole risk.

6.2 Administration of Accounts.

(a) Records of Accounts. Borrower shall keep accurate and
complete records of its Accounts and all payments and collections thereon.

(b) [Intentionally omitted].

(d) [Intentionally omitted]

13.

<PAGE> 20

(e) [Intentionally omitted].

(f) [Intentionally omitted].

6.3 Administration of Inventory.

(a) Records and Reports of Inventory. Borrower shall keep
accurate and complete records of its Inventory.

(b) [Intentionally omitted].

6.4 Administration of Equipment.

(a) Records and Schedules of Equipment. Borrower shall keep
accurate records itemizing and describing the kind, type, quality, quantity, and
value of its Equipment and all dispositions made in accordance with subsection
6.4(b) hereof, and shall furnish Lender with a current schedule containing the
foregoing information if requested by Lender. Immediately on request therefor by
Lender, Borrower shall deliver to Lender any and all certificates of title with
respect to that portion of the Equipment that is subject to certificates of
title.

(b) Dispositions of Equipment. Borrower will not sell, lease, or
otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of Lender; provided, however, that the
foregoing restriction shall not apply, for so long as no Default or Event of
Default exists, to (i) dispositions of Equipment which, in the aggregate during
any consecutive twelve-month period, has a fair market value or book value,
whichever is less, of $200,000, or less, or (ii) dispositions of Equipment that
is substantially worn, damaged, or obsolete and that is replaced with Equipment
of like kind, function, and value, provided that the replacement Equipment shall
be purchased or ordered within thirty (30) days of any disposition of the
Equipment that is to be replaced, the replacement Equipment shall be free and
clear of Liens other than Permitted Liens, and Borrower shall have given Lender
prior written notice of such disposition.

6.5 Payment of Charges. All amounts chargeable to Borrower under
Section 6 hereof shall be Obligations secured by all of the Collateral, shall be
payable on demand, and shall bear interest from the date such advance was made
until paid in full at the rate applicable to Revolving Credit Loans from time to
time.

6.6 [Intentionally omitted].

SECTION 7. REPRESENTATIONS AND WARRANTIES

7.1 General Representations and Warranties. To induce Lender to
enter into this Agreement and to make Loans or issue Letters of Credit or LC
Guaranties

14.

<PAGE> 21

hereunder, Borrower warrants and represents to Lender that:

(a) Organization and Qualification. Borrower is a corporation
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. Borrower is duly qualified and is authorized
to do business and is in good standing as a foreign corporation in each state or
jurisdiction listed on Exhibit 7.1.1 hereto and in all other states and
jurisdictions in which the failure of Borrower to be so qualified would have a
material adverse effect on the financial condition, business or Properties of
Borrower.

(b) Corporate Power and Authority. Borrower is duly authorized
and empowered to enter into, execute, deliver, and perform this Agreement and
each of the other Loan Documents to which it is a party. The execution,
delivery, and performance of this Agreement and each of the other Loan Documents
and the ESOP Transaction Documents have been duly authorized by all necessary
corporate action and do not and will not (i) require any consent or approval of
the stockholders of Borrower; (ii) contravene Borrower's charter, articles, or
certificate of incorporation or by-laws; (iii) violate, or cause Borrower to be
in default under, any provision of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination, or award in effect having
applicability to Borrower; (iv) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other material agreement,
lease, or instrument to which Borrower is a party or by which it or its
Properties may be bound or affected; or (v) result in, or require, the creation
or imposition of any Lien (other than Permitted Liens) upon or with respect to
any of the Properties now owned or hereafter acquired by Borrower.

(c) Legally Enforceable Agreement. This Agreement is, and each of
the other Loan Documents when delivered under this Agreement will be, a legal,
valid, and binding obligation of Borrower enforceable against it in accordance
with its respective terms, except to the extent that (i) such enforceability is
limited by bankruptcy, insolvency, reorganization, moratorium, or other laws
relating to or affecting generally the enforcement of creditors' rights and (ii)
the availability of the remedy of specific performance or injunctive or other
equitable relief is subject to the discretion of the court before which any
proceeding therefor may be brought.

(d) Capital Structure. Exhibit 7.1.4 hereto states (i) the
correct name of each of the Subsidiaries of Borrower (if any), its jurisdiction
of incorporation, and the percentage of its Voting Stock owned by Borrower, (ii)
the name of each of Borrower's corporate or joint venture Affiliates and the
nature of the affiliation, (iii) the number, nature, and holder of all
outstanding Securities of Borrower and of each Subsidiary of Borrower (if any),
and (iv) the number of authorized, issued, and treasury shares of Borrower and
of each Subsidiary of Borrower (if any). Borrower has good title to all of the
shares it purports to own of the stock of each of its Subsidiaries (if any),
free and clear in each case of any Lien other than Permitted Liens. All such
shares have been duly issued and are fully paid and non-assessable. Except as
identified on Exhibit 7.1.4, there are no outstanding options to

15.

<PAGE> 22

purchase, or any rights or warrants to subscribe for, or any commitments or
agreements to issue or sell, or any Securities or obligations convertible into,
or any powers of attorney relating to, shares of the capital stock of Borrower
or any of its Subsidiaries (if any). Except as identified on Exhibit 7.1.4, to
the knowledge of Borrower, there are no outstanding agreements or instruments
binding upon any of Borrower's stockholders relating to the ownership of its
shares of capital stock.

(e) Corporate Names. Borrower has not been known as or used any
corporate, fictitious, or trade names except those listed on Exhibit 7.1.5
hereto. Except as set forth on Exhibit 7.1.5, Borrower has not been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person.

(f) Business Locations; Agent for Process. Borrower's chief
executive office and other places of business are as listed on Exhibit 6.1.1
hereto. During the preceding one-year period, Borrower has not had an office,
place of business, or agent for service of process other than as listed on
Exhibit 6.1.1. Except as shown on Exhibit 6.1.1, no inventory is stored with a
bailee, warehouseman, or similar party that has not entered into a Collateral
Access Agreement with Lender, nor is any Inventory consigned to any Person.

(g) Title to Properties; Priority of Liens. Borrower has good
title to all of the Collateral and all of its other Property, in each case, free
and clear of all Liens except Permitted Liens. Borrower has paid or discharged
all known lawful claims which, if unpaid, might become a Lien against any of
Borrower's Properties that is not a Permitted Lien. The Liens granted to Lender
under Section 5 hereof are first priority Liens, subject only to Permitted
Liens.

(h) Accounts. Unless otherwise indicated in writing to Lender,
with respect to each Account:

(i) It is genuine and in all respects what it purports to
be, and it is not evidenced by a judgment;

(ii) It arises out of a completed, bona fide sale and
delivery of goods or rendition of services by Borrower in the
ordinary course of its business and in accordance with the terms
and conditions of all purchase orders, contracts, or other
documents relating thereto and forming a part of the contract
between Borrower and the Account Debtor;

(iii) It is for a liquidated amount maturing as stated in
the duplicate invoice covering such sale or rendition of
services, a copy of which has been furnished or is available to
Lender;

16.

<PAGE> 23

(iv) Such Account, and Lender's security interest therein,
is not, and will not (by voluntary act or omission of Borrower)
be in the future, subject to any offset, Lien, deduction,
defense, dispute, counterclaim, or any other adverse condition
except for disputes resulting in returned goods where the amount
in controversy is deemed by Borrower to be immaterial, and each
such Account is absolutely owing to Borrower and is not
contingent in any respect or for any reason;

(v) At the time of creation, Borrower made no agreement
with any Account Debtor thereunder for any extension, compromise,
settlement, or modification of any such Account or any deduction
therefrom, except discounts or allowances which are granted by
Borrower in the ordinary course of its business for prompt
payment;

(vi) At the time of creation, there are no known and
unreported facts, events or occurrences which in any way impair
the validity or enforceability of any Accounts or tend to reduce
the amount payable thereunder from the face amount of the invoice
and statements delivered to Lender with respect thereto;

(vii) To the knowledge of Borrower, the Account Debtor
thereunder (i) had the capacity to contract at the time any
contract or other document giving rise to the Account was
executed and (ii) at the time of creation, such Account Debtor
was Solvent; and

(viii) To the knowledge of Borrower, at the time of
creation, there were no proceedings or actions which were
threatened or pending against any Account Debtor thereunder which
might result in any material adverse change in such Account
Debtor's financial condition or the collectibility of such
Account.

(i) Equipment. The Equipment is in good operating condition and
repair, and all necessary replacements of and repairs thereto shall be made so
that the value and operating efficiency of the Equipment shall be maintained and
preserved, reasonable wear and tear excepted. Borrower will not permit any of
the Equipment to become affixed to any real property leased to Borrower so that
an interest arises therein under the real estate laws of the applicable
jurisdiction unless the landlord of such real property has executed a Collateral
Access Agreement in favor of and in form acceptable to Lender, and Borrower will
not permit any of the Equipment to become an accession to any personal Property
other than Equipment that is subject to first priority (except for Permitted
Liens) Liens in favor of Lender.

(j) Financial Statements; Fiscal Year. The balance sheets of

17.

<PAGE> 24

Borrower as of February 28, 1997, and the related statements of income, changes
in stockholder's equity, and changes in financial position for the periods ended
on such date, have been prepared in accordance with GAAP, and present fairly the
financial position of Borrower at such date and the results of Borrower's
operations for such periods. Except for the changes relative to Borrower's
financial condition as a result of its initial public offering effective on
April 14, 1997, since February 28, 1997 there has been no material change in the
condition, financial or otherwise, of Borrower and no change in the aggregate
value of Equipment owned by Borrower, except changes in the ordinary course of
business, none of which individually or in the aggregate has been materially
adverse. The fiscal year of Borrower ends on the last day of February of each
year.

(k) Full Disclosure. The financial statements referred to in
subsection 7.1(j) hereof do not, nor does this Agreement or any other written
statement of Borrower to Lender, contain any untrue statement of a material fact
or omit a material fact necessary to make the statements contained therein or
herein not misleading.

(l) Solvent Financial Condition. Borrower is now and, after
giving effect to the Loans to be made and the Letters of Credit and LC
Guaranties to be issued hereunder and the application of the proceeds thereof,
will be, Solvent.

(m) Surety Obligations. Except as shown on Exhibit 7.1.13 hereto,
Borrower is not obligated as surety or indemnitor under any surety or similar
bond or other contract issued or entered into any agreement to assure payment,
performance, or completion of performance of any undertaking or obligation of
any Person.

(n) Taxes. Borrower's federal tax identification number is
95-2988062. Borrower has filed all federal, state, and local tax returns and
other reports it is required by law to file and has paid, or made provision for
the payment of, all taxes, assessments, fees, levies, and other governmental
charges shown thereon to be due upon it, its income and Properties as and when
such taxes, assessments, fees, levies, and charges that are due and payable,
unless and to the extent any thereof are being actively contested in good faith
and by appropriate proceedings, and Borrower maintains reasonable reserves on
its books therefor. The provision for taxes on the books of Borrower are
adequate for all years not closed by applicable statutes, and for its current
fiscal year.

(o) Brokers. Except as disclosed in writing to Lender prior to
the date hereof, there are no claims for brokerage commissions, finder's fees,
or investment banking fees in connection with the transactions contemplated by
this Agreement.

(p) Patents, Trademarks, Copyrights, and Licenses. Borrower owns
or possesses all the patents, trademarks, service marks, trade names,
copyrights, and licenses necessary for the conduct of its business. Borrower is
in compliance with the foregoing without any known conflict with the rights of
others. All such patents, trademarks, service marks, tradenames, copyrights,
licenses, and other similar rights are

18.

<PAGE> 25
listed on Exhibit 7.1.16 hereto.

(q) Governmental Consents. Borrower has, and is in good standing
with respect to, all governmental consents, approvals, licenses, authorizations,
permits, certificates, inspections, and franchises necessary to continue to
conduct its business as heretofore or proposed to be conducted by it and to own
or lease and operate its Properties as now owned or leased by it.

(r) Compliance with Laws. Borrower has duly complied in all
material respects with, and its Properties, business operations, and leaseholds
are in compliance in all material respects with, the provisions of all federal,
state, and local laws, rules, and regulations applicable to Borrower, its
Properties or the conduct of its business, and there have been no citations,
notices, or orders of noncompliance issued to Borrower under any such law, rule,
or regulation. Borrower has established and maintains an adequate monitoring
system to insure that it remains in compliance with all federal, state, and
local laws, rules and regulations applicable to it. No Inventory has been
produced in violation of the Fair Labor Standards Act (29 U.S.C. ss. 201 et
seq.), as amended.

(s) Restrictions. Borrower is not a party or subject to any
contract, agreement, or charter or other corporate restriction, which materially
and adversely affects its business or the use or ownership of any of its
Properties. Borrower is not a party or subject to any contract or agreement
which restricts its right or ability to incur Indebtedness, other than as set
forth on Exhibit 7.1.19 hereto, none of which prohibit the execution of or
compliance with this Agreement or the other Loan Documents by Borrower.

(t) Litigation. Except as set forth on Exhibit 7.1.20 hereto,
there are no actions, suits, proceedings, or investigations pending, or to the
knowledge of Borrower, threatened against or affecting Borrower, or the
business, operations, Properties, prospects, profits, or condition of Borrower
that reasonably could be expected to have a material adverse effect on Borrower,
its properties, assets, financial condition, business, or prospects. Borrower is
not in default with respect to any known order, writ, injunction, judgment,
decree, or rule of any court, governmental authority or arbitration board or
tribunal.

(u) No Defaults. No event has occurred and no condition exists
which would, upon or after the execution and delivery of this Agreement or
Borrower's performance hereunder, constitute a Default or an Event of Default.
Borrower is not in default, and no event has occurred and no condition exists
which constitutes, or which with the passage of time or the giving of notice or
both would constitute, a default in the payment of any Indebtedness to any
Person for Money Borrowed in excess of Fifty Thousand Dollars ($50,000).

(v) Leases. Exhibit 7.1.22(A) hereto is a complete listing of all
capitalized leases of Borrower and Exhibit 7.1.22(B) hereto is a complete
listing of all

19.

<PAGE> 26

operating leases of Borrower. Borrower is in compliance in all material respects
with all of the terms of each of its respective capitalized and operating
leases.

(w) Pension Plans. Except as disclosed on Exhibit 7.1.23 hereto,
Borrower does not have any Plan. Borrower is in full compliance with the
requirements of ERISA and the regulations promulgated thereunder with respect to
each Plan. No fact or situation that could result in a material adverse change
in the financial condition of Borrower exists in connection with any Plan.
Borrower does not have any withdrawal liability in connection with a
Multiemployer Plan.

(x) Trade Relations. There exists no actual or, to the knowledge
of Borrower, threatened termination, cancellation or limitation of, or any
modification or change in, the business relationship between Borrower and any
customer or any group of customers whose purchases individually or in the
aggregate are material to the business of Borrower, or with any material
supplier, and there exists no present condition or state of facts or
circumstances that reasonably could be expected to materially adversely affect
Borrower or prevent Borrower from conducting such business after the
consummation of the transactions contemplated by this Agreement in substantially
the same manner in which it has heretofore been conducted.

(y) Labor Relations. Except as described on Exhibit 7.1.25
hereto, Borrower is not a party to any collective bargaining agreement. There
are no material grievances, disputes, or controversies with any union or any
other organization of Borrower's employees, or threats of strikes, work
stoppages, or any asserted pending demands for collective bargaining by any
union or organization.

(z) Inventory. All Inventory is now and shall be at all times
hereafter, in all material respects, of good and merchantable quality, free from
defects.

(aa) ESOP Qualification. The provisions of the ESOP in all
material respects in form satisfy the requirements applicable to a qualified
plan under Section 401(a) of the IRC, and the provisions of the ESOP Trust
Agreement in all material respects in form satisfy the requirements of an exempt
trust under Section 501(a) of the IRC. The provisions of the ESOP in all
material respects in form satisfy the requirements applicable to an "employee
stock ownership plan" under Section 4975(e)(7) of the IRC and Section 407(d)(6)
of ERISA.

(bb) ESOP Loan. The transactions contemplated by the ESOP
Transaction Documents and the Loan Documents will not constitute or result in a
non-exempt prohibited transaction under Section 4975(c)(1) of the IRC or Section
406(a) of ERISA, and the ESOP Loan is an "exempt loan" within the meaning of
Treas. Reg. ss.54-4975-7(b).

(cc) ESOP Trustee and Independent Financial Advisor. Both the
ESOP Trustee and the Independent Financial Advisor are independent of Borrower
and its

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<PAGE> 27
Affiliates as defined in Prop. DOL Reg. ss.2510.3-18(b)(3)(iii).

7.2 Continuous Nature of Representations and Warranties. Each
representation and warranty contained in this Agreement and the other Loan
Documents shall be continuous in nature and shall remain accurate, complete, and
not misleading at all times during the term of this Agreement, except for
changes in the nature of Borrower's business or operations that would render the
information in any exhibit attached hereto either inaccurate, incomplete, or
misleading, so long as Lender has consented to such changes or such changes are
expressly permitted by this Agreement.

7.3 Survival of Representations and Warranties. All
representations and warranties of Borrower to Lender contained in this Agreement
or any of the other Loan Documents shall survive the execution, delivery, and
acceptance thereof by Lender and the parties thereto and the closing of the
transactions described therein or related thereto up to the termination of this
Agreement and the repayment in full of the Obligations.

SECTION 8. COVENANTS AND CONTINUING AGREEMENTS

8.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:

(a) Visits and Inspections. Permit representatives of Lender,
from time to time, as often as may be reasonably requested, but only during
normal business hours upon reasonable prior written or telephonic notice, to
visit and inspect the Properties of Borrower, inspect, audit, and make extracts
from its books and records, and discuss with its officers, its employees, and
its independent accountants, Borrower's business, assets, liabilities, financial
condition, business prospects, and results of operations.

