e10vk

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ki0GXE7BH1J3BSR+K9Da6zfpv2bEIhDyvHQG4fXdwtuY139YJ60jiz3Zbp/wIkXG c+U6q+xRb3JLOmKNhEcSxg== 0000892569-05-000410.txt : 20050611 0000892569-05-000410.hdr.sgml : 20050611 20050531172746 ACCESSION NUMBER: 0000892569-05-000410 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20050228 FILED AS OF DATE: 20050531 DATE AS OF CHANGE: 20050531 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEADE INSTRUMENTS CORP CENTRAL INDEX KEY: 0001032067 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 952988062 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22183 FILM NUMBER: 05868405 BUSINESS ADDRESS: STREET 1: 6001 OAK CANYON CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: 9494511450 MAIL ADDRESS: STREET 1: 6001 OAK CANYON CITY: IRVINE STATE: CA ZIP: 92618 10-K 1 a09557e10vk.htm FORM 10-K e10vk

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)


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

For the Fiscal Year Ended February 28, 2005


o		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)


Delaware		95-2988062
(State of Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification)

6001 Oak Canyon, Irvine, California		92618
(Address of principal executive offices)		(Zip Code)

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 þ No o

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. þ

As of May 20, 2005, there were 20,003,855 outstanding shares of the Registrant’s common stock, par value $0.01 per share.

As of August 31, 2004, 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 $3.09 per share as reported by Nasdaq, was approximately $53 million.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12(b)-2).

Yes o No þ

Documents Incorporated by Reference

Portions of the registrant’s Proxy Statement for the 2005 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after February 28, 2005, are incorporated by reference into Part III of this Report.

TABLE OF CONTENTS


		Page
PART I
Item 1	Business		1
	Executive Officers of the Registrant		10
Item 2.	Properties		10
Item 3.	Legal Proceedings		10
Item 4.	Submission of Matters to a Vote of Security Holders		10
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		11
Item 6.	Selected Financial Data		12
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		21
Item 8.	Financial Statements and Supplementary Data		22
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		22
Item 9A.	Controls and Procedures		22
Item 9B.	Other Information		22

PART III
Item 10.	Directors and Executive Officers of the Registrant		23
Item 11.	Executive Compensation		23
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		24
Item 13.	Certain Relationships and Related Transactions		24
Item 14.	Principal Accountant Fees and Services		24
PART IV
Item 15.	Exhibits and Financial Statement Schedules		25
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
Report of Independent Registered Public Accounting Firm			F-1
Consolidated Balance Sheets at February 28, 2005 and February 29, 2004			F-2
Consolidated Statements of Operations for the three years in the period ended February 28, 2005			F-3
Consolidated Statements of Stockholders’ Equity for the three years in the period ended February 28, 2005			F-4
Consolidated Statements of Cash Flows for the three years in the period ended February 28, 2005			F-5
Notes to Consolidated Financial Statements			F-6
EXHIBIT 10.61
EXHIBIT 10.62
EXHIBIT 10.63
EXHIBIT 10.64
EXHIBIT 10.65
EXHIBIT 10.66
EXHIBIT 10.67
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I

Item 1. Business

General

Meade Instruments Corp. is a multinational consumer optics company that designs, manufactures, imports and distributes telescopes, telescope accessories, binoculars, riflescopes, spotting scopes, microscopes, night vision and other consumer optical products. Meade Instruments is dedicated to bringing innovative, cutting-edge, consumer-friendly products to the consumer optics marketplace. The company’s brands, which include Meade®, Bresser®, Simmons®, Weaver®, Redfield®, and Coronado®, are recognized throughout the world and are associated with innovation in the amateur astronomy, consumer optical and sporting goods markets. Products such as the recently announced RCX400 high-end telescopes, featuring an advanced Ritchey-Chrétien optical design, the Deep Sky Imager (“DSI”), a high-performance charge-coupled device (“CCD”) camera that has advanced astro-imaging to near point-and-shoot simplicity, the CaptureView™, a binocular with an integrated digital camera and NightView™, a compact night vision monocular built on an innovative and proprietary digital imaging technology, help sustain the Meade brand as a brand known for innovation in amateur astronomy and other consumer optical products. The Bresser brand, active in the European market for nearly 30 years, is known for its wide range of modestly-priced products including binoculars and smaller-aperture telescopes. In October 2002, the Company acquired Simmons Outdoor Corp. (“Simmons”) to expand its brand name offerings and extend its reach into the worldwide sporting goods marketplace. Simmons offers complete binocular and riflescope product lines under the Simmons, Weaver and Redfield brand names. The Simmons, Weaver and Redfield brand names have long histories in the sporting goods channel (the Redfield brand name is nearly 100 years old). In December 2004, in an effort to vertically expand the Company’s product offerings, the company purchased substantially all of the assets and assumed substantially all of the liabilities of Coronado Technology Group, LLC, a supplier of high-end hydrogen-alpha solar filters and high-end dedicated solar telescopes, as well as various related accessories and more modestly priced dedicated solar observation equipment.

The Company offers numerous different telescope, riflescope and binocular models as well as hundreds of accessory products for consumer amateur astronomy and sporting goods buyers. The Company’s telescopes range in aperture from under 2 inches to 16 inches and in retail price from less than $50 to more than $20,000. The Company offers several families of riflescopes and binoculars under its various brand names at retail price points from about $10 to more than $500. Whether a consumer is a serious amateur astronomer, an avid naturalist or someone just looking for a good binocular, Meade Instruments offers a complete range of quality products to satisfy almost any desire of a consumer optics buyer.

Founded in 1972, Meade has a decades-long reputation for providing the amateur astronomer with technically sophisticated products at competitive prices. 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. Capitalizing on its brand name recognition among serious amateur astronomers and its ability to bring advanced technology to lower price points, the Company has marketed successfully its less-expensive telescopes to beginning and intermediate amateur astronomers. The Company is a major supplier of consumer optics to such retailers as Discovery Channel Stores, Aldi and Lidl (in Germany), Wal-Mart, Sam’s Club, Dick’s Sporting Goods and Jerry’s Sport Center.

Meade has consistently emphasized a business plan that is concentrated on new product development, supply chain management, effective targeted marketing and customer service. As an indication of its commitment to product development, the Company spent $2.0 million, $2.0 million and $3.0 million on research and development during fiscal 2005, 2004 and 2003, respectively, and has, over the last five fiscal years, committed $11.3 million in the aggregate to research and development. These research and development expenditures were centered on the development of technologically advanced telescopes, new products for the general consumer and sports optics markets as well as product improvement and industrial applications of the Company’s existing technologies.

The Company manufactures a complete line of advanced astronomical telescopes in Irvine, California, including the production of all of the advanced optical systems, which are critical components of telescopes. Many of the

Company’s less-expensive telescopes and its binoculars and riflescopes, as well as certain component parts for its small to midrange telescopes, are manufactured under proprietary designs by manufacturers located in Asia, including mainland China, Taiwan, Korea, the Philippines and Japan. The Company also assembles many of its small to midrange products and accessories into finished products in the Company’s Mexican assembly plant (See Item 2. Properties).

The Company complements its efforts in new product development with an aggressive marketing plan. The Company’s marketing plan includes print advertising in astronomy, outdoor and hunting related magazines and, at times, in general consumer magazines, as well as jointly developed advertising campaigns with many of the Company’s key retail partners, and point-of-sale marketing displays. In addition, Meade publishes comprehensive, full-color, high-quality product catalogs that provide significant product exposure for a broad range of consumers including the serious amateur astronomer, the avid birder, the weekend sports enthusiast or hunter.

On September 1, 1999 the Company acquired 100% of the equity interests in Bresser Optik GmbH & Co. KG, and Bresser Optik Geschaftsfuhrung und Verwaltungs GmbH (collectively “Bresser”), for $5.0 million in cash and 201,830 shares of the Company’s common stock valued at approximately $2.0 million. Bresser is a German distributor of binoculars, telescopes, microscopes and other consumer optical products. Bresser has provided the Company greater foreign distribution opportunities for the Company’s products. Moreover, Bresser’s significant presence in the binocular and low-priced telescope market in Europe has strengthened the Company’s penetration into these markets. The cost structure at Meade Europe (formerly Bresser), operating as a distribution company with the majority of its sales coming from product manufactured in the Far East, has resulted in steady profitability since the Company acquired Bresser in 1999. In January 2000, the Company also purchased what was formerly its German distributor for approximately $1.1 million cash.

On October 25, 2002 the Company acquired 100% of the outstanding common stock of Simmons Outdoor Corp. for $20.8 million cash ($16.0 million was paid at close; the balance was paid in December, 2002). Simmons, a designer and distributor of riflescopes, binoculars and other consumer sports optics, offers products under the Simmons, Weaver and Redfield brand names. To fund a portion of the purchase price, the Company sold 3,292,000 shares of its common stock in a private placement for net cash proceeds of $7.3 million. The balance of the purchase price was funded through borrowings on the Company’s bank line of credit.

In the United States and Canada, the Company distributes its products through a network of more than 600 specialty retailers, distributors and mass merchandisers, which offer the Company’s products in more than 12,000 retail store locations. The Company also sells certain of its products to selected national mail order dealers. In addition to products sold through Meade Europe (formerly Bresser) channels, Meade sells its products internationally through a network of over 40 foreign distributors, many of which service dealer locations in their respective countries. Revenues from customers outside North America were $32.1 million, $36.3 million and $27.2 million for the fiscal years ended February 28, 2005, February 29, 2004 and February 28, 2003, respectively, and accounted for approximately 28.7%, 26.2% and 24.5% of the Company’s net sales for the fiscal years ended February 28, 2005, February 29, 2004 and February 28, 2003, respectively (See Note 9 of Notes to Consolidated Financial Statements). The Company intends to continue to pursue an integrated strategy of product line expansion, aggressive marketing, and expansion of the Company’s domestic and international distribution networks.

During fiscal 2002, the Company began to pursue industrial applications for its technologies and its product development and manufacturing capabilities. To that end, the Company announced several relationships with

companies involved in free-space optics communication technologies and digital imaging applications in the scientific research and medical diagnostic equipment markets. Many of those companies have since ceased doing business. Meade’s principal source of revenue in the industrial marketplace is the sale of digital CCD imagers used in a life sciences research system manufactured and sold by the Eastman Kodak Company’s Scientific Imaging Systems group (based in Rochester, NY and New Haven, CT). However, sales to Eastman Kodak amounted to less than 1% of net sales for each of the years ended February 28, 2005, February 29, 2004 and February 28, 2003. The Company does not believe sales of products into industrial markets will contribute meaningfully to top-line sales or profitability for the foreseeable future.

Industry Overview

Market-size data for the consumer optics industry are difficult to obtain because nearly all of the companies in the industry are privately held. The Company believes the overall size of the consumer optics market is driven, in part, by the introduction of new products.

The Company offers products at numerous price points in the consumer optics market, from advanced astronomical telescopes, state-of-the-art riflescopes and cutting-edge binoculars with integrated digital cameras to less-expensive telescopes for beginning amateur astronomers and low-priced binoculars for the casual observer.

The advanced astronomical telescope market 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. These advanced telescopes continue to drive the technological advances specifically in the telescope industry and generally in the consumer optics industry.

Telescopes are generally offered in three different optical configurations: (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.

The binocular market is typically characterized less by technological developments than by styling, features and price. However, the Company believes its introduction in 2002 of the CaptureView binocular with an integrated digital camera demonstrated that innovation can drive binocular sales as well. The principal features considered by binocular buyers include: (1) the diameter of the objective lenses, which serve to collect light, (2) the types of prisms used to right the visual image — either porro prisms (which give some binoculars the familiar zig-zag profile) or roof prisms that permit straight line designs, and (3) the magnification, or power, of the optical system. A binocular’s field of view, anti-reflective lens coatings and eye relief are also considered by consumers buying binoculars. Binoculars typically range in size from mini binoculars that generally have objective lenses not larger than 26mm to professional-level binoculars that can support objective lenses exceeding 60mm in diameter. Binocular retail prices range from under ten dollars to several thousand dollars. The Company’s binoculars, offered under the Meade, Bresser, Simmons, Weaver and Redfield brand names, as well as various private label names, generally sell for between $10 and $400 at retail.

The riflescope (and pistol scope) market demands a product that is rugged, absolutely waterproof and unerringly accurate. Like the binocular and telescope markets, features, styling and price are prime motivators in the riflescope market. Brand reputation is also a critical element in the riflescope consumer’s buying decision. The principal features considered by rifle and pistol scope buyers include: (1) light gathering ability and light transmission which are principally dependent on the diameter of the objective lens and the effectiveness of the anti-reflective coatings applied to the various lens surfaces in the scope, (2) waterproof/fogproof/shockproof integrity and durability of construction, (3) eye relief, which measures the distance from the shooter’s eye to the surface of the ocular lens, (4) ease of adjustment for windage and elevation, and (5) magnification – riflescopes typically offer variable magnification but come in fixed magnifications as well. Rifle and pistol scopes are sized by the diameter of the objective lens, which typically ranges from 20mm to 56mm, and are priced from under $30 to nearly $2,000 at

retail. The Company’s rifle and pistol scopes, offered under the Simmons, Weaver and Redfield brand names, generally sell for between $30 and $600 at retail.

Meade Instruments Corp. believes that it is well positioned in the marketplace to capitalize on its strong family of brand names, its research and development resources, its history of innovation and its manufacturing capabilities, to bring new and innovative products to the consumer and sports optics markets.

Competitive Strengths

The Company believes that it derives significant benefits from its position as a leading designer and distributor of telescopes, binoculars, riflescopes, spotting scopes, microscopes, night vision and other consumer optical related products. These benefits include its ability to offer its customers a broad and innovative, product line embodying both high quality and value. The Company attributes its success to the following competitive strengths:

New Products/Research and Development. The Company places a primary emphasis on product innovation and quality through its research and development efforts. The Company employs an in-house engineering staff at both its Irvine, CA and Guangzhou, China facilities that develops new products for the broad spectrum of markets the Company sells into as well as technological advances and improvements to existing products. The Company is able to obtain additional benefits by out-sourcing certain research and development services to supplement its internal expertise. Meade believes that the members of its senior-level engineering management team are among the most experienced in the consumer optics industry. The Company, its management and its employees are dedicated to the goal of producing technically superior yet price-competitive products and have been responsible for some of the consumer optics industry’s most technically advanced, easy to use, consumer optical products. During fiscal 2004, the Company established an engineering office in mainland China. The Chinese office is staffed with engineers that work under the supervision of the Company’s domestic engineering team. The Company believes that this facility’s proximity to the Company’s Asian suppliers will allow more efficient coordination between the Company and its Asian suppliers as well as improve the overall efficiency of the Company’s design process.

Broad Line of Products. The Company has pursued a strategy in which it uses the advancements in microprocessor technology to build on its existing know-how in advanced telescope design and operation to bring computer technology and features to consumer optical products at lower and lower price points. Through its acquisitions of Bresser in 1999, Simmons in 2002 and Coronado in 2004, the Company has expanded its product lines to include a wide variety of binoculars and telescopes under the Bresser brand name (a well-known and respected brand in Germany and throughout Europe), complete lines of riflescopes, pistol scopes and binoculars under the Simmons, Weaver and Redfield brand names, and a broad assortment of solar viewing equipment under the Coronado brand name. As a result, the Company offers numerous different telescope, riflescope, spotting scope and binocular models with several different optical configurations, as well as hundreds of accessory products for the consumer telescope and sports optics buyers. The Company’s telescopes range in aperture from under 2 to 16 inches and in retail price from less than $50 to more than $20,000. The Company offers several families of riflescopes and binoculars (including digital camera binoculars) under its several brand names at retail price points from about $10 to more than $500. During fiscal 2004, Meade and Weaver introduced a compact night vision monocular that is built on an innovative and proprietary digital imaging technology that yields crisp, detail-rich images. Whether a consumer is a serious amateur astronomer, an avid hunter or someone just looking for a good binocular, Meade offers a complete range of quality products to satisfy almost any desire the consumer optics buyer may have.

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 in Irvine, California. 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 more advanced consumer telescope market. Meade uses its optical engineering expertise to ensure that the optics in its foreign-sourced products meet the strictest of standards.

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. Certain of the Company’s less expensive and mid-range telescope models and accessories are assembled at the Company’s assembly plant located in Tijuana, Mexico. The Company manufactures the majority of its high-end advanced telescopes in its manufacturing facility in Irvine, California, while many of the Company’s less-expensive telescopes, and its binoculars and riflescopes are produced for the Company by manufacturers located in the Far East, principally mainland China, Taiwan, Japan, Korea and the Philippines. Through its new Guangzhou, China facility product and design engineers in the Far East monitor the manufacturing processes at the various plants that produce its products. Meade also regularly commits at least one of its United States based quality control engineers to the Far East.

Broad Distribution Network. The Company’s sales force in the U.S. and in Germany works closely with specialty retailers, distributors and mass merchandisers on product quality, technical knowledge and customer service. Meade expanded its distribution network with the acquisition of Simmons. Simmons distributes its products, inside and outside the U.S., principally through mass merchandisers and distributors in the sporting goods marketplace. Meade did not have significant presence in the sporting goods marketplace prior to the acquisition of Simmons. Meade has its own on-site graphic arts departments in both Irvine, CA and Borken, Germany 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, binoculars and riflescopes to such retailers as Discovery Channel Store, Aldi and Lidl (in Germany), Wal-Mart, Sam’s Club, Dick’s Sporting Goods and Jerry’s Sport Center. Meade Europe also has continued to expand the Company’s international presence.

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. In addition to giving its customers personal attention, the Company believes that providing this toll-free assistance also reduces product returns by better educating first-time users about the operation of its products. In addition, to help further enhance the out-of-the-box experience for first-time telescope buyers, Meade has begun to include instructional DVD’s with many of its entry-level and mid-level telescopes.

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. The Company offers a complete line of binoculars from small aperture theater glasses to full-size waterproof roof-prism glasses and the Company’s CaptureView binocular with an integrated digital camera. The Company’s product offerings also include a complete line of riflescopes from the lower-to-moderate priced Simmons line to the higher priced precision scopes in the Weaver and Redfield lines. During fiscal 2004, Meade and Weaver introduced a new compact night vision monocular that is built on an innovative and proprietary digital imaging technology that yields crisp, detail-rich images. 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 RCX and LX series Ritchey-Chrétien, Schmidt-Cassegrain and Maksutov-Cassegrain telescopes, which incorporate optical systems that provide high-quality resolution, contrast and light transmission. The RCX and LX series offer the serious amateur astronomer a broad range of products, from the attractively priced Autostar-controlled LX90, to the state-of-the-art RCX400 and LX200GPS lines. The RCX400 telescopes, currently available in 10 and 12 inch apertures, (with 14 and 16 inch apertures planned for manufacture during calendar 2005) are the Company’s new state-of-the-art large-aperture scopes specifically targeting serious amateur astronomers interested in astrophotography. The optical design in the RCX400 is similar to that used in the Hubble Space Telescope. The RCX line makes observatory-grade optics, mechanics and electronics available at commercial prices. The LX200GPS telescopes, available in 7, 8, 10, 12, 14 and 16-inch apertures, are the most popular of the Company’s telescopes among serious amateur astronomers. Both the RCX and the LX200GPS telescopes feature a Global Positioning System (“GPS”) receiver for automatic telescope alignment and a built-in computer library of more than 145,000 celestial

objects. These objects are cataloged in the Company’s proprietary hand-held computerized Autostar II control system. By entering any of the celestial objects presented on the Autostar II display, the telescope automatically locates and tracks the selected object. Advanced telescopes also include the Company’s LXD75 series. The LXD75 series offers the more serious amateur a wide variety of advanced features on larger aperture telescopes at economical prices. With the acquisition of Coronado in December 2004, the Company added sophisticated, dedicated solar viewing telescopes to its advanced telescope lines. The SolarMax™ telescopes, ranging in aperture from 40mm to 90mm, feature Coronado’s patented hydrogen-alpha (“H-alpha”) etalon filters. Coronado’s H-alpha etalons isolate the hydrogen-alpha wavelength while rejecting all others allowing “naked-eye” observation of the sun, its flares, prominences, filaments, spiculae, faculae, and active regions. Advanced astronomical telescopes collectively represented approximately 1%, 2%,and 3% of telescope units shipped and approximately 11%, 17% and 21% of the Company’s net sales for its fiscal years ended February 28/29, 2005, 2004 and 2003, respectively.

Entry-Level Telescopes. Designed specifically for the beginning to intermediate amateur astronomer or terrestrial observer, the Company’s less-expensive 50mm to 130mm refracting, reflecting and spotting scopes and the ETX series telescopes include many of the features of the more advanced telescopes at economical prices. With the NG and NGC series of telescopes (the “NG telescopes”) and the Digital Electronic Series telescopes (the “DS telescopes”), with apertures ranging from 60mm to 130mm, and the ETX series, with apertures ranging from 70mm to 125mm, some of the most sophisticated features of the Company’s advanced telescopes are made available at some of the Company’s lowest retail price points. Equipped with the hand-held Autostar Computer Controller, the ETX series and the DS telescopes can find and track any one of one thousand or more celestial objects at the push of a button. The Autostar, with its “go to” capability, brings to the general consumer for prices starting at a few hundred dollars, features that have previously been available only on the most sophisticated high-end telescopes selling for thousands of dollars. The Company offers several variations of its small refracting and reflecting telescopes (including its traditional models, the NG telescopes and the DS telescopes) for distribution on a semi-exclusive basis to specific specialty retailers. With the acquisition of Coronado in December 2004, in addition to the advanced H-alpha scopes described above, the Company added dedicated solar-viewing telescopes to its entry-level offerings. The Coronado Personal Solar Telescope (“PST”) is a 40mm dedicated solar telescope that makes solar viewing possible at a more consumer friendly price. The PST uses a filtering technology similar to that which goes into a SolarMax telescope but with a few unique design characteristics that allow for a lower price to the consumer. These various telescope models comprise the lower-priced end of the Company’s telescope product lines. Sales of entry-level telescopes comprised approximately 99%, 98% and 97% of the Company’s telescope units shipped and approximately 34%, 35% and 36% of the Company’s net sales for the fiscal years ended February 28/29, 2005, 2004 and 2003, respectively.

Binoculars. The Company expanded its market presence in binoculars with the acquisition of Simmons in 2002 and Bresser in 1999. The Simmons brands are widely recognized in the sports optics marketplace as quality products at competitive prices. The Bresser name is equally well recognized in Germany and other countries in Europe as a quality supplier of a wide range of binoculars. Sales of Bresser branded binoculars accounted for approximately one third of Meade Europe’s sales during fiscal 2005, and over one third during fiscal 2004 and fiscal 2003. The Company also sells a complete line of consumer binoculars through its existing domestic distribution network under the Meade brand name. The company’s CaptureView line of binoculars with integrated digital cameras are sold under the Meade and Simmons brand names. The binoculars sold by the Company are purchased from manufacturers outside the United States. Binocular sales, comprising over one million units in each of the fiscal years ended February 28/29, 2005, 2004 and 2003, respectively, represented approximately 23%, 21% and 24% of the Company’s net sales during those fiscal years, respectively.

Rifle and pistol scopes. The Company expanded its product offerings to include riflescopes and pistol scopes with the acquisition of Simmons in October 2002. Simmons sells riflescopes under the Simmons, Weaver and Redfield brand names. Riflescope sales accounted for most of the Company’s sales attributed to Simmons during fiscal 2005, 2004 and 2003. The riflescopes sold by the Company are purchased from manufacturers outside the United States. Riflescopes represented approximately 20%, 18% and 8% of the Company’s net sales for its fiscal years ended February 28/29, 2005, 2004 and 2003, respectively.

Accessories. The Company also offers accessories for each of its principal product lines that range from additional eyepieces and celestial observation software for telescopes to bore sighters for riflescopes. The Coronado

acquisition added several high-end H-alpha etalon filters to the list of telescope accessories for the serious amateur astronomer. Sales of accessories represented approximately 8%, 6% and 9% of the Company’s net sales for the fiscal years ended February 28/29, 2005, 2004 and 2003, respectively. Other miscellaneous products such as industrial optical and digital imaging products, microscopes, night vision and other consumer optical products accounted for approximately 4%, 3% and 2% of the Company’s net sales for fiscal 2005, 2004 and 2003, respectively.

Intellectual Property

The Company relies on a combination of patent, trademark and trade secret laws to establish and protect its proprietary rights and its technology. In general, the Company pursues patent protection both in the United States and selected foreign countries for subject matter considered patentable and important to the Company’s business strategy. The Company has patents either issued and/or pending in the U.S. and in several countries including Europe, Australia, Canada and the Far East.

Generally, patents issued in the U.S. are effective for 20 years from the original date of application. The duration of foreign patents varies in accordance with applicable foreign local law. While the duration of the Company’s patents varies, its most important patents have been issued within the last five years.

The Company believes that its patents, proprietary technology, know-how and trademarks provide significant protection for the Company’s competitive position and the Company intends to protect and enforce its intellectual property assets. Nevertheless, there can be no assurance that the steps taken by the Company in this regard will be adequate to prevent misappropriation or infringement of its technologies or that the Company’s competitors will not independently develop technologies that are substantially equivalent or superior to the Company’s technologies. Effective protection of intellectual property rights may be limited or unavailable in certain foreign countries.

Sales and Marketing

The Company’s products are sold through a domestic network of mail order dealers, specialty retailers, distributors and mass merchandisers. Internationally, the Company’s products are sold through its wholly owned subsidiary in Germany to specialty retailers and mass merchandisers and through a network of foreign distributors and dealers in other countries around the world. The Company’s high-end telescopes are generally sold through mail order dealers or single and multiple-location specialty retailers. Meade’s less-expensive telescopes are sold in similar venues but are sold principally through mass merchandisers. The Company’s binoculars and riflescopes are sold principally through a network of domestic distributors, as well as through specialty retailers and mass merchandisers. The Company maintains direct contact with its larger dealers and its domestic and foreign distributors through the Company’s sales professionals. A network of independent representatives is used to maintain contact with its smaller specialty retailers. Included among the Company’s customers are the following retail outlets, mass merchandisers and foreign distributors: Discovery Channel Stores, Wal-Mart, Aldi and Lidl (in Germany), Sam’s Club, Dick’s Sporting Goods and Jerry’s Sport Center. For additional information about geographic areas, see Note 9 of Notes to Consolidated Financial Statements.