(b) Notices. Promptly notify Lender in writing of the occurrence
of any event or the existence of any fact which renders any representation or
warranty in this Agreement or any of the other Loan Documents inaccurate,
incomplete, or misleading in any material respect.

(c) Financial Statements. Keep adequate records and books of
account with respect to its business activities in which proper entries are made
in accordance with GAAP reflecting all its financial transactions, and cause to
be prepared and furnished to Lender the following (all to be prepared in
accordance with GAAP applied on a consistent basis, unless Borrower's certified
public accountants concur in any change therein and such change is disclosed to
Lender and is consistent with GAAP):

(i) not later than ninety (90) days after the close of each
fiscal year of Borrower, unqualified audited financial statements
of Borrower as of the end of such year, certified by a firm of
independent

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<PAGE> 28

certified public accountants of recognized standing
selected by Borrower but acceptable (such acceptance not to be
unreasonably withheld or delayed) to Lender (except for a
qualification for a change in accounting principles with which
the accountant concurs, but expressly not to include any
qualification as a result of the failure of Borrower to conduct a
physical inventory);

(ii) not later than thirty-five (35) days after the end of
each month hereafter, including the last month of Borrower' s
fiscal year, unaudited interim financial statements of Borrower
as of the end of such month and of the portion of Borrower's
financial year then elapsed, certified by the principal financial
officer of Borrower as prepared in accordance with GAAP and
fairly presenting in all material respects the financial position
and results of operations of Borrower for such month and period
subject only to changes from audit and year-end adjustments and
except that such statements need not contain notes;

(iii) promptly after the sending or filing thereof, as the
case may be, copies of any proxy statements, financial
statements, or reports which Borrower has made available to its
stockholders generally and copies of any regular, periodic and
special reports or registration statements which Borrower files
with the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or any national
securities exchange;

(iv) promptly after the filing thereof, copies of any
annual report required by ERISA to be filed in connection with
each Plan; and

(v) such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request,
bearing upon or related to the Collateral or Borrower's financial
condition or results of operations.

Concurrently with the delivery of the financial statements
described in clause (i) of this subsection 8.1, Borrower shall forward to Lender
a copy of the accountants' letter to Borrower's management that is prepared in
connection with such financial statements. Concurrently with the delivery of the
financial statements described in clauses (i) and (ii) of this subsection 8.1,
or more frequently if requested by Lender, Borrower shall cause to be prepared
and furnished to Lender a Compliance Certificate in the form of Exhibit 8.1.3
hereto executed by the Chief Financial Officer of Borrower.

(d) Landlord and Storage Agreements. Provide Lender with copies
of all agreements between Borrower and any landlord or warehouseman which owns
any premises at which any Inventory may, from time to time, be kept.

22.

<PAGE> 29

(e) [Intentionally omitted]

(f) Projections. No later than thirty (30) days after the end of
each fiscal year of Borrower, deliver to Lender Projections of Borrower for the
forthcoming three (3) years, year by year, and for the forthcoming fiscal year,
month by month.

8.2 Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless Lender has first consented thereto in writing, it will
not:

(a) Mergers; Consolidations; Acquisitions. Merge or consolidate
with any Person, nor acquire all or any substantial part of the Properties of
any Person.

(b) Loans. Other than the ESOP Loan, make any loans or other
advances of money (other than for salary, travel advances, advances against
commissions, and other similar advances in the ordinary course of business) to
any Person in excess of $250,000 in the aggregate outstanding at any one time.

(i) Obligations owing to Lender;

(ii) [Intentionally omitted];

(iii) [Intentionally omitted];

(iv) accounts payable to trade creditors and current
operating expenses (other than for Money Borrowed) which are not
aged more than one hundred twenty (120) days from the billing
date, in each case incurred in the ordinary course of business
and paid within such time period, unless the same are being
actively contested in good faith and by appropriate and lawful
proceedings and Borrower shall have set aside such reserves, if
any, with respect thereto as are required by GAAP and deemed
adequate by Borrower and its independent accountants;

(v) accounts payable to trade creditors and current
operating expenses (other than for Money Borrowed) which are not
aged more than ninety (90) days from the due date nor more than
two hundred forty (240) days from the billing date, in each case
incurred in the ordinary course of business and paid within such
time period, unless the same are being actively contested in good
faith and by appropriate

23.

<PAGE> 30

and lawful proceedings and Borrower shall have set aside such
reserves, if any, with respect thereto as are required by GAAP
and deemed adequate by Borrower and its independent accountants;

(vi) Obligations to pay Rentals permitted by subsection
8.2(l) hereof;

(vii) Permitted Purchase Money Indebtedness;

(viii) contingent liabilities arising out of endorsements
of checks and other negotiable instruments for deposit or
collection in the ordinary course of business; and

(ix) Indebtedness not included in paragraphs (i) through
(vii) above which does not exceed at any time, in the aggregate,
the sum of Three Hundred Fifty Thousand Dollars ($350,000).

(d) Affiliate Transactions. Other than the ESOP Transactions,
enter into, or be a party to, any transaction with any Affiliate of Borrower,
except in the ordinary course of and pursuant to the reasonable requirements of
Borrower's business and upon fair and reasonable terms which are fully disclosed
to Lender and are no less favorable to Borrower than would obtain in a
comparable arm's length transaction with a Person not an Affiliate or
stockholder of Borrower.

(e) Limitation on Liens. Create or suffer to exist any Lien upon
any of its Property, income or profits, whether now owned or hereafter acquired,
except:

(i) Liens at any time granted in favor of Lender;

(ii) Liens for taxes (excluding any Lien imposed pursuant
to any of the provisions of ERISA) not yet due, or being
contested in the manner described in subsection 7.1(n) hereto,
but only if in Lender's judgment such Lien does not adversely
affect Lender's rights or the priority of Lender's Lien in the
Collateral;

(iii) Ordinary Course Liens;

(iv) Purchase Money Liens securing Permitted Purchase Money
Indebtedness;

(v) [Intentionally omitted];

(vi) such other Liens as appear on Exhibit 8.2.5 hereof;
and

24.

<PAGE> 31

(vii) such other Liens as Lender may hereafter approve in
writing.

(viii) [Intentionally omitted].

(f) Distributions. Declare or make any Distributions, except:

(i) [Intentionally omitted];

(ii) [Intentionally omitted];

(iii) [Intentionally omitted];

(vi) the declaration and making of (i) non-cash
contributions to the ESOP, and (ii) cash contributions to the
ESOP so long as the maximum aggregate amount of such cash
contributions in any one year do not exceed $100,000; and

(vii) [Intentionally omitted].

(g) Capital Expenditures. Make Capital Expenditures (including,
without limitation, by way of capitalized leases) which, in the aggregate, as to
Borrower, exceed $2,500,000 during any fiscal year of Borrower.

(h) Disposition of Assets. Other than the ESOP Transactions,
sell, lease, or otherwise dispose of any of its Properties, including any
disposition of Property as part of a sale and leaseback transaction, to or in
favor of any Person, except (i) sales of Inventory in the ordinary course of
business for so long as no Event of Default exists hereunder or (ii)
dispositions expressly authorized by this Agreement.

(i) [Intentionally omitted].

(j) Bill-and-Hold Sales, Etc. Make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment
basis, or any sale on a repurchase or return basis.

(k) Restricted Investment. Make or have any Restricted
Investment.

(l) Leases. Become a lessee under any operating lease (other than
a lease under which Borrower is lessor) of Property if the aggregate Rentals
payable during any current or future period of twelve (12) consecutive months
under the lease in question and all other leases under which Borrower is then
lessee would exceed $1,750,000. The

25.

<PAGE> 32

term "Rentals" means, as of the date of determination, all payments which the
lessee is required to make by the terms of any lease.

(m) Tax Consolidation. File or consent to the filing of any
consolidated income tax return with any Person other than a Subsidiary.

8.3 Specific Financial Covenants. During the term of this
Agreement, and thereafter for so long as there are any Obligations to Lender,
Borrower covenants that, unless otherwise consented to by Lender in writing, it
shall:

(a) [intentionally omitted].

(b) Profitability. Achieve EBITDA of not less than the amount
shown below for the period corresponding thereto:

Period EBITDA
------ ------

March 1, 1997 through
November 30, 1997 $6,500,000

March 1, 1997 through
February 28, 1998 $8,000,000

For each 12 month period
ending May 31
during each subsequent fiscal year $8,000,000

For each 12 month period
ending August 31
during each subsequent fiscal year $8,000,000

For each 12 month period
ending November 30
during each subsequent fiscal year $8,000,000

For each 12 month period
ending February 28/29
during each subsequent fiscal year $8,000,000

(c) Total Senior Debt Coverage Ratio. Maintain at all times a
Total Senior Debt Coverage Ratio of not less than the ratio shown below for the
period corresponding thereto:

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<PAGE> 33

Period Ratio
------ -----

March 1, 1997 through
November 30, 1997 3.25:1.0

March 1, 1997 through
February 28, 1998 3.25:1.0

For each 12 month period
ending May 31
during each subsequent fiscal year 3.25:1.0

For each 12 month period
ending August 31
during each subsequent fiscal year 3.25:1.0

For each 12 month period
ending November 30
during each subsequent fiscal year 3.25:1.0

For each 12 month period
ending February 28/29
during each subsequent fiscal year 3.25:1.0

(d) [Intentionally omitted].

(e) [Intentionally omitted].

(f) [Intentionally omitted].

(g) [Intentionally omitted].

(h) [Intentionally omitted].

SECTION 9. CONDITIONS PRECEDENT TO INITIAL CREDITS

Notwithstanding any other provision of this Agreement or any of
the other Loan Documents, and without affecting in any manner the rights of
Lender under the other sections of this Agreement, Lender shall not be required
to make or issue the initial Loans, Letters of Credit, or L/C Guaranties under
this Agreement unless and until each of the following conditions has been and
continues to be satisfied:

9.1 Documentation. Lender shall have received, in form and

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<PAGE> 34

substance satisfactory to Lender and its counsel, a duly executed copy of this
Agreement and the other Loan Documents, together with such additional documents,
instruments, and certificates as Lender and its counsel shall require in
connection therewith, all in form and substance satisfactory to Lender and its
counsel. In this regard, Borrower shall execute and deliver an agreement or
agreements in form satisfactory to Lender to the effect that (a) the Existing
Loan Agreement is terminated, and (b) the Patent Security Agreement and
Trademark Security Agreement are deemed amended to the extent necessary to cause
such agreements to secure the obligations of Borrower arising under this
Agreement.

9.2 Other Loan Documents. Each of the conditions precedent set
forth in the other Loan Documents shall have been satisfied.

9.3 Approvals and Consents. Borrower shall have received all
governmental consents, approvals, licenses, authorizations, permits,
certificates, inspections, and franchises necessary for the consummation of the
transactions contemplated by the Loan Documents.

9.4 Interim Financial Statements. Prior to the Closing Date,
Lender shall have received copies of Borrower's interim financial statements,
dated as of August 31, 1997, certified by an appropriate officer of Borrower as
presenting fairly in all material respects the financial condition of Borrower.

9.5 Certified Documents of Borrower. On or before the Closing
Date, Borrower shall have delivered to Lender copies of the following documents,
duly certified, or the following certificates, as applicable:

(a) Resolutions of the Board of Directors of Borrower authorizing
(i) the execution, delivery, and performance of the Loan Documents to which
Borrower is a party, (ii) the consummation of the transactions contemplated by
the Loan Documents to which Borrower is a party, and (iii) all other actions to
be taken by Borrower in connection with the Loan Documents to which Borrower is
a party;

(b) A certificate, signed by the Secretary or an Assistant
Secretary of Borrower, dated as of the Closing Date, as to (i) the incumbency,
and containing the specimen signature or signatures, of the Person or Persons
authorized to execute the Loan Documents to which Borrower is a party on behalf
of Borrower, together with evidence of the incumbency of such Secretary or
Assistant Secretary, and (ii) the authenticity and completeness of the
respective Certificate of Incorporation and By-Laws of Borrower; and

(c) Certificates of status or good standing of Borrower, from the
Secretary of State of Delaware and of each state or other jurisdiction in which
Borrower is qualified to do business, dated within five (5) days of the Closing
Date.

9.6 Opinion of Counsel. Lender shall have received from counsel

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<PAGE> 35

for Borrower a legal opinion in form and substance satisfactory to Lender and
its counsel.

9.7 Projections. Lender shall have received a set of Projections
as to the projective financial performance of Borrower through fiscal year ended
February 28, 1999. Such Projections shall be prepared on a month-by-month basis.
The Projections shall be in form and substance satisfactory to Lender and
certified by the chief financial officer of Borrower as being such officers good
faith, best estimate of the financial performance of Borrower during such
period.

SECTION 9-A. CONDITIONS PRECEDENT TO ALL LOANS

Notwithstanding any other provision of this Agreement or any of
the other Loan Documents, and without affecting in any manner the rights of
Lender under the other sections of this Agreement, Lender shall not be required
to make or issue any Loans, Letters of Credit, or L/C Guaranties under this
Agreement unless each of the following conditions is satisfied:

9-A.1 No Default. No Default or Event of Default shall exist.

9-A.2 Representations and Warranties. The representations and
warranties contained in this Agreement and the other Loan Documents shall be
true and correct in all material respects on and as of date of such Loan (except
to the extent that such representations and warranties relate solely to an
earlier date).

9-A.3 No Litigation. No action, proceeding, investigation,
regulation, or legislation shall have been instituted, threatened, or proposed
before any court, governmental agency, or legislative body to enjoin, restrain,
or prohibit, or to obtain damages in respect of, or which is related to or
arises out of this Agreement or the consummation of the transactions
contemplated hereby.

SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT

10.1 Events of Default. The occurrence of one or more of the
following events shall constitute an "Event of Default":

(a) Payment of Note. Borrower shall fail to pay any installment
of principal, interest or premium, if any, owing on the CapEx Notes on the due
date of such installment.

(b) Payment of Other Obligations. Borrower shall fail to pay any
of the Obligations that are not evidenced by the CapEx Notes on the due date
thereof (whether due at stated maturity, upon acceleration, or otherwise) and
the same shall not be paid within 3 days of the date on which such payment first
is due and payable.

29.

<PAGE> 36

(c) Misrepresentations. Any representation, warranty, or other
statement made or furnished to Lender by or on behalf of Borrower in this
Agreement, any of the other Loan Documents or any instrument, certificate or
financial statement furnished in compliance with or in reference thereto proves
to have been false or misleading in any material respect when made or furnished
or when reaffirmed pursuant to Section 7.2 hereof.

(d) Breach of Specific Covenants. (i) Borrower shall fail or
neglect to perform, keep, or observe any covenant contained in subsections 5.2,
6.1(a), 6.2, or 8.1(c) hereof on the date that Borrower is required to perform,
keep, or observe such covenant, and the breach of such covenant is not cured to
Lender's satisfaction within five (5) days after the sooner to occur of
Borrower's receipt of written notice of such breach from Lender or the date on
which Borrower first has knowledge thereof or reasonably should have had
knowledge thereof; and (ii) Borrower shall fail or neglect to perform, keep, or
observe any covenant contained in subsections 8.1(a), 8.2, or 8.3 hereof on the
date that Borrower is required to perform, keep, or observe such covenant.

(e) Breach of Other Covenants. Borrower shall fail or neglect to
perform, keep, or observe any covenant contained in this Agreement (other than a
covenant which is dealt with specifically elsewhere in Section 10.1 hereof) and
the breach of such other covenant is not cured to Lender's satisfaction within
thirty (30) days after the sooner to occur of Borrower's receipt of written
notice of such breach from Lender or the date on which Borrower first has
knowledge thereof or reasonably should have had knowledge thereof.

(f) Default Under Security Documents/Other Agreements/ESOP
Transactions Documents. Borrower shall default in the performance or observance
of any term, covenant, condition, or agreement contained in, any of the Security
Documents, any of the Other Agreements, or the ESOP Transactions Documents, and
such default shall continue beyond any applicable grace period.

(g) Other Defaults. (a) There shall occur any default or event of
default on the part of Borrower under any agreement, document, or instrument to
which Borrower is a party or by which Borrower or any of its Property is bound,
creating or relating to any Indebtedness (other than the Obligations) in excess
of $300,000 if the payment or maturity of such Indebtedness is accelerated in
consequence of such event of default or demand for payment of such Indebtedness
is made.

(h) Uninsured Losses. Any material loss, theft, damage, or
destruction of any of the Collateral not fully covered (subject to such
deductibles as Lender shall have permitted) by insurance.

(i) Adverse Changes. There shall occur any material adverse
change in the financial condition or business prospects of Borrower.

30.

<PAGE> 37

(j) Insolvency and Related Proceedings. Borrower shall cease to
be Solvent or shall suffer the appointment of a receiver, trustee, custodian, or
similar fiduciary, or shall make an assignment for the benefit of creditors, or
any petition for an order for relief shall be filed by or against Borrower under
the Bankruptcy Code (if against Borrower, the continuation of such proceeding
for more than sixty (60) days), or Borrower shall make any offer of settlement,
extension, or composition to its unsecured creditors generally.

(k) Business Disruption. There shall occur a cessation of a
substantial part of the business of Borrower for a period which significantly
affects Borrower's capacity to continue its business, on a profitable basis; or
Borrower shall suffer the loss or revocation of any license or permit now held
or hereafter acquired by Borrower, or any lease or agreement to which Borrower
is or becomes a party, which is necessary to the continued or lawful operation
of its business; or Borrower shall be enjoined, restrained, or in any way
prevented by court, governmental or administrative order from conducting all or
any material part of its business affairs.

(l) Change of Ownership. The Principal Stockholders shall cease
to own and control, beneficially and of record, at least 24% of the issued and
outstanding common stock of Borrower.