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 over forty persons in sales and customer service positions in the U.S. and Europe, all of whom have significant industry experience. The Company’s internal sales personnel are supplemented by a network of regional sales representatives. Together, 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 end users of the Company’s products. The Company stresses service to both its customers and end users by providing marketing assistance in the form of hang-tags, catalog layouts and other print media as well as dedicated toll free customer service telephone numbers. In addition to giving its customers personal attention, the Company believes toll free telephone numbers also help reduce the number of product returns from end users who are generally unfamiliar with the assembly and operation of telescopes, binoculars and riflescopes. The Company’s dedication to providing a high level of customer service is one factor that management believes sets Meade apart from its competition.

The Company’s telescope 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. Innovation and quality is also the theme in the Simmons advertising and marketing programs. The Simmons brands are regularly advertised in several of the most widely circulated hunting and outdoors consumer magazines. The Company also focuses advertising dollars on point-of-sale promotions and displays in partnership with its retail customers to jointly market the Company’s products to the end consumer.

Throughout fiscal 2005, the Company sold its products to mail order dealers, to distributors and to more than 600 specialty retailers and mass merchandisers that offer Meade’s products in more than 12,000 retail store outlets. During the fiscal years 2005, 2004 and 2003, Wal-Mart (including Sam’s Club), accounted for approximately 11%, 11% and 15% of the Company’s net sales, respectively. During fiscal year 2003 Discovery Channel Store accounted for approximately 11% of the Company’s net sales. The Company’s ten largest customers, in the aggregate, accounted for approximately 35%, 34% and 49% of the Company’s net sales for the fiscal years ended February 28, 2005, February 29, 2004 and February 28, 2003, respectively. 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.

The Company has experienced, and expects to continue to experience, substantial fluctuations in its sales, gross margins and profitability from quarter to quarter (see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Seasonality).

Operations

Materials and Supplies. The Company purchases high grade optical glass for its higher-end telescopes in order to avoid imperfections that can degrade optical performance. Lenses and mirrors for the Company’s domestically manufactured telescopes are individually polished and figured by master opticians to precise tolerances to achieve a high level of resolution. The Company purchases metal telescope components from numerous foundries, metal stamping and metal working companies. Certain of the Company’s products contain computerized drive systems and other electronic circuitry. The components of these computerized drive and electronic systems are purchased from various suppliers and are generally assembled by third party vendors.

Polishing and Figuring. After a Ritchey-Chrétien, Schmidt-Cassegrain, Maksutov-Cassegrain, or Schmidt-Newtonian glass surface is fine ground, the telescope 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 Meade’s, Ritchey-Chrétien optical sets, Maksutov-Cassegrain optical sets, Schmidt-Cassegrain optical sets, or parabolic Newtonian primary telescope mirrors progress through the grinding, polishing and figuring stages of development, they are repeatedly tested and re-tested for irregularities, smoothness of figure and correction.

Optical Alignment and Centration. Finished, individually-matched Ritchey-Chrétien, Maksutov-Cassegrain and Schmidt-Cassegrain optical sets 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 a telescope’s optical tube system ready to be used.

The Company works closely with factories in the Far East to develop proprietary product designs. In an effort to mitigate the risks associated with reliance on any one supplier, Meade maintains relationships with several suppliers in the Far East. Most of such suppliers are located in mainland China. Many of the Company’s products purchased during fiscal 2005 were supplied by these Chinese manufacturers. The Company owns many of the key designs, molds and dies used by such suppliers. Through its new Guangzhou, China facility, Meade employs product and design engineers to monitor the manufacturing processes at the various plants that produce its products and

accessories. Meade also regularly commits at least one of its United States-based quality control engineers to the Far East.

The Company also utilizes its 50,000 sq. ft. assembly facility in Tijuana, Mexico (the “Mexico Facility”) in the manufacturing and assembly process. This facility employs from 100 to over 150 people (based on product sales levels) engaged in the assembly of several products including less-expensive and mid-range telescopes, electronic sub-assemblies, and accessory products.

Competition

The consumer optics market is highly competitive and sensitive to consumer needs and preferences. In the telescope market, Meade competes in the United States and Canada with SW Technology Corporation (“Celestron”), and Bushnell Performance Optics, Inc. (“Bushnell”) and, to a lesser extent, with other smaller companies which service niche markets. In April 2005, SW Technology Corporation (a Delaware corporation), an affiliate of Synta Technology Corporation of Taiwan, a long-time supplier to Celestron, acquired all of the outstanding members’ ownership interests in Celestron Acquisition LLC. The Company is unable, at this time, to assess what impact the sale of Celestron may have on the competitive landscape of the telescope market, if any. In Europe and Japan, the Company competes primarily with Celestron, Vixen Optical Industries, Ltd., and with other smaller regional telescope importers and manufacturers. 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.

The binocular and riflescope markets are generally more competitive than the telescope market with a greater number of competitors at each price point. In the binocular market, the Company competes primarily with Bushnell, Nikon Inc., Pentax Corporation, Barska Optics and various smaller manufacturers and resellers. In the riflescope market, the Company competes primarily with Bushnell, Leupold & Stevens, Inc., Nikon Inc., BSA Optics, Inc., Burris Company and Swarovski Optik. Many of these competitors in the binocular and riflescope 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, 2005, Meade had approximately 530 full-time employees, worldwide. The Company believes that it offers competitive compensation and benefits and that its employee relations are good. None of the Company’s United States-based employees is represented by a union. The Company’s employees at the Mexico Facility are 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 (the “ESOP”), effective March 1, 1996. The ESOP provides participating United States-based employees an opportunity to receive beneficial ownership of Meade’s common stock.

Available Information

Our website is located at http://www.meade.com. We make available free of charge, on or through our website, our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the Securities and Exchange Commission (“SEC”). The information contained on the Company’s website is not part of this report. The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-

SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

Executive Officers of the Registrant

See Item 10. Directors and Executive Officers of the Registrant contained herein.

Item 2. Properties

During fiscal 2005, the Company leased a 161,000 square foot manufacturing, distribution and corporate facility located in Irvine, California. This facility lease expires in 2007 and is renewable at the Company’s option for two five-year terms. Simmons leases a 96,000 square foot distribution facility in Thomasville, Georgia that includes 6,000 square feet of office space. The Simmons lease expires in December 2007, with an option for the Company to renew this lease for up to four four-year terms. The Company leases 45,000 square feet of warehouse space in Meridian, Mississippi on a month-to-month basis. The Company also leases a 50,000 square foot manufacturing and assembly plant in Tijuana, Mexico. The Tijuana lease expires in 2010 with two, five-year options remaining. The Company owns a 30,000 square foot office and distribution facility located in Borken, Germany. The Company also leases a 1,200 square foot office space, in Graefelfing, Germany with a cancellation notice period of 6 months prior to the end of any calendar year. The Company also leases 8,280 sq.ft. of office and manufacturing space in Tuscon, Arizona for its Coronado Instruments subsidiary. The Company’s management believes that all facilities occupied by the Company are adequate for present requirements, and that the Company’s current equipment is in good condition and suitable for the operations involved.

Item 3. Legal Proceedings

The Company is involved from time to time in litigation incidental to its business. Management believes that the outcome of such litigation will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

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.

PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s common stock is 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 years ended February 28, 2005 and February 29, 2004, respectively, were:


Year Ended February 28, 2005	High		Low		Year Ended February 29, 2004:	High		Low
Fourth quarter	$	3.53	$	3.03	Fourth quarter	$	4.30	$	3.19
Third quarter	$	3.65	$	2.89	Third quarter	$	4.76	$	3.15
Second quarter	$	3.50	$	2.87	Second quarter	$	3.59	$	2.71
First quarter	$	4.28	$	2.84	First quarter	$	3.30	$	2.31

The reported closing sales price of the Company’s common stock on the Nasdaq National Market on May 20, 2005 was $2.70. As of May 20, 2005, there were 180 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 cash dividends on its common stock in the foreseeable future. Although the Company intends to make future contributions to the ESOP upon Board approval, no cash dividends (other than dividends paid to all holders of common stock) will be paid to the ESOP with respect to future periods.

Item 6. Selected Financial Data

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following data have been derived from the Company’s audited consolidated financial statements, including the consolidated balance sheets at February 28, 2005 and February 29, 2004 and the consolidated statements of operations for the three years ended February 28, 2005 and the notes thereto appearing elsewhere herein and should be read in conjunction with such financial statements. Such data should also be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this report. The consolidated balance sheet data as of February 28, 2003, 2002 and 2001, and the consolidated income statement data for each of the two fiscal years in the period ended February 28, 2002, are derived from audited consolidated financial statements of the Company, which are not included herein.


	Year Ended February 28/29,
	2005			2004		2003 (a)		2002			2001
	(In thousands of dollars, except per share amounts)
Statement of Operations Data:
Net sales	$	111,799		$	138,281	$	110,817	$	94,718		$	123,000
Cost of sales		83,605			99,380		76,923		70,108			82,809

Gross profit		28,194			38,901		33,894		24,610			40,191
Selling expenses		16,046			18,106		14,248		12,920			21,782
General and administrative expenses(b)		10,211			12,671		12,628		9,098			8,439
ESOP contribution expense		419			859		905		1,367			2,997
Research and development expenses		2,018			2,038		3,008		2,167			2,062

Operating income (loss)		(500	)		5,227		3,105		(942	)		4,911
Interest expense		888			1,046		1,137		1,345			2,036

Income (loss) before income taxes		(1,388	)		4,181		1,968		(2,287	)		2,875
Income tax provision (benefit)		(513	)		1,729		830		(845	)		1,589

Net income (loss)	$	(875	)	$	2,452	$	1,138	$	(1,442	)	$	1,286

Per share information:
Net income (loss) — basic	$	(0.05	)	$	0.13	$	0.07	$	(0.10	)	$	0.09

Net income (loss) — diluted	$	(0.05	)	$	0.13	$	0.07	$	(0.10	)	$	0.08

Weighted average common shares outstanding — basic		19,288			18,983		16,410		15,100			14,700

Weighted average common shares outstanding — diluted		19,288			19,174		16,624		15,100			15,600

Balance Sheet Data:
Working capital	$	53,579		$	57,523	$	51,275	$	41,802		$	38,867
Total assets		88,749			88,562		84,995		64,823			76,466
Total current liabilities		22,557			20,901		21,403		12,224			25,944
Long-term debt, net of current portion		1,241			1,729		2,139		2,463			—
Stockholders’ equity		64,951			64,878		60,255		50,108			50,351

(a)		The Company acquired Simmons on October 25, 2002 (see Note 4. of Notes to Consolidated Financial Statements).

(b)		The Company adopted SFAS No. 142 on March 1, 2002 and as such ceased amortizing goodwill (see Note 1. of Notes to Consolidated Financial Statements).

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 consolidated financial statements, including the notes thereto, appearing elsewhere in this Report.

Critical Accounting Policies and Estimates

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make certain estimates, judgments and assumptions that it believes are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results may differ from these estimates under different assumptions or conditions. The significant accounting policies which management believes are the most critical to aid in fully understanding and evaluating the Company’s reported financial results include the following:

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the price to the buyer is fixed or determinable, and collectibility is reasonably assured. Those criteria are typically met when product is shipped. Revenue is not recognized at the time of shipment if these criteria are not met. Although there are many factors that influence revenue recognition, the principal reason the Company may not recognize revenue at the time of shipment is if the substance of the transaction is a consignment. Consignment type arrangements happen on a limited basis. Under certain circumstances, the Company accepts product returns. Product returns are principally related to lower-end Meade branded products. Management judgments must be made and used in connection with establishing the sales return estimates. The Company continuously monitors and tracks returns and records revenues net of provisions for returns. The Company’s estimate of sales returns is based upon several factors including historical experience, current market and economic conditions, customer demand and acceptance of the Company’s products and/or any notification received by the Company of such a return. Historically, sales returns have been within management’s estimates and, for the lower-end Meade branded products, have run at approximately 20% of gross sales of such products in each of the years ended February 28, 2005, February 29, 2004 and February 28, 2003, respectively. However, actual returns may differ significantly, either favorably or unfavorably, from management’s estimates depending on actual market conditions at the time of the return. The Company has not identified any trends, events or uncertainties that would require a change in management’s methodologies or assumptions related to sales return estimates.

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. The Company evaluates the carrying value of its inventories taking into account such factors as historical and anticipated future sales compared with quantities on hand and the price the Company expects to obtain for its products in their respective markets. The Company also evaluates the composition of its inventories to identify any slow-moving or obsolete product. These evaluations require material management judgments, including estimates of future sales, continuing market acceptance of the Company’s products, and current market and economic conditions. Inventory reserves are established, based on such judgments, for any inventories that are identified as having a net realizable value less than its cost. Inventory reserves represented 15.5%, 16.9% and 15.8% of gross inventory value at February 28/29, 2005, 2004 and 2003, respectively (see Item 15. Exhibits and Financial Statement Schedules – Schedule II Valuation and Qualifying Accounts). Historically, the net realizable value of the Company’s inventories has generally been within management’s estimates. However, if the Company is not able to meet its sales expectations, or if market conditions deteriorate significantly from management’s estimates, reductions in the net realizable value of the Company’s inventories could have a material adverse impact on future operating results. The Company has not identified any trends, events or uncertainties that would require a change in management’s methodologies or assumptions related to determining the net realizable value of its inventories.

Results of Operations

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


	Year Ended February 28/29 ,
	2005			2004			2003
Net sales		100.0	%		100.0	%		100.0	%
Cost of sales		74.8			71.9			69.4

Gross profit		25.2			28.1			30.6
Operating expenses:
Selling expenses		14.4			13.1			12.9
General and administrative expenses		9.1			9.2			11.4
ESOP contribution expense		0.4			0.6			0.8
Research and development expenses		1.8			1.5			2.7

Total operating expenses		25.7			24.4			27.8

Income (loss) from operations		(0.5	)		3.7			2.8
Interest expense		0.8			0.7			1.0

Income (loss) before income taxes		(1.3	)		3.0			1.8
Provision (benefit) for income taxes		(0.5	)		1.2			0.8

Net income (loss)		(0.8	)		1.8			1.0

Overview

Net sales during fiscal 2005 decreased significantly from the prior year. Sales of most of the company’s product lines were down from fiscal 2004 levels. Management believes that current fiscal year sales were negatively influenced by several key factors including the Mars opposition that occurred during the summer months of calendar 2003, a lack of new product introductions during the current year, certain promotions during the fourth quarter of fiscal 2004 and general softness in the markets for the Company’s products, principally in telescopes and digital camera/binoculars.

Management believes that the Mars opposition (Mars passed notably close to earth during 2003) pulled sales of mid-priced to higher-priced telescopes that might otherwise have been made in fiscal 2005, into fiscal 2004. That belief is based, in part, on the significant decrease in sales to one of the Company’s key retailers of those types of products, (the Company experienced a decrease in sales to this customer of approximately 60% from fiscal 2004 to fiscal 2005). Sales to many of the Company’s other retailers of mid-priced to higher-priced telescopes were also down from the prior year. Management believes those decreases were influenced by both the Mars opposition and product introductions that came late in the year. Softness in the telescope market was also manifest in sales decreases to the Company’s largest customer, Wal-Mart (down approximately 15% from the prior year). The Company’s change to a year-around telescope supplier to Wal-Mart from, principally, a seasonal supplier in previous years, also influenced sales. That change in supplier status improved the product return rate from Wal-Mart but negatively affected current year sales. Management believes that full year sales of telescope products introduced during fiscal 2005 coupled with new products already in production (such as the new RCX400 line of telescopes) and slated for introduction throughout fiscal 2006 will positively impact sales for the 2006 fiscal year.

Decreases in unit and dollar sales of the Company’s CaptureView also affected sales during fiscal 2005. The Company has continued to see price competition in the CaptureView market brought on, at least partially management believes, by the fact that the pixel count of CMOS imaging chips (used in nearly all binoculars with integrated digital imagers because of power and weight constraints) has not kept pace with the pixel count of CCD imaging chips (used in nearly all digital cameras). As the CMOS suppliers narrow the pixel count gap between the CMOS and CCD imaging chips, management believes the Company is positioned to utilize the improving technology to maintain its share of the market for binoculars with integrated digital imagers.

Sales at the Company’s Simmons subsidiary were down from the prior year as well. Notwithstanding the decrease in sales, the Simmons subsidiary continued to be profitable. The cost structure at Simmons, operating as a

distribution company principally selling riflescopes and binoculars manufactured in the Far East, has resulted in steady profitability since the Company acquired Simmons in 2002. The decrease in sales at Simmons (down approximately 5% from the prior year) was principally due to the inclusion in the prior year of sales of significant amounts of discontinued and close-out product that had been identified when the Company purchased Simmons. Sales of discontinued and close-out Simmons inventory were significantly less in the current fiscal year. Management believes that sales at the Simmons subsidiary will be positively impacted by the many newly engineered Simmons brand riflescopes expected to be introduced during fiscal 2006. These new Simmons brand scopes have been completely re-engineered and include many new proprietary technologies protected by intellectual property filings that management believes will differentiate them in the marketplace.

The Company’s European subsidiary continues to be profitable as well. The cost structure at Meade Europe is similar to that of the Simmons subsidiary – it operates as a distribution company with the majority of its sales coming from product manufactured in the Far East. Meade Europe (formerly Bresser) has been steadily profitable since the Company purchased Bresser in 1999.

Fiscal 2005 Compared to Fiscal 2004

Net sales decreased from $138.3 million in fiscal 2004 to $111.8 million in fiscal 2005, a decrease of 19.2%. Sales of the Company’s mid-priced and higher-priced telescopes were down approximately $19 million from the prior year period. This decrease in sales reflects current-year weakness in the mid-to-higher priced telescope categories. In addition, management believes that sales of mid-to-higher priced telescopes in the prior year were higher because of the Mars opposition and certain promotions during the fourth quarter of the prior year. As the effects of the Mars opposition and the promotions (i.e. high inventory levels at several of the Company’s dealers and distributors and sales pull from a unique celestial event) diminish, and with the introduction of new products both during the latter part of fiscal 2005 and into fiscal 2006, management believes that sales trends in these telescope categories will improve. Sales of smaller-aperture telescopes were also down approximately $3 million. The decrease in smaller-aperture telescopes was broad-based across the Company’s customers with decreased sales to one of the Company’s significant customers playing a major role in the decrease. Binocular sales were down approximately $4 million, primarily due to continuing price competition in the digital camera/binocular market. Sales of riflescopes were down approximately $3 million principally due to lower sales of close-out and discontinued items in the current year as compared to the prior year. Partially offsetting these reductions was an increase of approximately $2 million in the Company’s new night vision products, and an increase of approximately $1 million in microscope sales due to a large order in Europe. Included in the above discussion of specific year over year changes is the positive effect of the weakened dollar versus the euro compared to the prior year (European U.S. dollar sales were positively affected by approximately $2 million).

Gross profit decreased from $38.9 million (28.1% of net sales) in fiscal 2004 to $28.2 million (25.2% of net sales) in fiscal 2005, a decrease of 27.5%. The decrease was due to decreased sales compared to the prior year period. Gross margin (gross profit as a percent of net sales) decreased overall due to changes in sales mix and the effect of relatively fixed costs on lower sales volume, especially in the mid to higher-priced telescope lines. The weakened dollar versus the euro did not have a significant effect on gross profit because the European subsidiary utilizes forward contracts on substantially all of its significant dollar inventory purchases.

Selling expenses decreased from $18.1 million (13.1% of net sales) in fiscal 2004 to $16.0 million (14.4% of net sales) in fiscal 2005, a decrease of 11.4%. The decrease was primarily due to lower in-store advertising costs, down approximately $1.5 million from the prior year, and lower freight costs on lower sales volume, down approximately $0.7 million from the prior year.

General and administrative expenses decreased from $12.7 million (9.2% of net sales) in fiscal 2004 to $10.2 million (9.1% of net sales) in fiscal 2005, a decrease of 19.4%. The decrease was principally due to lower performance based compensation, which was down approximately $2.0 million from the prior year, and consulting and professional fees which were down approximately $0.5 million.

ESOP contribution expense decreased from $0.9 million (0.6% of net sales) in fiscal 2004 to $0.4 million (0.4% of net sales) in fiscal 2005, a decrease of 51.2%. The decrease in this non-cash charge was principally due to a

decrease in the number of shares allocated to the Employee Stock Ownership Plan during the period as compared to the prior year. A slightly lower average common stock price during the current year also contributed to the decrease. The non-cash ESOP contribution expense may fluctuate as the number of shares allocated and the market value of the Company’s common stock changes.

Research and development expenses remained flat at $2.0 million in fiscal 2005 (1.8% of net sales) and fiscal 2004 (1.5% of net sales). The Company’s research and development efforts are principally concentrated on product improvement and new product development for the Company’s core consumer products market.

Interest expense decreased from $1.0 million for fiscal 2004 (0.7% of net sales) to $0.9 million for fiscal 2005 (0.8% of net sales), a decrease of 15.1%. This decrease was principally due to lower average borrowings (in line with lower sales for the year) offset partially by higher costs of funds as compared to the prior year.

Fiscal 2004 Compared to Fiscal 2003

Net sales increased from $110.8 million in fiscal 2003 to $138.3 million in fiscal 2004, an increase of 24.8%. The increase over the prior year is principally due to the inclusion of a full year of net sales at Simmons. The Company acquired Simmons in October 2002. Simmons sales included in net sales for the fiscal years ended 2004 and 2003 were approximately $32 million and $10 million, respectively. Sales of the Company’s mid-priced and higher-priced telescopes increased over the prior year by approximately $7 million, due in part, management believes, to increased demand fostered by the Mars opposition that occurred during the summer months of calendar 2003 (Mars passed notably close to earth during 2003). Partially offsetting those increases were decreases in sales of digital camera/binoculars and accessories.

Gross profit increased from $33.9 million (30.6% of net sales) in fiscal 2003 to $38.9 million (28.1% of net sales) in fiscal 2004, an increase of 14.8%. The increase in gross profit was due to higher sales volume during fiscal 2004. Contributing to the decrease in gross profit as a percent of net sales were increased sales of riflescopes and binoculars, products that typically carry margins that are lower than historical Company-wide margins. Meade branded products continued to experience pricing pressure, which also contributed to the lower gross margins.

Selling expenses increased from $14.2 million (12.9% of net sales) in fiscal 2003 to $18.1 million (13.1% of net sales) in fiscal 2004, an increase of 27.1%. This increase was due, principally, to the inclusion of a full year of selling expenses at Simmons. The increase in selling expenses over the prior year attributable to Simmons was approximately $4 million.

General and administrative expenses remained relatively flat at $12.6 million (11.4% of net sales) in fiscal 2003 and $12.7 million (9.2% of net sales) in fiscal 2004. The full year Simmons general and administrative expenses increased by approximately $1 million over the prior year. Also increasing by approximately $1 million over the prior year were compensation expenses offset by decreases in professional and consulting fees.

ESOP contribution expense for the fiscal years ended 2003 and 2004 remained flat at $0.9 million (0.8% and 0.6% of net sales, respectively). The ESOP expense remained relatively flat because the number of shares allocated to the plan for fiscal 2004 was unchanged from 2003 and the average market price of the stock over the fiscal 2004 year was little changed from the prior year. Changes in this non-cash charge are due to changes in the average market price of the Company’s stock and in the number of shares allocated to the Employee Stock Ownership Plan during the year. The non-cash ESOP contribution expense may fluctuate as the number of shares allocated and/or the market value of the Company’s common stock changes.

Research and development expenses decreased from $3.0 million (2.7% of net sales) in fiscal 2003 to $2.0 million (1.5% of net sales) in fiscal 2004, a decrease of 32.2%. This decrease was due to a reduction in engineering personnel and outside consulting costs principally in response to diminished demand for the Company’s industrial optical products. The Company’s research and development efforts are principally concentrated on product improvement and new product development for the Company’s core consumer products market.

Interest expense for the fiscal years ended 2003 and 2004 remained flat at approximately $1.1 million (1.0% and 0.7% of net sales, respectively). Average borrowing rates and average outstanding borrowing remained relatively unchanged during fiscal 2004.

Seasonality

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 consumer products during the holiday season. The Company continues to experience significant 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.

Liquidity and Capital Resources

As of February 28, 2005, the Company had $3.9 million in cash. The Company funded its operations during the fiscal year with cash and short-term bank borrowings. Operating cash flows were augmented principally by a $4.9 million decrease in accounts receivable. The decrease in accounts receivable resulted from significantly lower sales during the fourth quarter of fiscal 2005 compared to the fourth quarter of the prior year. Contributions to operating cash flows were more than offset by significant increases in inventories and a significant decrease in accrued liabilities resulting in the use of $4.7 million from operating activities. Sales decreased by 19.2% for fiscal year 2005; that decrease and inventory purchases for anticipated orders that did not materialize, led to an increase in inventories of approximately $6.7 million. The increase in inventories led to a decline in inventory turns to approximately 1.9 times in fiscal 2005 compared to 2.5 times in fiscal 2004. Certain compensation costs that were accrued at the end of fiscal 2004 were paid during fiscal 2005, resulting in a decrease in accrued liabilities. Net cash used in financing activities was $3.4 million in fiscal 2005, principally resulting from a $2.5 million cash payment by the Company in connection with its acquisition of substantially all of the assets and assumption of substantially all of the liabilities of Coronado Technologies Group, LLC. Working capital requirements fluctuate during the year due to the seasonal nature of the business. These requirements are typically financed through a combination of internally generated cash flow from operating activities and short-term bank borrowings.