(m) ERISA. A Reportable Event shall occur which Lender, in its
sole discretion, shall determine in good faith constitutes grounds for the
termination by the Pension Benefit Guaranty Corporation of any Plan or for the
appointment by the appropriate United States district court of a trustee for any
Plan, or if any Plan shall be terminated (other than in a "standard termination"
as defined in Section 4041(b) of ERISA) or any such trustee shall be requested
or appointed, or if Borrower is in "default" (as defined in Section 4219(c)(5)
of ERISA) with respect to payments in excess of Fifty Thousand Dollars ($50,000)
to a Multiemployer Plan resulting from Borrower's complete or partial withdrawal
from such Plan.

(n) Challenge to Agreement. Borrower or any Affiliate of Borrower
shall challenge or contest in any action, suit, or proceeding the validity or
enforceability of this Agreement, or any of the other Loan Documents, the
legality or enforceability of any of the Obligations or the perfection or
priority of any Lien granted to Lender.

(o) [Intentionally omitted].

(p) Criminal Forfeiture. Borrower shall be criminally indicted or
convicted under any law that could lead to a forfeiture of any Property of
Borrower valued in the aggregate in excess of $100,000.

31.
<PAGE> 38

(q) Judgments. Any money judgment, writ of attachment, or similar
process is filed against Borrower or any of its Property in connection with a
claim in excess of $300,000 and the same is not discharged or bonded against
within thirty (30) days of the date of such filing.

(r) ESOP Loan. If the ESOP fails to pay when due and payable or
when declared due and payable, but subject to any requirement of prior notice or
the expiration of any grace period set forth in the ESOP Loan Agreement, any
amount payable under the ESOP Loan Agreement as a result of Borrower's failure
to make contributions to the ESOP.

10.2 Acceleration of the Obligations. Without in any way limiting
the right of Lender to demand payment of any portion of the Obligations payable
on demand in accordance with subsection 3.2 hereof, upon or at any time after
the occurrence of an Event of Default, all or any portion of the Obligations
shall, at the option of Lender and without presentment, demand protest or
further notice by Lender, become at once due and payable and Borrower shall
forthwith pay to Lender, the full amount of such Obligations, provided that upon
the occurrence of an Event of Default specified in subsection 10.1(j) hereof,
all of the Obligations shall become automatically due and payable without
declaration, notice, or demand by Lender.

10.3 Other Remedies. Upon and after the occurrence of an Event of
Default, Lender shall have and may exercise, from time to time, the following
rights and remedies:

(a) All of the rights and remedies of a secured party under the
Code or under other applicable law, and all other legal and equitable rights to
which Lender may be entitled, all of which rights and remedies shall be
cumulative and shall be in addition to any other rights or remedies contained in
this Agreement or any of the other Loan Documents, and none of which shall be
exclusive.

(b) The right to take immediate possession of the Collateral, and
to (i) require Borrower to assemble the Collateral, at Borrower's expense, and
make it available to Lender at a place designated by Lender which is reasonably
convenient to both parties, and (ii) enter any premises where any of the
Collateral shall be located and to keep and store the Collateral on said
premises until sold (and if said premises be the Property of Borrower, Borrower
agrees not to charge Lender for storage thereof).

(c) The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable. Borrower agrees that ten (10) days
written notice to Borrower of any public or private sale or other disposition of
Collateral shall be reasonable notice thereof, and such sale shall be at such
locations as

32.

<PAGE> 39

Lender may designate in said notice. Lender shall have the right to conduct such
sales on Borrower's premises, without charge therefor, and such sales may be
adjourned from time to time in accordance with applicable law. Lender shall have
the right to sell, lease, or otherwise dispose of the Collateral, or any part
thereof, for cash, credit, or any combination thereof, and Lender may purchase
all or any part of the Collateral at public or, if permitted by law, private
sale and, in lieu of actual payment of such purchase price, may set off the
amount of such price against the Obligations. The proceeds realized from the
sale of any Collateral may be applied, after allowing two (2) Business Days for
collection, first to the costs, expenses and attorneys' fees incurred by Lender
in collecting the Obligations, in enforcing the rights of Lender under the Loan
Documents and in collecting, retaking, completing, protecting, removing,
storing, advertising for sale, selling, and delivering any Collateral, second to
the interest due upon any of the Obligations; and third, to the principal of the
Obligations. If any deficiency shall arise, Borrower shall remain liable to
Lender therefor.

(d) Lender is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature as it pertains to the Collateral, in advertising
for sale and selling any Collateral and Borrower's rights under all licenses and
all franchise agreements shall inure to Lender's benefit for the purposes of
this Agreement and the other Loan Documents.

(e) Lender may, at its option, require Borrower to deposit with
Lender funds equal to the LC Amount and, if Borrower fails to promptly make such
deposit, Lender may advance such amount as a Revolving Credit Loan (whether or
not an Overadvance is created thereby). Any such deposit or advance shall be
held by Lender as a reserve to fund future payments on such LC Guaranties and
future drawings against such Letters of Credit. At such time as all LC
Guaranties have been paid or terminated and all Letters of Credit have been
drawn upon or expired, any amounts remaining in such reserve shall be applied
against any outstanding Obligations, or, if all Obligations have been
indefeasibly paid in full, returned to Borrower.

10.4 Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule given to Lender or contained in any other agreement between
Lender and Borrower, heretofore, concurrently, or hereafter entered into, shall
be deemed cumulative to and not in derogation or substitution of any of the
terms, covenants, conditions, or agreements of Borrower herein contained. The
failure or delay of Lender to require strict performance by Borrower of any
provision of this Agreement or to exercise or enforce any rights, Liens, powers,
or remedies hereunder or under any of the aforesaid agreements or other
documents or security or Collateral shall not operate as a waiver of such
performance, Liens, rights, powers, and remedies, but all such requirements,
Liens, rights, powers, and remedies shall continue in

33.

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full force and effect until all Loans and all other Obligations owing or to
become owing from Borrower to Lender shall have been fully satisfied. None of
the undertakings, agreements, warranties, covenants, and representations of
Borrower contained in this Agreement or any of the other Loan Documents and no
Event of Default by Borrower under this Agreement or any other Loan Documents
shall be deemed to have been suspended or waived by Lender, unless such
suspension or waiver is by an instrument in writing specifying such suspension
or waiver and is signed by a duly authorized representative of Lender and
directed to Borrower.

SECTION 11. MISCELLANEOUS

11.1 Power of Attorney. Borrower hereby irrevocably designates,
makes, constitutes, and appoints Lender (and all Persons designated by Lender)
as Borrower's true and lawful attorney (and agent-in-fact) and Lender, or
Lender's agent, may, without notice to Borrower and in either Borrower's or
Lender's name, but at the cost and expense of Borrower:

(a) At such time or times upon or after the occurrence of an
Event of Default as Lender or said agent, in its sole discretion, may determine,
endorse Borrower's name on any checks, notes, acceptances, drafts, money orders
or any other evidence of payment or proceeds of the Collateral which come into
the possession of Lender or under Lender's control.

(b) At such time or times upon or after the occurrence of an
Event of Default as Lender or its agent in its sole discretion may determine:
(i) demand payment of the Accounts from the Account Debtors, enforce payment of
the Accounts by legal proceedings or otherwise, and generally exercise all of
Borrower's rights and remedies with respect to the collection of the Accounts;
(ii) settle, adjust, compromise, discharge or release any of the Accounts or
other Collateral or any legal proceedings brought to collect any of the Accounts
or other Collateral; (iii) sell or assign any of the Accounts and other
Collateral upon such terms, for such amounts and at such time or times as Lender
deems advisable; (iv) take control, in any manner, of any item of payment or
proceeds relating to any Collateral; (v) prepare, file, and sign Borrower's name
to a proof of claim in bankruptcy or similar document against any Account Debtor
or to any notice of lien, assignment or satisfaction of lien or similar document
in connection with any of the Collateral; (vi) receive, open and dispose of all
mail addressed to Borrower and to notify postal authorities to change the
address for delivery thereof to such address as Lender may designate; (vii)
endorse the name of Borrower upon any of the items of payment or proceeds
relating to any Collateral and deposit the same to the account of Lender on
account of the Obligations; (viii) endorse the name of Borrower upon any chattel
paper, document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Accounts, Inventory and any other
Collateral; (ix) use Borrower's stationery and sign the name of Borrower to
verifications of the Accounts and notices thereof to Account Debtors; (x) use
the information recorded on or contained in any data processing equipment and
computer hardware and software relating to the Accounts, Inventory, Equipment
and any other Collateral; (xi) make and adjust claims

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<PAGE> 41

under policies of insurance; and (xii) do all other acts and things necessary,
in Lender's determination, to fulfill Borrower's obligations under this
Agreement.

11.2 Indemnity. Borrower hereby agrees to indemnify Lender and
hold Lender harmless from and against any liability, loss, damage, suit, action,
or proceeding ever suffered or incurred by Lender (including reasonable
attorneys fees and legal expenses) as the result of Borrower's failure to
observe, perform or discharge Borrower's duties hereunder. In addition, Borrower
shall defend Lender against and save it harmless from all claims of any Person
with respect to the Collateral. Without limiting the generality of the
foregoing, these indemnities shall extend to any claims asserted against Lender
by any Person under any Environmental Laws or similar laws by reason of
Borrower's or any other Person's failure to comply with laws applicable to solid
or hazardous waste materials or other toxic substances which failure proximately
relates to Borrower's facilities, products, or the Collateral. Notwithstanding
any contrary provision in this Agreement, the obligation of Borrower under this
subsection 11.2 shall survive for a period of 5 years following the payment in
full of the Obligations and the termination of this Agreement.

11.3 Modification of Agreement; Sale of Interest. This Agreement
may not be modified, altered or amended, except by an agreement in writing
signed by Borrower and Lender. Borrower may not sell, assign or transfer any
interest in this Agreement, any of the other Loan Documents, or any of the
Obligations, or any portion thereof, including, without limitation, Borrower's
rights, title, interests, remedies, powers, and duties hereunder or thereunder.
Borrower hereby consents to Lender's participation, sale, assignment, transfer
or other disposition, at any time or times hereafter, of this Agreement and any
of the other Loan Documents, or of any portion hereof or thereof, including,
without limitation, Lender's rights, title, interests, remedies, powers, and
duties hereunder or thereunder; provided, however, that if no Event of Default
has occurred and is continuing and if Lender effects any such sale, assignment,
transfer, or other disposition (excluding, however, the sale of a participation
interest) without the prior written consent of Borrower which such consent shall
not be unreasonably withheld, delayed, or conditioned, then Borrower shall have
the right to prepay all of the Obligations under this Agreement and terminate
this Agreement without being obligated to pay the Early Termination Charge that
otherwise would be payable under subsection 4.2(c) hereof so long as such
prepayment occurs within 120 days of the date on which Borrower first received
notice of the consummation of such sale, assignment, transfer, or other
disposition (excluding, however, the sale of a participation interest). In the
case of an assignment, the assignee shall have, to the extent of such
assignment, the same rights, benefits and obligations as it would if it were
"Lender" hereunder and Lender shall be relieved of all obligations hereunder
upon any such assignments. Borrower agrees that it will use its best efforts to
assist and cooperate with Lender in any manner reasonably requested by Lender to
effect the sale of participations in or assignments of any of the Loan Documents
or any portion thereof or interest therein, including, without limitation,
assisting in the preparation of appropriate disclosure documents. Borrower
further agrees that Lender may disclose credit information regarding Borrower to
any potential participant or assignee in accordance with subsection 11.16
hereof.

35.

<PAGE> 42

11.4 Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

11.5 Successors and Assigns. This Agreement, the Other
Agreements, and the Security Documents shall be binding upon and inure to the
benefit of the successors and assigns of Borrower and Lender permitted under
subsection 11.3 hereof.

11.6 Cumulative Effect; Conflict of Terms. The provisions of the
Other Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in subsection 3.2
hereof and except as otherwise provided in any of the other Loan Documents by
specific reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.

11.7 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts taken together shall constitute but
one and the same instrument.

11.8 Notice. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto, to be effective, shall be in
writing and shall be sent by certified or registered mail, return receipt
requested, by personal delivery against receipt, by overnight courier or by
facsimile and, unless otherwise expressly provided herein, shall be deemed to
have been validly served, given or delivered immediately when delivered against
receipt, 3 Business Days after deposit in the mail, postage prepaid, or with an
overnight courier or, in the case of facsimile notice, when sent, addressed as
follows:

If to
Lender: FLEET CAPITAL CORPORATION
15260 Ventura Boulevard, Suite 1200
Sherman Oaks, California 91403
Attention: Loan Administration Manager
Facsimile No.: (818) 905-5927

With a
copy to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street

36.

<PAGE> 43

Los Angeles, California 90071
Attention: John Francis Hilson, Esq.
Facsimile No.: (213) 239-1324

If to
Borrower: MEADE INSTRUMENTS CORP.
6001 Oak Canyon
Irvine, California 92620
Attention: Mr. John C. Diebel
Mark D. Peterson, Esq.
Facsimile No.: (714) 756-1450

With a
copy to: O'MELVENY & MYERS
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
Attention: J. Jay Herron, Esq.
Facsimile No.: (714) 669-6994

or to such other address as each party may designate for itself by notice given
in accordance with this subsection 11.8; provided, however, that any notice,
request or demand to or upon Lender pursuant to subsection 3.1(a), 4.2(a), or
4.2(b) hereof shall not be effective until received by Lender.

11.9 Lender's Consent. Whenever Lender's consent is required to
be obtained under this Agreement, any of the Other Agreements, or any of the
Security Documents as a condition to any action, inaction, condition, or event,
Lender shall be authorized to give or withhold such consent in its sole and
absolute discretion and to condition its consent upon the giving of additional
collateral security for the Obligations, the payment of money or any other
matter.

11.10 Credit Inquiries. Borrower hereby authorizes and permits
Lender to respond to usual and customary credit inquiries from third parties
concerning Borrower.

11.11 Time of Essence. Time is of the essence of this Agreement,
the Other Agreements, and the Security Documents.

11.12 Entire Agreement. This Agreement and the other Loan
Documents, together with all other instruments, agreements and certificates
executed by the parties in connection therewith or with reference thereto,
embody the entire understanding and agreement between the parties hereto and
thereto with respect to the subject matter

37.

<PAGE> 44

hereof and thereof and supersede all prior agreements, understandings and
inducements, whether express or implied, oral or written.

11.13 Interpretation. No provision of this Agreement or any of
the other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.

11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
LOS ANGELES, CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT IF
ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN
CALIFORNIA, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND
PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE
ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE
EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT
WITH THE LAWS OF CALIFORNIA. AS PART OF THE CONSIDERATION FOR NEW VALUE
RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF
BUSINESS OF BORROWER OR LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE
SUPERIOR COURT OF LOS ANGELES, CALIFORNIA SHALL HAVE EXCLUSIVE JURISDICTION TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING
TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT.
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL
RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT
THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW,
OR TO PRECLUDE THE

38.

<PAGE> 45

ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE
TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER
APPROPRIATE FORUM OR JURISDICTION.

11.15 WAIVERS BY BORROWER. BORROWER WAIVES (A) THE RIGHT TO TRIAL
BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS,
THE OBLIGATIONS OR THE COLLATERAL; (B) PRESENTMENT, DEMAND AND PROTEST AND
NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE,
COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER,
ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND GUARANTIES
AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY
RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (C) TO THE MAXIMUM
EXTENT PERMITTED BY APPLICABLE LAW, AND EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
FOR IN THIS AGREEMENT OR ONE OF THE OTHER LOAN DOCUMENTS, NOTICE PRIOR TO TAKING
POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE
REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S
REMEDIES; (D) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; AND
(E) NOTICE OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING
WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND
THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH
BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING
WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.

11.16 Confidentiality. Lender agrees that material, non-public
information regarding Borrower, its operations, assets, and existing and
contemplated business plans (including Projections) shall be treated by Lender
in a confidential manner and in conformity with applicable state and federal
laws, and shall not be disclosed by it to Persons who are not parties to this
Agreement, except: (a) to counsel for and other advisors, accountants, and
auditors to Lender, (b) as may be required by statute, decision, or judicial or
administrative order, rule, or regulation; provided, however, that Lender agrees
to endeavor, in good faith, to provide Borrower prior written notice of any
proposed disclosure under this clause (b), but the failure of Lender to provide
any such prior written notice to Borrower will not subject Lender to any
liability to Borrower whatsoever unless such failure is the result of gross
negligence or wilful misconduct on the part of Lender, (c) as may be agreed to
in advance by Borrower, (d) as to any such information that is or becomes

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<PAGE> 46

generally available to the public, and (e) in connection with any assignment,
prospective assignment, sale, prospective sale, participation or prospective
participation, or pledge or prospective pledge of Lender's interests under this
Agreement, provided that any such assignee, prospective assignee, purchaser,
prospective purchaser, participant, prospective participant, pledgee, or
prospective pledgee shall have agreed in writing to take its interest hereunder
subject to the terms hereof.

40.

<PAGE> 47

IN WITNESS WHEREOF, this Agreement has been duly executed in Los
Angeles, California, on the day and year specified at the beginning of this
Agreement.

ATTEST: MEADE INSTRUMENTS CORP.,
a Delaware corporation

Steven G. Murdock By /s/ Brent W. Christensen
- --------------------------------- -------------------------------
Secretary
Title V.P. - Finance and CFO
-------------------------------

ACCEPTED IN Los Angeles, California:

FLEET CAPITAL CORPORATION,
a Rhode Island corporation

By /s/ Alisa Frederick
--------------------------------
Title V.P.
--------------------------------

41.
<PAGE> 48

APPENDIX A

GENERAL DEFINITIONS

When used in the Amended and Restated Loan and Security Agreement
dated as of May 27, 1998, by and between Fleet Capital Corporation and Meade
Instruments Corp., the following terms shall have the following meanings (terms
defined in the singular to have the same meaning when used in the plural and
vice versa):

Account Debtor - any Person who is or may become obligated under
or on account of an Account.

Accounts - all accounts, contract rights, chattel paper,
instruments (including the ESOP Note), and documents, whether now owned
or hereafter created or acquired by Borrower or in which Borrower now
has or hereafter acquires any interest.

Affiliate - a Person: (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under
common control with, a Person; (ii) which beneficially owns or holds
10% or more of any class of the Voting Stock of a Person; or (iii) 10%
or more of the Voting Stock (or in the case of a Person which is not a
corporation, 10% or more of the equity interest) of which is
beneficially owned or held by a Person or a Subsidiary of a Person.

Agreement - the Amended and Restated Loan and Security Agreement
referred to in the first sentence of this Appendix A, all Exhibits
thereto and this Appendix A.

Bank - Fleet Bank Connecticut, N.A.

Base Rate - the rate of interest announced or quoted by Bank from
time to time as its prime rate for commercial loans, whether or not
such rate is the lowest rate charged by Bank to its most preferred
borrowers; and, if such prime rate for commercial loans is discontinued
by Bank as a standard, a comparable reference rate designated by Bank
as a substitute therefor shall be the Base Rate.

Base Rate CapEx Portion - that portion of any CapEx Loan that is
not subject to a LIBOR Election.

Base Rate Election - an election to cause interest on the Loans
to be computed with reference to the Base Rate.

Base Rate Portion - a Base Rate CapEx Portion or a Base Rate
Revolving Credit Portion.

<PAGE> 49

Base Rate Revolving Credit Portion - that portion of the
Revolving Credit Loans that is not subject to a LIBOR Election.

Business Day - (a) when used with respect to the LIBOR Election,
shall mean a day on which dealings may be effected in deposits of
United States Dollars in the London interbank foreign currency deposits
market and on which Lender is conducting and other banks may conduct
business in London, England, or in the State of California, and (b)
when used with respect to any other provision of the Agreement, any day
excluding Saturday, Sunday, and any day which is a legal holiday under
the laws of the State of California or is a day on which banking
institutions located in such state are closed.

CapEx Loans - the Loan described in subsection 1.2(a) of the
Agreement.

CapEx Notes - the Secured Promissory Notes to be executed by
Borrower in favor of Lender to evidence the CapEx Loans, which shall be
in the form of Exhibit 1.2(a) to the Agreement.

Capital Expenditures - expenditures made or liabilities incurred
for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more
than one year, including the total principal portion of Capitalized
Lease Obligations.

Capitalized Lease Obligation - any Indebtedness represented by
obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.

Closing Date - the date on which all of the conditions precedent
in Sections 9 and 9A of the Agreement are satisfied.

Code - the Uniform Commercial Code as adopted and in force in the
State of California as from time to time in effect.

Collateral - all of the Property and interests in Property
described in Section 5 of the Agreement, and all other Property and
interests in Property that now or hereafter secure the payment and
performance of any of the Obligations.

Collateral Access Agreement - a landlord waiver, mortgagee
waiver, bailee letter, or similar acknowledgement agreement of any
warehouseman or processor of Inventory or Equipment, in each case, in
form and substance satisfactory to Lender.

Consolidated - the consolidation in accordance with GAAP of the
accounts or other items as to which such term applies.

2.
<PAGE> 50

Default - an event or condition the occurrence of which would,
with the lapse of time or the giving of notice, or both, become an
Event of Default.

Default Rate - as defined in subsection 2.1(b) of the Agreement.

Distribution - in respect of any corporation means and includes:
(i) the payment of any dividends or other distributions on capital
stock of the corporation (except distributions of the same series of
Securities or capital stock), and (ii) the redemption or acquisition of
Securities unless made contemporaneously from the net proceeds of the
sale of Securities.

Early Termination Charge - as defined in subsection 4.2(c) of the
Agreement.

EBIT - with respect to any fiscal period, the sum of Borrower's
net earnings (or loss) before interest expense, and taxes for said
period as determined in accordance with GAAP.

EBITDA - with respect to any fiscal period, EBIT before
amortization and depreciation and before ESOP contribution expenses (to
the extent included in EBIT) for such period as determined in
accordance with GAAP.

Employer Securities - the shares of Common Stock purchased by the
ESOP with the proceeds of the ESOP Loan in accordance with the ESOP
Purchase Agreements.

Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, orders, and consent decrees relating to
health, safety and environmental matters.

Equipment - all machinery, apparatus, equipment, fittings,
furniture, fixtures, motor vehicles and other tangible personal
Property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower or in which Borrower has an
interest, whether now owned or hereafter acquired by Borrower and
wherever located, and all parts, accessories and special tools and all
increases and accessions thereto and substitutions and replacements
therefor.

ERISA - the Employee Retirement Income Security Act of 1974, as
amended, and all rules and regulations from time to time promulgated
thereunder.

ESOP - the "Meade Instruments Corp. Employee Stock Ownership
Plan" established and maintained by Borrower as an employee benefit
plan, effective March 1, 1996, pursuant to the Meade Instruments Corp.
Employee Stock Ownership Plan (the "ESOP Plan Document") and the ESOP
Trust Agreement.

<PAGE> 51

ESOP Loan - the loan made by Borrower to the ESOP Trustee in the
original amount of Eleven Million Dollars ($11,000,000) in order to
enable the ESOP Trustee to purchase the Employer Securities in
accordance with the ESOP Purchase Agreements.

ESOP Loan Agreement - that certain ESOP Loan and Pledge
Agreement, dated as of the date hereof, between Borrower and the ESOP
Trustee.

ESOP Loan Documents - (i) the ESOP Loan Agreement, (ii) the ESOP
Note, and (iii) each other instrument or document executed and/or
delivered by the ESOP Trustee to Borrower to evidence or create any
obligation of the ESOP to Borrower to repay the ESOP Loan.

ESOP Note - that certain promissory note, dated as of the date
hereof, made by the ESOP to the order of Borrower, evidencing the
ESOP's obligations to Borrower under the ESOP Loan Agreement.

ESOP Purchase Agreements - collectively, those certain "Stock
Purchase Agreements," dated as of the date hereof, among the Principal
Stockholders, the ESOP Trustee, and Borrower pursuant to which the
Principal Stockholders have agreed to sell, and the ESOP Trustee has
agreed to purchase one million five hundred thousand (1,500,000) shares
of Borrower's Common Stock for $7.3333 per share and an aggregate
consideration of Ten Million Nine Hundred Ninety-Nine Thousand Nine
Hundred Fifty ($10,999,950).

ESOP Transactions - the transactions contemplated by the ESOP
Transaction Documents.

ESOP Transaction Documents - (i) the ESOP Plan Document, (ii) the
ESOP Trust Agreement, (iii) the ESOP Purchase Agreements, and (iv) the
ESOP Loan Documents.

ESOP Trust - the trust created by the ESOP Trust Agreement to
hold the assets of the ESOP.

ESOP Trust Agreement - the Meade Instruments Corp. Employee Stock
Ownership Trust Agreement, effective on the date hereof, between
Borrower, as grantor, and the ESOP Trustee, as trustee, created to hold
the assets of the ESOP.

ESOP Trustee - Wells Fargo Bank, N.A.

Event of Default - as defined in subsection 10.1 of the
Agreement.

Existing Loan Agreement - that certain Loan and Security
Agreement, dated

<PAGE> 52

April 23, 1996, between Borrower and Lender.

GAAP - generally accepted accounting principles in the United
States of America in effect from time to time.

General Intangibles - all personal property of Borrower
(including things in action) other than goods, Accounts, chattel paper,
documents, instruments, and money (including, without limitation, all
of Borrower's right, title, and interest with respect to the key man
life insurance policy with respect to Mr. John C. Diebel), whether now
owned or hereafter created or acquired by Borrower.

Indebtedness - as applied to a Person means, without duplication

(i) all items which in accordance with GAAP would be
included in determining total liabilities as shown on the
liability side of a balance sheet of such Person as at the date
as of which Indebtedness is to be determined, including, without
limitation, Capitalized Lease Obligations,

(ii) all obligations of other Persons which such Person
has guaranteed,

(iii) all reimbursement obligations in connection with
letters of credit or letter of credit guaranties issued for the
account of such Person, and

(iv) in the case of Borrower (without duplication), the
Obligations.

Independent Financial Advisor - the independent financial adviser
selected by the ESOP Trustee to evaluate that the purchase price being
paid by the ESOP Trustee for the Employer Securities does not exceed
the fair market value thereof.

Inventory - all of Borrower's inventory, whether now owned or
hereafter acquired including, but not limited to, all goods intended
for sale or lease by Borrower, or for display or demonstration; all
work in process; all raw materials and other materials and supplies of
every nature and description used or which might be used in connection
with the manufacture, printing, packing, shipping, advertising,
selling, leasing or furnishing of such goods or otherwise used or
consumed in Borrower's business; and all documents evidencing and
General Intangibles relating to any of the foregoing, whether now owned
or hereafter acquired by Borrower.

IRC - means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.

LC Amount - at any time, the aggregate undrawn face amount of all
Letters of Credit and LC Guaranties then outstanding.

<PAGE> 53

LC Guaranty - any guaranty pursuant to which Lender or any
Affiliate of Lender shall guaranty the payment or performance by
Borrower of its reimbursement obligation under any letter of credit.

Legal Requirement - any requirement imposed upon Lender by any
law of the United States of America or by any regulation, order,
interpretation, ruling, or official directive (whether or not having
the force of law) of the Board, or any other board, central bank or
governmental or administrative agency, institution or authority of in
the United States of America, or any political subdivision thereof.

Letter of Credit - any letter of credit issued by Lender or any
of Lender's Affiliates for the account of Borrower.

LIBOR CapEx Portion - that portion of any CapEx Loan specified in
a LIBOR Request that is not less than $500,000 and is an integral
multiple of $100,000, that does not exceed the outstanding balance of
such CapEx Loan not already subject to a LIBOR Election and, that, as
of the date of the LIBOR Request specifying such LIBOR CapEx Portion,
has met the conditions for basing interest on the LIBOR Rate in
subsection 2.4 of the Agreement and the LIBOR Period of which was
commenced and not terminated.

LIBOR Election - the option granted pursuant to subsection 2.4 of
the Agreement to have the interest on all or any portion of the
principal amount of the Revolving Credit Loans or any CapEx Loan based
on a LIBOR Rate.

LIBOR Interest Payment Date - with respect to any LIBOR Revolving
Credit Portion or any LIBOR CapEx Portion, the last day of each
calendar month during the applicable LIBOR Period.

LIBOR Period - any period of 1 month, 2 months, or 3 months
commencing on a Business Day, selected as provided in subsection 2.4(a)
of the Agreement; provided, however, that no LIBOR Period shall extend
beyond the last day of the Original Term or the Renewal Term, as
applicable, and that, with respect to any LIBOR CapEx Portion, no
applicable LIBOR Period shall extend beyond the scheduled installment
payment date for such LIBOR CapEx Portion. If any LIBOR Period so
selected shall end on a date that is not a Business Day, such LIBOR
Period shall instead end on the next preceding or succeeding Business
Day as determined by Lender in accordance with the then current banking
practice in London; provided that Borrower shall not be required to pay
double interest, even though the preceding LIBOR Period ends and the
new LIBOR Period begins on the same day. Each determination by Lender
of the LIBOR Period shall, in the absence of manifest error, be
conclusive.

6.
<PAGE> 54

LIBOR Portion - a LIBOR Revolving Credit Portion or a LIBOR CapEx
Portion.

LIBOR Rate - with respect to any LIBOR Revolving Credit Portion
or LIBOR CapEx Portion for the related LIBOR Period, an interest rate
per annum (rounded upwards, if necessary, to the next higher 1/8 of 1%)
equal to the product of (a) the Base LIBOR Rate (as hereinafter
defined) multiplied by (b) Statutory Reserves. For purposes of this
definition, the term "Base LIBOR Rate" shall mean the rate at which
deposits of U.S. dollars approximately equal in principal amount to the
LIBOR Revolving Credit Portion or the LIBOR CapEx Portion specified in
the applicable LIBOR Request are offered to Lender by prime banks in
the London interbank foreign currency deposits market at approximately
11:00 a.m., London time, 2 Business Days prior to the commencement of
such LIBOR Period, for delivery on the first day of such LIBOR Period.
Each determination by Lender of any LIBOR Rate shall, in the absence of
manifest error, be conclusive.

LIBOR Request - a notice in writing (or by telephone confirmed by
telex, telecopy, or other facsimile transmission on the same day as the
telephone request) from Borrower to Lender requesting that interest on
a Revolving Credit Loan or an CapEx Loan be based on the LIBOR Rate,
specifying: (a) the first day of the LIBOR Period, (b) the length of
the LIBOR Period consistent with the definition of that term, and (c)
the dollar amount of the LIBOR Revolving Credit Portion or the LIBOR
CapEx Portion consistent with the definition of such terms.

LIBOR Revolving Credit Portion - that portion of the Revolving
Credit Loans specified in a LIBOR Request (including any portion of
Revolving Credit Loans that is being borrowed by Borrower concurrently
with such LIBOR Request) that is not less than $500,000 and is an
integral multiple of $100,000, that does not exceed the outstanding
balance of Revolving Credit Loans not already subject to a LIBOR
Election and, that, as of the date of the LIBOR Request specifying such
LIBOR Revolving Credit Portion, has met the conditions for basing
interest on the LIBOR Rate in subsection 2.4 of the Agreement and the
LIBOR Period of which was commenced and not terminated.

Lien - any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether
such interest is based on common law, statute or contract. The term
"Lien" shall also include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases
and other title exceptions and encumbrances affecting Property. For the
purpose of the Agreement, Borrower shall be deemed to be the owner of
any Property which it has acquired or holds subject to a conditional
sale agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for
security purposes.

7.
<PAGE> 55

Loan Account - the loan account established on the books of
Lender pursuant to subsection 3.6 of the Agreement.

Loan Documents - the Agreement, the Other Agreements, and the
Security Documents.

Loans - all loans and advances of any kind made by Lender
pursuant to the Agreement.

Maximum Revolving Amount - Fifteen Million Dollars ($15,000,000).

Money Borrowed - means (i) Indebtedness arising from the lending
of money by any Person to Borrower; (ii) Indebtedness, whether or not
in any such case arising from the lending by any Person of money to
Borrower, (A) which is represented by notes payable or drafts accepted
that evidence extensions of credit, (B) which constitutes obligations
evidenced by bonds, debentures, notes or similar instruments, or (C)
upon which interest charges are customarily paid (other than accounts
payable) or that was issued or assumed as full or partial payment for
Property payable over a period longer than six (6) months; (iii)
Indebtedness that constitutes a Capitalized Lease Obligation; (iv)
reimbursement obligations with respect to letters of credit or
guaranties of letters of credit; and (v) Indebtedness of Borrower under
any guaranty of obligations that would constitute Indebtedness for
Money Borrowed under clauses (i) through (iii) hereof, if owed directly
by Borrower.

Multiemployer Plan - has the meaning set forth in Section
4001(a)(3) of ERISA.

Obligations - all Loans and all other advances, debts,
liabilities, obligations, covenants and duties, together with all
interest, fees and other charges thereon (including, without
limitation, Early Termination Charges), owing, arising, due or payable
from Borrower to Lender of any kind or nature, present or future,
whether or not evidenced by any note, guaranty or other instrument,
whether arising under the Agreement or any of the other Loan Documents
or otherwise whether direct or indirect (including those acquired by
assignment), absolute or contingent, primary or secondary, due or to
become due, now existing or hereafter arising and however acquired.

Ordinary Course Liens - any of the following:

a. Liens arising by operation of law in favor of
warehouseman, landlords, carriers, mechanics, materialmen, laborers,
employees or suppliers, incurred in the ordinary course of business of
Borrower and not in connection with the borrowing of money, for sums
not yet delinquent or which are being contested in good faith and by
proper proceedings diligently pursued, provided that a reserve or

<PAGE> 56

other appropriate provision, if any, required by GAAP shall have been
made therefor on the applicable financial statements of Borrower;

b. Deposits made in connection with worker's compensation
or other unemployment insurance incurred in the ordinary course of
Borrower's business;

c. Deposits to secure performance of bids, tenders, or
leases (to the extent permitted under this Agreement), incurred in the
ordinary course of business of Borrower and not in connection with the
borrowing of money;

d. Liens arising by reason of security for surety or appeal
bonds in the ordinary course of business of Borrower;

e. Liens of or resulting from any judgment or award, the
time for the appeal or petition for rehearing of which has not yet
expired, or in respect of which Borrower is in good faith prosecuting
an appeal or proceeding for a review, and in respect of which a stay of
execution pending such appeal or proceeding for review has been
secured; and

f. with respect to any real property: easements, rights of
way, zoning and similar covenants and restrictions and similar
encumbrances which customarily exist on properties of corporations
engaged in similar activities and similarly situated and which in any
event do not materially interfere with or impair the use or operation
of the Collateral by Borrower or the value of Lender's Lien on and
security interest therein, or materially interfere with the ordinary
conduct of the business of Borrower.

Original Term - as defined in Section 4.1 of the Agreement.

Other Agreements - the CapEx Notes, and any and all agreements,
instruments and documents (other than the Agreement and the Security
Documents), heretofore, now or hereafter executed by Borrower and
delivered to Lender in respect of the transactions contemplated by the
Agreement.

Overadvance - the amount, if any, by which the outstanding
principal amount of Revolving Credit Loans plus the LC Amount exceeds
the Maximum Revolving Amount.

Patent Security Agreement - that certain patent security
agreement between Borrower and Lender, in form and substance
satisfactory to Lender.

Permitted Liens - any Lien of a kind specified in subsection
8.2(e) of the Agreement.