On October 25, 2002, the Company amended its credit agreement with its U.S. bank (the “U.S. credit agreement”) to provided the Company with a $35,645,000 credit facility consisting of a $34,000,000 revolving credit line (the “U.S. revolving loan”) and a $1,645,000 term loan (the “U.S. term loan”).

On July 9, 2004 the Company executed the Second Amendment to Amended and Restated Credit Agreement (the “Second Amendment”). The Second Amendment made the following key changes to the U.S. credit agreement, it: (1) extended the term of the facility to September 30, 2007, (2) eliminated the U.S. EBITDA covenant, (3) added a U.S. fixed charge coverage ratio requirement and (4) adjusted the pricing grid to allow improved pricing, based on performance.

On December 15, 2004 the Company executed the Third Amendment to Amended and Restated Credit Agreement (the “Third Amendment”). The Third Amendment made the following key changes to the U.S. credit agreement, it: (1) amended the U.S. fixed charge coverage ratio and the consolidated fixed charge coverage ratio covenants, (2) set minimum availability requirements and (3) added a higher pricing level to the pricing grid.

in compliance with the amended fixed charge coverage ratio requirements. Due to continuing losses during the fourth quarter of fiscal 2005, the Company concluded that it was not in compliance with the consolidated fixed charge coverage ratio covenant as set forth in the U.S. credit agreement for the year ended February 28, 2005. Accordingly, on May 27, 2005, the Company executed the Fourth Amendment to Amended and Restated Credit Agreement (the “Fourth Amendment”). The Fourth Amendment made the following key changes to the U.S. credit agreement, it: (1) reset the consolidated and U.S. fixed charge coverage ratio covenants, (2) added a $1 million availability reserve until the Company reaches certain consolidated fixed charge coverage ratio levels and (3) added higher pricing levels to the pricing grid. The Company is required to report its covenant calculations to the bank for the year ended February 28, 2005 based upon the terms of the Fourth Amendment. Upon execution of the Fourth Amendment the Company was in compliance with all of its bank covenants.

Amounts outstanding on the U.S. revolving loan and U.S. term loan at February 28, 2005 were approximately $9,816,000 and $665,000, respectively. Availability under the U.S. revolving loan (which is subject to a borrowing base with standard advance rates against eligible accounts receivable and inventories) at February 28, 2005 was approximately $6,000,000. The U.S. term loan is collateralized by domestic machinery and equipment. The credit facility expires in September 2007, is collateralized by substantially all of the domestic assets of the Company and its domestic subsidiaries and contains certain financial covenants including, but not limited to, fixed charge coverage ratios and minimum tangible net worth. Amounts outstanding under the U.S. revolving loan bear interest at the bank’s base rate (or LIBOR rate) plus applicable margins (5.5% at February 28, 2005). Under the terms of the U.S. credit agreement, the Company was required to enter into an interest-rate swap to convert the variable interest rate on its U.S. term loan to a fixed interest rate. The resulting cost of funds (7.9% per annum) was higher than that which would have been available if the variable rate had been applied during the period. Under the interest-rate swap contract, the Company agreed with the bank to exchange, at specified intervals, the difference between variable-rate and fixed-rate interest amounts, calculated by reference to agreed-upon notional amounts. The swap contract expired on September 1, 2004. The U.S. credit agreement does not require the Company to renew the swap contract on the remaining principal outstanding on the term note.

In July 2004, the Company’s German subsidiary renegotiated its agreement with a bank to provide up to approximately $4,800,000 in revolving loans (subject to a borrowing base of eligible accounts receivable and inventories) expiring in July 2005. The German subsidiary also has an agreement with the bank that provides a term loan expiring June 2006 collateralized by land and buildings owned by the German subsidiary (collectively, the “European Loans”). The European Loans are guaranteed by the U.S. parent company up to approximately $3,400,000 at February 28, 2005. The guarantee expires on the earlier of the termination of the bank agreement or July 31, 2008. Outstanding amounts on the revolving loan and the term loan in Europe at February 28, 2005 were approximately $11,000 and $1,129,000, respectively. The European Loans bear interest at the bank’s base rate plus or minus applicable margins (7.5% and 6.0%, respectively at February 28, 2005).

The Company continues to depend on operating cash flow and availability under its bank lines of credit to provide short-term liquidity. In the event the Company’s plans require more capital than is presently anticipated, additional sources of liquidity such as debt or equity financings, may be required to meet its capital needs. There can be no assurance that such additional sources of capital will be available on reasonable terms, if at all. However, management believes that operating cash flow and bank borrowing capacity in connection with the Company’s business should provide sufficient liquidity for the Company’s obligations for at least the next twelve months.

Capital expenditures aggregated $0.9 million, $0.6 million and $0.7 million for the fiscal years ended February 28, 2005, and February 29, 2004 and February 28, 2003, respectively.

Contributions to the Company’s Employee Stock Ownership Plan (“ESOP”) are accounted for as a contribution expense on the Company’s statement of operations and are accrued quarterly based upon the expected annual contribution amount. As quarterly contributions are accrued, the corresponding number of shares are added to the 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 following table summarizes the Company’s contractual obligations as of February 28, 2005, and the effect such obligations are expected to have on its liquidity and cash flows in future periods:


			Payments due by period:
			Up to						After
Contractual Obligations:	Total		1 year		1-3 years		3-5 years		5 years
Long-term debt	$	1,982,000	$	765,000	$	1,217,000	$	—	$	—
Non-cancelable operating leases and other contractual obligations		5,724,000		1,856,000		3,145,000		495,000		228,000

Total contractual cash obligations	$	7,706,000	$	2,621,000	$	4,362,000	$	495,000	$	228,000

The preceding table assumes that any operating leases with renewal options that expire during fiscal 2005 or fiscal 2006 will be renewed under the terms of the governing lease agreement.

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

In December 2004, the FASB issued FSP No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. The American Jobs Creation Act of 2004 (the “Jobs Creation Act”) was enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Creation Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. The Company is currently evaluating the impact of this new law on its operations and effective tax rate. In particular, the Company is evaluating the law’s provisions relating to allowable deductions, beginning in 2005, for income attributable to United States production activities. At this time, the Company is unable to determine the effects of this new law and will continue to analyze its potential impact as guidance is made available.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs – an amendment of ARB No. 43, Chapter 4. This Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 151 to have a material impact on its results of operations or financial position.

exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for fiscal periods beginning after June 15, 2005. The Company does not anticipate that the application of this statement will have a material impact on the Company’s financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”. SFAS No. 123R supersedes APB Opinion No. 25, which requires recognition of an expense when goods or services are provided. SFAS No. 123R requires the determination of the fair value of the share-based compensation at the grant date and the recognition of the related expense over the period in which the share-based compensation vests. SFAS No. 123R permits a prospective or two modified versions of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by the original SFAS No. 123. We are required to adopt the provisions of SFAS No. 123R effective March 1, 2006, at which time we will begin recognizing an expense for unvested share-based compensation that has been issued or will be issued after that date. The Company has not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS No. 123.

Forward-Looking Information

The preceding “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contains 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 expand the markets for telescopes, binoculars, riflescopes, microscopes, night vision and other optical products; the Company’s ability to continue to develop and bring to market new and innovative products that will be accepted by consumers; the Company’s ability to integrate, develop and grow the Simmons business; the Company’s ability to further develop its wholly owned manufacturing facility in Mexico in combination with its existing manufacturing capabilities; the Company expanding its distribution network; the Company’s ability to further develop the business of its European subsidiary; the Company’s ability to recognize any benefits from its engineering office in China; the Company experiencing fluctuations in its sales, gross margins and profitability from quarter to quarter consistent with prior periods; the Company’s expectation that its contingent liabilities will not have a material effect on the Company’s financial position or results of operations; the extent to which the Company will be able to leverage its design and manufacturing expertise in the areas of free-space optics and digital imaging; 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:

Our business is vulnerable to changing economic conditions, including:

•   a decline in general economic conditions;

•   uncertainties affecting consumer spending; and

•   changes in interest rates causing a reduction of investment income or in the value of market interest rate sensitive instruments.

Our intellectual property rights are subject to risks, including:

• the potential that we may be unable to obtain and maintain patents and copyrights to protect our computerized telescope and other product technology;

• competitors’ infringement upon Meade’s existing intellectual property; and

• approval of competitors’ patent applications that may restrict our ability to compete effectively.

Our business is subject to other risks, including:

•   a general decline in demand for the Company’s products;

•   an inability to continue to design and manufacture products that will achieve and maintain commercial success;

•   the potential that we may fail to penetrate the binocular and riflescope markets and achieve meaningful sales;

•   any significant interruption of our manufacturing abilities in our domestic or Mexican facilities or in any of our suppliers located in the Far East;

•   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; and

•   increasing ESOP charges in the event the market price of the Company’s stock increases.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to certain levels of market risks, including changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. The Company conducts business in a number of foreign countries and is primarily exposed to currency exchange-rate risk with respect to its transactions and net assets denominated in the Euro. Business activities in various currencies expose the Company to the risk that the eventual net United States dollar cash inflows resulting from transactions with foreign customers and suppliers denominated in foreign currencies may be adversely affected by changes in currency exchange rates. In prior years foreign currency fluctuations have not had a material impact on Meade’s revenues or results of operations. There can be no assurance that European or other currencies will remain stable relative to the U.S. dollar or that future fluctuations in the value of foreign currencies will not have a material adverse effect on the Company’s business, operating results, financial condition or cash flows.

The Company has adopted a hedging program to manage its foreign currency exchange rate and, at times, interest rate risks. Upon continuing evaluation and when deemed appropriate by management, the Company may enter into hedging instruments to manage its foreign currency exchange and interest rate risks. From time to time, the Company enters into forward exchange contracts to establish with certainty the U.S. dollar amount of future firm commitments denominated in a foreign currency. The notional amounts of the forward exchange contracts vary, typically with the seasonal inventory requirements of the Company’s German subsidiary. The Company’s German subsidiary purchases inventory from Far Eastern suppliers in U.S. dollars. A forward exchange contract is typically entered into when the U.S. dollar amount of the inventory purchase is firm. Given our foreign exchange position, an adverse change in foreign exchange rates upon which these foreign exchange contracts are based would result in exchange gains and losses. In all material aspects, these exchange gains and losses would be fully offset by exchange gains and losses on the underlying net monetary exposures for which the contracts are designated as hedges. We do not expect material exchange rate gains and losses from unhedged foreign currency exposures. As of February 28, 2005, the Company did not have any outstanding forward exchange contracts.

Under the terms of its credit agreement, the Company was required to enter into an interest-rate swap to convert the variable interest rate on its U.S. Term Loan to a fixed interest rate. The resulting cost of funds (7.9% per annum) is currently higher than that which would have been available if the variable rate had been applied during the period. Under the interest-rate swap contract, the Company agreed with the bank to exchange, at specified intervals, the difference between variable-rate and fixed-rate interest amounts, calculated by reference to agreed-upon notional amounts. The swap contract matured on September 1, 2004.

The Company’s financial instruments consist of cash, accounts receivable, accounts payable, short-term obligations, and long-term obligations. The Company’s principal exposure to interest rate fluctuations relates primarily to the U.S. revolving and term loans. The debt under the U.S. revolving and term loans bears interest at a floating rate tied to either the LIBOR rate or the bank prime rate of interest. Had interest rates been one percentage point higher during fiscal 2005, interest expense for the year ended February 28, 2005 would have increased by approximately $0.1 million.

Item 8. Financial Statements and Supplementary Data

The consolidated financial statements commence at page F-1 of this report and an index thereto is included in Part IV, Item 15 of this report.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table (in thousands of dollars, except per share amounts) presents unaudited financial results for each of the eight quarters in the period ended February 28, 2005. The Company believes that all necessary adjustments have been included to present fairly the quarterly information when read in conjunction with the consolidated 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.


	Fiscal 2005											Fiscal 2004
	First			Second			Third		Fourth			First			Second		Third		Fourth
	Quarter			Quarter			Quarter		Quarter			Quarter			Quarter		Quarter		Quarter
Net sales	$	19,617		$	22,511		$	49,687	$	19,739		$	24,491		$	28,284	$	54,448	$	31,058
Gross profit		4,705			5,572			13,912		3,760			5,733			8,161		16,556		8,451
Operating income (loss)		(1,801	)		(1,271	)		4,976		(2,404	)		(966	)		297		5,905		(9	)
Net income (loss)		(1,159	)		(881	)		2,799		(1,634	)		(712	)		40		3,376		(252	)
Net income (loss) per share – basic		(0.06	)		(0.05	)		0.14		(0.08	)		(0.04	)		0.00		0.18		(0.01	)
Net income (loss) per share – diluted		(0.06	)		(0.05	)		0.14		(0.08	)		(0.04	)		0.00		0.17		(0.01	)

Quarterly results can be affected by a number of factors including the timing of orders, production delays or inefficiencies, and raw materials availability..

Item 9. Changes in and Disagreements With Accountants On Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

As of the end of the period covered by this report, the Company’s chief executive officer and chief financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). These disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in the reports it files under the Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness.

The Company’s chief executive officer and chief financial officer concluded, based on their evaluation, that the Company’s disclosure controls and procedures are effective for the Company.

No change in the Company’s internal control over financial reporting occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

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.

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 10, 2005:


Name	Age		Position
Steven G. Murdock		53	Chief Executive Officer, President, Secretary, Director

Brent W. Christensen		46	Senior Vice President — Finance and Chief Financial Officer

Mark D. Peterson		43	Senior Vice President and General Counsel

Robert L. Davis		38	Senior Vice President — Corporate Development

Steven G. Murdock has been the Company’s President, Chief Executive Officer and Secretary since June 1, 2003 and a director of the Company since April 1996. Mr. Murdock was the Company’s President and Chief Operating Officer from October 1990 to May 31, 2003 and the Company’s Secretary since April 1996. 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 a BS degree in business administration from California State University at Northridge.

Brent W. Christensen has been the Company’s Senior Vice President — Finance and Chief Financial Officer since March 2002. Mr. Christensen was the Company’s Vice President — Finance from June 1995 and Chief Financial Officer from 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 a BA degree in business administration from California State University at Fullerton.

Mark D. Peterson has been the Company’s Senior Vice President and General Counsel since March 2002. Mr. Peterson was the Company’s Vice President and General Counsel from 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.

Robert L. Davis has been the Company’s Senior Vice President — Corporate Development since March 2003. Mr. Davis was the Company’s Senior Vice President and Assistant General Counsel from March 2002 to February 2003. Mr. Davis was the Company’s Vice President and Assistant General Counsel from December 1999 to February 2002. From September 1996 to December 1999, Mr. Davis was an attorney with O’Melveny & Myers LLP, specializing in corporate and securities law. From August 1994 to September 1996 he worked as an attorney with Morrison & Foerster LLP, specializing in corporate finance and labor and employment law. Mr. Davis received a BA degree in English and a JD degree from Brigham Young University.

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plan Information

The following table provides information as of February 28, 2005 with respect to shares of Meade common stock that may be issued under the Company’s various equity compensation plans.

Number of

Securities

Remaining Available

for Future Issuance

Number of

Under Equity

Securities to be

Compensation Plans

Issued upon

(Excluding

Exercise of

Weighted Average

Securities

Outstanding

Exercise Price of

Reflected in Column

Plan Category

Options

Outstanding Options

Equity compensation plans approved by Shareholders

3,969,905

4.26

799,351

Equity compensation plans not approved by shareholders

310,000

25.87

Total

4,279,905

5.82

799,351

Item 13. Certain Relationships and Related Transactions

Item 14. Principal Accountant Fees and Services

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this report:


	Page
	Number
1. Financial Statements:
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets at February 28, 2005 and February 29, 2004		F-2
Consolidated Statements of Operations for each of the three years in the period ended February 28, 2005		F-3
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended February 28, 2005		F-4
Consolidated Statements of Cash Flows for each of the three years in the period ended February 28, 2005		F-5
Notes to Consolidated Financial Statements		F-6
2. Financial Statement Schedule:
For each of the three years in the period ended February 28, 2005 — II — Valuation and Qualifying Accounts.
3. Exhibits included or incorporated herein: See Exhibit Index

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Meade Instruments Corp.

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) on page 25, present fairly, in all material respects, the financial position of Meade Instruments Corp. and its subsidiaries at February 28, 2005 and February 29, 2004, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under 15(a)(2) on page 25, presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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 our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
Orange County, California
May 27, 2005

F-1

MEADE INSTRUMENTS CORP.

CONSOLIDATED BALANCE SHEETS


	February 28,			February 29,
	2005			2004
ASSETS
Current assets:
Cash	$	3,929,000		$	7,806,000
Accounts receivable, less allowance for doubtful accounts of $687,000 in 2005 and $704,000 in 2004		17,549,000			22,462,000
Inventories		47,149,000			39,777,000
Deferred income taxes		6,738,000			7,888,000
Prepaid expenses and other current assets		771,000			491,000

Total current assets		76,136,000			78,424,000
Goodwill		4,331,000			1,548,000
Acquisition-related intangible assets, net		3,375,000			3,742,000
Property and equipment, net		4,343,000			4,551,000
Deferred income taxes		329,000			—
Other assets, net		235,000			297,000

	$	88,749,000		$	88,562,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank lines of credit	$	9,827,000		$	5,059,000
Accounts payable		3,954,000			5,319,000
Accrued liabilities		4,775,000			6,884,000
Income taxes payable		3,225,000			3,059,000
Current portion of long-term debt and capital lease obligations		776,000			580,000

Total current liabilities		22,557,000			20,901,000

Long-term debt		1,241,000			1,729,000
Deferred income taxes		—			1,054,000
Commitments and contingencies
Stockholders’ equity:
Common stock; $0.01 par value; 50,000,000 shares authorized; 20,002,000 and 19,989,000 shares issued and outstanding at February 28, 2005 and February 29, 2004, respectively		200,000			200,000
Additional paid-in capital		40,442,000			40,445,000
Retained earnings		25,016,000			25,891,000
Accumulated other comprehensive income		1,374,000			882,000

		67,032,000			67,418,000
Unearned ESOP shares		(2,081,000	)		(2,540,000	)

Total stockholders’ equity		64,951,000			64,878,000

	$	88,749,000		$	88,562,000

See accompanying notes to consolidated financial statements.

F-2

MEADE INSTRUMENTS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended February 28/29
	2005			2004		2003
Net sales	$	111,799,000		$	138,281,000	$	110,817,000
Cost of sales		83,605,000			99,380,000		76,923,000

Gross profit		28,194,000			38,901,000		33,894,000
Selling expenses		16,046,000			18,106,000		14,248,000
General and administrative expenses		10,211,000			12,671,000		12,628,000
ESOP contribution expense		419,000			859,000		905,000
Research and development expenses		2,018,000			2,038,000		3,008,000

Operating (loss) income		(500,000	)		5,227,000		3,105,000
Interest expense		888,000			1,046,000		1,137,000

(Loss) income before income taxes		(1,388,000	)		4,181,000		1,968,000
(Benefit) provision for income taxes		(513,000	)		1,729,000		830,000

Net (loss) income	$	(875,000	)	$	2,452,000	$	1,138,000

Net (loss) income per share — basic and diluted	$	(0.05	)	$	0.13	$	0.07

Weighted average common shares outstanding — basic		19,288,000			18,983,000		16,410,000

Weighted average common shares outstanding — diluted		19,288,000			19,174,000		16,624,000

See accompanying notes to consolidated financial statements.

F-3

MEADE INSTRUMENTS CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


								Accumulated
					Additional			Other
	Common Stock				Paid-in			Comprehensive			Retained			Unearned
	Shares		Amount		Capital			Income (Loss)			Earnings			ESOP Shares			Total
Balance at February 28, 2002		16,481,000		165,000		32,574,000			(559,000	)		22,301,000			(4,373,000	)		50,108,000
Release of ESOP shares		—		—		(11,000	)		—			—			916,000			905,000
Shares issued as compensation		8,000		—		38,000			—			—			—			38,000
Exercise of stock options		25,000		—		67,000			—			—			—			67,000
Shares issued in common stock offering		3,292,000		33,000		7,311,000			—			—			—			7,344,000
Comprehensive income (loss):
Currency translation adjustment		—		—		—			678,000			—			—			678,000
Interest rate swap valuation		—		—		—			(23,000	)		—			—			(23,000	)
Net income		—		—		—			—			1,138,000			—			1,138,000

Total comprehensive income		—		—		—			—			—			—			1,793,000

Balance at February 28, 2003		19,806,000		198,000		39,979,000			96,000			23,439,000			(3,457,000	)		60,255,000
Release of ESOP shares		—		—		(58,000	)		—			—			917,000			859,000
Exercise of stock options		183,000		2,000		424,000			—			—			—			426,000
Tax benefit of stock options exercised		—		—		100,000						—			—			100,000
Comprehensive income (loss):
Currency translation adjustment		—		—		—			851,000			—			—			851,000
Interest rate swap valuation		—		—		—			32,000			—			—			32,000
Unrealized loss in marketable securities, net of tax		—		—		—			(97,000	)		—			—			(97,000	)
Net income		—		—		—			—			2,452,000			—			2,452,000

Total comprehensive income		—		—		—			—			—			—			3,238,000

Balance at February 29, 2004		19,989,000	$	200,000	$	40,445,000		$	882,000		$	25,891,000		$	(2,540,000	)	$	64,878,000
Release of ESOP shares		—		—		(40,000	)		—			—			459,000			419,000
Exercise of stock options		13,000		—		32,000			—			—			—			32,000
Tax benefit of stock options exercised		—		—		5,000						—			—			5,000
Comprehensive income (loss):
Currency translation adjustment		—		—		—			378,000			—			—			378,000
Interest rate swap valuation		—		—		—			17,000			—			—			17,000
Reclassification of realized loss on sale of marketable securities, net of tax		—		—		—			97,000			—			—			97,000
Net loss		—		—		—			—			(875,000	)		—			(875,000	)

Total comprehensive (loss)		—		—		—			—			—			—			(383,000	)

Balance at February 28, 2005		20,002,000	$	200,000	$	40,442,000		$	1,374,000		$	25,016,000		$	(2,081,000	)	$	64,951,000

See accompanying notes to consolidated financial statements.

F-4

MEADE INSTRUMENTS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended February 28/29,
	2005			2004			2003
Cash flows from operating activities:
Net (loss) income	$	(875,000	)	$	2,452,000		$	1,138,000
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		2,014,000			2,427,000			2,161,000
ESOP contribution		419,000			859,000			905,000
Allowance for doubtful accounts		203,000			1,210,000			163,000
Deferred income taxes		(421,000	)		(1,695,000	)		1,942,000
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable		4,869,000			(1,095,000	)		(5,268,000	)
Inventories		(6,658,000	)		828,000			4,987,000
Prepaid expenses and other current assets		(289,000	)		458,000			2,416,000
Other assets		321,000			290,000			595,000
Accounts payable		(1,823,000	)		(277,000	)		(265,000	)
Accrued liabilities		(2,565,000	)		637,000			1,192,000
Income taxes payable		114,000			3,039,000			—

Net cash (used in) provided by operating activities		(4,691,000	)		9,133,000			9,966,000

Cash flows from investing activities:
Capital expenditures		(898,000	)		(626,000	)		(734,000	)
Acquisitions, net of cash acquired		(2,474,000	)		—			(20,826,000	)

Net cash used in investing activities		(3,372,000	)		(626,000	)		(21,560,000	)

Cash flows from financing activities:
Payments on long-term debt		(583,000	)		(667,000	)		(565,000	)
Net proceeds from the sale of common stock		—			—			7,344,000
Net (payments) borrowings under bank lines of credit		4,768,000			(4,032,000	)		5,710,000
Exercise of stock options, with tax benefit		37,000			426,000			67,000
Payments under capital lease obligations		(27,000	)		(25,000	)		(190,000	)

Net cash provided by (used in) financing activities		4,195,000			(4,298,000	)		12,366,000

Effect of exchange rate changes on cash		(9,000	)		1,152,000			477,000

Net (decrease) increase in cash		(3,877,000	)		5,361,000			1,196,000
Cash at beginning of year		7,806,000			2,445,000			1,249,000

Cash at end of year	$	3,929,000		$	7,806,000		$	2,445,000

Supplemental disclosures of cash flow information: Cash paid (received) during the period for:
Interest	$	888,000		$	1,046,000		$	1,141,000
Income taxes	$	(245,000	)	$	—		$	250,000

See accompanying notes to consolidated financial statements.

F-5

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and Operations

The Company

Meade Instruments Corp. (the “Company”), a Delaware corporation, is a multinational consumer and industrial optics company that designs, manufactures, imports and distributes telescopes, telescope accessories, binoculars, riflescopes, spotting scopes, microscopes, night vision and other consumer optical products. The Company has operations in the United States, Germany, Mexico and China.

2. Summary of Significant Accounting Policies

Principles of consolidation

The accompanying consolidated financial statements include the accounts of the Company and all of its subsidiaries and reflect the elimination of all significant intercompany account balances and transactions.

Revenue recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the price to the buyer is fixed or determinable, and collectibility is reasonably assured. Those criteria are typically met when product is shipped. Revenue is not recognized at the time of shipment if these criteria are not met. Although there are many factors that influence revenue recognition, the principal reason the Company may not recognize revenue at the time of shipment is if the substance of the transaction is a consignment. Consignment type arrangements happen on a limited basis. Under certain circumstances, the Company accepts product returns. Material management judgments must be made and used in connection with establishing the sales returns estimates. The Company continuously monitors and tracks returns and records revenues net of provisions for returns. The Company’s estimate of sales returns is based upon several factors including historical experience, current market and economic conditions, customer demand and acceptance of the Company’s products and/or any notification received by the Company of such a return. Historically, sales returns have been within management’s estimates; however, actual returns may differ significantly, either favorably or unfavorably, from management’s estimates depending on actual market conditions at the time of the return.