9.
<PAGE> 57

Permitted Purchase Money Indebtedness - Purchase Money
Indebtedness of Borrower incurred after the date hereof which is
secured by a Purchase Money Lien and which, when aggregated with the
principal amount of all other such Indebtedness and Capitalized Lease
Obligations of Borrower at the time outstanding, does not exceed
$3,000,000. For the purposes of this definition, the principal amount
of any Purchase Money Indebtedness consisting of capitalized leases
shall be computed as a Capitalized Lease Obligation.

Person - an individual, partnership, corporation, limited
liability company, joint stock company, land trust, business trust, or
unincorporated organization, or a government or agency or political
subdivision thereof.

Plan - an employee benefit plan now or hereafter maintained for
employees of Borrower that is covered by Title IV of ERISA.

Principal Stockholders - Diebel Living Trust, Mr. Joseph A.
Gordon, Jr., and Murdock 1986 Trust.

Projections - Borrower's forecasted (i) balance sheets, (ii)
profit and loss statements, (iii) cash flow statements, and (iv)
capitalization statements, all prepared on a consistent basis with
Borrower's historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.

Property - any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.

Purchase Money Indebtedness - means and includes (i) Indebtedness
(other than the Obligations) for the payment of all or any part of the
purchase price of any fixed assets, (ii) any Indebtedness (other than
the Obligations) incurred at the time of or within ten (10) days prior
to or after the acquisition of any fixed assets for the purpose of
financing all or any part of the purchase price thereof, and (iii) any
renewals, extensions or refinancings thereof, but not any increases in
the principal amounts thereof outstanding at the time.

Purchase Money Lien - a Lien upon fixed assets which secures
Purchase Money Indebtedness, but only if such Lien shall at all times
be confined solely to the fixed assets the purchase price of which was
financed through the incurrence of the Purchase Money Indebtedness
secured by such Lien.

Rentals - as defined in subsection 8.2(l) of the Agreement.

Renewal Terms - as defined in subsection 4.1 of the Agreement.

10.
<PAGE> 58

Reportable Event - any of the events set forth in Section 4043(b)
of ERISA.

Restricted Investment - any investment made in cash or by
delivery of Property to any Person, whether by acquisition of stock,
Indebtedness or other obligation or Security, or by loan, advance or
capital contribution, or otherwise, or in any Property except the
following:

(i) [Intentionally omitted]

(ii) Property to be used in the ordinary course of
business;

(iii) Current Assets arising from the sale of goods and
services in the ordinary course of business of Borrower;

(iv) investments in direct obligations of the United States
of America, or any agency thereof or obligations guaranteed by the
United States of America, provided that such obligations mature within
one year from the date of acquisition thereof;

(v) investments in certificates of deposit maturing within
one (1) year from the date of acquisition issued by a bank or trust
company organized under the laws of the United States or any state
thereof having capital surplus and undivided profits aggregating at
least One Hundred Million Dollars ($100,000,000);

(vi) investments in commercial paper given the highest
rating by a national credit rating agency and maturing not more than
two hundred seventy (270) days from the date of creation thereof; and

(vii) additional contributions to the ESOP sufficient to
enable the ESOP to make payments of principal and interest when due
with respect to the ESOP Loan.

Revolving Credit Loan - a Loan made by Lender as provided in
subsection 1.1 of the Agreement.

Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.

Security Documents - the Trademark Security Agreement, the Patent
Security Agreement, and all other instruments and agreements now or at
any time hereafter securing the whole or any part of the Obligations.

Solvent - as to any Person, such Person (i) owns Property whose
fair saleable value is greater than the amount required to pay all of
such Person's Indebtedness

11.

<PAGE> 59
(including contingent debts), (ii) is able to pay all of its
Indebtedness as such Indebtedness matures, and (iii) has capital
sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage.

Statutory Reserves - a fraction (expressed as a decimal) the
numerator of which is the number 1, and the denominator of which is the
number 1 minus the aggregate of the maximum reserve percentages
(including, without limitation, any marginal, special, emergency, or
supplemental reserves), expressed as a decimal, established by the
Board of Governors of the Federal Reserve System and any other banking
authority to which Bank or Lender is subject for Eurocurrency
Liabilities (as defined in Regulation D of the Board of Governors of
the Federal Reserve System or any successor thereto). Such reserve
percentages shall include, without limitation, those imposed under such
Regulation D. LIBOR Revolving Credit Portions or LIBOR CapEx Portions
shall be deemed to constitute Eurocurrency Liabilities and as such
shall be deemed to be subject to such reserve requirements without
benefit of or credit for proration, exceptions, or offsets which may be
available from time to time to Bank or Lender under such Regulation D.
Statutory Reserves shall be adjusted automatically on and as of the
effective date of any change in any reserve percentages.

Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the
Voting Stock at the time of determination.

Tax - in relation to any LIBOR Revolving Credit Portion or LIBOR
CapEx Portion and the applicable LIBOR Rate, any tax, levy, impost,
duty, deduction, withholding, or charges of whatever nature required by
any Legal Requirement to be (a) paid by Lender and/or (b) withheld or
deducted from any payment otherwise required hereby to be made by
Borrower to Lender; provided that the term "Tax" shall not include any
taxes imposed upon the net income of Lender by the United States of
America, or any political subdivision thereof.

Total Credit Facility - Twenty Million Dollars ($20,000,000).

Total Liabilities - at any date means all amounts properly
classified as liabilities of Borrower on a balance sheet at such date
in accordance with GAAP.

Total Senior Debt - means (i) Indebtedness arising from the
lending of money by any Person to Borrower; (ii) Indebtedness, whether
or not in any such case arising from the lending by any Person of money
to Borrower, (A) which is represented by notes payable or drafts
accepted that evidence extensions of credit, (B) which constitutes
obligations evidenced by bonds, debentures, notes or similar
instruments, or (C) upon which interest charges are customarily paid
(other than accounts payable) or that was issued or assumed as full or
partial payment for Property; and (iii) Indebtedness that constitutes a
Capitalized Lease Obligation.

12.

<PAGE> 60

Total Senior Debt Coverage Ratio - with respect to any period,
the ratio of (i) Total Senior Debt as of the last day of such period,
to (ii) EBITDA for such period, all as determined in accordance with
GAAP.

Trademark Security Agreement - that certain trademark security
agreement between Borrower and Lender, in form and substance
satisfactory to Lender.

Voting Stock - Securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors
(or Persons performing similar functions).

Other Terms. All other terms contained in the Agreement shall
have, when the context so indicates, the meanings provided for by the
Code to the extent the same are used or defined therein.

Certain Matters of Construction. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to the Agreement as
a whole and not to any particular section, subsection, paragraph or
subdivision. Any pronoun used shall be deemed to cover all genders. The
section titles, table of contents and list of exhibits appear as a
matter of convenience only and shall not affect the interpretation of
the Agreement. All references to statutes and related regulations shall
include any amendments of same and any successor statutes and
regulations. All references to any of the Loan Documents shall include
any and all modifications thereto and any and all extensions or
renewals thereof. All references to "the knowledge of Borrower" or
"Borrower has knowledge" shall mean the actual conscious awareness of
senior officers of Borrower after having made a reasonable inquiry.

13.

<PAGE> 61

LIST OF EXHIBITS
----------------

Exhibit 1.2.1 CapEx Note
Exhibit 6.1.1 Borrower's Business Locations
Exhibit 7.1.1 Jurisdictions in which Borrower is Authorized to do Business
Exhibit 7.1.4 Capital Structure of Borrower
Exhibit 7.1.5 Corporate Names
Exhibit 7.1.13 Surety Obligations
Exhibit 7.1.16 Patents, Trademarks, Copyrights and Licenses
Exhibit 7.1.19 Contracts Restricting Borrower's Right to Incur Debts
Exhibit 7.1.20 Litigation
Exhibit 7.1.22(A) Capitalized Leases
Exhibit 7.1.22(B) Operating Leases
Exhibit 7.1.23 Pension Plans
Exhibit 7.1.25 Labor Contracts
Exhibit 8.1.3 Compliance Certificate
Exhibit 8.2.5 Permitted Liens
Exhibit 9.22 Closing Date Projections

14.

<PAGE> 1
EXHIBIT 10.33

AGREEMENT

THIS AGREEMENT (this "Agreement") is entered into as of May 5,
1998, by and between Meade Instruments Corp., a Delaware corporation ("Meade"),
and Weidy Optical Co., Ltd., a Republic of China corporation ("Weidy").

WHEREAS, Meade purchases from Weidy certain astronomical
telescopes, astronomical telescope components and accessories, and other related
optical products which are more specifically described on Exhibit A attached
hereto, as such Exhibit A may be amended from time to time by Meade (the
"Products"); and

WHEREAS, Meade desires to maintain a smooth, uninterrupted flow
of the Products during the term of this Agreement; and

WHEREAS, Weidy desires to ensure a predictable stream of orders
from Meade during the term of this Agreement.

NOW THEREFORE, in consideration of the mutual promises contained
herein, and for other good and valuable consideration hereby acknowledged, the
parties hereto agree as follows:

1. Exclusivity by Weidy.

A. Exclusivity as to Products. Weidy agrees that all products
produced or sold by Weidy during the term of this Agreement, including all
astronomical telescopes, astronomical telescope components and accessories, and
all other related optical products, including, without limitation, the Products,
shall be sold exclusively to Meade. Meade and Weidy agree that binoculars and
riflescopes shall not be subject to this exclusivity provision.

B. Exclusivity as to Tooling. Weidy also agrees that during the
term hereof, it may not use in any way, or allow others to use in any way, for
any purpose other than the manufacture of the Products sold exclusively to
Meade, any of the tooling, dies, molds or other equipment necessary for
production of the Products (collectively, "Tooling," and to the extent such
Tooling was or is paid for by Meade, and is set forth on Exhibit B attached
hereto, as such Exhibit B may be amended from time to time by Meade, such
Tooling shall be referred to as the "Meade Owned Tooling").

2. Exceptions to Weidy's Exclusivity.

A. Sales in Taiwan. Notwithstanding Section 1A above, Weidy may
offer any of the Products for sale to any purchaser within the boundaries of
Taiwan, R.O.C., provided each such Product offered is not manufactured in any
way with any of the Meade Owned Tooling (or any duplicate thereof). (For
example, Weidy may sell within Taiwan, R.O.C. any of the following Products:
Saturn 60 AZ-style telescopes, Model 230 telescopes or Model 395 telescopes, as
well any other Products that are not manufactured in any way with any of the
Meade Owned Tooling.) Weidy agrees to take all reasonable steps to assure none
of the Products sold to any purchaser within the boundaries of Taiwan, R.O.C.
are exported outside the boundaries of Taiwan, R.O.C.

B. Sales in Australia and New Zealand. Notwithstanding Section 1A

<PAGE> 2

above, Weidy may offer any of the Products listed below in this Section 2B for
sale to those certain entities known as (i) "Innovations Mail Order Limited" for
sale solely within the boundaries of New Zealand and (ii) "Innovations Direct
PTY Ltd. for sale solely within the boundaries of Australia. Weidy agrees that
except for such sales to Innovations Mail Order Limited and Innovations Direct
PTY Ltd., Weidy will not permit any of the Products to be exported outside the
boundaries of Taiwan, R.O.C. by or for any other person or entity. In addition,
Weidy agrees to take all reasonable steps to assure Innovations Mail Order
Limited and Innovations Direct PTY Ltd., and any of their affiliates or
customers, do not export any of the Products outside the boundaries of New
Zealand or Australia, respectively. The only Products that Weidy may offer to
any person or entity other than Meade for sale in New Zealand or Australia are
the following: (i) Saturn 60 AZ-style telescopes, (ii) Saturn 60 EQ-style
telescopes, (iii) Saturn 114 EQ-style telescopes, and (iv) 90mm optical tube
assembly with 114EQ mount-style telescopes, provided, however, that each of (i),
(ii), (iii) and (iv) above shall only be available with J-size (24.5mm barrel
diameter) eyepieces.

3. Exclusivity by Meade. Meade may purchase any products from any
other person or entity throughout the world, provided, however, that without the
express written consent of Weidy (i) Meade's total annual purchase of any of the
Products from any person or entity other than Weidy may not exceed 20% of the
preceding calendar year's total Products purchased from Weidy and (ii) Meade may
not purchase any of the Products from any person or entity other than Weidy
within the boundaries of Taiwan, R.O.C.

4. Annual Minimum Purchase.

A. Annual Minimum Purchase Amounts. During the term of this
Agreement, Meade agrees to purchase the following total number of Products in
each of the following calendar years: 1999 calendar year: 250,000 units; 2000
calendar year: 300,000 units; and 2001 calendar year and later years: 350,000
units (collectively, in each year, the "Annual Minimum Purchase Amount").

B. In Event of Termination without Cause. During the first 12
months after a Termination without Cause (as defined below) of this Agreement,
Meade agrees to purchase no less than 75% of the Product quantities purchased
during the last full calendar year in which this Agreement was in effect. During
the second 12 months after a Termination without Cause of this Agreement, Meade
agrees to purchase no less than 50% of the Product quantities purchased during
the last full calendar year in which this Agreement was in effect.

5. Term. Unless earlier terminated pursuant to the terms hereof,
this Agreement will continue until December 31, 2003. This Agreement may be
renewed for additional one year periods upon the mutual agreement of the
parties. The parties agree that any such renewal of the Agreement shall be
executed not later than six months prior to the termination of this Agreement.

6. Termination.

A. Either party may terminate this Agreement (i) at will upon
twelve months' written notice given to the other party before the date of the
end of this Agreement ("Termination without Cause"), or (ii) upon seven days'
notice if any of the following events occurs ("Termination with Cause"):

<PAGE> 3

(i) The other party becomes insolvent, files a voluntary
petition in bankruptcy or liquidation, proposes any dissolution, liquidation,
reorganization, or recapitalization with creditors, or takes any similar action
under the laws of any jurisdiction;

(ii) The other party has any involuntary petition in
bankruptcy or liquidation filed against it, or a receiver is appointed or takes
possession of the other party's property, or any similar action is taken against
the other party under the laws of any jurisdiction;

(iii) The other party makes an assignment for the benefit
of creditors, is adjudicated as a bankrupt, or takes any similar action under
the laws of any jurisdiction; or

(iv) The other party materially breaches this Agreement
and such breach is not cured within 60 days after receipt of written notice
thereof.

B. In the event of termination of this Agreement:

(i) Meade shall remain obligated to accept Products
delivered by Weidy in accordance with the purchase orders placed by Meade prior
to the termination of this Agreement and Meade shall remain obligated to pay for
such Products according to the terms hereof;

(ii) Weidy shall remain obligated to ship Products in
accordance with the purchase orders placed by Meade prior to the termination of
this Agreement; and

(iii) Both parties shall remain obligated to comply with
the provisions of Section 8, 10, 12, 14, 16, 17 and 18 hereof.

C. The parties recognize and agree that upon termination of this
Agreement Weidy may continue to manufacture and ship Products for Meade in such
quantities and upon acceptance of such orders as Weidy and Meade determine, and
Meade shall be responsible for the payment thereof.

7. Tooling. All Meade Owned Tooling shall be owned exclusively by
Meade and will be held by Weidy under Meade's consent solely for use in
manufacturing the Products. Weidy agrees to store all the Meade Owned Tooling in
a designated area within the Weidy facility in Taiwan when not in use and to
permanently and prominently mark all such Meade Owned Tooling "Property of Meade
Instruments." Weidy further agrees to retain such markings on all such Meade
Owned Tooling at all times. The location of such storage shall be mutually
determined by Weidy and Meade. Weidy agrees to immediately release all Meade
Owned Tooling to Meade at any time upon Meade's demand and to not remove any of
such Meade Owned Tooling from the Weidy facility in Taiwan without Meade's prior
written consent. Weidy agrees that it is solely responsible for the maintenance
and safekeeping of the Meade Owned Tooling and for any subsequent damage to or
loss of any of the Meade Owned Tooling and that Weidy will promptly (at Meade's
discretion) (i) reimburse Meade for the replacement cost of such damaged or lost
Meade Owned Tooling, or (ii) replace such damaged or lost Meade Owned Tooling.

8. Confidential Information.

<PAGE> 4

A. Confidential Information. Relying on the provisions and
remedies of this Agreement, Meade agrees to furnish to Weidy or its agents
("Representatives") certain confidential and proprietary information of Meade,
including but not limited to, technical knowledge, inventions, creations,
know-how, formulations, recipes, specifications, designs, methods, processes,
techniques, data, rights, devices, drawings, instructions, expertise, trade
practices, trade secrets, commercial information and other information relating
to the design, manufacture, assembly, application, inspection, testing,
maintenance, packaging and sale of the Products (collectively, the "Confidential
Information").

B. Obligations of Weidy. In consideration for providing the
Confidential Information, Weidy agrees that the Confidential Information will be
used solely in connection with the manufacture of the Products in accordance
with this Agreement, will not be used for any other purpose, will not be used in
any way directly or indirectly detrimental to Meade and will be kept
confidential by Weidy, except that Weidy may disclose the Confidential
Information or portions thereof to those of its Representatives who need to know
such information for the purpose of implementing this Agreement. The term
"Confidential Information" shall not include information generally available to
the public other than as a result of a disclosure made in violation of this
Agreement, any similar agreement, or by any person with a legal, contractual or
fiduciary obligation of confidentiality.

C. Obligations Upon Termination. Upon termination of this
Agreement, or at the request of Meade, Weidy shall immediately return to Meade
all documentation in its possession, in any written or recorded form, containing
any of the Confidential Information, unless Weidy receives Meade's prior written
consent to retain such Confidential Information for its use in fulfilling
subsequent orders by Meade for the Products.

9. Pricing. Weidy agrees to offer the Products to Meade at prices
that are competitive with the prices of other Asian telescope manufacturing
companies for substantially similar products of substantially similar quality.