Foreign currency translation

The assets and liabilities of the Company’s foreign operations are translated at end of period exchange rates for the Euro. Revenues and expenses are translated at the average exchange rates prevailing during the period. The effects of unrealized exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are accumulated in stockholders’ equity as a component of accumulated other comprehensive income. The effects of foreign currency transactions denominated in a currency other than its foreign entities’ functional currency are included in general and administrative expenses. Foreign currency exchange gains included in general and administrative expenses were approximately $200,000 in each of the fiscal years ended February 28, 2005, February 29, 2004 and February 28, 2003, respectively.

Allowance for doubtful accounts

Management analyzes specific customer accounts receivable, customer credit-worthiness, historical bad debt expenses, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of any of the Company’s customers were to deteriorate to the point of impairing the customer’s ability to make payments on its account, additional allowances may be required. While credit losses have historically been within management’s expectations and the provisions established, significant deterioration in the liquidity or financial position of any of the Company’s major customers or any group of customers could have a material adverse impact on the collectibility of accounts receivable and future operating results.

F-6

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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. The Company evaluates the carrying value of its inventories taking into account such factors as historical and anticipated future sales compared with quantities on hand and the price the Company expects to obtain for its products in their respective markets. The Company also evaluates the composition of its inventories to identify any slow-moving or obsolete product. These evaluations require material management judgments, including estimates of future sales, continuing market acceptance of the Company’s products, and current market and economic conditions. Inventory reserves are established, based on such judgments, for any inventories that are identified as having a net realizable value less than its cost. Historically, the net realizable value of the Company’s inventories has been within management’s estimates. However, if the Company is not able to meet its sales expectations; or if market conditions deteriorate significantly from management’s estimates, reductions in the net realizable value of the Company’s inventories could have a material adverse impact on future operating results.

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. Buildings and related improvements are depreciated over seven to twenty-five years. All other property and equipment, except property held under capital leases, is depreciated over 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.

Goodwill and acquisition-related intangible assets

In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and establishes specific criteria for the recognition of goodwill separate from other intangible assets. SFAS No. 142 requires that goodwill and identifiable intangible assets determined to have an indefinite life no longer be amortized, but instead be tested for impairment at least annually.

The difference between the purchase price and the fair value of net tangible assets at the date of acquisition is included in the accompanying consolidated balance sheet as goodwill and acquisition-related intangible assets. Amortization periods for the intangible assets subject to amortization range from seven to fifteen years depending on the nature of the assets acquired. The carrying value of goodwill and acquisition-related intangible assets, including the related amortization period, are evaluated in the fourth quarter of each fiscal year.

The Company’s reporting units for purposes of applying the provisions of SFAS 142 are Meade Europe, Simmons and Coronado. SFAS 142 requires the Company to compare the fair value of the reporting unit to its carrying amount on an annual basis to determine if there is potential impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value. If the carrying amount of the goodwill exceeds its fair value, an impairment loss is recognized. Fair value is determined based on market multiples. As of February 28, 2005, the Company does not believe any impairment of goodwill has occurred.

Acquisition-related intangible assets with finite lives are reviewed whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company reviews the recoverability by comparing the estimated future cash flows on an undiscounted basis to the net book value of the assets. In the event that projected undiscounted cash flows are less than the net book value of the assets, the carrying value of the assets

F-7

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

are written down to their fair value, less costs to sell. Fair value is generally based on discounted cash flows. Assets that are to be disposed of are measured at the lower of cost or fair value, less costs to sell.

At February 28, 2005 and February 29, 2004, goodwill and acquisition-related intangible assets included the following:


			February 28/29,
			2005					2004
	Amortization Periods		Gross Carrying		Accumulated			Gross Carrying		Accumulated
	(Years)		Amount		Amortization			Amount		Amortization
Goodwill	none		$	4,331,000	$	—		$	1,548,000	$	—
Acquisition-related intangible assets:
Brand names	none			2,041,000		—			2,041,000		—
Customer relationships		10		1,390,000		(278,000	)		1,390,000		(139,000	)
Trademarks		7-15		1,398,000		(1,176,000	)		1,398,000		(948,000	)

Total acquisition-related intangible assets				4,829,000		(1,454,000	)		4,829,000		(1,087,000	)

Total goodwill and acquisition-related intangible assets			$	9,160,000	$	(1,454,000	)	$	6,377,000	$	(1,087,000	)

The changes in the carrying amount of goodwill and acquisition-related intangible assets for the years ended February 28, 2005 and February 29, 2004 are as follows:


	Non-amortizing		Amortizing
	intangible assets		intangible assets
Balance, net, February 28, 2003	$	3,589,000	$	2,068,000
Amortization		—		(367,000	)

Balance, net, February 29, 2004		3,589,000		1,701,000
New assets acquired		2,783,000		—
Amortization		—		(367,000	)

Balance, net, February 28, 2005	$	6,372,000	$	1,334,000

Amortization of trademarks and customer relationships over the next five fiscal years is estimated as follows:


Fiscal Year	Amount
2006	$	361,000
2007		139,000
2008		139,000
2009		139,000
2010		139,000

F-8

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED 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.

Shipping and handling costs

The Company records shipping and handling costs in selling expenses. For the years ended February 28, 2005, and February 29, 2004 and February 28, 2003, the Company incurred shipping and handling costs of $4,861,000, $5,476,000, and $4,134,000, respectively.

Advertising

The Company expenses the costs of advertising, including production costs, as incurred. For the years ended February 28, 2005, and February 29, 2004 and February 28, 2003, the Company incurred advertising, including cooperative advertising, and marketing expenses of approximately $4,090,000, $5,465,000 and $4,406,000, respectively. Cooperative advertising arrangements exist through which customers receive a certain allowance of the total purchases or an otherwise agreed upon amount from the Company if certain qualitative advertising criteria are met and if specified amounts are spent on the advertisements. To receive the allowance, a customer must deliver to the Company evidence of all advertising performed that includes the Company’s products. Because the Company receives an identifiable advertising benefit from the customer, the Company recognizes the cost of cooperative advertising as an advertising expense in selling expenses.

Research and development

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

Earnings (loss) per share

Basic earnings (loss) per share amounts exclude the dilutive effect of potential shares of common stock. Basic earnings (loss) per share is based upon the weighted-average number of shares of common stock outstanding, which excludes unallocated ESOP shares. Diluted earnings (loss) per share is based upon the weighted-average number of shares of common stock and dilutive potential shares of common stock outstanding for each period presented. Potential shares of common stock include outstanding stock options which are included under the treasury stock method. Potential shares of common stock of 159,000 have been excluded from diluted weighted average shares of common stock for fiscal 2005, as the Company incurred a loss and the effect would be anti-dilutive. For fiscal years 2005, 2004 and 2003, options to purchase 2,271,000, 1,889,000, and 2,994,000 shares of common stock, respectively, were also excluded from diluted weighted average shares of common stock, as the option exercise prices were greater than the average market price of the Company’s common stock and, therefore, the effect would be anti-dilutive.

F-9

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following is a reconciliation of the denominators of the basic and diluted earnings (loss) per share computations for the fiscal years ended February 28, 2005, and February 29, 2004 and February 28, 2003.


	Year Ended February 28/29 ,
	2005			2004		2003
Net (loss) income	$	(875,000	)	$	2,452,000	$	1,138,000

Shares outstanding — basic		19,288,000			18,983,000		16,410,000
Effect of dilutive securities: Stock options		—			191,000		214,000

Shares outstanding — diluted		19,288,000			19,174,000		16,624,000

Net (loss) income — basic and diluted	$	(0.05	)	$	0.13	$	0.07

Comprehensive income

Comprehensive income (loss) is defined as a change in the equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and, at February 28, 2005, includes foreign currency translation adjustments. During fiscal year 2005 the Company sold the underlying security that generated the unrealized loss in the prior year. As of February 28, 2005 and February 29, 2004, accumulated other comprehensive income consists of the following:


	February 28/29
	2005		2004
Foreign currency translation adjustments	$	1,374,000	$	996,000
Unrealized loss in marketable securities, net of tax				(97,000	)
Fair value of interest rate swap, net of tax				(17,000	)

Total accumulated other comprehensive income	$	1,374,000	$	882,000

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 at a level deemed appropriate by management based on historical and other factors that affect collectibility. Several customers filed for bankruptcy during fiscal 2002 and 2001. The frequency and significance of customer bankruptcy filings has diminished since the 2001 and 2002 years. Based upon the Company’s assessment of the recoverability of the receivables from these customers and in the opinion of management, the Company has established adequate reserves related to these receivables.

Fair value of financial instruments

The carrying amounts of accounts receivable, accounts payable, accrued liabilities, and short-term loans approximate fair value due to the short maturity of these instruments. The carrying value of long-term debt approximates its fair value.

Derivative Instruments and Hedging Activities

The Company may enter into interest rate swap agreements or foreign exchange contracts to offset certain operational and balance sheet exposures and to manage its exposure to interest and exchange rate movements. These contracts are entered into to support product sales, purchases and financing transactions made in the normal course of business, and accordingly, are not speculative in nature. The Company uses interest rate swaps to convert floating-rate debt to fixed-rate debt. Interest rate swap agreements are executed as an integral part of specific debt

F-10

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

transactions and involve payment of a fixed rate and receipt of a floating rate and specified intervals. The Company may enter into foreign exchange contracts to manage risk associated with fluctuations on certain firm sales and purchase commitments denominated in foreign currencies.

All derivatives are recognized on the balance sheet at their fair value. On the date that the Company enters into a derivative contract, it designates the derivative as either (a) a hedge of a forecasted transaction or the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a “cash flow” hedge), or (b) a hedge of an exposure to changes in the fair value of an asset, liability, or an unrecognized firm commitment (a “fair value” hedge). Changes in the fair value of a derivative that is highly effective, and that is designated and qualifies as a cash flow hedge to the extent that the hedge is effective, are recorded in Other Comprehensive Income until earnings are affected by the variability of cash flows of the hedged transaction (e.g., until periodic settlements of a variable asset or liability are recorded in earnings). Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceed the variability in the cash flows of the forecasted transaction) is recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective, and that is designated and qualifies as a foreign-currency hedge, are recorded in either current-period earnings or accumulated other comprehensive income, depending on whether the hedging relationship satisfies the criteria for a fair-value or cash-flow hedge.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to specific firm commitments or forecasted transactions. The Company also formally assesses (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. All components of each derivative’s gain or loss are included in the assessment of hedge effectiveness.

When it is determined that a derivative is not, or has ceased to be, highly effective as a hedge, the Company discontinues hedge accounting prospectively. A derivative ceases to be highly effective when (a) the Company determines that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item such as firm commitments or forecasted transactions, (b) it is no longer probable that the forecasted transaction will occur, (c) the derivative expires or is sold, terminated or exercised, or (d) management determines that designating the derivative as a hedging instrument is no longer appropriate.

When the Company discontinues hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in Accumulated Other Comprehensive Income and is reclassified into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in Accumulated Other Comprehensive Income will be recognized immediately in earnings. In a situation in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current-period earnings.

Use of estimates in the preparation of financial statements

The preparation of consolidated financial statements, in conformity with accounting principles generally accepted in the United States, 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. Estimates are used in accounting for, among other items, sales returns and reserves, allowances for doubtful accounts, excess and obsolete inventory, income taxes, asset impairment, anticipated transactions to be hedged, litigation reserves and contingencies.

F-11

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Product warranties

The Company provides reserves for the estimated cost of product warranty-related claims at the time of sale, and periodically adjusts the provision to reflect actual experience. The amount of warranty liability accrued reflects management’s best estimate of the expected future cost of honoring Company obligations under its warranty plans. Additionally, from time to time, specific warranty accruals may be made if unforeseen technical problems arise. Meade and Bresser branded products, principally telescopes and binoculars, are generally covered by a one-year limited warranty. Many of the Simmons products, principally riflescopes and binoculars, have lifetime limited warranties. Changes in the warranty liability, which is included as a component of accrued liabilities on the accompanying Consolidated Balance Sheets, follows.


	February 28/29,
	2005			2004
Beginning balance	$	1,427,000		$	1,794,000
Warranty accrual		623,000			367,000
Labor and material usage		(898,000	)		(775,000	)
Effect of change in foreign currency exchange rates		21,000			41,000

Ending balance	$	1,173,000		$	1,427,000

Stock-based compensation

The Company accounts for employee stock-based compensation in accordance with the intrinsic value method described in Accounting Principles Board Opinion No. 25 and related interpretations. The Company has adopted the disclosure only provisions of SFAS No. 123. 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 (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below.


	Year Ended February 28/29,
	2005			2004			2003
Reported net (loss) income	$	(875,000	)	$	2,452,000		$	1,138,000
Compensation cost, net of taxes		(886,000	)		(682,000	)		(1,587,000	)

Pro forma net (loss) income	$	(1,761,000	)	$	1,770,000		$	(449,000	)

Reported (loss) earnings per share – basic and diluted	$	(0.05	)	$	0.13		$	0.07
Pro forma (loss) earnings per share – basic and diluted	$	(0.09	)	$	0.09		$	(0.03	)

F-12

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED 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 with the following assumptions:


	Year Ended February 28/29,
	2005			2004			2003
Weighted average expected life (years)		6.0			6.0			6.0
Volatility		33.1	%		69.3	%		100.9	%
Risk-free interest rate		3.65	%		3.01	%		3.75	%
Expected dividends	None			None			None
Weighted average fair value of options granted	$	1.99		$	1.90		$	2.19

Accounting pronouncements

In December 2004, the FASB issued FSP No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. The American Jobs Creation Act of 2004 (the “Jobs Creation Act”) was enacted on October 22, 2004. FSP109-2states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Creation Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. The Company is currently evaluating the impact of this new law on its operations and effective tax rate. In particular, the Company is evaluating the law’s provisions relating to allowable deductions, beginning in 2005, for income attributable to United States production activities. At this time, the Company is unable to determine the effects of this new law and will continue to analyze its potential impact as guidance is made available.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces

F-13

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for fiscal periods beginning after June 15, 2005. The Company does not anticipate that the application of this statement will have a material impact on the Company’s financial position or results of operations.

Reclassifications

Certain reclassifications have been made to conform prior year information to the current year presentation.

3. Acquisition of Coronado Technology Group, LLC

On December 1, 2004, the Company acquired substantially all of the assets and assumed substantially all of the liabilities of Coronado Technology Group, LLC, for approximately $2.5 million in cash plus contingent consideration. The contingent consideration is based upon financial performance of the acquired operations for the twelve months ended December 31, 2005. The contingent consideration is the excess of three times earnings before interest and taxes (“EBIT”) over $2.5 million. If three times EBIT does not exceed $2.5 million, no additional consideration will be paid. Coronado is a supplier of high-quality hydrogen-alpha filters and dedicated solar telescopes, as well as various related accessories, designed to meet the needs of amateur as well as professional solar observers. The acquisition of Coronado added a respected name in the solar observation markets to Meade’s suite of brands, vertically adding to the Company’s product offerings, particularly the telescope and accessory lines. The acquisition of Coronado was accounted for as a purchase in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations. The purchase price allocation is based upon evaluations and other studies of the fair value of the assets acquired. The preliminary allocation of the excess of the purchase price over the estimated fair value of the net tangible assets acquired is included in goodwill. The Company has engaged a third party valuation firm to assist in its final determination of the allocation of excess purchase price. If the financial results during the earnout period result in additional consideration, the fair value of the additional consideration will be added to the cost of the acquired assets. On an unaudited pro-forma basis, the effects of the acquisition were not significant to the Company’s results of operations.

A summary of the purchase price allocation (net of $25,000 cash acquired) is as follows:


Accounts receivable	$	72,000
Inventories		312,000
Property, plant, equipment		367,000
Other assets		70,000
Intangible assets (preliminarily goodwill)		2,783,000
Current liabilities		(1,071,000	)
Long-term liabilities, net of current portion		(59,000	)

Total purchase price	$	2,474,000

4. Acquisition of Simmons Outdoor Corp.

On October 25, 2002 the Company acquired 100% of the outstanding common stock of Simmons Outdoor Corp. (“Simmons”) for $20,829,000 cash ($16,000,000 was paid at close; the balance, $4,829,000 was paid in December, 2002). Simmons is a designer and distributor of riflescopes, binoculars and other consumer sports optics offering products under the Simmons, Weaver and Redfield brand names. The acquisition of Simmons presented the Company with opportunities to enter into the consumer sports optics marketplace with brand names that management believes are highly recognized and well regarded. To fund a portion of the purchase price, the Company sold 3,291,801 shares of its common stock in a private placement for net cash proceeds of $7,344,000. The balance of the purchase price was funded through borrowings on the Company’s bank line of credit. The acquisition of Simmons was accounted for as a purchase as prescribed by Statement of Financial Accounting Standards No. 141, Business Combinations. The purchase price allocation is based upon evaluations and other

F-14

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

studies of the fair value of the assets acquired. The excess of the purchase price over the estimated fair value of the net tangible assets acquired is included in acquisition related intangible assets at February 29, 2004, and has been allocated to the value of the brand names and customer relationships acquired.

A summary of the purchase price allocation (net of $3,000 cash acquired) is as follows:


Net accounts receivable	$	4,820,000
Net inventories		14,407,000
Property, plant and equipment		239,000
Intangible assets		3,431,000
Current liabilities		(2,071,000	)

Total purchase price	$	20,826,000

As of December 6, 2001, Simmons was a wholly owned subsidiary of Blount International, Inc. (“Blount”). On December 7, 2001, Blount sold Simmons to Alliant Techsystems, Inc. (“ATK”). The accompanying unaudited pro forma consolidated condensed financial information reflects ATK’s (successor) basis for periods subsequent to December 6, 2001.

The following table presents unaudited pro forma condensed consolidated financial information for the year ended February 28, 2003, as though the acquisition occurred on March 1, 2002. The pro forma information for the year ended February 28, 2003 has been prepared by combining the statement of operations of Meade for the year ended February 28, 2003 and the statement of operations of Simmons (successor) for the eight months ended October 2002.


	February 28,
	2003
Net sales	$	128,441,000
Operating income	$	4,258,000
Net income	$	982,000
Basic and diluted earnings per share	$	0.05

The unaudited pro forma financial information is presented for information purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisitions taken place on March 1, 2002. In addition, the pro forma results are not intended to be a projection of the future results and do not reflect any synergies that might have been achieved from the combined operations.

5. Bank and other debt

On October 25, 2002, the Company amended its credit agreement with its U.S. bank (the “U.S. credit agreement”) to provide the Company with a $35,645,000 credit facility consisting of a $34,000,000 revolving credit line (the “U.S. revolving loan”) and a $1,645,000 term loan (the “U.S. term loan”).

F-15

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The impetus behind the Second and Third Amendments was the Company’s performance falling below the requirements underlying the fixed charge coverage ratios. After execution of the amendments, the Company’s was in compliance with the amended fixed charge coverage ratio requirements. Due to continuing losses during the fourth quarter of fiscal 2005, the Company concluded that it was not in compliance with the consolidated fixed charge coverage ratio covenant as set forth in the U.S. credit agreement for the year ended February 28, 2005. Accordingly, on May 27, 2005, the Company executed the Fourth Amendment to Amended and Restated Credit Agreement (the “Fourth Amendment”). The Fourth Amendment made the following key changes to the U.S. credit agreement, it: (1) reset the consolidated and U.S. fixed charge coverage ratio covenants, (2) added a $1 million availability reserve until the Company reaches certain consolidated fixed charge coverage ratio levels and (3) added higher pricing levels to the pricing grid. The Company is required to report its covenant calculations to the bank for the year ended February 28, 2005 based upon the terms of the Fourth Amendment. Upon execution of the Fourth Amendment the Company was in compliance with all of its bank covenants.

In connection with the purchase of certain assets and the assumption of certain liabilities of Coronado in December 2004, the Company assumed an unsecured note, payable in monthly installments of $6,400, including interest at 10% per annum through May 2006 and a note, collateralized by equipment, payable in monthly installments of $26,000, including interest at 6% per annum through April 2005.

F-16

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Aggregate maturities of long-term debt not including capital leases at February 28, 2005 are as follows:


Fiscal Year:	Amount
2006	$	765,000
2007		1,217,000

Total	$	1,982,000

The current portion of long-term debt consists of 1) $420,000 related to the U.S. term note, 2) $169,000 related to the European term loan and 3) $176,000 related to the Coronado notes payable assumed. The Company continues to depend on operating cash flow and availability under its bank lines of credit to provide short-term liquidity. In the event the Company’s plans require more capital than is presently anticipated, additional sources of liquidity such as debt or equity financings, may be required to meet its capital needs. There can be no assurance that such additional sources of capital will be available on reasonable terms, if at all. However, management believes that operating cash flow and bank borrowing capacity in connection with the Company’s business should provide sufficient liquidity for the Company’s obligations for at least the next twelve months.

6. Commitments and Contingencies

In December 1996 the Company executed a lease commencing October 1, 1997 for its corporate office and manufacturing facilities in California. The lease term is ten years, extendable for an additional ten years (two terms of five years each) at the Company’s option. Lease commitments for this lease are subject to 9% increases at the beginning of the months 31, 61 and 91. In February 2000, the Company entered into a lease for warehouse space located near the Company’s corporate headquarters. That warehouse lease expired in March 2003 and the Company vacated the premise on April 1, 2003. In November 2003, a lease for office space in Florida was terminated. The Simmons subsidiary operates in a leased facility in Georgia. The Simmons facility lease term is eight years expiring in December 2007, with an option to renew for four additional four-year terms. Monthly rentals are adjusted at prescribed dates generally based on changes in the consumer price index. In November 2002, the Company leased warehouse space in Mississippi. The Mississippi facility lease is on a month-to-month basis.

In August 1999, the Company entered into a lease for an assembly facility in Tijuana, Mexico. The lease term is five years with three, five-year renewal options. In January 2000, the Company entered into a lease for an office, repair and distribution facility in Graefelfing, Germany. During fiscal 2003, the Graefelfing space was reduced to office space only. In connection with the purchase of certain assets and the assumption of certain liabilities of Coronado in December 2004, the Company assumed a capital lease for equipment used in the manufacture of Coronado product. The equipment had an initial cost of $56,000, interest is 7.1% per annum with monthly payments of principal and interest of $1,100.

Aggregate future minimum commitments under noncancellable leases and other agreements at February 28, 2005 that have remaining terms in excess of one year are as follows:


Fiscal Year	Capital		Operating
2006	$	13,000	$	1,843,000
2007		13,000		1,825,000
2008		13,000		1,294,000
2009		—		267,000
2010		—		228,000
Thereafter		—		228,000

Net minimum lease payments		39,000	$	5,685,000

Less amount representing interest		4,000

Capital lease obligations	$	35,000

F-17

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The preceding table assumes that any operating leases with renewal options that expire during fiscal 2005 or fiscal 2006 will be renewed under the terms of the governing lease agreement. For the fiscal years ended February 28, 2005, and February 29, 2004 and February 28, 2003, the Company incurred rent expense of $2,337,000, $2,371,000 and $2,731,000, respectively.

In 2001 and 2002, the Company filed suits against Tasco Sales, Inc. (“Tasco”) and Celestron International, Inc. (“Celestron”), charging the two companies with patent infringement and unfair competition. The complaints alleged that a number of Tasco’s and Celestron’s consumer telescopes willfully infringe certain of the Company’s U.S. patents. Tasco and Celestron filed answers and certain counterclaims denying the Company’s allegations. The counterclaims also alleged, among other things, that the Company infringed certain Celestron patents. On July 8, 2004, the Company announced that it had reached an agreement, effective May 10, 2004, under which all outstanding litigation between the parties had been resolved.

As stipulated in the agreement, Celestron acknowledges the validity of Meade’s claims to two utility patents (“Meade’s Patents”), including the “level-North” alignment technology for computerized telescopes, as well as a patented architecture by which several microprocessors in a computerized telescope optimally communicate with one another. Also as stipulated in the agreement, Meade acknowledges the validity of Celestron’s claim to two design patents and one utility patent covering certain telescope tripods and mounts (“Celestron’s Patents”). Celestron also transfers to Meade ownership of a patent, originally claimed by Celestron, covering “level-North” technology.

The settlement includes a licensing agreement under which, effective August 15, 2004, and continuing for the life of the Meade Patents, Meade granted Celestron a non-exclusive license to utilize the patents, and Celestron will pay to Meade royalties equal to the greater of $100-per-unit or 8% of Celestron’s net revenue from sales of all telescopes that utilize the “level-North” technology. Celestron in turn granted Meade royalty-free, non-exclusive licenses for the rights to use the designs and technology covered by Celestron’s Patents. Included in net sales for the year ended February 28, 2005 was approximately $135,000 for royalties received.

In accordance with the terms of the agreement the parties have dismissed with prejudice all claims and counterclaims in the pending litigation between them, including for past damages.

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. 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 three 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 3,000,000 shares of common stock held by the existing stockholders for $11,000,000. The ESOP financed the purchase of the common stock (the “financed shares”) with the proceeds of an $11,000,000 term loan (the “acquisition loan”) from the Company. 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 collateral 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 twenty-year term and bears interest at 6%

F-18

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 a formula defined in the plan. 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, 2005 and February 29, 2004 and February 28, 2003, the Company recognized ESOP contribution expense of $419,000, $859,000 and $905,000, respectively.

As of February 28, 2005, approximately 2,251,000 shares in the ESOP trust have been allocated to individual participants. Allocations to individual participant accounts are generally made in the ratio that the compensation of each participant bears to the total compensation of all such participants. There are approximately 749,000 shares in suspense at February 28, 2005, including approximately 125,000 shares committed to be released as of February 28, 2005.

The fair value of the common stock upon purchase from the existing stockholders in April 1996 was determined to be $3.67 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, 2005 was $3.10 per share, the closing market price as determined by the Nasdaq National Market. At February 28, 2005 there was no repurchase obligation.

8. Income Taxes

Pretax income (loss) from continuing operations for each of the three years February 28, 2005, February 29, 2004 and February 28, 2003 consists of the following:


	Year Ended February 28/29,
	2005			2004		2003
Domestic	$	(4,302,000	)	$	979,000	$	1,045,000
Foreign		2,914,000			3,202,000		923,000

	$	(1,388,000	)	$	4,181,000	$	1,968,000

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


	Year Ended February 28/29,
	2005			2004			2003
Current:
Federal	$	(521,000	)	$	1,191,000		$	(785,000	)
State		(261,000	)		482,000			(262,000	)
Foreign		502,000			1,157,000			97,000

		(280,000	)		2,830,000			(950,000	)

Deferred:
Federal		(346,000	)		(1,081,000	)		1,130,000
State		(509,000	)		(208,000	)		356,000
Foreign		622,000			188,000			294,000

		(233,000	)		(1,101,000	)		1,780,000

	$	(513,000	)	$	1,729,000		$	830,000

F-19

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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:


	Year Ended February 28/29,
	2005			2004			2003
Federal income tax rate		(34.0	)%		34.0	%		34.0	%
State income taxes, of federal income tax benefit		(9.9	)		4.3			3.4
Federal and state refunds received from refund claims		(33.2	)		—			—
Foreign income		37.4			1.8			4.6
Research and development credits		(2.2	)		—			—
Other		4.9			1.3			0.2

		(37.0	)%		41.4	%		42.2	%

The significant components of the net deferred tax asset were as follows:


	February 28,			February 29,
	2005			2004
Sales returns	$	1,154,000		$	979,000
Inventory and accounts receivable		4,367,000			4,099,000
Accrued liabilities		1,217,000			2,780,000
Intangibles		(1,224,000	)		(1,054,000	)
Credits		1,549,000			—
Other		4,000			30,000

	$	7,067,000		$	6,834,000

As of February 29, 2004, Meade had approximately $2,408,000 of state net operating loss carry forwards available to offset future taxable income. Those net operating loss carryforwards were utilized in full during the fiscal year ended February 28, 2005. The Company has foreign tax credits of approximately $936,000 which begin to expire during the fiscal year ending February 28, 2013 and research and experimentation credits of approximately $612,000 which begin to expire during the fiscal year ending February 28, 2024. The future realization of these credits is dependent upon the Company generating sufficient income both outside the United States and within the United States. Management currently believes that it is more likely than not that realization of the credits will occur within the carryforward period.

9. Business Segments, Geographic Data and Major Customers

The Company is a multinational consumer optics company that designs, manufactures, imports and distributes telescopes, telescope accessories, binoculars, riflescopes and other optical products. The Company is organized and operates as one segment in two principal geographic locations — North America and Europe. The following tables

F-20

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

present information about product sales and geographic data for the fiscal years ended February 28, 2005 and February 29, 2004 and February 28, 2003.


	Year Ended February 28/29,
	2005		2004		2003
Product sales:
Telescope and telescope accessories	$	58,823,000	$	81,024,000	$	73,489,000
Binoculars		25,192,000		28,991,000		26,611,000
Riflescopes		21,643,000		24,878,000		8,300,000
Other		6,141,000		3,388,000		2,417,000

	$	111,799,000	$	138,281,000	$	110,817,000


	Year Ended February 28/29,
	2005		2004		2003
Geographic data — product sales:
North America	$	79,732,000	$	101,995,000	$	83,628,000
Germany		12,296,000		14,477,000		12,124,000
Other foreign/export		19,771,000		21,809,000		15,065,000

	$	111,799,000	$	138,281,000	$	110,817,000


	February 28/29,
	2005		2004		2003
Geographic data — long-lived assets:
North America	$	9,046,000	$	5,916,000	$	8,701,000
Germany		3,238,000		3,420,000		3,616,000

	$	12,284,000	$	9,336,000	$	12,317,000

The Company generated 11%, 11% and 15% of its revenue from one customer during the fiscal years ended February 28, 2005, February 29, 2004 and February 28, 2003, respectively. The Company generated 11% of its revenue from another customer during the fiscal year ended February 28, 2003.

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 or its subsidiaries. The Company has received director and stockholder approval to grant options and other awards with respect to 5,500,000 shares of common stock under the Plan. Awards under the Plan generally vest after six months and become exercisable over a two to 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. The Board of Directors has also granted non-qualified stock options to purchase common stock to each of the Company’s non-employee directors. The non-employee directors are granted 5,000 options each when elected and 5,000 each upon their re-election to the Board of Directors at the Company’s Annual Meeting each year. The directors’ options generally become exercisable in equal annual amounts over three years.

F-21

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Option activity under the Plan during fiscal years 2005, 2004 and 2003 was as follows:


				Weighted
	Option			Average
	Shares			Exercise Price
Options outstanding at February 28, 2002		3,457,000			6.39
Granted		918,000			2.41
Exercised		(25,000	)		2.31
Cancelled		(450,000	)		11.17
Forfeited		(108,000	)		5.15

Options outstanding at February 28, 2003		3,792,000			4.92
Granted		653,000			2.92
Exercised		(183,000	)		2.33
Cancelled		—			—
Forfeited		(826,000	)		5.51

Options outstanding at February 29, 2004		3,436,000			4.54
Granted		588,000			3.07
Exercised		(13,000	)		2.48
Cancelled		—			—
Forfeited		(41,000	)		7.96

Options outstanding at February 28, 2005		3,970,000			4.26


Options Outstanding						Options Exercisable
			Weighted
			Average	Weighted				Weighted
			Remaining	Average				Average
Exercise Prices	Shares		Contractual Life	Exercise Price		Shares		Exercise Price
$2.31 – $4.10		2,121,000	7.2 years	$	2.90		1,591,000	$	2.78
$4.44 – $5.59		1,604,000	4.3 years	$	4.94		1,594,000		4.95
$6.25 – $10.31		46,000	5.0 years	$	7.75		46,000		7.75
$11.06 – $12.13		175,000	4.9 years	$	11.23		175,000		11.23
$17.13 – $27.75		24,000	5.3 years	$	21.28		24,000		21.28

		3,970,000					3,430,000

The exercise price of options granted to employees was equal to the market price at the grant date. Options granted to employees generally become exercisable 33% or 25% after one year and ratably over the following 24 to 36 months, respectively, or as otherwise determined by the Board of Directors. At February 28, 2005, 3,965,000 outstanding options for common stock were vested under the Plan. The option prices under the Plan range from $2.31 to $27.75 per share and are exercisable over periods ending no later than 2014.

11. Composition of Certain Balance Sheet Accounts

The composition of inventories is as follows:


	February 28,		February 29,
	2005		2004
Raw materials	$	7,449,000	$	7,691,000
Work in process		6,023,000		6,193,000
Finished goods		33,677,000		25,893,000

	$	47,149,000	$	39,777,000

F-22

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The composition of property and equipment is as follows:


	February 28,			February 29,
	2005			2004
Land	$	205,000		$	198,000
Buildings		2,222,000			2,110,000
Molds and dies		6,482,000			5,947,000
Machinery and equipment		3,900,000			3,659,000
Furniture and fixtures		3,168,000			2,765,000
Autos and trucks		176,000			176,000
Leasehold improvements		1,427,000			1,280,000

		17,580,000			16,135,000
Less accumulated depreciation and amortization		(13,237,000	)		(11,584,000	)

	$	4,343,000		$	4,551,000

The gross value of assets under capital leases included above is $56,000 at February 28, 2005; there were no assets under capital lease at February 29, 2004. For the fiscal years ended February 28, 2005, February 29, 2004 and February 28, 2003, the Company incurred depreciation expense of $1,653,000, $2,298,000 and $2,030,000, respectively.

The composition of accrued liabilities is as follows:


	February 28,		February 29,
	2005		2004
Salaries, wages, bonuses and other associated payroll costs	$	1,349,000	$	3,028,000
Advertising and marketing expenses		425,000		1,012,000
Professional fees		437,000		332,000
Warranty costs		1,173,000		1,427,000
Other		1,391,000		1,085,000

	$	4,775,000	$	6,884,000

F-23

SIGNATURES

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

Dated: May 31, 2005 MEADE INSTRUMENTS CORP.

By: /s/ STEVEN G. MURDOCK
Steven G. Murdock
President, Chief Executive Officer
and Secretary

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


Signature	Title	Date
/s/ Steven G. Murdock	Director, President, Chief Executive Officer	May 31, 2005
	and Secretary
Steven G. Murdock	(Principal Executive Officer)

/s/ Brent W. Christensen	Senior Vice President — Finance and	May 31, 2005
	Chief Financial Officer
Brent W. Christensen	(Principal Financial and Accounting Officer)

/s/ Harry L. Casari	Director and Chairman of the Board	May 31, 2005

Harry L. Casari

/s/ Timothy C. McQuay	Director	May 31, 2005

Timothy C. McQuay

/s/ Michael P. Hoopis	Director	May 31, 2005

Michael P. Hoopis

/s/ Vernon L. Fotheringham	Director	May 31, 2005

Vernon L. Fotheringham

/s/ Frederick H. Schneider	Director	May 31, 2005

Frederick H. Schneider

II — VALUATION AND QUALIFYING ACCOUNTS


	Balance At
Allowance for	Beginning of		Charged to Costs		Charged to Other					Balance At End
Doubtful Accounts	Period		and Expenses		Accounts(3)			Deductions(1)		of Period
Year ended February 28, 2003	$	2,232,000	$	163,000				$	1,681,000	$	714,000
Year ended February 29, 2004	$	714,000	$	1,210,000	$	(5,000	)	$	1,215,000	$	704,000
Year ended February 28, 2005	$	704,000	$	203,000	$	5,000		$	225,000	$	687,000


	Balance At
Allowance for	Beginning of		Charged to Costs		Charged to Other				Balance At End
Excess Inventories	Period		and Expenses		Accounts(3)		Deductions(2)		of Period
Year ended February 28, 2003	$	9,099,000					$	1,590,000	$	7,509,000
Year ended February 29, 2004	$	7,509,000	$	1,471,000	$	236,000	$	1,101,000	$	8,115,000
Year ended February 28, 2005	$	8,115,000	$	2,788,000	$	99,000	$	2,331,000	$	8,671,000

(1) Principally recoveries and write-off of delinquent accounts

(2) Principally sale or destruction of previously reserved inventory

(3) Effect of exchange rate changes during the period

EXHIBIT INDEX


		Incorporation
Exhibit	Description	Reference
2.1^†	Interest Purchase Agreement, dated as of July 15-16, 1999, by and among Bresser Optik GmbH & Co. KG, a German limited partnership, Bresser Optik Geschaftsfuhrung und Verwaltungs GmbH, a German limited liability company, and Rudolf Bresser, an individual, on the one hand, and the Company and Meade Instruments Europe Corp., a California corporation, on the other (excluding Exhibits and Schedules thereto)	(h)
2.2^†	Stock Purchase Agreement, dated as of September 14, 2002, by and among Alliant Techsystems, Inc., a Delaware corporation, ATK Commercial Ammunition Company Inc., a Delaware corporation, Meade Instruments Corp., a Delaware corporation, and MTSC Holdings Corp., a California corporation and wholly-owned subsidiary of Meade Instruments Corp. (excluding Exhibits and Schedules thereto)	(p)
2.3^†	First Amendment to Stock Purchase Agreement, dated as of October 4, 2002, by and among Alliant Techsystems, Inc., a Delaware corporation, ATK Commercial Ammunition Company Inc., a Delaware corporation, Meade Instruments Corp., a Delaware corporation, and MTSC Holdings Corp., a California corporation and wholly-owned subsidiary of Meade Instruments Corp.	(p)
2.4^†	Second Amendment to Stock Purchase Agreement, dated as of October 24, 2002, by and among Alliant Techsystems, Inc., a Delaware corporation, ATK Commercial Ammunition Company Inc., a Delaware corporation, Meade Instruments Corp., a Delaware corporation, and MTSC Holdings Corp., a California corporation and wholly-owned subsidiary of Meade Instruments Corp.	(p)
3.1^†	Certificate of Incorporation of the Company, as amended	(c)
3.4^†	Certificate of Amendment of Certificate of Incorporation of Meade Instruments Corp.	(k)
3.7^†	Amended and Restated Bylaws of the Company, as amended	(u)
4.1^†	Specimen Stock Certificate	(d)
4.2^†	Subscription Agreement, dated as of October 22, 2002, by and among Meade and the Purchasers Named on the Signature Page thereto	(q)
4.3^†	Registration Rights Agreement, dated as of October 22, 2002, by and among Meade and Purchasers Named therein	(q)
4.4^†	Registration Rights Agreement, dated as of April 18, 2003, by and between Meade Instruments Corp. and John C. Diebel	(s)
10.7^†	Industrial Lease (Single Tenant; Net; Stand-Alone), dated December 20, 1996, between the Company and The Irvine Company	(a)
10.14^†+	Employee Stock Ownership Plan (“ESOP”) Trust Agreement, as Amended and Restated as of April 9, 1997, between the Company and Wells Fargo Bank, N.A.	(e)
10.24^†	Celtic Master Lease, dated as of February 23, 1995, between the Company and Celtic Leasing Corp.	(b)


		Incorporation
Exhibit	Description	Reference
10.35^†	Form Indemnification Agreement between the Company and each member of the Board of Directors and certain executive officers of the Company	(e)
10.43^†	Lease Agreement, dated as of August 16, 1999, as amended, by and among Refugio Geffroy De Flourie, Meade Instruments Mexico, S. De R. L. De C.V. and Meade Instruments Holding Corp.	(j)
10.47^†	Amended and Restated Credit Agreement, dated as of October 25, 2002, by and among Bank of America, N.A., as the Lender, and Meade Instruments Corp. and Simmons Outdoor Corporation, as the Borrowers (excluding Exhibits and Schedules thereto)	(p)
10.48^†	Subscription Agreement, dated as of October 22, 2002, by and among Meade Instruments Corp. and each of the Purchasers Named on the Signature Page thereof.	(p)
10.51^†	Transition Agreement, by and between Meade Instruments Corp. and John Diebel, dated April 18, 2003	(s)
10.53^†+	Nonqualified Stock Option Agreement, dated as of April 12, 2000, by and between Meade and Rolf Bresser	(bb)
10.54^†	First Amendment to Amended and Restated Credit Agreement dated October 27, 2003	(t)
10.55^†	Lease Agreement, dated as of March 26, 1992, between Simmons Outdoor Corporation and Realty Four, and three Addendum Agreements thereto, dated April 1, 1992, June 6, 1995 and November 2, 1999 respectively	(u)
10.56^†	Settlement Agreement, effective May 10, 2004, between Meade Instruments Corp. on the one hand, and Celestron Acquisition, LLC and James Feltman, on the other (excluding Exhibits thereto)	(v)
10.57^†	Second Amendment to Amended and Restated Credit Agreement, dated July 9, 2004	(w)
10.58^†	Asset Purchase Agreement, dated as of October 20, 2004, by and between Coronado Technology Group, L.L.C., an Arizona limited liability company, together with Geraldine Hogan, David Lunt, Jordan Frazier, Andrew G. Lunt, and Nicholas J. Ilka on the one hand, and Meade Instruments Corp., a Delaware corporation and Coronado, Inc., a California corporation	(x)
10.59^†	First Amendment to Asset Purchase Agreement, dated as of December 1, 2004, by and between Coronado Technology Group, L.L.C., .an Arizona limited liability company, together with Geraldine Hogan, David Lunt, Jordan Frazier, Andrew G. Lunt, and Nicholas J. Ilka on the one hand, and Meade Instruments Corp., a Delaware corporation and Coronado, Inc., a California corporation and wholly-owned subsidiary of Meade that subsequently changed its name to Coronado Instruments, Inc., a California corporation, on the other, excluding Schedules and Exhibits	(y)
10.60^†	Third Amendment to Amended and Restated Credit Agreement, dated December 15, 2004, and entered into by and among Bank of America, N.A. and Meade Instruments	(z)


		Incorporation
Exhibit	Description	Reference
	Corp., a Delaware corporation, Simmons Outdoor Corp., a Delaware corporation, and Coronado Instruments, Inc., a California corporation
10.61⁺	Amended and Restated Meade Instruments Corp. Employee Stock Ownership Plan, as amended
10.62⁺	Meade Instruments Corp. Employee Stock Ownership Plan Loan and Pledge Agreement, between the ESOP and the Company, as amended
10.63⁺	Meade Instruments Corp. 1997 Stock Incentive Plan, as amended.
10.64⁺	Form Employment Agreement between the Company and executive officers of the Company
10.65⁺	Form Non-Qualified Stock Option Agreement between the Company and recipients of non-qualified options granted pursuant to the Meade Instruments 1997 Stock Incentive Plan, as amended
10.66⁺	Form Non-Qualified Stock Option Agreement between the Company and non-employee directors of the Company receiving options granted pursuant to Section 8 of the Meade Instruments 1997 Stock Incentive Plan, as amended
10.67⁺	Form Restricted Stock Agreement by and between the Company and recipients of restricted shares of the Company’s Common Stock granted pursuant to the Company’s 1997 Stock Incentive Plan, as amended
10.68^†	Fourth Amendment to Amended and Restated Credit Agreement, dated May 27, 2005, and entered into by and among Bank of America, N.A. and Meade Instruments Corp., a Delaware corporation, Simmons Outdoor Corp., a Delaware corporation, and Coronado Instruments, Inc., a California corporation	(aa)
21.1	Subsidiaries of the Registrant
23.1	Consent of PricewaterhouseCoopers LLP
31.1	Sarbanes-Oxley Act Section 302 Certification by Steven G. Murdock
31.2	Sarbanes-Oxley Act Section 302 Certification by Brent W. Christensen
32.1	Sarbanes-Oxley Act Section 906 Certification by Steven G. Murdock
32.2	Sarbanes-Oxley Act Section 906 Certification by Brent W. Christensen

^†		Previously filed with the Securities Exchange Commission as set forth in the following table:

⁺		Management contract or compensatory plan or arrangement.

(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.

(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.

(e)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the Fiscal Year Ended February 28, 1998, as filed with the Securities and Exchange Commission on May 29, 1998.

(f)		Incorporated by reference to the Company’s Registration Statement on Form S-8 relating to the Company’s Employee Stock Ownership Plan, as filed with the Securities and Exchange Commission on April 16, 1999.

(g)		Incorporated by reference to the Company’s 1999 Proxy Statement on Schedule 14A, as filed with the Securities and Exchange Commission on June 8, 1999.

(h)		Incorporated by reference to the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on September 15, 1999.

(i)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Quarterly Period Ended November 30, 1999, as filed with the Securities and Exchange Commission on January 14, 2000.

(j)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the Fiscal Year Ended February 29, 2000, as filed with the Securities and Exchange Commission on May 29, 2000.

(k)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Quarterly Period Ended May 31, 2000, as filed with the Securities and Exchange Commission on July 17, 2000.

(l)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the Fiscal Year Ended February 29, 2001, as filed with the Securities and Exchange Commission on May 29, 2001.

(m)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Quarterly Period Ended August 31, 2001, as filed with the Securities and Exchange Commission on October 15, 2001.

(n)		Incorporated by reference to the Company’s Registration Statement on Form S-8 (Registration No. 333-86818), relating to the Company’s Stock Incentive Plan, as amended, as filed with the Securities and Exchange Commission on April 24, 2002.

(o)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the Fiscal Year Ended February 28, 2002, as filed with the Securities and Exchange Commission on May 29, 2002.

(p)		Incorporated by reference to the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on November 7, 2002.

(q)		Incorporated by reference to the Company’s Registration Statement on Form S-3 (Registration No. 333-101404), as filed with the Securities and Exchange Commission on November 22, 2002.

(r)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Quarterly Period Ended November 30, 2002, as filed with the Securities and Exchange Commission on January 14, 2003.

(s)		Incorporated by reference to the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on April 22, 2003.

(t)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Quarterly Period Ended November 30, 2003, as filed with the Securities and Exchange Commission on January 14, 2004.

(u)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the Fiscal Year Ended February 29, 2004, as filed with the Securities and Exchange Commission on June 1, 2004.

(v)		Incorporated by reference to the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on July 12, 2004.

(w)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Quarterly Period Ended May 31, 2004, as filed with the Securities and Exchange Commission on July 15, 2004.

(x)		Incorporated by reference to the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on October 21, 2004.

(y)		Incorporated by reference to the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on December 6, 2004.

(z)		Incorporated by reference to the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on December 16, 2004.

(aa)		Incorporated by reference to the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on May 31, 2005.

(bb)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the Fiscal Year Ended February 28, 2003, as filed with the Securities and Exchange Commission on May 29, 2003.

EX-10.61 2 a09557exv10w61.txt EXHIBIT 10.61 Exhibit 10.61 MEADE INSTRUMENTS CORP. EMPLOYEE STOCK OWNERSHIP PLAN As Amended and Restated Effective as of January 1, 1999 Exhibit 10.61 TABLE OF CONTENTS