10. Use of Meade Trademark and Logo. During the term of this
Agreement, Weidy may use the Meade trademark and logo, on and in connection with
the manufacture of the Products exclusively for Meade. Other than in connection
with this Agreement, Weidy acknowledges it has no other rights in or to the
Meade trademark or logo.

11. Product Warranty. Weidy agrees to manufacture the Products for
Meade of a quality level that Meade requires, and which are suitable for sale by
Meade to Meade dealers and distributors throughout the world.

<PAGE> 5

12. Product Malfunction. Weidy shall promptly repair or replace any
Product which malfunctions, fails to operate, or is otherwise defective within a
reasonable time of the shipping date to Meade.

13. Quality Control Inspectors. Weidy agrees that Meade may retain at
Weidy's facilities up to two Meade employees for the purpose of quality control
inspections and other related functions, and that these Meade employees shall
have all reasonable access to Weidy's facilities at any time during normal
business hours. Notwithstanding the above, Weidy shall have the right to
disapprove of any particular Meade employee acting as a quality control
inspector provided a commercially reasonable justification is given by Weidy for
such disapproval.

14. Payment. Meade agrees to pay Weidy for all the Products shipped
by Weidy to Meade or to its customers at Meade's request in US Dollars within
three business days of Meade's receipt of a copy of the commercial invoice and
on-board Bill of Lading, or air waybill, as applicable. Payment shall be made by
wire transfer to a bank or other financial institution as directed by Weidy.

15. Government Approvals. It is the obligation of each party to
obtain any governmental approvals required for such party to discharge its
respective obligations under this Agreement. Each party shall assist the other
in obtaining any such approvals.

16. Specific Performance. It is recognized by the parties hereto that
certain of the rights which are subject to this Agreement are unique and are of
such a nature as to be inherently difficult or impossible to value monetarily.
It is therefore agreed that, in the event of a breach of this Agreement by
either party, an action at law for damages or other remedies at law may be
inadequate to protect the unique rights and interests of the other party.
Therefore, the parties hereto agree that in the event of any controversy
concerning the subject matter of this Agreement, the terms of this Agreement
shall be enforceable in equity for specific performance. Such a remedy shall,
however, be cumulative and not exhaustive, and shall be in addition to any other
remedies available.

17. Governing Law. Any proceeding or legal action commenced or
brought by Meade under this Agreement shall be submitted to a competent court of
and governed by the applicable law of Taiwan, R.O.C. Meade for itself and any
successor or assign, hereby consents and submits to the exclusive jurisdiction
of the courts of Taiwan, R.O.C. for any actions, suits or proceedings arising
out of or related to this Agreement which are brought by Meade. Any proceeding
or legal action commenced or brought by Weidy under this Agreement shall be
submitted to a competent court of and governed by the internal laws of the State
of California, U.S.A., without giving effect to the principles of conflict of
laws thereof. Weidy for itself and any successor or assign, hereby consents and
submits to the exclusive jurisdiction of the courts of the State of California,
U.S.A. located in the County of Orange for any actions, suits or proceedings
arising out of or related to this Agreement which are brought by Weidy.

18. Further Assurances. Each party hereto shall execute any and all
further documents or instruments or perform any reasonable actions which either
party hereto may deem reasonably necessary and proper to carry out the purposes
of this Agreement.

<PAGE> 6

19. Severability. If any provision or term of this Agreement shall
for any reason be held illegal or unenforceable, such provision or term shall be
adjusted rather than voided to the extent possible and shall in no way affect
the validity of this Agreement or its remaining terms and conditions.

20. Force Majeure. Neither party shall be liable for damages due to
any cause beyond its control, including, without limitation, acts of God, acts
of civil or military authority, fire, riots, civil commotions, war, embargo,
blockage, boycotts, floods, epidemics, delays in transportation or governmental
restrictions.

21. Amendment. No amendment to this Agreement shall be effective
unless it is in writing and signed by each of the parties hereto.

22. Counterparts. This Agreement may be executed in one or more
counterparts which together shall constitute a single agreement.

23. Waiver and Delay. No waiver by either party of any breach or
series of breaches or defaults in performance by the other party, and no
failure, refusal or neglect of either party to exercise any right, power or
option given to it hereunder or to insist upon strict compliance with or
performance of either parties obligations under this Agreement, shall constitute
a waiver of the provisions of this Agreement with respect to any subsequent
breach thereof or a waiver by either party of its right at any time thereafter
to require exact and strict compliance with the provisions thereof.

24. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the parties hereto,
subject to the restrictions on assignment contained herein.

25. Assignment. This Agreement shall not be assigned by either party
without the prior consent of the other party.

26. Entire Agreement. This Agreement contains all of the terms and
conditions agreed upon by the parties hereto with reference to the subject
matter hereof. No other agreements, oral or otherwise shall be deemed to exist
or to bind either of the parties hereto, and all prior agreements and
understandings are superseded hereby, including (i) that certain Purchase and
Sale Agreement, dated as of December 29, 1994, by and between Meade and Weidy
and (ii) that certain Letter Agreement, dated as of June 26, 1997, by and
between Meade and Weidy. This Agreement cannot be modified or changed except by
written instrument signed by both of the parties hereto.

27. Representation by Counsel. The parties hereto acknowledge that
each of them has had the opportunity and has been encouraged to seek and be
represented by competent legal counsel in connection with this Agreement. Each
party knowingly and voluntarily waives any right such party may have to object
to the provisions hereof based in any way on a claim of inadequate legal
representation.

IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be executed as of the date set forth above.

<PAGE> 7

MEADE INSTRUMENTS CORP., WEIDY OPTICAL CO., LTD,
A DELAWARE CORPORATION A REPUBLIC OF CHINA CORPORATION

/s/ Mr. John Diebel /s/ Mr. Chuck Lee
- ---------------------------- ---------------------------------
Name: Mr. John Diebel Name: Mr. Chuck Lee
--------------------- --------------------------
Title: Chairman and CEO Title: President
--------------------- ---------------------------

<PAGE> 1
EXHIBIT 10.34

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as
of _____________, 199__ by and between Meade Instruments Corp., a Delaware
corporation (the "Company") and ________________ ("Employee").

WITNESSETH:

WHEREAS, the Company and Employee desire to enter into this
Agreement to assure the Company of the continuing and exclusive service of
Employee and to set forth the terms and conditions of Employee's employment with
the Company.

NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the parties agree as follows:

1. TERM. The Company agrees to employ Employee and Employee
hereby accepts such employment, in accordance with the terms of this Agreement,
commencing March 1, 199__; provided, however, that unless the Company or
Employee gives written notice to the other party to the contrary at least 90
days prior to any anniversary of the date hereof, the term of this Agreement
shall automatically be extended for an additional term of one year on such
anniversary date. The term of this Agreement shall include any automatic
extensions pursuant to the preceding sentence.

2. SERVICES AND EXCLUSIVITY OF SERVICES. So long as this
Agreement shall continue in effect, Employee shall devote Employee's full
business time, energy and ability exclusively to the business, affairs and
interests of the Company and matters related thereto, shall use Employee's best
efforts and abilities to promote the Company's interests and shall perform the
services contemplated by this Agreement in accordance with policies established
by and under the direction of [the Board of Directors of the Company (the
"Board")] [or] [the chief executive officer or president of the Company
(collectively, the "Senior Officers")].

Without the prior express written authorization of the [Board of
Directors (the "Board")], Employee shall not, directly or indirectly, during the
term of this Agreement render services to any other person or firm for
compensation or engage in any activity competitive with or adverse to the
Company's business. Employee may serve as a director or in any other capacity of
any business enterprise or any nonprofit or governmental entity or trade
association, provided in each case that such service is approved by the Board or
the Senior Officers. Notwithstanding the foregoing, Employee may make and manage
personal business investments of Employee's choice and serve in any capacity
with any civic, educational or charitable organization without seeking the
approval of the Board, provided that such activities and services do not
substantially interfere or conflict with the performance of the duties hereunder
or create any conflict of interest with such duties.

3. DUTIES AND RESPONSIBILITIES. Employee shall serve as
__________________________________________ of the Company for the duration of
this Agreement. In the performance of Employee's duties, Employee shall report
directly to the [Board] [Senior Officers] of the Company and shall be subject to
the direction of the [Board] [Senior Officers] and to such limits on Employee's
authority as the [Board] [Senior Officers] may from time to time impose. During
the term of this Agreement, Employee shall be based at the Company's principal
executive offices in Orange County, California.

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<PAGE> 2
Employee agrees to observe and comply with the rules and
regulations of the Company and agrees to carry out and perform orders,
directions and policies of the Company and its Board as they may be, from time
to time, stated either orally or in writing. The Company agrees that the duties
which may be assigned to Employee shall be usual and customary duties of the
office(s) or position(s) to which Employee may from time to time be appointed or
elected and shall not be inconsistent with the provisions of the charter
documents of the Company or applicable law. Employee shall have such corporate
power and authority as shall reasonably be required to enable Employee to
perform the duties required in any office that may be held.

4. COMPENSATION.

(a) Base Compensation. During the term of this Agreement, the
Company agrees to pay Employee a base salary at the rate of $__________ per
year, payable in accordance with the Company practices in effect from time to
time (the "Base Salary").

(b) Additional Benefits. Employee shall also be entitled to all
rights and benefits for which Employee is otherwise eligible under any bonus
plan (including any Performance Share Award under the Company's 1997 Stock
Incentive Plan), incentive agreement, participation or extra compensation plan,
pension plan, profit-sharing plan, life, medical, dental, disability, or
insurance plan (including, except as otherwise prohibited therein, the Company's
Employee Stock Ownership Plan) or policy or other plan or benefit that the
Company may provide for Employee or (provided Employee is eligible to
participate therein) for peer employees or for employees of the Company
generally, as from time to time in effect, during the term of this Agreement
(collectively, all of the above shall be referred to as the "Additional
Benefits").

(c) Periodic Review. The [Board] [Senior Officers] shall review
Employee's Base Salary and Additional Benefits then being paid to Employee not
less frequently than every twelve months. Following such review, the Company may
in its discretion increase (but shall not be required to increase) the Base
Salary or any other benefits, but may not decrease the Base Salary during the
time Employee serves as _______________________.

(d) Perquisites. Employee shall be entitled to three weeks paid
vacation each twelve-month period, which shall accrue on a pro rata basis from
the date employment commences under this Agreement. Vacation time will continue
to accrue so long as Employee's total accrued vacation does not exceed six
weeks. Should Employee's accrued vacation time reach six weeks, Employee will
cease to accrue additional vacation until Employee's accrued vacation time falls
below this level. All vacation time shall be subject to the plans, policies,
programs and practices as in effect generally with respect to other peer
employees of the Company.

5. TERMINATION. This Agreement and all obligations hereunder
(except the obligations contained in Sections 8, 9, 10, 11, 12 and 13
(Confidential Information, Inventions and Patents, Non-Competition, No
Solicitation of Customers, Noninterference with Employees and Assistance in
Patent Applications) which shall survive any termination hereunder) shall
terminate upon the earliest to occur of any of the following:

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<PAGE> 3
(a) Voluntary Termination. Subject to Section 5(e) below, the
voluntary termination by Employee or retirement from the Company in accordance
with the normal retirement policies of the Company.

(b) Death or Disability of Employee. Employee's employment shall
be terminated upon the death or Disability (as defined below) of Employee. In
such instance, except as set forth below, all obligations hereunder to Employee
(or Employee's heirs or legal representatives), other than for (i) payment of
the sum of (A) Employee's annual Base Salary through the date of termination to
the extent not theretofore paid, (B) any bonus or other cash compensation
agreement for the pro rata amount earned through the date of termination, (C)
compensation previously deferred by Employee (together with any accrued interest
or earnings thereon), and (D) any accrued vacation pay, in each case to the
extent not theretofore paid (the sum of the amounts described in clauses (A),
(B), (C) and (D) shall be hereinafter referred to as the "Accrued Obligations"),
which shall be paid to Employee or Employee's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days after the date of termination
or any earlier time required by applicable law; and (ii) payment to Employee or
Employee's estate or beneficiary, as applicable, of any amount due pursuant to
the terms of any applicable benefit plan. Notwithstanding the above, if Employee
is terminated for disability, the Company shall continue, until Employee dies,
Employee recovers from such disability and returns to full-time service, or 24
months after the date of such notice, whichever first occurs, to pay Employee
100% of the Base Salary payable to Employee immediately prior to the
termination, minus the amount of any cash payments to Employee under the terms
of the Company's disability insurance or other disability benefits provided by
the Company. If Employee's death occurs while receiving payments under this
Section 5(b), such payments shall cease upon the death of Employee. For the
purposes of this Agreement, disability shall mean the absence of Employee
performing Employee's duties with the Company on a full-time basis for a period
of six months, as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to Employee or Employee's legal representative
(such agreement as to acceptability not to be withheld unreasonably).

(c) Cause. The Company may terminate Employee's employment and
all of Employee's rights to receive Base Salary and any Additional Benefits
hereunder for Cause. For purposes of this Agreement, the term "Cause" shall be
defined as any of the following; provided, however, that the Company must
determine the presence of such Cause in good faith:

(i) Willful misconduct by Employee which materially and
demonstrably injures the Company, including (1) Employee's
material breach of any material duties and responsibilities under
this Agreement (other than as a result of incapacity due to
Employee's disability), (2) Employee's commission of a material
act of fraud upon the Company or (3) Employee's immoderate use of
alcoholic beverages or narcotics or other substance abuse. For
purposes of this paragraph, no act or failure to act on the part
of Employee shall be considered "willful" unless done, or omitted
to be done, by Employee in bad faith and without reasonable
belief that Employee's action or omission was in the best
interest of the Company;

(ii) Employee's conviction by, or entry of a plea of
guilty or nolo contendere in, a court of competent and final
jurisdiction for a felony or any crime which materially adversely
affects the Company and/or its reputation in the

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<PAGE> 4
community and which involves moral turpitude or is punishable by
imprisonment in the jurisdiction involved.

Notwithstanding the foregoing, Employee shall not be terminated
for Cause pursuant to clauses (i) and (ii) of this Section 5(c) unless
and until Employee has received notice of a proposed termination for
cause and Employee has had an opportunity to be heard before at least a
majority of members of the Board.

(d) Without Cause. Notwithstanding any other provision of this
Section 5, the Company shall have the right to terminate Employee's employment
with the Company without cause at any time, but in the event of such termination
without cause, Employee shall be entitled to receive a lump sum payment equal to
the value of Employee's Base Salary and all Additional Benefits (including the
value of any bonus, benefit or other cash incentive which would have been paid
to or received by Employee had Employee not been terminated during the term of
this Agreement) provided under this Agreement for a one year period from the
date of such termination. Such lump sum payment to Employee representing the
value of all such Base Salary and Additional Benefits shall be paid to Employee
within 30 days of the date of such termination; provided, however, that if the
Company is unable (in good faith) to determine the full value of any Additional
Benefits until the end of the fiscal year in which the termination takes place
(or any other future time period), then the Company shall pay to Employee that
amount of the Additional Benefits that the Company and Employee are able to
reasonably determine is due to Employee and any additional amount to be paid to
Employee pursuant to the final determination of such Additional Benefits shall
be paid to Employee with 10 days after the determination of the amount thereof.
Notwithstanding the above, the Company shall determine and pay to Employee the
final amount due to Employee under any Additional Benefit not later than 90 days
after the term of this Agreement.

(e) Good Reason. Employee's employment may be terminated at any
time by Employee for Good Reason. Regardless of whether a resignation occurs
prior to, coincident with or after a "Change in Control," Good Reason" shall
mean:

(i) The material failure by the Company to fulfil its
obligations under this Agreement, to the extent not remedied in a
reasonable period of time after the receipt of written notice by
the Employee specifying the material failure by the Company. Any
reduction or attempted reduction by the Company (to the extent
such reduction is not made equally to all employees of a
substantially equal level or position) in Employee's Base Salary
as in effect on the date hereof or as the same may be increased
from time-to-time or the taking of any action by the Company that
would substantially diminish the aggregate value of Employee's
compensation, including any bonus, incentive or other
compensation awards, retirement benefits and other fringe
benefits from the levels in effect prior to the date hereof is
deemed material.

(ii) The Company's requiring Employee to be based at any
office or location which increases the distance from Employee's
home to the office or location by more than 30 miles from the
distance in effect at the beginning of the term of this
Agreement.

If Employee terminates his or her employment with the
Company for Good Reason, then Employee shall be entitled to
receive a lump sum payment equal to that paid to Employee under
Section 5(d) hereof.

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<PAGE> 5
6. BUSINESS EXPENSES.

During the term of this Agreement, to the extent that such
expenditures satisfy the criteria under the Internal Revenue Code for
deductibility by the Company (whether or not fully deductible by the Company)
for federal income tax purposes as ordinary and necessary business expenses, the
Company shall reimburse Employee promptly for reasonable business expenditures,
including travel, entertainment, parking, business meetings, and professional
dues, made and substantiated in accordance with the reasonable policies,
practices and procedures established from time to time by the Company generally
with respect to other peer employees and incurred in the pursuit and furtherance
of the Company's business and good will.

7. CHANGE IN CONTROL.

If there should occur a "Change in Control" of the Company (or
any successor), as defined below, then Employee, without limitation on any other
rights hereunder, may, within 12 months after first receiving notice (which may
be oral) of such event, elect to retire from full-time service to the Company
and to render, on a non-exclusive basis, only such consulting and advisory
services to the Company as Employee may in his or her sole discretion accept.
Any such consulting and advisory services and the conditions under which they
shall be performed shall be fully in keeping with the position or positions
Employee held under this Agreement. In the event of such election by Employee,
Employee shall receive a lump sum payment in the amount of 2.99 times Employee's
highest annual amount of compensation (including Base Salary and Additional
Benefits) during the preceding three fiscal years or 2.99 times the Employee's
Base Salary and Additional Benefits, including the full targeted amount of any
bonus or incentive agreement for the year in which the Employee's resignation or
discharge occurs, whichever is greater.

Notwithstanding anything to the contrary in this Agreement, the
amount of any such payments which constitute "parachute payments" as defined in
Section 280G of the Internal Revenue Code (the "Code") shall be limited, if
necessary, so that the maximum amount of such payments to the Employee shall be
one dollar ($1.00) less than the amount which would cause the payments to the
Employee to be subject to the excise tax imposed by Section 4999 of the Code.

For purposes of the foregoing provisions, a "Change in Control"
means, and shall be deemed to have taken place, if (1) any person or entity or
group of affiliated persons or entities, including a group which is deemed a
"person" by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), after the date hereof is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the combined voting power
of the Company's then outstanding securities; or (2) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof, unless
the election, or the nomination for election by the Company's stockholders, of
each new Board member was approved by a vote of at least three-fourths (3/4) of
the Board members then still in office who were Board members at the beginning
of such period.

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<PAGE> 6
8. CONFIDENTIAL INFORMATION.

Employee acknowledges that the nature of Employee's engagement by
the Company is such that Employee shall have access to information of a
confidential and/or trade secret nature which has great value to the Company and
which constitutes a substantial basis and foundation upon which the business of
the Company is based. Such information includes financial, manufacturing and
marketing data, techniques, processes, formulas, developmental or experimental
work, work in process, methods, trade secrets (including, without limitation,
customer lists and lists of customer sources), or any other secret or
confidential information relating to the products, services, customers, sales or
business affairs of the Company (the "Confidential Information"). Employee shall
keep all such Confidential Information in confidence during the term of this
Agreement and at any time thereafter and shall not disclose any of such
Confidential Information to any other person, except to the extent such
disclosure is (i) necessary to the performance of this Agreement and in
furtherance of the Company's best interests, (ii) required by applicable law,
(iii) lawfully obtainable from other sources, or (iv) authorized by the Company.
Upon termination of Employee's employment with the Company, Employee shall
deliver to the Company, or certify to the Company of the destruction of ,all
documents, records, notebooks, work papers, and all similar material containing
any of the foregoing information, whether prepared by Employee, the Company or
anyone else.

9. INVENTIONS AND PATENTS.

Except as may be limited by Section 2870 of the California Labor
Code, all inventions, designs, improvements, patents, copyrights and discoveries
conceived by Employee during the term of this Agreement which are useful in or
directly or indirectly related to the business of the Company or to any
experimental work carried on by the Company, shall be the property of the
Company. Employee will promptly and fully disclose to the Company all such
inventions, designs, improvements, patents, copyrights and discoveries (whether
developed individually or with other persons) and shall take all steps necessary
and reasonably required to assure the Company's ownership thereof and to assist
the Company in protecting or defending the Company's proprietary rights therein.

Employee acknowledges hereby receipt of written notice from the
Company pursuant to California Labor Code Section 2872 that this Agreement (to
the extent it requires an assignment or offer to assign rights to any invention
of Employee) does not apply fully to an invention which qualifies fully under
California Labor Code Section 2870.

10. NON-COMPETITION.

In order to protect the Confidential Information, Employee agrees
that during the term of Employee's employment, and for a period of one year
thereafter, Employee shall not, directly or indirectly, whether as an owner,
partner, shareholder, agent, employee, creditor, or otherwise, promote,
participate or engage in any activity or other business competitive with the
Company's business in any jurisdiction in which the Company operates at the time
of such termination if such activity or other business involves any use by the
Employee of any of the Confidential Information.

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<PAGE> 7
11. NON-SOLICITATION OF CUSTOMERS.

Employee agrees that for a period of one year after the
termination of employment with the Company, Employee will not, on behalf of
Employee or on behalf of any other individual, association or entity, call on
any of the customers of the Company for the purpose of soliciting or inducing
any of such customers to acquire (or providing to any of such customers) any
product or service provided by the Company, nor will Employee in any way,
directly or indirectly, as agent or otherwise, in any other manner solicit,
influence or encourage such customers to take away or to divert or direct their
business to Employee or any other person or entity by or with which Employee is
employed, associated, affiliated or otherwise related.

12. NONINTERFERENCE WITH EMPLOYEES.

In order to protect the Confidential Information, Employee agrees
that during the term hereof and for a period of one year thereafter, Employee
will not, directly or indirectly, solicit any employee of the Company to leave
such employment.

13. ASSISTANCE IN PATENT APPLICATIONS.

Employee agrees to assist the Company in obtaining United States
or foreign letters patent and copyright registrations covering inventions
assigned hereunder to the Company and that Employee's obligation to assist the
Company shall continue beyond the termination of Employee's employment but the
Company shall compensate Employee at a reasonable rate for time actually spent
by Employee at the Company's request with respect to such assistance. If the
Company is unable because of Employee's mental or physical incapacity or for any
other reason to secure Employee's signature to apply for or to pursue any
application for any United States or foreign letters patent or copyright
registrations covering inventions assigned to the Company, then Employee hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as Employee's agent and attorney-in-fact to act for and in Employee's
behalf and stead to execute and file any such applications and to do all other
lawfully permitted acts to further the prosecution and issuance of letters
patent or copyright registrations thereon with the same legal force and effect
as if executed by Employee. Employee hereby waives and quitclaims to the Company
any and all claims, of any nature whatsoever, which Employee now or hereafter
may have for infringement of any patent or copyright resulting from any such
application for letters patent or copyright registrations assigned hereunder to
the Company. Employee will further assist the Company in every way to enforce
any copyrights or patents obtained including, without limitation, testifying in
any suit or proceeding involving any of the copyrights or patents or executing
any documents deemed necessary by the Company, all without further consideration
but at the expense of the Company. If Employee is called upon to render such
assistance after the termination of Employee's employment, then Employee shall
be entitled to a fair and reasonable per diem fee in addition to reimbursement
of any expenses incurred at the request of the Company.

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<PAGE> 8
14. INDEMNITY.

In addition to any other separate agreement with the Company
concerning indemnification, to the fullest extent permitted by applicable law
and the bylaws of the Company, as from time to time in effect, the Company shall
indemnify Employee and hold Employee harmless for any acts or decisions made in
good faith while performing services for the Company, and the Company shall use
its best efforts to obtain coverage for Employee (provided the same may be
obtained at reasonable cost) under any liability insurance policy or policies
now in force or hereafter obtained during the term of this Agreement that cover
other officers of the Company having comparable or lesser status and
responsibility. To the same extent, the Company will pay and, subject to any
legal limitations, advance all expenses, including reasonable attorneys' fees
and costs of court approved settlements, actually and necessarily incurred by
Employee in connection with the defense of any action, suit or proceeding and in
connection with any appeal thereon, which has been brought against Employee by
reason of Employee's service as an officer or agent of the Company.

15. REMEDIES.

The parties hereto agree that the services to be rendered by
Employee pursuant to this Agreement, and the rights and privileges granted to
the Company pursuant to this Agreement, are of a special, unique, extraordinary
and intellectual character, which gives them a peculiar value, the loss of which
cannot be reasonably or adequately compensated in damages in any action at law,
and that a breach by Employee of any of the terms of this Agreement will cause
the Company great and irreparable injury and damage. Employee hereby expressly
agrees that the Company shall be entitled to the remedies of injunction,
specific performance and other equitable relief to prevent a breach of this
Agreement by Employee. This Section 15 shall not be construed as a waiver of any
other rights or remedies which the Company may have for damages or otherwise.

16. SEVERABILITY.

If any provision of this Agreement is held to be unenforceable
for any reason, it shall be adjusted rather than voided, if possible, to achieve
the intent of the parties to the extent possible. In any event, all other
provisions of this Agreement shall be deemed valid and enforceable to the extent
possible.

17. SUCCESSION.

This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns and any such successor or assignee
shall be deemed substituted for the Company under the terms of this Agreement
for all purposes. As used herein, "successor" and "assignee" shall include any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires the stock of the
Company or to which the Company assigns this Agreement by operation of law or
otherwise. The obligations and duties of Employee hereunder are personal and
otherwise not assignable. Employee's obligations and representations under this
Agreement will survive the termination of Employee's employment, regardless of
the manner of such termination.

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18. NOTICES.

Any notice or other communication provided for in this Agreement
shall be in writing and sent if to the Company to its principal executive office
at:

Meade Instruments Corp.
6001 Oak Canyon
Irvine, California 92620
Phone: (949) 451-1450; Facsimile: (949) 451-1460
Attention: General Counsel

or at such other address as the Company may from time to time in writing
designate, and if to Employee at such address as Employee may from time to time
in writing designate. Each such notice or other communication shall be effective
(i) if given by telecommunication, when transmitted to the applicable number so
specified in (or pursuant to) this Section 18 and a verification of receipt is
received, (ii) if given by mail, three days after such communication is
deposited in the mails with first class postage prepaid, addressed as aforesaid
or (iii) if given by any other means, when actually delivered at such address.

19. ENTIRE AGREEMENT.

This Agreement contains the entire agreement of the parties
relating to the subject matter hereof and supersedes any prior agreements,
undertakings, commitments and practices relating to Employee's employment by the
Company.

20. AMENDMENTS.

No amendment or modification of the terms of this Agreement shall
be valid unless made in writing and duly executed by both parties.

21. WAIVER.

No failure on the part of any party to exercise or delay in
exercising any right hereunder shall be deemed a waiver thereof or of any other
right, nor shall any single or partial exercise preclude any further or other
exercise of such right or any other right.

22. GOVERNING LAW.

This Agreement, and the legal relations between the parties,
shall be governed by and construed in accordance with the laws of the State of
California without regard to conflicts of law doctrines and any court action
arising out of this Agreement shall be brought in any court of competent
jurisdiction within the State of California, County of Orange.

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23. WAIVER OF JURY TRIAL.

THE COMPANY AND EMPLOYEE HEREBY AGREE TO WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT, THE EMPLOYMENT RELATIONSHIP BETWEEN THEM OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT OR SUCH
RELATIONSHIP. The scope of this waiver is intended to be all-encompassing of any
and all disputes that may be filed in any court or that relate to the subject
matter of this Agreement, including without limitation, contract claims, tort
claims, breach of duty claims, wrongful termination claims, claims for discharge
in violation of public policy, claims of discrimination and all other common law
and statutory claims, to the maximum extent permitted by law. The Company and
Employee each acknowledge that this waiver is a material inducement to enter
into this Agreement, that each has already relied on the waiver in entering into
this Agreement, and that each will continue to rely on the waiver in their
related future dealings. THE COMPANY AND EMPLOYEE FURTHER WARRANT AND REPRESENT
THAT EACH HAS HAD AN OPPORTUNITY TO REVIEW THIS WAIVER WITH ITS LEGAL COUNSEL,
AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
SUCH OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT MODIFICATIONS TO OR EXTENSIONS OF THIS AGREEMENT.
In the event of arbitration or litigation, this Agreement may be filed as a
written consent to arbitration or to a trial by the court.

24. ARBITRATION.

Any dispute, controversy or claim arising out of or in respect to
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall at the request of either party
be submitted to and settled by arbitration conducted before a single arbitrator
in Orange County, California in accordance with the Arbitration Rules of the
American Arbitration Association. The arbitration of such issues, including the
determination of any amount of damages suffered, shall be final and binding upon
the parties to the maximum extent permitted by law. The arbitrator in such
action shall not be authorized to change or modify any provision of this
Agreement. Judgement upon the award rendered by the arbitrator may be entered by
any court having jurisdiction thereof. The arbitrator shall award reasonable
expenses (including reimbursement of the assigned arbitration costs) to the
prevailing party upon application therefor.

25. WITHHOLDING.

All compensation payable hereunder, including salary and other
benefits, shall be subject to applicable taxes, withholding and other required,
normal or elected employee deductions.

26. COUNTERPARTS.

This Agreement and any amendment hereto may be executed in one or
more counterparts. All of such counterparts shall constitute one and the same
agreement and shall become effective when a copy signed by each party has been
delivered to the other party.

10
<PAGE> 11
27. HEADINGS.

Section and other headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.

MEADE INSTRUMENTS CORP.

------------------------------------
By
--------------------------------
Its
--------------------------------

EMPLOYEE

------------------------------------
[name]

------------------------------------

------------------------------------
[address]

<PAGE> 1
EXHIBIT 10.35

INDEMNITY AGREEMENT

This Indemnity Agreement (this "Agreement") is made as of
______________, 1998 by and between Meade Instruments Corp., a Delaware
corporation (the "Company"), and _________________ (the "Indemnitee"), a
director and/or officer of the Company.

BACKGROUND

A. The Indemnitee has agreed to serve as a director or officer of
the Company and in such capacity has rendered valuable services to the Company.

B. The Company has investigated the availability and sufficiency
of liability insurance and the applicable state statutory indemnification
provisions to provide its directors and officers with adequate protection
against various legal risks and potential liabilities to which directors and
officers are subject due to their position with the Company and has concluded
that insurance and statutory provisions may provide inadequate and unacceptable
protection to certain individuals requested to serve as its directors and
officers.

C. In order to induce and encourage highly experienced and
capable persons such as the Indemnitee to serve as a director and/or officer of
the Company, the Board of Directors has determined, after due consideration and
investigation of the terms and provisions of this Agreement and the various
other options available to the Company and the Indemnitee in lieu of this
Agreement, that this Agreement is not only reasonable and prudent but necessary
to promote and ensure the best interests of the Company and its stockholders.

AGREEMENT

In consideration of the services of the Indemnitee and in order
to induce the Indemnitee to serve as a director and/or officer of the Company,
the Company and the Indemnitee agree as follows:

SECTION 1. DEFINITIONS

As used in this Agreement:

(a) A "Change in Control" shall be deemed to have occurred if
(i) any "person" (as that term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the total voting power represented by the Company's
then outstanding voting securities, or (ii) during any period of two consecutive
years, individuals who at the beginning of the two year period constitute the
Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's

1
<PAGE> 2
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority of the Board of Directors, or
(iii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior to such a merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the total voting power represented by the
voting securities of the Company or the surviving entity outstanding immediately
after the merger or consolidation, or the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company (in one transaction or a series of transactions) of
all or substantially all the Company's assets.

(b) The term "Expenses" includes, without limitation,
attorneys' fees, disbursements and retainers, accounting and witness fees,
travel and deposition costs, expenses of investigations, judicial or
administrative proceedings or appeals, amounts paid in settlement by or on
behalf of Indemnitee, and any expenses of establishing a right to
indemnification, pursuant to this Agreement or otherwise including reasonable
compensation for time spent by the Indemnitee in connection with the
investigation, defense or appeal of a Proceeding or action for indemnification
for which he or she is not otherwise compensated by the Company or any third
party. The term "Expenses" does not include the amount of judgments, fines,
penalties or ERISA excise taxes actually levied against the Indemnitee.

(c) A "Potential Change in Control" shall be deemed to have
occurred if (i) the Company enters into an agreement or arrangement, the
consummation of which would result in the occurrence of a Change in Control;
(ii) any person (including the Company) publicly announces an intention to take
or to consider taking actions which if consummated would constitute a Change in
Control; (iii) any person (other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company acting in such capacity
or a corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock of the
Company), who is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 10% or more of the combined voting power
of the Company's then outstanding voting securities increases his or her
beneficial ownership of the securities by 5% or more over the percentage so
owned by that person on the date this Agreement is executed; or (iv) the Board
adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.

(d) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or in the
name of the Company or otherwise and whether of a civil, criminal or
administrative or investigative nature, by reason of the fact that the
Indemnitee is or was a director and/or officer of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another enterprise, whether or not he or she is serving in such capacity at
the time any liability or Expense is incurred for which indemnification or
reimbursement is to be provided under this Agreement.

2
<PAGE> 3
SECTION 2. INDEMNIFICATION

2.1 INDEMNIFICATION IN THIRD PARTY ACTIONS

The Company shall indemnify the Indemnitee in accordance with the
provisions of this subsection 2.1 if the Indemnitee is a party to or threatened
to be made a party to or otherwise involved in any Proceeding (other than a
Proceeding by or in the name of the Corporation to procure a judgment in its
favor), by reason of the fact that the Indemnitee is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another enterprise against all Expenses,
judgments, fines, penalties and ERISA excise tax actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement of the
Proceeding, to the fullest extent permitted by applicable law; provided that any
settlement be approved in writing by the Company.

2.2 INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE
COMPANY

The Company shall indemnify the Indemnitee in accordance with the
provisions of this subsection 2.2 if the Indemnitee is a party to or threatened
to be made a party to or otherwise involved in any Proceeding by or in the name
of the Company to procure a judgment in its favor by reason of the fact that
Indemnitee was or is a director or officer of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of
another enterprise, against all Expenses actually and reasonably incurred by
Indemnitee in connection with the defense or settlement of the Proceeding, to
the fullest extent permitted by applicable law.

2.3 PARTIAL INDEMNIFICATION

If the Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of, but not
the total amount of, the Expenses, judgments, fines, penalties or ERISA excise
taxes actually and reasonably incurred by him or her in the investigation,
defense, appeal or settlement of any Proceeding, the Company shall nevertheless
indemnify the Indemnitee for the portion of the Expenses, judgments, fines,
penalties or ERISA excise taxes to which the Indemnitee is entitled.

2.4 INDEMNIFICATION HEREUNDER NOT EXCLUSIVE

The indemnification provided by this Agreement shall not be
deemed exclusive of any other rights to which the Indemnitee may be entitled
under the Certificate of Incorporation, the Bylaws, any agreement, any vote of
stockholders or disinterested directors, applicable law, or otherwise, both as
to action in his or her official capacity and as to action in another capacity
on behalf of the Company while holding office.

2.5 INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY

Notwithstanding any other provisions of this Agreement, to the
extent that the Indemnitee has been successful in defense of any Proceeding or
in defense of any claim, issue or matter in the Proceeding, on the merits or
otherwise, including the dismissal of a Proceeding without prejudice, the
Indemnitee shall be indemnified against all Expenses incurred in connection
therewith to the fullest extent permitted by applicable law.