Exhibit 10.61 MEADE INSTRUMENTS CORP. EMPLOYEE STOCK OWNERSHIP PLAN Section 1. Nature of the Plan. The purpose of this Plan is to enable participating Employees to share in the growth and prosperity of Meade Instruments Corp. (the "Company") and to provide Participants with an opportunity to accumulate capital for their future economic security. The Plan is intended to do this without any deductions from Participants' paychecks and without requiring them to invest their personal savings. The primary purpose of the Plan is to enable Participants to acquire stock ownership interests in the Company. Therefore, the Trust established under the Plan is designed to invest primarily in Company Stock. The Plan is also designed to be available as a technique of corporate finance to the Company. Accordingly, it may be used to accomplish the following objectives: (a) To meet general financing requirements of the Company, including capital growth and transfers in the ownership of Company Stock; (b) To provide Participants with beneficial ownership of Company Stock substantially in proportion to their relative Compensation, without requiring any cash outlay, any reduction in pay or other personal investment on the part of Participants; and (c) To receive loans (or other extensions of credit) to finance the acquisition of Company Stock, with such loans to be repaid by Employer Contributions to the Trust and dividends received on such Company Stock. Exhibit 10.61 The Plan , originally adopted effective as of March 1, 1996, is hereby amended and restated effective as of January 1, 1999. The Plan is a stock bonus plan under Section 401(a) of the Internal Revenue Code (the "Code") and an employee stock ownership plan under Section 4975(e)(7) of the Code. In order to satisfy applicable requirements of the Code, as amended by the Small Business Job Protection Act of 1996, the second sentence of the second paragraph of Section 4(b) is amended effective as of January 1, 1997. All Trust Assets held under the Plan will be administered, distributed, forfeited and otherwise governed by the provisions of this Plan and the related Trust Agreement. The Plan is administered by an Administrative Committee for the exclusive benefit of Participants (and their Beneficiaries). Section 2. Definitions. In this Plan, whenever the context so indicates, the singular or plural number and the masculine, feminine or neuter gender shall be deemed to include the other, the terms "he," "his" and "him" shall refer to a Participant, and the capitalized terms shall have the following meanings: Account .............. One of two accounts maintained to record the interest of a Participant under the Plan. See Section 6. Acquisition Loan ..... A loan (or other extension of credit) used by the Trust to finance the acquisition of Company Stock, which loan may constitute an extension of credit to the Trust from a party in interest (as defined in ERISA). See Section 5(b). -2- Exhibit 10.61 Affiliate .................. Any corporation which is a member of a controlled group of corporations (within the meaning of Section 414(b) of the Code) of which the Company is also a member or any trade or business (whether or not incorporated) which is under common control with the Company (within the meaning of Section 414(c) of the Code). Allocation Date ............ The December 31st of each year (the last day of each Plan Year). Approved Absence ........... A leave of absence from work granted to an Employee by the Company under its established leave policy, including unpaid leave under the Family and Medical Leave Act of 1993. See Section 3(c). Beneficiary ................ The person (or persons) entitled to receive any benefit under the Plan in the event of a Participant's death. See Section 13(c). Board of Directors ......... The Board of Directors of the Company. Break in Service ........... A period of time commencing with the date on which an Employee's Service terminates and ending on the date he resumes service. See Section 10(b). Capital Accumulation ....... A Participant's vested, nonforfeitable interest in his Accounts under the Plan. Each Participant's Capital Accumulation shall be determined in accordance with the provisions of Section 9 and distributed as provided in Sections 11, 12 and 13. Code ....................... The Internal Revenue Code of 1986, as amended. Committee .................. The Administrative Committee appointed by the Board of Directors to administer the Plan. See Section 16. Company..................... Meade Instruments Corp., a Delaware corporation. -3- Exhibit 10.61 Company Stock .............. Shares of Common Stock issued by the Company, which stock is readily tradable on an established securities market and constitutes "employer securities" under Section 409(l)(1) of the Code. Company Stock Account ..... The Account which reflects each Participant's interest in Company Stock held under the Plan. See Section 6. Compensation ............... The total wages and other compensation paid to an Employee by the Company during each Plan Year, as reported on the Employee's Tax and Wage Statement (Form W-2), including any Elective Deferrals made on his behalf to the 401(k) Plan and any amounts withheld pursuant to the Company's Cafeteria Plan (under Section 125 of the Code), but excluding any amount in excess of $160,000 (as adjusted after 1999 for increases in the cost of living pursuant to Section 401(a)(17) of the Code). Credited Service ........... The elapsed period of an Employee's Service, including Service prior to March 1, 1996. See Section 10. Disability ................. A physical or mental impairment which constitutes a total and permanent disability entitling the Participant to disability benefits under the Social Security Act. Discretionary Contributions .............. Employer Contributions made in amounts determined by the Board of Directors. See Section 4(a). Elective Deferrals ......... Contributions made to the 401(k) Plan at the election of an Employee. Employee ................... Any individual who is treated as a common-law employee by the Company; provided, however, that an independent contractor (or other -4- Exhibit 10.61 individual) who is reclassified as a common law employee on a retroactive basis shall not be treated as having been an Employee for purposes of the Plan for any period prior to the date that he is so reclassified. A leased employee, as described in Section 414(n) of the Code, is not an Employee for purposes of this Plan. Employer Contributions ..... Payments made to the Trust by the Company. See Section 4. ERISA ...................... The Employee Retirement Income Security Act of 1974, as amended. Fair Market Value .......... The fair market value of Company Stock, as determined for all purposes under the Plan by reference to prevailing market prices. Financed Shares ............ Shares of Company Stock acquired by the Trust with the proceeds of an Acquisition Loan. Forfeiture ................. A Participant's Accounts which are not vested and which are forfeited under Section 9(b) following his termination of Service. 401(k) Plan ................ The Meade Instruments Corporation 401(k) Plan, a profit sharing plan qualified under Section 401(a) of the Code that includes a "cash or deferred arrangement" under Section 401(k) of the Code. -5- Exhibit 10.61 Highly Compensated Employee ................... An Employee who (1) was a 5% owner at any time during the Plan Year or the preceding Plan Year, or (2) had Compensation in excess of $80,000 in the preceding Plan Year and, if so elected by the Company, was in the top-paid 20% group of Employees for such preceding Plan Year; provided, however, that is such "top-paid group" election is made by the Company for any Plan Year, the "top-paid group" election must also be applied to all employee benefit plans maintained by the Company or an Affiliate. The $80,000 amount shall be adjusted after 1999 for increases in the cost of living pursuant to Section 414(q)(1) of the Code. Hour of Service ............ Each hour of Service for which an Employee is credited under the Plan, as described in Section 3(d). Matching Contributions ..... Employer Contributions made in amounts related to Participants' Elective Deferrals. See Section 4(b). Other Investments Account .................... The Account which reflects each Participant's interest under the Plan attributable to any Trust Assets other than Company Stock. See Section 6. Participant ................ Any Employee or former Employee who has met the applicable eligibility requirements of Section 3(a) and who has not yet received a complete distribution of his Capital Accumulation. Plan ....................... The Meade Instruments Corp. Employee Stock Ownership Plan, which includes this Plan and the related Trust Agreement. Plan Year .................. The 12-month period ending on each Allocation Date (and coinciding with each calendar year), -6- Exhibit 10.61 which period shall also be the "limitation year" for purposes of Section 415 of the Code. Retirement ................. Termination of Service on or after attaining age 60. Service .................... Employment with the Company or with any Affiliate; provided, however, that periods of employment with an employer during which the employer was not an Affiliate shall not be included as Service. Trust ...................... The Meade Instruments Corp. Employee Stock Ownership Trust, which is governed by the Trust Agreement entered into between the Company and the Trustee. Trust Agreement ............ The Agreement between the Company and the Trustee which specifies the duties of the Trustee. Trust Assets ............... The Company Stock and any other assets held in the Trust for the benefit of Participants. See Section 5. Trustee .................... The Trustee (and any successor Trustee) appointed by the Board of Directors to hold the Trust Assets. -7- Exhibit 10.61 Section 3. Eligibility and Participation. (a) Each Employee who was not already a Participant in the Plan on December 31, 1998, shall become a Participant in the Plan on the June 30th or December 31st 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. In the event that the terms of Service of any Employee are covered by a collective bargaining agreement, the Employee shall not be eligible to participate in the Plan unless the terms of such agreement specifically provide for participation in this Plan. (b) A Participant is entitled to share in the allocations of Employer Contributions and Forfeitures under Section 6(a) and (b) for each Plan Year in which he is credited with at least 1000 Hours of Service and is an Employee (or on Approved Absence) on the Allocation Date. A Participant is also entitled to share in the allocations of Employer Contributions and Forfeitures for the Plan Year of his Retirement, Disability or death. (c) A former Participant who is reemployed by the Company shall become a Participant as of the date of his reemployment. An Employee who is on an Approved Absence shall not become a Participant until the end of his Approved Absence, but a -8- Exhibit 10.61 Participant who is on an Approved Absence shall continue as a Participant during the period of his Approved Absence. Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. (d) Hours of Service - For purposes of determining the Hours of Service to be credited to an Employee under the Plan, the following rules shall be applied: (1) Hours of Service shall include each hour of Service for which an Employee is paid (or entitled to payment) for the performance of duties; each hour of Service for which an Employee is paid (or entitled to payment) for a period during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or paid leave of absence; and each additional hour of Service for which back pay is either awarded or agreed to (irrespective of mitigation of damages); provided, however, that not more than 501 Hours of Service shall be credited for a single continuous period during which an Employee does not perform any duties. (2) The crediting of Hours of Service shall be determined in accordance with the rules set forth in paragraphs (b) and (c) of Section 2530.200b-2 of the regulations prescribed by the Department of Labor, which rules shall be consistently applied with respect to all Employees within the same job classification. (3) Hours of Service shall not be credited to an Employee for a period during which no duties are performed if payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, unemployment compensation or disability insurance laws, and Hours of Service shall not be credited on account of any payment made or due an Employee solely in reimbursement of medical or medically-related expenses. (4) Each Employee for whom the Company does not maintain records of actual Hours of Service shall be credited with 45 Hours of Service for each weekly payroll period in which he completes at least one Hour of Service. -9- Exhibit 10.61 Section 4. Employer Contributions. (a) Discretionary Contributions - Discretionary Contributions shall be paid to the Trustee in such amounts (or under such formula) as may be determined by the Board of Directors. (b) Matching Contributions - Matching Contributions shall be paid by the Company to the Trustee for each Participant who is entitled to share in the allocation of Matching Contributions under Section 3(b) for each Plan Year in an amount equal to 100% of the Elective Deferrals made to the 401(k) Plan on his behalf for the Plan Year, but only to the extent such Elective Deferrals do not exceed 4% of his Compensation. The allocations of Financed Shares made as a result of Matching Contributions shall be based upon the purchase price paid by the Trustee to acquire such Company Stock. Matching Contributions for Highly Compensated Employees shall be limited for any Plan Year to the extent necessary to satisfy one of the contribution percentage requirements described in Section 401(m)(2) of the Code and Section 1.401(m)-1(b) of the regulations thereunder, as computed separately (if necessary) for the Plan and the 401(k) Plan. For the 1997 and 1998 Plan Years, such contribution percentage requirements shall be satisfied based upon the "current Plan Year testing method," as described in Internal Revenue Notice 98-1. For Plan Years beginning on or after January 1, 1999, such contribution percentage requirements shall be satisfied based upon the "prior Plan Year testing method," as described in Internal Revenue Notice 98-1. Any reduction under this Section 4(b) that is necessary to satisfy one of the contribution percentage requirements shall be made with respect to amounts -10- Exhibit 10.61 that are determined to be "excess aggregate contributions" (within the meaning of Section 1.401(m)-1(f)(8) of the regulations). Such excess aggregate contributions are determined by reducing the Matching Contributions made on behalf of Highly Compensated Employees in order of the actual contribution percentage beginning with the highest of such percentages. The actual contribution percentage of the Highly Compensated Employee with the highest such percentage shall be reduced until it equals that of the Highly Compensated Employee with the next highest percentage. This process shall be repeated until one of the above tests is passed. Matching Contributions shall not be payable with respect to any Elective Deferrals under the 401(k) Plan which are distributed to Participants pursuant to the provisions of the 401(k) Plan in order to satisfy Sections 401(k)(3)(A)(ii) or 402(g) of the Code. (c) Payment of Employer Contributions - Employer Contributions shall be paid to the Trustee not later than the due date (including extensions) for filing the Company's Federal income tax return for the applicable taxable year of the Company. Employer Contributions may be paid in cash and/or in shares of Company Stock, as determined by the Board of Directors; provided, however, that the Board of Directors may determine that Employer Contributions made for the purpose of enabling the Trustee to make Acquisition Loan payments may be paid as provided in Section 5(c) with written notice to the Committee and the Trustee. Employer Contributions paid in shares of Company Stock shall be valued based upon Fair Market Value on the date the shares are issued to the Trustee. (d) Additional Provisions - Employer Contributions shall not be made in amounts which can be allocated to no Participant's Accounts by reason of the allocation limitations described in Section 7(a) or in amounts which are not deductible under Section 404(a) of the -11- Exhibit 10.61 Code. Any Employer Contributions which are not deductible under Section 404(a) of the Code may be returned to the Company by the Trustee (upon the direction of the Company) within one year after the deduction is disallowed or after it is determined that the deduction is not available. In the event that Employer Contributions are paid to the Trust by reason of a mistake of fact, such Employer Contributions may be returned to the Company by the Trustee (upon the direction of the Company) within one year after the payment to the Trust. (e) No Participant Contributions - No Participant shall be required or permitted to make contributions to the Trust. Section 5. Investment of Trust Assets. (a) In General - Trust Assets will be invested by the Trustee primarily (or exclusively) in Company Stock in accordance with directions from the Committee, except as otherwise provided in Section 5(d). Employer Contributions (and other Trust Assets) may be used to acquire shares of Company Stock from any Company shareholder or from the Company. All purchases of Company Stock by the Trustee shall be made only as directed by the Committee and only at prices which do not exceed Fair Market Value as of the date of the purchase. The Committee may direct the Trustee to invest and hold up to 100% of the Trust Assets in Company Stock. Pending the investment of Trust Assets in Company Stock, the Trustee may also invest Trust Assets in such other prudent investments as the Committee deems to be desirable for the Trust, or Trust Assets may be held temporarily in cash. (b) Acquisition Loans - With the approval of the Board of Directors, the Committee may direct the Trustee to incur Acquisition Loans from time to time to finance the -12- Exhibit 10.61 acquisition of Company Stock ("Financed Shares") or to repay a prior Acquisition Loan. An installment obligation incurred in connection with the purchase of Company Stock shall be treated as an Acquisition Loan, and all indebtedness incurred to acquire Company Stock in a single transaction shall be treated as one Acquisition Loan for purposes of the Plan. An Acquisition Loan shall be for a specific term, shall bear a reasonable rate of interest and shall not be payable on demand except in the event of default. An Acquisition Loan may be secured by a pledge of the Financed Shares so acquired (or acquired with the proceeds of a prior Acquisition Loan which is being refinanced). No other Trust Assets may be pledged as collateral for an Acquisition Loan, and no lender shall have recourse against Trust Assets except as provided in Section 54.4975-7(b)(5) of the Regulations under the Code. Any pledge of Financed Shares must provide for the release of the shares so pledged as payments on the Acquisition Loan are made by the Trustee and such Financed Shares are allocated to Participants' Company Stock Accounts under Section 6(c). If the lender is a party in interest (as defined in ERISA), the Acquisition Loan must provide for a transfer of Trust Assets to the lender on default only upon and to the extent of the failure of the Trust to meet the payment schedule of the Acquisition Loan. (c) Acquisition Loan Payments - Payments of principal and/or interest on any Acquisition Loan shall be made by the Trustee (as directed by the Committee) only from Employer Contributions paid to enable the Trust to repay such Acquisition Loan, from earnings attributable to such Employer Contributions and from any cash dividends received by the Trust on the Financed Shares (whether allocated or unallocated) purchased with the proceeds of such Acquisition Loan; and the payments made with respect to an Acquisition -13- Exhibit 10.61 Loan for a Plan Year must not exceed the sum of such Employer Contributions, earnings and dividends for that Plan Year (and prior Plan Years), less the amount of such payments for prior Plan Years. If the Company is the lender with respect to an Acquisition Loan, Employer Contributions may be paid in the form of cancellation of indebtedness under the Acquisition Loan. If the Company is not the lender with respect to an Acquisition Loan, payments on the Acquisition Loan may be made by the Company directly to the lender, with such payments treated as Employer Contributions. (d) Sales of Company Stock - The Committee may direct the Trustee to sell shares of Company Stock to any person (including the Company); provided that any such sale shall be effected by the Trustee at a price not less than Fair Market Value on the sale date. Notwithstanding the provisions of Section 5(c), the Committee may direct the Trustee to apply the proceeds from the sale of unallocated Financed Shares to repay the Acquisition Loan (incurred to finance the purchase of such Financed Shares) in the event of a merger, consolidation or sale of all or substantially all of the assets of the Company, or the sale of all or substantially all of the stock of the Company or the termination of the Plan or if the Plan ceases to be an employee stock ownership plan under Section 4975(e)(7) of the Code. Any sale of Company Stock under this Section 5(d) must comply with the fiduciary duties applicable under Section 404(a)(1) of ERISA and with the primary benefit rule of Section 408(b)(3)(A) of ERISA and Section 4975(d)(3)(A) of the Code, if applicable. -14- Exhibit 10.61 Section 6. Allocations to Participants' Accounts. A Company Stock Account and an Other Investments Account shall be maintained to reflect the interest of each Participant under the Plan. Company Stock Account - The Company Stock Account maintained for each Participant will be credited annually with his allocable share of Company Stock (including fractional shares) purchased and paid for by the Trust or contributed in kind to the Trust as a Discretionary Contribution or Matching Contribution, with any Forfeitures from Company Stock Accounts and with any stock dividends on Company Stock allocated to his Company Stock Account. Other Investments Account - The Other Investments Account maintained for each Participant will be credited annually with his allocable share of Discretionary Contributions and Matching Contributions that are not in the form of Company Stock, with any Forfeitures from Other Investments Accounts, with any cash dividends on Company Stock allocated to his Company Stock Account (other than currently distributed dividends) and any net income (or loss) of the Trust. Such Account will be debited for the Participant's share of any cash payments made by the Trustee for the acquisition of Company Stock or for the payment of any principal and/or interest on an Acquisition Loan. The allocations to Participants' Accounts for each Plan Year will be made as follows: (a) Discretionary Contributions and Forfeitures - Discretionary Contributions under Section 4(a) and Forfeitures under Section 9(b) for each Plan Year will be allocated as of the Allocation Date among the Accounts of Participants so entitled under Section 3(b) in -15- Exhibit 10.61 the ratio that the Compensation of each such Participant bears to the total Compensation of all such Participants, subject to the allocation limitations described in Section 7. (b) Matching Contributions - Matching Contributions for each Plan Year will be allocated as of the Allocation Date to the Accounts of the Participants in accordance with the rules outlined in Section 4(b). (c) Financed Shares - Any Financed Shares acquired by the Trust shall initially be credited to a "Loan Suspense Account" and will be allocated to Company Stock Accounts of Participants only as payments on the Acquisition Loan are made by the Trustee. The number of Financed Shares to be released from the Loan Suspense Account for allocation to Participants' Company Stock Accounts shall be determined by the Committee as follows: (1) Principal/Interest Method - The number of Financed Shares held in the Loan Suspense Account immediately before the current release shall be multiplied by a fraction. The numerator of the fraction shall be the current payments of principal and/or interest on the Acquisition Loan. The denominator of the fraction shall be the sum of the numerator plus the total payments of principal and interest on that Acquisition Loan projected to be paid in the future years. For this purpose, the interest to be paid in future years is to be computed by using the interest rate in effect as of the current release date. (2) Principal Only Method - The Committee may elect (as to each Acquisition Loan) or the provisions of the Acquisition Loan may provide for the release of Financed Shares from the Loan Suspense Account based solely on the ratio that the current payments of principal bear to the total principal amount of the Acquisition Loan. This method may be used only to the extent that: (A) the Acquisition Loan provides for annual payments -16- Exhibit 10.61 of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for ten years; (B) interest included in any payment on the Acquisition Loan is disregarded only to the extent that it would be determined to be interest under standard loan amortization tables; and (C) the entire duration of the Acquisition Loan repayment period does not exceed ten years, even in the event of a renewal, extension or refinancing of the Acquisition Loan. (3) Allocation of Released Shares - When Trust Assets are applied to make payments on an Acquisition Loan, the Financed Shares released from the Loan Suspense Account in accordance with the provisions of this Section 6(c) shall be allocated among Company Stock Accounts of Participants in the manner determined by the Committee based upon the source of funds (Discretionary Contributions, Matching Contributions, earnings attributable to such Employer Contributions and cash dividends on Financed Shares) used to make the payments on the Acquisition Loan. If cash dividends on Financed Shares allocated to a Participant's Company Stock Account are used to make payments on an Acquisition Loan, Financed Shares (representing that portion of such payments and whose Fair Market Value is at least equal to the amount of such dividends) released from the Loan Suspense Account shall be allocated to that Participant's Company Stock Account. (d) Net Income (or Loss) of the Trust - The net income (or loss) of the Trust for each Plan Year will be determined as of the Allocation Date. Prior to the allocation of Employer Contributions and Forfeitures for the Plan Year, each Participant's share of any net income (or loss) will be allocated to his Other Investments Account in the ratio that the total balances of both his Accounts on the preceding Allocation Date (reduced by any distribution -17- Exhibit 10.61 of Capital Accumulation from such Account during the Plan Year) bears to the sum of such Account balances for all Participants as of that date. The net income (or loss) of the Trust includes the increase (or decrease) in the fair market value of Trust Assets (other than Company Stock), interest income, dividends and other income and gains (or losses) attributable to Trust Assets (other than any dividends on allocated Company Stock) since the preceding Allocation Date, reduced by any expenses charged to the Trust Assets for that Plan Year. The determination of the net income (or loss) of the Trust shall not take into account any interest paid by the Trust under an Acquisition Loan. (e) Dividends on Company Stock - Any cash dividends received on shares of Company Stock allocated to Participants' Company Stock Accounts will be allocated to the respective Other Investments Accounts of such Participants. Any cash dividends received on unallocated shares of Company Stock (including any Financed Shares credited to the Loan Suspense Account) shall be included in the computation of the net income (or loss) of the Trust. Any stock dividends received on Company Stock shall be credited to the Accounts (including the Loan Suspense Account) to which such Company Stock was allocated. (f) Accounting for Allocations - The Committee shall establish accounting procedures for the purpose of making the allocations to Participants' Accounts provided for in this Section 6. The Committee shall maintain adequate records of the aggregate cost basis of Company Stock allocated to each Participant's Company Stock Account. The Committee shall also keep separate records of Financed Shares and of Employer Contributions (and any earnings thereon) made for the purpose of enabling the Trust to repay any Acquisition Loan. From time to time, the Committee may modify the accounting procedures for the purposes of -18- Exhibit 10.61 achieving equitable and nondiscriminatory allocations among the Accounts of Participants in accordance with the general concepts of the Plan, the provisions of this Section 6 and the requirements of the Code and ERISA. Section 7. Allocation Limitations. (a) Limitations on Annual Additions - The Annual Additions for each Plan Year with respect to any Participant may not exceed the lesser of: (1) 25% of his Compensation; or (2) $30,000, as adjusted for increases in the cost of living pursuant to Section 415(d)(1)(C) of the Code. For this purpose, "Annual Additions" shall be the total of the Employer Contributions and Forfeitures (including any income attributable to Forfeitures) allocated to the Accounts of a Participant for the Plan Year, except as provided in Section 7(b), plus any contributions (including Elective Deferrals) or forfeitures allocated to his accounts under the 401(k) Plan for the Plan Year. In determining such Annual Additions, Forfeitures of Company Stock shall be included at Fair Market Value as of the Allocation Date and Employer Contributions in the form of Company Stock shall be included at Fair Market Value as of the date such shares are issued to the Trust. If the aggregate amount that would be allocated to the Accounts of a Participant in the absence of these limitations would exceed the amount set forth in these limitations, the allocation of Discretionary Contributions and Forfeitures under this Plan shall be reduced -19- Exhibit 10.61 prior to reducing the allocations to his accounts under the 401(k) Plan. Any Forfeitures which can be allocated to no Participant's Accounts by reason of these limitations shall be credited to a "Forfeiture Suspense Account" and allocated as Forfeitures under Section 6(a) for the next succeeding Plan Year (prior to the allocation of Employer Contributions for such succeeding Plan Year). (b) Special Acquisition Loan Rules - Any Employer Contributions which are used by the Trust (not later than the due date, including extensions, for filing the Company's Federal income tax return for the applicable taxable year) to pay interest on an Acquisition Loan, and any Financed Shares which are allocated as Forfeitures, shall not be included as Annual Additions under Section 7(a); provided, however, that the provisions of this paragraph shall be applicable only if not more than one-third of any Employer Contributions applied to pay principal and/or interest on an Acquisition Loan are allocated to Participants who are Highly Compensated Employees; and the Committee shall reallocate such Employer Contributions to the extent it deems it to be appropriate to satisfy this special rule. The Annual Additions under Section 7(a) with respect to Financed Shares released from the Loan Suspense Account (by reason of Employer Contributions used for payments on an Acquisition Loan) and allocated to Participants' Company Stock Accounts shall be the lesser of (A) the amount of such Employer Contributions (as determined after application of the preceding paragraph); or (B) the Fair Market Value of Company Stock. Annual Additions shall not include any allocation attributable to any proceeds from the sale of Financed Shares by the Trust or to appreciation (realized or unrealized) in the Fair Market Value of Company Stock. -20- Exhibit 10.61 (c) Limitation on Electing Shareholder - If a Company shareholder sold Company Stock to the Trust in the transaction described in Section 5(c) and elected (with the consent of the Company) nonrecognition of gain under Section 1042 of the Code, no portion of the Company Stock purchased in that transaction (or any dividends or other income attributable thereto) may be allocated prior to the later of the tenth anniversary of the purchase or the Plan Year following the Plan Year for which shares are released from the Loan Suspense Account as a result of the final payment on the Acquisition Loan incurred in connection with such purchase to the Accounts of: (1) any Participant who has made an election under Section 1042 of the Code; or (2) the selling shareholder's spouse, brothers or sisters (whether by the whole or half blood), ancestors or lineal descendants (except as to certain lineal descendants, to the extent provided in Section 409(n)(3)(A) of the Code), or any other person who bears a relationship to him that is described in Section 267(b) of the Code. In addition, no portion of the Company Stock purchased by the Trust in the 1996 transaction (or any dividends or other income attributable thereto) may thereafter be allocated to the Accounts of any Participant owning (as determined under Section 318(a) of the Code, without regard to Section 318(a)(2)(B)(i) of the Code), during the entire one-year period preceding the purchase or on any Allocation Date, more than 25% of any class of outstanding Company Stock or of the total value of any class of outstanding Company Stock. To the extent that a Participant is subject to the allocation limitation described in this Section 7(c) for an Plan Year, he shall not share in the allocation of Employer Contributions and Forfeitures. -21- Exhibit 10.61 Section 8. Voting Company Stock. Each Participant (or Beneficiary) will be entitled to give directions to the Trustee as to the voting of shares of Company Stock allocated to his Company Stock Account on all matters presented for a vote of stockholders. Each Participant (or Beneficiary) having shares allocated to his Company Stock Account as of the record date for voting at a stockholder meeting shall be provided with the proxy statement and other materials provided to Company stockholders in connection with such meeting, together with a form upon which confidential voting directions may be given to the Trustee. The Trustee shall not disclose the voting directions of any individual Participant (or Beneficiary) to the Committee or the Company. Any allocated Company Stock with respect to which voting directions are not received from Participants (or Beneficiaries) and any shares of Company Stock which are not then allocated to Participants' Company Stock Accounts shall be voted by the Trustee in the manner directed by the Committee. Section 9. Vesting and Forfeitures. (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 three years of Credited Service. -22- Exhibit 10.61 (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. (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). Section 10. Credited Service and Break in Service. (a) Credited Service - An Employee's Credited Service shall include each period of his Service computed (in full years and days) from the date he is first credited with an Hour of Service (including Service prior to March 1, 1996) until the date on which his Service terminates. A Break in Service that does not exceed one year shall be included in an Employee's Credited Service. Credited Service shall also include periods of Service with an Affiliate. -23- Exhibit 10.61 (b) Break in Service - A one-year Break in Service shall occur one year after the date of an Employee's termination of Service. A five-consecutive-year Break in Service shall occur five years after the date of an Employee's termination of Service (if he has not been reemployed). For purposes of determining the period of an Employee's Break in Service, the period of a maternity/paternity absence, described in Section 411(a)(6)(E)(i) of the Code, or any unpaid leave covered under the Family and Medical Leave Act of 1993, not exceeding one year shall not be treated as a Break in Service. For purposes of this Section 10(b), a "maturity/paternity absence" means an Employee's absence (A) by reason of the (i) pregnancy of an Employee, (ii) birth of a child of an Employee or (iii) placement of a child with an Employee in connection with the adoption of such child by such Employee, or (B) for purposes of caring for a child described in clause (A) for a period immediately following such birth or placement. (c) Reemployment - If a former Employee is reemployed after a five-consecutive-year Break in Service and had not attained a vested interest under the Plan, Service prior to the Break in Service shall not be included in determining his Credited Service. If a Participant is reemployed after a one-year Break in Service but prior to the occurrence of a five-consecutive-year Break in Service, his Credited Service shall not include Service prior to the one-year Break in Service until he completes one year of Credited Service following reemployment. -24- Exhibit 10.61 Section 11. When Capital Accumulation Will Be Distributed. (a) Except as otherwise provided in Sections 11(c) and 12, a Participant's Capital Accumulation will be distributed following his termination of Service, but only at the time and in the manner determined by the Committee. The Committee shall establish a written benefit distribution policy (which may be modified from time to time) and shall apply such policy to Participants in a nondiscriminatory manner. (b) In the event of a Participant's Retirement, Disability or death, distribution of his Capital Accumulation shall commence not later than the Plan Year following the Plan Year in which his Retirement, Disability or death occurs. If a Participant's Service terminates for any other reason, distribution of his Capital Accumulation shall commence not later than the sixth Plan Year following the Plan Year in which his Service terminates (unless he is reemployed by the Company or an Affiliate). Except as otherwise provided in Section 11(c), if a Participant's Capital Accumulation includes Financed Shares, the Committee may elect to defer the distribution of that portion of his Capital Accumulation (attributable to such Financed Shares) until the Plan Year following the Plan Year in which the Acquisition Loan (incurred to acquire such Financed Shares) has been fully repaid. For this purpose, all indebtedness incurred by the Trustee to acquire Company Stock in a single transaction shall be treated as one Acquisition Loan. The following alternative modes of distribution may be selected by the Committee (after considering the available liquid assets of the Company and the Trust): (1) Distribution of a Participant's Capital Accumulation in a single lump sum; or -25- Exhibit 10.61 (2) Distribution of a Participant's Capital Accumulation in substantially equal, annual installments over a period not exceeding five years (provided that the period over which installments may be distributed may be extended an additional year (up to an additional five years) for each $145,000 or fraction thereof by which his Capital Accumulation exceeds $735,000 (as adjusted after 1999 for increases in the cost of living pursuant to Section 409(o)(2) of the Code)); or (3) Any combination of the foregoing. 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. (c) Distribution of a Participant's Capital Accumulation shall commence not later than 60 days after the end of the Plan Year in which occurs the latest of (1) his 65th birthday, (2) the tenth anniversary of the date he became a Participant, or (3) his termination of Service. The distribution of the Capital Accumulation of any Participant who attains age 70-1/2 in any calendar year and either (i) has terminated Service or (ii) is a "5% owner" of Company Stock (as defined in Section 416(i)(1)(B)(i) of the Code) must commence not later than April 1st of the next calendar year and must be made in accordance with the regulations under Section 401(a)(9) of the Code, including Section 1.401(a)(9)-2. If the amount of a Participant's Capital Accumulation cannot be determined (by the Committee) by the date on which a distribution is to commence, or if the Participant cannot be located, distribution of his Capital Accumulation shall commence within 60 days after the date on which his Capital Accumulation can be determined or after the date on which the Committee locates the Participant. -26- Exhibit 10.61 (d) If any part of a Participant's Capital Accumulation is retained in the Trust after his Service ends, his Accounts will continue to be treated as described in Section 6. However, except as provided in Section 3(b), such Accounts shall not be credited with any additional Employer Contributions and Forfeitures. Section 12. Diversification Election and In-Service Distributions. (a) Diversification - Effective January 1, 2006, a Participant who has attained age 55 and completed at least ten Years of Participation shall be notified of his right to elect to "diversify" a portion of the balance in his Company Stock Account, as provided in Section 401(a)(28)(B) of the Code. An election to "diversify" must be made on the prescribed form and filed with the Committee within the 90-day period immediately following the last day of a Plan Year in the Election Period. For purposes of this Section 12, "Years of Participation" is the number of Plan Years in which the Participant is entitled to receive an allocation of Employer Contributions or Forfeitures under Section 3(b), and the "Election Period" means the period of six consecutive Plan Years beginning with the Plan Year in which the Participant first becomes eligible to make an election. For each of the first five Plan Years in the Election Period, the Participant may elect to "diversify" an amount which does not exceed 25% of the number of shares of Company Stock allocated to his Company Stock Account, less all shares with respect to which an election under this Section 12(a) was previously made. In the case of the sixth Plan Year in the Election Period, the Participant may elect to "diversify" an amount which does not exceed 50% of the number of shares of Company Stock allocated to his Company Stock Account , -27- Exhibit 10.61 less all shares with respect to which an election under this Section 12(a) was previously made. No "diversification" shall be permitted if the balance in a Participant's Company Stock Account as of the last day of the first Plan Year in the Election Period has a Fair Market Value of $500 or less, unless and until the balance in his Company Stock Account as of a subsequent Plan Year in the Election Period exceeds $500. The Committee shall determine whether "diversification" will be effected by permitting the Participant to direct the Trustee to transfer cash representing that portion of his Company Stock Account with respect to which a "diversification" election is made to the 401(k) Plan for his benefit (so long as at least three investment funds (other than Company Stock) are made available under the 401(k) Plan) or by distributing to the Participant shares of Company Stock with respect to which a "diversification" election is made. Any transfer to the 401(k) Plan under this Section 12(a) shall occur no earlier than 30 days after Form 5310-A with respect to such transfer has been filed (if necessary) with the Internal Revenue Service, but not later than the time when a distribution under this Section 12(a) would have been required. Any distribution under this Section 12(a) shall be made within 90 days after the 90-day period in which the election may be made and shall be subject to the provisions of Section 13(c) and (d). (b) In-Service Withdrawal - A Participant who has not terminated Service and whose interest in his Accounts is 100% vested and nonforfeitable under Section 9(a)(4) may request a distribution of up to 50% of the number of shares of Company Stock allocated to his Company Stock Account, less any shares with respect to which elections under Section 12(a) and this Section 12(b) were previously made; provided, however, that if he has not completed -28- Exhibit 10.61 at least five Years of Participation, as defined in Section 12(a), such withdrawal shall be limited to shares which have been allocated to his Company Stock Account for at least three Allocation Dates preceding the Plan Year of the withdrawal. Such a withdrawal may only be made once each Plan Year and shall be available only during annual withdrawal periods specified by the Committee. Any distribution to a Participant under this Section 12(b) shall be subject to the provisions of Section 13 and shall not be eligible for transfer by direct rollover to the 401(k) Plan; provided, however, that the cash proceeds from a Participant's sale of Company Stock withdrawn under this Section 12(b) are eligible to be rolled over to the 401(k) Plan. All withdrawal requests must be made in writing on forms prescribed by the Committee and shall be subject to such administrative rules and procedures as may be established by the Committee. Section 13. How Capital Accumulation Will Be Distributed. (a) The Trustee will make distributions from the Trust only as directed by the Committee. Distribution of a Participant's Capital Accumulation will be made in whole shares of Company Stock, cash or a combination of both, as determined by the Committee; provided, however, that the Committee shall notify the Participant of his right to demand distribution of his Capital Accumulation entirely in whole shares of Company Stock (with only the value of any fractional share paid in cash). Shares of Company Stock distributed by the Trustee shall be readily tradable on an established securities market. (b) Distribution of a Participant's Capital Accumulation will be made to the Participant if he is living, and if not, to his Beneficiary. In the event of a Participant's death, -29- Exhibit 10.61 his Beneficiary shall be his surviving spouse, or if none, his estate. A Participant (with the written consent of his spouse, if any, acknowledging the effect of the consent and witnessed by a notary public or Plan representative) may designate a different Beneficiary or Beneficiaries from time to time by filing a written designation with the Committee. A deceased Participant's entire Capital Accumulation shall be distributed to his Beneficiary within five years after his death, except to the extent that distribution has previously commenced in accordance with Section 11(b)(2). (c) The Company shall furnish the recipient of a distribution with the tax consequences explanation required by Section 402(f) of the Code and shall comply with the withholding requirements of Section 3405 of the Code and of any applicable state law with respect to distributions from the Trust. If the Committee so elects for a Plan Year, distributions to Participants may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the regulations under the Code is given; provided that no such distribution to a Participant shall be made unless (1) the Participant is informed that he has the right to a period of at least 30 days after receiving the notice to consider whether or not to consent to a distribution (or a particular distribution option) and (2) the Participant affirmatively elects to receive a distribution after receiving the notice. (d) If a distribution of a Participant's Capital Accumulation is neither one of a series of annual installments over a period of ten years (or more) nor the minimum amount required to be distributed pursuant to the second sentence of Section 11(c) (an "eligible rollover distribution"), the Committee shall notify the Participant (or any spouse or former spouse who is his alternate payee under a "qualified domestic relations order" (as defined in -30- Exhibit 10.61 Section 414(p) of the Code)) of his right to elect to have the "eligible rollover distribution" paid directly to an "eligible retirement plan" (within the meaning of Section 401(a)(31) of the Code) that is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, a qualified trust described in Section 401(a) of the Code or a qualified annuity plan described in Section 403(a) of the Code that accepts "eligible rollover distributions." If such an "eligible rollover distribution" is to be made to the Participant's surviving spouse, the Committee shall notify the surviving spouse of his right to elect to have the distribution paid directly to an "eligible retirement plan" that is either an individual retirement account described in Section 408(a) of the Code or an individual retirement annuity described in Section 408(b) of the Code. Any election under this Section 13(d) shall be made and effected in accordance with such rules and procedures as may be established from time to time by the Committee in order to comply with Section 401(a)(31) of the Code. Section 14. Rights, Options and Restrictions on Company Stock. Shares of Company Stock held or distributed by the Trustee may include such legend restrictions on transferability as the Company may reasonably require in order to assure compliance with applicable Federal and state securities laws, but no shares of Company Stock held or distributed by the Trustee may be subject to a put, call or other option, or buy-sell or similar arrangement. The provisions of this Section 14 shall continue to be applicable to Company Stock even if the Plan ceases to be an employee stock ownership plan under Section 4975(e)(7) of the Code. -31- Exhibit 10.61 Section 15. No Assignment of Benefits. A Participant's Capital Accumulation may not be anticipated, assigned (either at law or in equity), alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process, except in accordance with (i) a "qualified domestic relations order" (as defined in Section 414(p) of the Code); (ii) a federal tax levy or collection by the Internal Revenue Service on a judgment resulting from an unpaid tax assessment; or (iii) a judgment or settlement described in Section 401(a)(13)(C) of the Code. Distributions made to an alternate payee in accordance with a qualified domestic relations order may commence no earlier than the date on which the Participant attains his "earliest retirement age" (as defined in Section 414(p)(4)(B) of the Code). Section 16. Administration. (a) Administrative Committee - The Plan will be administered by an Administrative Committee composed of one or more individuals appointed by the Board of Directors to serve at its pleasure and without compensation. The members of the Committee shall be the named fiduciaries with authority to control and manage the operation and administration of the Plan. Members of the Committee need not be Employees or Participants. Any Committee member may resign by giving notice, in writing, to the Board of Directors. -32- Exhibit 10.61 (b) Committee Action - Committee action will be by vote of a majority of the members at a meeting or by unanimous written consent without a meeting. A Committee member shall not vote on any question relating specifically to himself. The Committee shall choose from its members a Chairman and a Secretary. The Chairman or the Secretary of the Committee shall be authorized to execute any certificate or other written direction on behalf of the Committee. The Secretary shall keep a record of the Committee's proceedings and of all dates, records and documents pertaining to the administration of the Plan. (c) Powers and Duties of the Committee - The Committee shall have all powers necessary to enable it to administer the Plan and the Trust Agreement in accordance with their provisions, including without limitation the following: (1) resolving all questions relating to the eligibility of Employees to become Participants; (2) determining the appropriate allocations to Participants' Accounts pursuant to Section 6; (3) determining the amount of benefits payable to a Participant (or Beneficiary), and the time and manner in which such benefits are to be paid; (4) authorizing and directing all disbursements of Trust Assets by the Trustee; (5) establishing procedures in accordance with Section 414(p) of the Code to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders; (6) engaging any administrative, legal, accounting, clerical or other services that it may deem appropriate; -33- Exhibit 10.61 (7) construing and interpreting the Plan and the Trust Agreement and adopting rules for administration of the Plan that are consistent with the terms of the Plan documents and of ERISA and the Code; (8) compiling and maintaining all records it determines to be necessary, appropriate or convenient in connection with the administration of the Plan; (9) reviewing the performance of the Trustee with respect to the Trustee's administrative duties, responsibilities and obligations under the Plan and Trust Agreement; (10) executing agreements and other documents on behalf of the Plan and Trust. The Committee shall be responsible for directing the Trustee as to the investment of Trust Assets. The Committee may delegate to the Trustee the responsibility for investing all or any portion of the Trust Assets. The Committee shall establish a funding policy and method for directing the Trustee to acquire Company Stock (and for otherwise investing the Trust Assets) in a manner that is consistent with the objectives of the Plan and the requirements of ERISA. The Committee shall perform its duties under the Plan and the Trust Agreement solely in the interests of the Participants (and their Beneficiaries). Any discretion granted to the Committee under any of the provisions of the Plan or the Trust Agreement shall be exercised only in accordance with rules and policies established by the Committee which shall be applicable on a nondiscriminatory basis. The Committee shall have sole and exclusive discretionary authority to construe, interpret and apply the terms of the Plan. The Committee shall be given the greatest possible deference permitted by law in the exercise of such discretionary authority. -34- Exhibit 10.61 (d) Expenses - All reasonable expenses of administering the Plan and Trust shall be charged to and paid out of the Trust Assets. The Company may, however, pay all or any portion of such expenses directly, and payment of expenses by the Company shall not be deemed to be Employer Contributions. (e) Information to be Submitted to the Committee - To enable the Committee to perform its functions, the Company shall supply full and timely information to the Committee on all matters as the Committee may require, and shall maintain such other records as the Committee may determine are necessary or appropriate in order to determine the benefits due or which may become due to Participants (or Beneficiaries) under the Plan. (f) Delegation of Fiduciary Responsibility - The Committee from time to time may allocate to one or more of its members and/or may delegate to any other persons or organizations any of its rights, powers, duties and responsibilities with respect to the operation and administration of the Plan that are permitted to be so delegated under ERISA; provided, however, that responsibility for investment of the Trust Assets may not be allocated or delegated except as provided in Section 16(c). Any such allocation or delegation shall be made in writing, shall be reviewed periodically by the Committee and shall be terminable upon such notice as the Committee in its discretion deems reasonable and proper under the circumstances. (g) Bonding, Insurance and Indemnity - To the extent required under Section 412 of ERISA, the Company shall secure fidelity bonding for the fiduciaries of the Plan. The Company (in its discretion) or the Trustee (as directed by the Committee) may obtain a policy or policies of insurance for the Committee (and other fiduciaries of the Plan) to -35- Exhibit 10.61 cover liability or loss occurring by reason of the act or omission of a fiduciary. If such insurance is purchased with Trust Assets, the policy must permit recourse by the insurer against the fiduciary in the case of a breach of a fiduciary obligation by such fiduciary. The Company hereby agrees to indemnify each member of the Committee (to the extent permitted by law) against any personal liability or expense resulting from his service on the Committee, except such liability or expense as may result from his own willful misconduct. (h) Notices, Statements and Reports - The Company shall be the "Plan Administrator" (as defined in Section 3(16)(A) of ERISA and Section 414(g) of the Code) for purposes of the reporting and disclosure requirements of ERISA and the Code. The Committee shall assist the Company, as requested, in complying with such reporting and disclosure requirements. The Committee shall be the designated agent of the Plan for the service of legal process. Section 17. Claims Procedure. A Participant (or Beneficiary) who does not receive a distribution of benefits to which he believes he is entitled may present a claim to the Committee. The claim for benefits must be in writing and addressed to the Committee or to the Company. If the claim for benefits is denied, the Committee shall notify the Participant (or Beneficiary) in writing within 90 days after the Committee initially received the benefit claim, unless special circumstances require an extension of time for processing the claim, in which case such period may be extended for an additional 90 days; provided, that the Committee must provide the Participant (or Beneficiary) with written notice of such extension prior to the expiration of the initial 90-day -36- Exhibit 10.61 period. Any notice of a denial of benefits shall advise the Participant (or Beneficiary) of the basis for the denial, any additional material or information necessary for the Participant (or Beneficiary) to perfect his claim and the steps which the Participant (or Beneficiary) must take to have his claim for benefits reviewed. Each Participant (or Beneficiary) whose claim for benefits has been denied may file a written request for a review of his claim by the Committee. The request for review must be filed by the Participant (or Beneficiary) within 60 days after he receives the written notice denying his claim. The decision of the Committee will be made within 60 days after receipt of a request for review and shall be communicated in writing to the claimant. Such written notice shall set forth the basis for the Committee's decision. If there are special circumstances (such as the need to hold a hearing) which require an extension of time for completing the review, the Committee's decision shall be rendered not later than 120 days after receipt of a request for review. Nothing contained in the Plan shall be deemed to give an Employee the right to be retained in the Service of the Company or to interfere with the right of the Company to discharge, with or without cause, any Employee at any time. All decisions and interpretations of the Committee under this Section 17 shall be conclusive and binding upon all persons with an interest in the Plan and shall be given the greatest deference permitted by law. Section 18. Limitation on Participants' Rights. A Participant's Capital Accumulation will be based solely upon his vested interest in his Accounts and will be paid only from the Trust Assets. The Company, the Committee or -37- Exhibit 10.61 the Trustee shall not have any duty or liability to furnish the Trust with any funds, securities or other assets, except as expressly provided in the Plan. The adoption and maintenance of the Plan shall not be deemed to constitute a contract of employment or otherwise between the Company and any Employee, or to be a consideration for, or an inducement or condition of, any employment. Nothing contained in this Plan shall be deemed to give an Employee the right to be retained in the Service of the Company or to interfere with the right of the Company to discharge, with or without cause, any Employee at any time. Section 19. Future of the Plan. The Company reserves the right to amend or terminate the Plan (in whole or in part) and the Trust Agreement at any time, by action of the Board of Directors. Neither amendment nor termination of the Plan shall retroactively reduce the vested rights of Participants or permit any part of the Trust Assets to be diverted to or used for any purpose other than for the exclusive benefit of the Participants (and their Beneficiaries). The Company specifically reserves the right to amend the Plan and the Trust Agreement retroactively in order to satisfy any applicable requirements of the Code and ERISA. If the Plan is terminated (or partially terminated), participation of Participants affected by the termination will end. If Employer Contributions are not replaced by contributions to a comparable plan which satisfies the requirements of Section 401(a) of the Code, the Accounts of all affected Participants shall become nonforfeitable. A complete discontinuance of -38- Exhibit 10.61 Employer Contributions shall be deemed to be a termination of the Plan for this purpose. After termination of the Plan, the Trust will be maintained until the Capital Accumulations of all Participants have been distributed. Capital Accumulations may be distributed following termination of the Plan or distributions may be deferred as provided in Section 11, as the Company shall determine. In the event that Company Stock is sold in connection with the termination of the Plan or the amendment of the Plan to become a qualified employee plan that is not a stock bonus plan, all Capital Accumulations may be distributed in cash. In the event of the merger or consolidation of this Plan with another plan, or the transfer of Trust Assets (or liabilities) to another plan, the Account balances of each Participant immediately after such merger, consolidation or transfer must be at least as great as immediately before such merger, consolidation or transfer (as if the Plan had then terminated). Section 20. "Top-Heavy" Contingency Provisions. (a) The provisions of this Section 20 are included in the Plan pursuant to Section 401(a)(10)(B)(ii) of the Code and shall become applicable only if the Plan becomes a "top-heavy plan" under Section 416(g) of the Code for any Plan Year. (b) The determination as to whether the Plan becomes "top-heavy" for any Plan Year shall be made as of the Allocation Date of the immediately preceding Plan Year by considering the Plan together with the 401(k) Plan. The Plan shall be "top-heavy" only if the total of the account balances under the Plan and the 401(k) Plan for "key employees" as of the determination date exceeds 60% of the total of the account balances for all Participants. For -39- Exhibit 10.61 such purpose, account balances shall be computed and adjusted pursuant to Section 416(g) of the Code. "Key employees" shall be certain Participants (who are officers or shareholders of the Company) and Beneficiaries described in Section 416(i)(1) or (5) of the Code. (c) For any Plan Year in which the Plan is "top-heavy," each Participant who is an Employee on the Allocation Date (and who is not a "key employee") shall receive a minimum allocation of Employer Contributions and Forfeitures which is equal to the lesser of: (1) 3% of his Compensation; or (2) the same percentage of his Compensation as the allocation to the "key employee" for whom the percentage is the highest for that Plan Year. For this purpose, the allocation to a "key employee" shall include any Elective Deferrals made on his behalf for the Plan Year to the 401(k) Plan. Section 21. Governing Law. The provisions of this Plan and the Trust Agreement shall be construed, administered and enforced in accordance with the laws of the State of California, to the extent such laws are not superseded by ERISA. Section 22. Execution. To record the amendment and restatement of the Plan, the Company has caused it to be executed on this 15th day of April, 1999. MEADE INSTRUMENTS CORP. By /s/ Steven G. Murdock ----------------------------- -40- Exhibit 10.61 MEADE INSTRUMENTS CORP. EMPLOYEE STOCK OWNERSHIP PLAN Amendment No. 1 to Amended and Restated Plan 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 "Compensation" under the Plan; and WHEREAS, it is desirable to clarify other provisions of the Plan. NOW, THEREFORE, the Plan is hereby amended as follows: 1. The definition of "Compensation" in Section 2 is restated, effective as of January 1, 2000, to read as follows: Compensation...................... The total wages and other compensation paid to an Employee by the Company during each Plan Year, as reported on the Employee's Tax and Wage Statement (Form W-2), including any Elective Deferrals made on his behalf to the 401(k) Plan and Exhibit 10.61 any amounts withheld pursuant to the Company's Cafeteria Plan (under Section 125 of the Code), but excluding employer contributions to a plan of deferred compensation, amounts realized in connection with stock options, amounts which receive special tax benefits, and any amount in excess of $170,000 (as adjusted after 2001 for increases in the cost of living pursuant to Section 401(a)(17) of the Code). 2. The definition of "Employee" in Section 2 is restated, effective as of January 1, 1997, to read as follows: Employee ......................... Any individual who is treated as a common-law employee by the Company; provided, however, that an independent contractor (or other individual) who is reclassified as a common-law employee on a retroactive basis shall not be treated as having been an Employee for purposes of the Plan for any period prior to the date that he is so reclassified. A leased employee is not an Employee for purposes of this Plan. For this purpose, a "leased employee," as described in Section 414(n) of the Code, is any individual who is not treated as a common-law employee by the Company or an Affiliate and who provides services to the Company or an Affiliate if (A) such services are provided pursuant to an agreement between the Company or an Affiliate and a leasing organization, (B) such individual has performed services for the Company or an Affiliate on a substantially full-time basis for a period of at least one year, and (C) such services are performed under the primary direction or control of the Company or an Affiliate. 3. The second paragraph of Section 12(a) is restated, effective as of January 1, 1999, to read as follows: -42- Exhibit 10.61 For each of the first five Plan Years in the Election Period, the Participant may elect to "diversify" an amount which does not exceed 25% of the number of shares of Company Stock allocated to his Company Stock Account (including for this purpose any shares of Company Stock distributed or withdrawn during the Election Period), less all shares with respect to which an election under this Section 12(a) was previously made. In the case of the sixth Plan Year in the Election Period, the Participant may elect to "diversify" an amount which does not exceed 50% of the number of shares of Company Stock allocated to his Company Stock Account (including for this purpose any shares of Company Stock distributed or withdrawn during the Election Period), less all shares with respect to which an election under this Section 12(a) was previously made. No "diversification" shall be permitted if the balance in a Participant's Company Stock Account as of the last day of the first Plan Year in the Election Period has a Fair Market Value of $500 or less, unless and until the balance in his Company Stock Account as of a subsequent Plan Year in the Election Period exceeds $500. 4. The first sentence of Section 13(d) is restated, effective as of January 1, 2000, to read as follows: If a distribution of a Participant's Capital Accumulation is neither one of a series of annual installments over a period of ten years (or more) nor a hardship withdrawal of "elective deferrals" as described in Section 401(k)(2)(IV) of the Code nor the minimum amount required to be distributed pursuant to the second sentence of Section 11(c) (an "eligible rollover distribution"), the Committee shall notify the Participant (or any spouse -43- Exhibit 10.61 or former spouse who is his alternate payee under a "qualified domestic relations order" (as defined in Section 414(p) of the Code)) of his right to elect to have the "eligible rollover distribution" paid directly to an "eligible retirement plan" (within the meaning of Section 401(a)(31) of the Code) that is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, a qualified trust described in Section 401(a) of the Code or a qualified annuity plan described in Section 403(a) of the Code that accepts "eligible rollover distributions." To record the adoption of this Amendment No. 1, the Company has caused it to be executed this _____ day of December, 2000. MEADE INSTRUMENTS CORP. By /s/ Brent W. Christensen -------------------------------- -44- Exhibit 10.61 MEADE INSTRUMENTS CORP. EMPLOYEE STOCK OWNERSHIP PLAN Amendment No. 2 to Amended and Restated Plan WHEREAS, Meade Instruments Corp. (the "Company") maintains the Meade Instruments Corp. Employee Stock Ownership Plan (the "Plan") for the benefit of eligible Employees; WHEREAS, it is necessary to amend the Plan to conform to certain provisions of the Internal Revenue Code of 1986, as amended by the Taxpayer Relief Act of 1997, the Community Renewal Tax Relief Act of 2000 and the Economic Growth and Tax Relief Reconciliation Act of 2001; and WHEREAS, it is desirable to clarify certain existing Plan provisions. NOW, THEREFORE, the Plan is hereby amended as follows: 1. Section 2 is amended by restating the definition of "Compensation" to read as follows, effective as of January 1, 2002: Compensation...................... The total wages and other compensation paid to an Employee by the Company during each Plan Year, as reported on the Employee's Tax and Wage Statement (Form W-2), including any Elective Exhibit 10.61 Deferrals made on his behalf to the 401(k) Plan, any amounts withheld pursuant to the Company's Cafeteria Plan (under Section 125 of the Code) and any "qualified transportation benefits" under Section 132(f)(4) of the Code, but excluding employer contributions to a plan of deferred compensation, amounts realized in connection with stock options, amounts which receive special tax benefits, and any amount in excess of $200,000 (as adjusted periodically by the Internal Revenue Service after 2002 for increases in the cost of living pursuant to Section 401(a)(17) of the Code). 2. Section 7(a) is amended by restating the first sentence thereof to read as follows, effective as of January 1, 2002: The Annual Additions for each Plan Year with respect to any Participant may not exceed the lesser of: (1) 100% of his Compensation; or (2) $40,000, as adjusted for increases in the cost of living pursuant to Section 415(d)(1)(C) of the Code. 3. Section 11(b) is amended by restating the last sentence thereof to read as follows, effective as of October 17, 2000: If the value of a Participant's Capital Accumulation exceeds $5,000, no portion of his Capital Accumulation may be distributed to him without his written consent before he attains age 62. -46- Exhibit 10.61 4. Section 13(b) is amended by restating the last sentence thereof to read as follows, effective as of January 1, 1999: A deceased Participant's entire Capital Accumulation shall be distributed to his Beneficiary on or before the December 31st of the calendar year that includes the fifth anniversary of his death, except to the extent that distribution has previously commenced in accordance with Section 11(b)(2). 5. Section 13(d) is restated to read as follows, effective as of January 1, 2002: If a distribution of a Participant's Capital Accumulation is neither one of a series of annual installments over a period of ten years (or more), a hardship withdrawal nor the minimum amount required to be distributed pursuant to the second sentence of Section 11(c) (an "eligible rollover distribution"), the Committee shall notify the Participant (or any spouse or former spouse who is his alternate payee under a "qualified domestic relations order" (as defined in Section 414(p) of the Code)) or the Participant's surviving spouse of his right to elect to have the "eligible rollover distribution" paid directly to an "eligible retirement plan" (within the meaning of Section 401(a)(31) of the Code) that is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, a qualified trust described in Section 401(a) of the Code, a qualified annuity plan described in Section 403(a) of the Code, an annuity contract described in Section 403(b) or an eligible plan described in Section 457(b) of the Code (which is maintained by a state, -47- Exhibit 10.61 political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state) that accepts "eligible rollover distributions." Any election under this Section 13(d) shall be made and effected in accordance with such rules and procedures as may be established from time to time by the Committee in order to comply with Section 401(a)(31) of the Code. To record the adoption of this Amendment No. 2 to the Plan, the Company has caused it to be executed this 18th day of December, 2002. MEADE INSTRUMENTS CORP. By /s/ Brent W. Christensen -------------------------- Brent W. Christensen -48- MEADE INSTRUMENTS CORP. EMPLOYEE STOCK OWNERSHIP PLAN Amendment No. 3 to Amended and Restated Plan WHEREAS, Meade Instruments Corp. (the "Company") maintains the Meade Instruments Corp. Employee Stock Ownership Plan (the "Plan") for the benefit of eligible Employees; and WHEREAS, it is necessary to amend the Plan to reflect the final regulations issued under Section 401(a)(9) of the Internal Revenue Code of 1986, as amended. NOW, THEREFORE, Section 11(c) is hereby amended by restating the second sentence thereof to read as follows, effective as of January 1, 2003: The distribution of the Capital Accumulation of any Participant who attains age 70-1/2 in a calendar year and who either (1) has terminated Service or (2) is a "5% owner" of Company Stock (as defined in Section 416(i)(1)(B)(i) of the Code), must commence not later than April 1st of the next calendar year and must be made in accordance with the regulations under Section 401(a)(9) of the Code, including Section 1.401(a)(9)-2 (as modified by the Section 401(a)(9) Final and Temporary Regulations published in the Federal Register on April 17, 2002). To record the adoption of this Amendment No. 3 to the Plan, the Company has caused it to be executed this 15th day of December, 2003. MEADE INSTRUMENTS CORP. By /s/ Brent W. Christensen -------------------------------- Brent W. Christensen MEADE INSTRUMENTS CORP. EMPLOYEE STOCK OWNERSHIP PLAN Amendment No. 4 to Amended and Restated Plan WHEREAS, Meade Instruments Corp. (the "Company") maintains the Meade Instruments Corp. Employee Stock Ownership Plan (the "Plan") for the benefit of eligible Employees; and WHEREAS, it is desirable to amend the Plan to restrict involuntary distributions to amounts of $1,000 or less so that the Plan may be exempt from the automatic rollover requirement imposed by Section 401(a)(31)(B) of the Internal Revenue Code of 1986, as amended, as modified by the Economic Growth and Tax Relief Reconciliation Act of 2001. NOW, THEREFORE, Section 11(b) of the Plan is hereby amended by restating the last sentence thereof to read as follows, effective for distributions made after March 27, 2005: If the value of a Participant's Capital Accumulation exceeds $1,000, no portion of his Capital Accumulation may be distributed to him without his written consent before he attains age 62. To record the adoption of this Amendment No. 4 to the Plan, the Company has caused it to be executed this 16th day of February, 2004. MEADE INSTRUMENTS CORP. By /s/ Brent W. Christensen -------------------------------- Brent W. Christensen -51- EX-10.62 3 a09557exv10w62.htm EXHIBIT 10.62 exv10w62