3
<PAGE> 4
SECTION 3. PRESUMPTIONS

3.1 PRESUMPTION REGARDING STANDARD OF CONDUCT

The Indemnitee shall be conclusively presumed to have met the
relevant standards of conduct as defined by applicable law for indemnification
pursuant to this Agreement, unless a determination that the Indemnitee has not
met the relevant standards is made by (i) the Board of Directors of the Company
by a majority vote of a quorum consisting of directors who were not parties to
the Proceedings, (ii) the stockholders of the Company by majority vote, or (iii)
in a written opinion by independent legal counsel, selection of whom has been
approved by the Indemnitee in writing.

3.2 DETERMINATION OF RIGHT TO INDEMNIFICATION

If a claim under this Agreement is not paid by the Company within
30 days of receipt of written notice, the right to indemnification as provided
by this Agreement shall be enforceable by the Indemnitee in any court of
competent jurisdiction. The burden of proving by clear and convincing evidence
that indemnification or advances are not appropriate shall be on the Company.
Neither the failure of the directors or stockholders of the Company or
independent legal counsel to have made a determination prior to the commencement
of the action that indemnification or advances are proper in the circumstances
because the Indemnitee has met the applicable standard of conduct, nor an actual
determination by the directors or stockholders of the Company or independent
legal counsel that the Indemnitee has not met the applicable standard of
conduct, shall be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct.

(a) The Indemnitee's Expenses incurred in connection with any
Proceeding concerning his or her right to indemnification or advances in whole
or in part pursuant to this Agreement shall also be indemnified by the Company
regardless of the outcome of the Proceeding, unless a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in the Proceeding was not made in good faith or was frivolous.

SECTION 4. ADVANCES OF EXPENSES

The Expenses incurred by the Indemnitee in any Proceeding shall
be paid promptly by the Company in advance of the final disposition of the
Proceeding at the written request of the Indemnitee to the fullest extent
permitted by applicable law; provided that if applicable law requires an
undertaking, the Indemnitee shall undertake in writing to repay the amount
advanced to the extent that it is ultimately determined that the Indemnitee is
not entitled to indemnification.

SECTION 5. CHANGE IN CONTROL

The Company agrees that if there is a Change in Control of the
Company (other than a Change in Control which has been approved by a majority of
the Company's Board of Directors who were directors immediately prior to the
Change in Control) then with respect to all matters thereafter arising
concerning the rights of Indemnitee to indemnity payments and

4
<PAGE> 5
Expense advances under this Agreement or any other agreement, the Company's
Certificate of Incorporation, or the Company's Bylaws in effect relating to
claims for indemnifiable events, the Company shall seek legal advice only from
independent counsel selected by Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld), and who has not otherwise
performed services for the Company or Indemnitee within the last five years
(other than in connection with such matters) ("Special Independent Counsel").
The Special Independent Counsel, among other things, shall render its written
opinion to the Company and Indemnitee as to whether and to what extent the
Indemnitee would be permitted to be indemnified under applicable law. The
Company agrees to pay the reasonable fees of the Special Independent Counsel
referred to above and may fully indemnify the Special Independent Counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement.

SECTION 6. INDEMNIFICATION PROCEDURE

6.1 NOTICE

Promptly after receipt by the Indemnitee of notice of the
commencement of any Proceeding, the Indemnitee will, if a claim is to be made
against the Company under this Agreement, notify the Company of the commencement
of the Proceeding. The omission to notify the Company will not relieve it from
any liability which it may have to the Indemnitee otherwise than under this
Agreement.

6.2 COMPANY PARTICIPATION

With respect to any Proceeding for which indemnification is
requested, the Company will be entitled to participate in the Proceeding at its
own expense and, except as otherwise provided below, to the extent that it may
desire, the Company may assume the defense of the Proceeding, with counsel
satisfactory to the Indemnitee. After notice from the Company to the Indemnitee
of its election to assume the defense of a Proceeding, during the Company's good
faith active defense the Company will not be liable to the Indemnitee under this
Agreement for any legal or other expenses subsequently incurred by the
Indemnitee in connection with the defense of the Proceeding, other than
reasonable costs of investigation or as otherwise provided below. The Company
shall not settle any Proceeding in any manner which would impose any penalty or
limitation on the Indemnitee without the Indemnitee's written consent. The
Indemnitee shall have the right to employ his or her counsel in any Proceeding
but the fees and expenses of the counsel incurred after notice from the Company
of its assumption of the defense of the Proceeding shall be at the expense of
the Indemnitee, unless (i) the employment of counsel by the Indemnitee has been
authorized by the Company, (ii) the Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and the Indemnitee
in the conduct of the defense of a Proceeding, or (iii) the Company shall not in
fact have employed counsel to assume the defense of a Proceeding, in each of
which cases the fees and expenses of the Indemnitee's counsel shall be at the
expense of the Company. The Company shall not be entitled to assume the defense
of any Proceeding brought by or on behalf of the Company or as to which the
Indemnitee has made the conclusion that there may be a conflict of interest
between the Company and the Indemnitee.

5
<PAGE> 6
SECTION 7. LIMITATIONS ON INDEMNIFICATION

No payments pursuant to this Agreement shall be made by the
Company:

(a) to indemnify or advance Expenses to the Indemnitee with
respect to Proceedings initiated or brought voluntarily by the Indemnitee and
not by way of defense, except with respect to Proceedings brought to establish
or enforce a right to indemnification under this Agreement or any other statute
or law or otherwise as required under applicable law, but the indemnification or
advancement of Expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;

(b) to indemnify the Indemnitee for any Expenses, judgements,
fines, penalties or ERISA excise taxes for which payment is actually made to the
Indemnitee under a valid and collectible insurance policy, except in respect of
any excess beyond the amount of payment under the insurance;

(c) to indemnify the Indemnitee for any Expenses, judgements,
fines or penalties sustained in any Proceeding for an accounting of profits made
from the purchase or sale by Indemnitee of securities of the Company pursuant to
the provisions of Section 16(b) of the Securities Exchange Act of 1934, the
rules and regulations promulgated thereunder and amendments thereto or similar
provisions of any federal, state or local statutory law;

(d) to indemnify the Indemnitee for any Expenses, judgements,
fines, penalties or ERISA excise taxes resulting from Indemnitee's conduct which
is finally adjudged to have been willful misconduct, knowingly fraudulent or
deliberately dishonest; or

(e) if a court of competent jurisdiction shall finally determine
that any indemnification hereunder is unlawful.

SECTION 8. MAINTENANCE OF LIABILITY INSURANCE

8.1 AFFIRMATIVE COVENANT OF THE COMPANY

The Company covenants and agrees that, as long as the Indemnitee
shall continue to serve as a director and/or officer of the Company and
thereafter so long as the Indemnitee shall be subject to any possible
Proceeding, the Company, subject to subsection 8.3 of this Agreement, shall
promptly obtain and maintain in full force and effect directors' and officers'
liability insurance ("D&O Insurance") in reasonable amounts from established and
reputable insurers.

8.2 INDEMNITEE NAMED AS INSURED

In all D&O Insurance policies, the Indemnitee shall be named as
an insured in a manner that provides the Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors and/or
officers.

6
<PAGE> 7
8.3 EXEMPTION FROM MAINTENANCE OF INSURANCE

Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines in good
faith that insurance is not reasonably available, the premium costs for
insurance are disproportionate to the amount of coverage provided, the coverage
provided by insurance is so limited by exclusions that it provides an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.

SECTION 9. MISCELLANEOUS

9.1 SUCCESSORS AND ASSIGNS

This Agreement shall be binding upon, and shall inure to the
benefit of the Indemnitee and his or her heirs, personal representatives and
assigns, and the Company and its successors and assigns.

9.2 SEVERABILITY

Each provision of this Agreement is a separate and distinct
agreement and independent of the others, so that if any provision of this
Agreement shall be held to be invalid or unenforceable for any reason, the
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions of this Agreement. To the extent required, any provision
of this Agreement may be modified by a court of competent jurisdiction to
preserve its validity and to provide the Indemnitee with the broadest possible
indemnification permitted under applicable law.

9.3 SAVINGS CLAUSE

If this Agreement or any portion of it is invalidated on any
ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee as to Expenses, judgments, fines, penalties or
ERISA excise taxes with respect to any Proceeding to the fullest extent
permitted by any applicable portion of this Agreement that shall not have been
invalidated or by any other applicable law.

9.4 INTERPRETATION; GOVERNING LAW

This Agreement shall be construed as a whole and in accordance
with its fair meaning. Headings are for convenience only and shall not be used
in construing meaning. This Agreement shall be governed and interpreted in
accordance with the laws of the State of California.

7
<PAGE> 8
9.5 AMENDMENTS

No amendment, waiver, modification, termination or cancellation
of this Agreement shall be effective unless in writing signed by the party
against whom enforcement is sought. The indemnification rights afforded to the
Indemnitee by this Agreement are contract rights and may not be diminished,
eliminated or otherwise affected by amendments to the Company's Certificate of
Incorporation, Bylaws or agreements including D&O Insurance policies.

9.6 COUNTERPARTS

This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each party and
delivered to the other.

9.7 NOTICES

Any notice required to be given under this Agreement shall be
directed to Meade Instruments Corp., 6001 Oak Canyon, Irvine, California 92620,
Attention: General Counsel, and to Indemnitee at the address set forth below or
to another address as either
shall designate in writing.

IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.

INDEMNITEE

--------------------------------------------
Name:
-----------------------------------
Address:
-----------------------------------

-----------------------------------

MEADE INSTRUMENTS CORP.,
a Delaware corporation

--------------------------------------------
Name:
-----------------------------------
By:
-----------------------------------
Title:
-----------------------------------

<PAGE> 1
EXHIBIT 10.36

MEADE INSTRUMENTS CORP.
-----------------------

EMPLOYEE STOCK OWNERSHIP PLAN
-----------------------------

Amendment No. 3
---------------

WHEREAS, Meade Instruments Corp. (the "Company") maintains the Meade
Instruments Corp. Employee Stock Ownership Plan (the "Plan") for the benefit of
its eligible Employees;

WHEREAS, it is desirable to amend the Plan to change the Plan Year;

NOW, THEREFORE, the definition of "Plan Year" in Section 2 of the
Plan is hereby

restated, effective as of December 31, 1997, to read as follows:

Plan Year .................... The 12-month period ending on each
December 31st and coinciding with each
Allocation Year; provided, however, that
the 10-month period March - December
1997 shall be a short Plan Year.

To record the adoption of this Amendment No. 3, the Company has caused
it to be executed this 30th day of October, 1997.

MEADE INSTRUMENTS CORP.

By /s/ Brent W. Christensen
-------------------------

<PAGE> 1
EXHIBIT 10.37

MEADE INSTRUMENTS CORP.
-----------------------

EMPLOYEE STOCK OWNERSHIP PLAN
-----------------------------

Amendment No. 4
---------------

WHEREAS, Meade Instruments Corp. (the "Company") maintains the Meade
Instruments Corp. Employee Stock Ownership Plan (the "Plan") for the benefit of
its eligible Employees;

WHEREAS, it is desirable to amend the definition of "Retirement" under
the Plan; and

WHEREAS, it is also desirable to amend the Plan to modify the
requirements for

participation and to modify the provisions relating to Forfeitures;

NOW, THEREFORE, the Plan is hereby amended as follows:

1. The definition of "Retirement" in Section 2 is restated, effective
as of January 1, 1998, to read as follows:

Retirement............... Termination of Service on or after attaining
age 60.

2. The first paragraph of Section 3(a) is restated, effective as of
December 31, 1997, to read as follows:

<PAGE> 2

(a) Each Employee who was not already a Participant in the Plan
on December 31, 1997, shall become a Participant in the Plan on the
December 31st or June 30th coinciding with or next following the date
on which he has attained age 21 and completed at least six months of
Service in which he is credited with at least 500 Hours of Service. The
eligibility computation period for determining six months of Service
under this Section 3(a) shall initially be the period of
six-consecutive months beginning on the Employee's initial date of
Service, then the six-consecutive month period beginning on the
semi-anniversary of his initial date of Service, and thereafter shall
be each six-consecutive month period beginning on the January 1st and
July 1st after the anniversary of his initial date of Service.

3. Section 9(a) is restated, effective as of January 1, 1998, to read
as follows:

(a) Vesting - A Participant's interest in his Accounts shall
become 100% vested and nonforfeitable if he (1) is employed by the
Company or an Affiliate on or after his 60th birthday, (2) incurs a
Disability while employed by the Company or an Affiliate, (3) dies
while employed by the Company or an Affiliate, or (4) completes at
least five years of Credited Service.

4. Section 9(b) is restated, effective as of December 31, 1997, to read
as follows:

-2-

<PAGE> 3

(b) Forfeitures - If a Participant who is not vested terminates
Service, he will be deemed to have received a distribution of his
Capital Accumulation on the date his Service terminated, and his entire
Account balances shall be forfeited as of that date. All Forfeitures
will be reallocated to the Accounts of remaining Participants, as
provided in Section 6(a), as of the Allocation Date coinciding with or
next following the date on which the Forfeiture occurs.

5. Section 9 is further amended, effective as of December 31, 1997, by
adding the following new subsection (c) at the end thereof:

(c) Restoration of Forfeited Amounts - In the event that a
non-vested former Participant is reemployed prior to the occurrence of
a five-year Break in Service, his Account balances (attributable to the
prior period of Service) that were forfeited under Section 9(b) shall
be restored as if there had been no Forfeiture. Such restoration shall
be made out of Forfeitures occurring in the Plan Year of his
reemployment (prior to the allocation of Forfeitures under Section
6(a)). To the extent that such Forfeitures are not sufficient, the
Company shall make a special contribution to restore the Participant's
Accounts. Any amount so restored to a Participant shall not constitute
an Annual Addition under Section 7(a).

-3-

<PAGE> 4

6. The last sentence of Section 11(b) is restated, effective as of
January 1, 1998, to read as follows:

If the value of a Participant's Capital Accumulation at the time
a distribution would otherwise commence under this Section 11 exceeds
$5,000, no portion of his Capital Accumulation may be distributed to
him without his written consent before he attains age 62.

7. The third sentence of Section 11(d) is restated, effective as of
January 1, 1998, to read as follows:

If a Participant whose Capital Accumulation exceeds $5,000 fails
to consent to a distribution offered before he attains age 62, or if a
Participant cannot be located, his entire Capital Accumulation may be
segregated and invested in Trust Assets other than Company Stock (as
determined by the Committee).

To record the adoption of this Amendment No. 4, the Company has caused
it to be executed this 30th day of December, 1997.

MEADE INSTRUMENTS CORP.

By /s/ Brent W. Christensen
---------------------------------

-4-

<PAGE> 1
EXHIBIT 10.38

AMENDMENT NO. 1 TO
------------------

ESOP LOAN AND PLEDGE AGREEMENT
------------------------------

THIS AGREEMENT, made this 1st day of May, 1997, by and between MEADE
INSTRUMENTS CORP., a Delaware corporation (the "Company"), and the MEADE
INSTRUMENTS CORP. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST (the "ESOP").

W I T N E S S E T H:
--------------------

WHEREAS, the Company and the ESOP entered into the ESOP Loan and Pledge
Agreement dated April 23, 1996 (the "Agreement");

WHEREAS, the Company consummated an initial public offering (the "IPO")
of its Common Stock on April 9, 1997;

WHEREAS, it is expected that dividends will not be paid by the Company
on its Common Stock and that the maximum allowable contributions by the Company
to the ESOP may not be sufficient to amortize the ESOP Loan as originally
scheduled under Section 2.1 of the Agreement; and

WHEREAS, it is desirable to amend the Agreement to provide for a
simplified schedule of annual payments of principal and interest on the ESOP
Loan;

NOW, THEREFORE, the parties hereto agree that the Agreement is hereby
amended, effective as of March 1, 1997, by restating Section 2.1(a) and (b)
thereof to read as follows:

Section 2.1 Payments of Principal and Interest.

(a) Interest - The ESOP shall pay interest (including interest on
any overdue payments) on the unpaid portion of the ESOP Loan not later
than April 22nd of each year, commencing April 22, 1997, until

<PAGE> 2

such time as principal has been paid in full.

(b) Principal - The principal balance of $10,005,000 remaining
due on the Note as of April 9, 1997, shall be due and payable in nine
consecutive annual installments of $1,000,000 not later than April 22nd
in each of the years 1997-2005, with a final installment of $1,005,000
due and payable on April 22, 2006.

IN WITNESS WHEREOF, the Company and the ESOP have executed this
Amendment No. 1 this 26th day of November, 1997.

MEADE INSTRUMENTS CORP.

By /s/ Steven G. Murdock
----------------------------------
President

MEADE INSTRUMENTS CORP. EMPLOYEE
STOCK OWNERSHIP PLAN AND TRUST

By: Administrative Committee of
the Meade Instruments Corp.
Employee Stock Ownership
Plan

By /s/ Brent W. Christensen
----------------------------

-2-

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<COMMON> 79 3,511
<OTHER-SE> 18,343 (4,952)
<TOTAL-LIABILITY-AND-EQUITY> 24,592 20,524
<SALES> 59,905 47,151
<TOTAL-REVENUES> 59,905 47,151
<CGS> 38,245 31,845
<TOTAL-COSTS> 38,245 31,845
<OTHER-EXPENSES> 14,189 11,357
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,034 1,657
<INCOME-PRETAX> 6,437 2,292
<INCOME-TAX> 2,702 960
<INCOME-CONTINUING> 3,735 1,332
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> (374) (4,310)
<NET-INCOME> 3,361 (2,978)
<EPS-PRIMARY> .52 (.76)
<EPS-DILUTED> .52 (.76)

</TABLE>