Exhibit 10.62

ESOP LOAN AND PLEDGE AGREEMENT

by and between

MEADE INSTRUMENTS CORP.

and the

MEADE INSTRUMENTS CORP.

EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

Dated April 23, 1996

Exhibit 10.62

TABLE OF CONTENTS


		Page
ARTICLE 1		3

The ESOP Loan		3
1.1 Loan to ESOP		3
1.2 Use of Proceeds		3
1.3 Promissory Note		3
1.4 Interest		3

ARTICLE 2		3

Loan Payments		3
2.1 Payments of Principal and Interest		3
2.2 Company Contributions		4
2.3 Not Payable on Demand; Default		4
2.4 Limitation on Payments		5
2.5 Due on Sale or Liquidation		6

ARTICLE 3		6

Representations and Warranties of the ESOP		6
3.1 Authorizations		6
3.2 Compliance with Obligations and Laws		7

ARTICLE 4		7

Representations and Warranties of the Company		7
4.1 Corporate Authority		7
4.2 ESOP Adoption		8
4.3 Compliance with Laws and Obligations		8
4.4 Representations and Warranties under Fleet Loan Agreement and Churchill Agreement		8
4.5 Governmental Consent		9

ARTICLE 5		9

Pledge of Shares		9
5.1 Pledge		9
5.2 Release of Shares from Pledge		9
5.3 Default		10

ARTICLE 6

Special Put Option Price		11
6.1 Duration		11
6.2 Put Option Under The ESOP		11

ARTICLE 7		11

Miscellaneous		11
7.1 Amendments, Waivers and Modifications		11
7.2 No Waiver		12
7.3 Survival of Covenants, Etc.; Successors and

Exhibit 10.62


Assigns			12
7.4 Communications			12
7.5 Capacity			13
7.6 Entire Agreement			13
7.7 Governing Law			13
7.8 Compliance with Applicable Law			13
7.9 Headings			14
7.10 Counterparts			14
7.11 Severability			15

Exhibit 10.62

ESOP LOAN AND PLEDGE AGREEMENT

THIS AGREEMENT, effective as of April 23, 1996, by and between MEADE INSTRUMENTS CORP., a California 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 has adopted the ESOP to provide stock ownership interests in the Company to eligible employees, and the ESOP is designed to be an employee stock ownership plan under Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended (the “Code”), and Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”);

WHEREAS, the Diebel Living Trust u/d/t dated January 12, 1995, the Murdock 1986 Trust u/d/t dated October 23, 1986, Ronald Ezra and Joseph A. Gordon, Jr. (the “Sellers”), shareholders of the Company, have offered to sell all of the 1,500,000 shares of Series B Common Stock of the Company (the “Shares”) to the ESOP for a total purchase price of $10,999,950;

WHEREAS, the Company is willing to make a loan to the ESOP in the amount of $10,999,950 (the “Loan”) in order to enable the ESOP to finance its purchase of the Shares, subject to the condition that the ESOP pledge the Shares to the Company as security for the Loan;

WHEREAS, the Company will obtain funds needed to make the Loan and for other corporate purposes through the combination of a term loan (“Fleet Loan”) in the amount of $9,500,000 from Fleet Capital Corporation (“Fleet”) pursuant to the terms of the Loan and Security Agreement by and between Fleet and the Company (“Fleet Loan Agreement”) and the sale of $6 million of newly-issued preferred stock to Churchill ESOP Capital Partners

Exhibit 10.62

(“Churchill”) pursuant to the terms of the Securities Purchase Agreement by and between the Company and Churchill (“Churchill Agreement”);

WHEREAS, the ESOP desires to incur the Loan in order to finance its purchase of the Shares; and

WHEREAS, Wells Fargo Bank, N.A., as Trustee of the ESOP (the “Trustee”) has determined that the proposed purchase of the Shares and the borrowing of the Loan are in the best interests of the ESOP and its participants and comply with the applicable requirements of the Code and ERISA;

NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE 1

The ESOP Loan

1.1 Loan to ESOP. Subject to the terms and conditions herein set forth, the Company agrees to lend $10,999,950 to the ESOP.

1.2 Use of Proceeds. The ESOP hereby agrees that it will use the entire proceeds of the Loan to purchase the Shares and for no other purpose.

1.3 Promissory Note. The Loan is evidenced by a secured promissory note in the original principal amount of $10,999,950 (the “Note”) to be delivered by the ESOP to the Company, in the form attached hereto.

1.4 Interest. Interest shall accrue on the unpaid principal amount of the Note at the rate of 6% per annum.

ARTICLE 2

-2-

Exhibit 10.62

Loan Payments

2.1 Payments of Principal and Interest.

(a) Interest – The ESOP shall pay interest (including interest on overdue payments) on the unpaid portion of the ESOP Loan semi-annually on each August 31st and March 1st, commencing August 31, 1996, at an annual rate equal to 6%.

(b) Principal – Principal on the Note shall be due and payable in 20 consecutive semi-annual installments on each August 31st and March 1st, beginning August 31, 1996, in the amount of $550,000.00. Any remaining principal balance (including the final installment of $549,950) and accrued interest shall be due and payable on March 1, 2006.

(c) Optional Prepayment – The ESOP may prepay amounts due hereunder in whole or in part at any time, and from time to time, without premium or penalty. Any prepayment under this Section 2.1(c) shall be applied first to accrued interest and then to payments of principal in the order of maturity.

(d) Form of Payment – Payments of principal and/or interest on the ESOP Loan may be made to the Company by the ESOP in cash or by cancellation of indebtedness by the Company evidenced by written notice to the ESOP.

2.2 Company Contributions. The Company hereby agrees to make contributions to the ESOP in cash or by cancellation of indebtedness from time to time in amounts sufficient to permit the ESOP to make timely payments of the principal and interest due under Section 2.1(a) and (b), after taking into account the amount of any cash dividends on the Shares received by the ESOP; provided, however, that the Company shall not be required to make contributions to the ESOP in amounts in excess of the limitations under Sections 404(a) and 415(c) of the Code. The ESOP agrees that so long as any interest or principal amount remains payable on the Loan, the ESOP will use all cash contributions and cash dividends on the Shares received by the ESOP to make payments on the Loan.

2.3 Not Payable on Demand; Default. Under no circumstances will the outstanding balance of the Loan be payable on demand, except in the case of an Event of Default. For this purpose, the only Event of Default

-3-

Exhibit 10.62

hereunder shall be the ESOP’s failure to make the payments required under Section 2.1(a) and (b), but only if the ESOP has received sufficient cash contributions and dividends from the Company to make such payments.

2.4 Limitation on Payments. Subject to the provisions of Section 5.3, payments of principal and interest on the ESOP Loan shall not exceed the sum of all Company contributions (excluding any contributions of Company Stock) that are made to the ESOP by Company to enable the ESOP to meet its obligations under this Agreement, any earnings on such Company contributions and any cash dividends on the Shares (whether or not such Shares have been released from pledge under Section 5.2 at the time the dividend is paid), less payments made in prior years. The Company shall have no recourse against the assets of the ESOP other than (a) cash contributions that are made to the ESOP by the Company to enable the ESOP to meet its obligations hereunder, (b) any earnings attributable to the investment of such cash contributions, (c) any cash dividends on the Shares, and (d) the Shares remaining subject to pledge under Article 5, but only to the extent permitted under Section 5.3. Notwithstanding the foregoing provisions, the ESOP may elect to apply the proceeds from the sale of any Shares remaining subject to pledge under Article 5 to pay principal and accrued interest due on the ESOP Loan in the event of the sale of the Company (including a transaction subject to Section 2.5) or the termination of the ESOP or if the ESOP ceases to be an employee stock ownership plan under Section 4975(e)(7) of the Code.

2.5 Due on Sale or Liquidation.

(a) Due on Sale – In the event the ESOP agrees to sell all of the Shares it owns in connection with the acquisition of the Company, the ESOP shall apply the proceeds from the sale of any Shares then remaining subject to pledge under Article 5 to the extent necessary to repay the Loan. The mandatory repayment of the Loan provided for in this Section 2.5 shall apply only if the sale of Shares by the ESOP has been approved by a fiduciary who is “independent,” within the meaning of Department of Labor Prop. Reg. Sec. 2510.3-18(b)(3)(ii)(B)(1).

(b) Due on Liquidation – In the event of a liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the ESOP shall apply the proceeds attributable to any Shares then remaining subject to pledge under Article 5 to the extent necessary to repay the Loan.

-4-

Exhibit 10.62

ARTICLE 3

Representations and Warranties of the ESOP

The ESOP, as of the date hereof, represents and warrants as follows:

3.1 Authorizations. This Agreement has been duly authorized by all necessary action on the part of the ESOP. This Agreement has been duly executed and delivered by the ESOP and constitutes a legal, valid and binding obligation of the ESOP, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization and other similar laws affecting creditors’ rights generally and subject, as to enforceability, to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law).

3.2 Compliance with Obligations and Laws. Neither the execution and delivery by the ESOP of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance by the ESOP with its obligations hereunder, will conflict with, or result in a breach or violation of, or constitute a default under, any provision of the ESOP or any law, rule, regulation, order, injunction or decree of any court, administrative authority or arbitrator applicable to the ESOP.

ARTICLE 4

Representations and Warranties of the Company

-5-

Exhibit 10.62

The Company, as of the date hereof, hereby represents and warrants as follows:

4.1 Corporate Authority. It has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement. The Company has taken all corporate action to authorize the Loan and the execution of this Agreement by the Company. This Agreement has been duly executed and delivered by the Company.

4.2 ESOP Adoption. The ESOP is an “employee stock ownership plan” (as such term is defined in Section 4975(e)(7) of the Code) duly established by the Company, and the Trustee has been duly appointed by the Company and has all requisite power and authority to execute, deliver and perform its obligations under this Agreement.

4.3 Compliance with Laws and Obligations. Neither the execution of this Agreement by the Company nor the fulfillment of any of the Company’s obligations under this Agreement will, to the Company’s knowledge, conflict with, or result in a breach or violation of, or constitute a default under any law, rule, regulation, order or injunction binding on the Company, or any other obligation, loan, contract or agreement of the Company.

4.4 Representations and Warranties under Fleet Loan Agreement and Churchill Agreement. Each of the representations and warranties in Section 7.1 of the Fleet Loan Agreement with respect to the Company, and each of the representations and warranties in Section 4 of the Churchill Agreement with respect to the Company, is hereby incorporated mutatis mutandis (without regard to any waiver or amendment thereto from the form of the Fleet Loan Agreement and the Churchill Agreement in the form existing on the date most recently delivered to the ESOP (whether or not executed or delivered), other than those waivers and amendments of which the ESOP has been advised a reasonable time prior to the closing of the purchase of the Shares and that are subsequently confirmed to the ESOP in writing).

4.5 Governmental Consent. No approval, consent or withholding of objection on the part of any regulatory body, state, Federal or local, is necessary in connection with the execution and delivery by the

-6-

Exhibit 10.62

Company of this Agreement or the issuance, sale or delivery of the Shares or compliance by the Company with any of the provisions of this Agreement.

ARTICLE 5

Pledge of Shares

5.1 Pledge. The Shares are hereby pledged by the ESOP to the Company as collateral for the Loan, and the ESOP hereby grants to the Company a security interest in the Shares, all free and clear of any other pledge, security interest, lien or encumbrance. So long as there is no Event of Default, the ESOP shall receive all dividends paid with respect to the Shares and exercise all voting rights with respect to the Shares, subject to the applicable provisions of the ESOP.

5.2 Release of Shares from Pledge. As of each date that a payment of principal is made under the Loan, a number of the Shares shall be released from pledge hereunder. The number of Shares to be so released shall be calculated by multiplying the number of Shares held by the Company under the pledge (immediately before the release) by a fraction. The numerator of the fraction shall be the amount of the principal payment being made on that date. The denominator of the fraction shall be the sum of the numerator plus the remaining outstanding principal balance under the Loan. If at any time the ESOP fails to meet the requirements of Treasury Regulation Section 54.4975-7(b)(8)(ii), thereafter, the number of Shares released from pledge hereunder and delivered by the Company to the ESOP shall be calculated in accordance with the Principal/Interest Method set forth in Section 6(c)(1) of the ESOP.

5.3 Default. In the event of a failure of the ESOP to make any payment of principal or interest due under the Loan after receipt by the ESOP from the Company of cash contributions and cash dividends sufficient to make such payment, the Company may notify the ESOP that an Event of Default has occurred. If such an Event of Default shall occur and be continuing for a period of thirty days following receipt of such notice, the Company shall then have the right to transfer ownership of the Shares that remain subject to the pledge under Section 5.1 out of

-7-

Exhibit 10.62

the name of the ESOP and may apply the value thereof toward the payment of the ESOP’s obligations hereunder; provided, however, that (a) the fair market value of the Shares to be so applied in satisfaction of the Loan shall not exceed the amount (of principal and interest) then in default (without acceleration), and (b) such Shares shall be so transferred only upon and to the extent of the failure of the ESOP to make timely payments as required under Article 2.

ARTICLE 6

Special Put Option Price

6.1 Duration. If an ESOP participant or beneficiary is entitled to receive a distribution from the ESOP prior to the date the Shares convert into Series A Common Stock under the terms of the Amended and Restated Articles of Incorporation of the Company (as in effect on the date of this Agreement), such distribution must be made in the form of Shares (and not in cash) if the then Fair Market Value (as defined in the ESOP) of the Shares is less than the Liquidation Preference, as defined in Section 3.1(b) of the Amended and Restated Articles of Incorporation of the Company (as in effect on the date of this Agreement).

6.2 Put Option Under The ESOP. If an ESOP participant or beneficiary exercises the put option granted to him under Section 14(b) of the ESOP with respect to Shares distributed under the circumstances described in Section 6.1, the Company will purchase such Shares at a per share price equal to the Liquidation Preference.

ARTICLE 7

Miscellaneous

7.1 Amendments, Waivers and Modifications. No amendment, waiver, or modification of any provision of this Agreement shall be effective unless set forth in an instrument in writing signed by both parties to this Agreement.

-8-

Exhibit 10.62

7.2 No Waiver. No delay or failure of the Company or the ESOP in exercising any right, power or privilege hereunder shall affect such right, power or privilege; nor shall any single or partial exercise thereof nor any abandonment or discontinuance of steps to enforce such a right, power or privilege preclude any further exercise thereof or any other right, power or privilege of the Company or the ESOP. The rights and remedies of the Company and the ESOP hereunder are cumulative and not exclusive. Any waiver, permit, consent or approval of any kind by the Company or the ESOP of any breach or default hereunder, or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in such writing.

7.3 Survival of Covenants, Etc.; Successors and Assigns. So long as any amount shall be outstanding under the Loan, all covenants, agreements, representations and warranties made by the Company and the ESOP in this Agreement and in any certificate or other document delivered pursuant hereto shall inure to the benefit of the Company or the ESOP, as the case may be, and shall be binding upon any successors and assigns of the Company or the ESOP, as the case may be.

7.4 Communications. All notices and other communications which are required or may be given hereunder shall be in writing, shall be effective upon receipt and shall be deemed to have been duly given if delivered personally or sent by cable, telegram, telex or facsimile or by registered or certified mail, postage prepaid, sent to the following addresses:


If to the Company:	Meade Instruments Corp.
		16542 Millikan Avenue
		Irvine, California 92714

		Attn: Chief Financial Officer

If to the ESOP:	Wells Fargo Bank, N.A.,
		As Trustee of the
		Meade Instruments Corp. Employee
		Stock Ownership Plan and Trust
		707 Wilshire Boulevard
		Los Angeles, California 90017

		Attn: Ms. Elyse Weise
		Vice President and Manager

with a copy to:Administrative Committee of the
		Meade Instruments Corp.

-9-

Exhibit 10.62


				Employee Stock Ownership Plan
		16542 Millikan Avenue
		Irvine, California 92714

		Attn: Committee Chairman

Such addresses may be changed from time to time by notice to the ESOP, in the case of the Company, and by notice to the Company, in the case of the ESOP.

7.5 Capacity. The Trustee is executing this Agreement solely in its capacity as trustee of the ESOP, and not in either its corporate or individual capacity.

7.6 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the Loan.

7.7 Governing Law. This Agreement shall be governed by, and interpreted in accordance with, the substantive laws of the State of California, except as preempted by ERISA.

7.8 Compliance with Applicable Law. It is intended that the loan and the pledge of the Shares contemplated hereunder, including all terms and provisions of this Agreement and the Secured Promissory Note, shall qualify for exemption under Section 4975(d)(3) of the Code from being a prohibited transaction under Section 4975(c) of the Code, and shall qualify for exemption under Section 408(b)(3) of ERISA from being a prohibited transaction under Section 406 of ERISA. Notwithstanding anything herein or in any of the aforementioned documents to the contrary, (i) neither the Company nor the ESOP shall take any action or fail to take any action the result of which would cause any portion or all of the transaction contemplated hereby to be a prohibited transaction under Section 4975(c) of the Code or Section 406 of ERISA, (ii) any action in contravention of this provision shall be null and void and unenforceable, and (iii) in the event that any portion of the transaction contemplated hereby is determined to be or it appears reasonably certain to be such a prohibited transaction, the parties shall take such action as shall be reasonably necessary and appropriate to correct any such prohibited transaction.

7.9 Headings. The Table of Contents and headings of the Articles and Sections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part hereof.

-10-

Exhibit 10.62

7.10 Counterparts. This Agreement may be executed in one or more counterparts each of which shall be deemed to constitute an original and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other party.

-11-

Exhibit 10.62

7.11 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision hereunder.

IN WITNESS WHEREOF, the Company and the ESOP have executed this ESOP Loan and Pledge Agreement as of this 23^rd day of April, 1996.


MEADE INSTRUMENTS CORP.

By		/s/ STEVEN MURDOCK

		President

MEADE INSTRUMENTS CORP. EMPLOYEE
STOCK OWNERSHIP PLAN AND TRUST

By:		Wells Fargo Bank,
		N.A., not in an individual
		or corporate capacity, but
		solely in its capacity
		as Trustee

	By:	/s/ ELYSE WEISE

-1-

Exhibit 10.62

AMENDMENT NO. 1 TO

ESOP LOAN AND PLEDGE AGREEMENT

THIS AGREEMENT, made this 1^st 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;

-1-

Exhibit 10.62

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 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 26^thday 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-

Exhibit 10.62

AMENDMENT NO. 2 TO

ESOP LOAN AND PLEDGE AGREEMENT

THIS AGREEMENT, made as of the 31^st of December, 1998, 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”), and the Agreement was subsequently amended on May 1, 1997, in connection with the initial public offering of Common Stock of the Company;

WHEREAS, the Trustee of the ESOP has independently determined that the extension of the ESOP Loan maturity date until March 1, 2016, as proposed by the Company, is in the best interests of the ESOP participants, is primarily for the benefit of the ESOP participants, and complies with the applicable requirements of the Employee Retirement Income Security Act of 1974, as amended; and

WHEREAS, the Company and the Trustee of the ESOP have agreed to the proposed extension of the maturity date of the ESOP Loan until March 1, 2016, and it is necessary to

-1-

Exhibit 10.62

amend the Agreement in order to change the amortization schedule under the ESOP Loan to reflect the extension of the maturity date;

NOW, THEREFORE, the parties hereto agree that the Agreement is hereby further amended, effective as of December 31, 1998, as follows:

1. Section 1.3 is amended by adding the following new sentence at the end thereof:

As of December 31, 1998, such note is to be canceled, with a restated secured promissory note to be issued in the remaining principal amount of $8,005,000.

2. Section 2.1(a) and (b) are restated 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 March 1^st of each year, commencing March 1, 1999, until such time as principal has been paid in full.

(b) Principal – The principal balance of $8,005,000 remaining due on the restated Note as of December 31, 1998, shall be due and payable in 18 consecutive annual installments of $444,722.22 not later than March 1^st in each of the years 1999 — 2016.

-2-

Exhibit 10.62

3. Section 5.2 is restated to read as follows:

5.2 Release of Shares from Pledge. As of each date that a payment of principal is made under the Loan, a number of Shares shall be released from pledge hereunder. The number of Shares to be so released shall be calculated by multiplying the number of Shares held by the Company under the pledge (immediately before the release) by a fraction. The numerator of the fraction shall be the amount of principal and/or interest paid on that date. The denominator of the fraction shall be the sum of the numerator and the remaining payments of principal and interest projected to be payable on the Loan under Section 2.1.

IN WITNESS WHEREOF, the Company and the Trustee of the ESOP have executed this Amendment No. 2 this 31^st day of December, 1998.


		MEADE INSTRUMENTS CORP.

		By		/s/ Brent W. Christensen

				Brent W. Christensen, Vice President and
				Chief Financial Officer

		MEADE INSTRUMENTS CORP. EMPLOYEE
		STOCK OWNERSHIP PLAN AND TRUST

		By:		Wells Fargo Bank, N.A.,
				not in an individual or corporate capacity,
				but solely in its capacity as Trustee

		By		/s/ Ellen L. Yeany

				Ellen L. Yeany, Vice President

		By:		/s/ Frances J. Jones

				Frances J. Jones, Vice President

-3-

EX-10.63 4 a09557exv10w63.txt EXHIBIT 10.63 Exhibit 10.63 MEADE INSTRUMENTS CORP. 1997 STOCK INCENTIVE PLAN, AS AMENDED . . . Exhibit 10.63 TABLE OF CONTENTS 1. THE PLAN.......................................................................1 1.1 Purpose............................................................1 1.2 Administration and Authorization; Power and Procedure..............1 1.3 Participation......................................................2 1.4 Shares Available for Awards; Share Limits..........................3 1.5 Grant of Awards....................................................3 1.6 Award Period.......................................................4 1.7 Limitations on Exercise and Vesting of Awards......................4 1.8 Acceptance of Notes to Finance Exercise............................4 1.9 No Transferability; Limited Exception to Transfer Restrictions.....5 2. OPTIONS........................................................................6 2.1 Grants.............................................................6 2.2 Option Price.......................................................6 2.3 Limitations on Grant and Terms of Incentive Stock Options..........7 2.4 Limits on 10% Holders..............................................7 2.5 Option Repricing/Cancellation and Regrant/Waiver of Restrictions...8 2.6 Options and Rights in Substitution for Stock Options Granted by Other Corporations.................................................8 3. STOCK APPRECIATION RIGHTS (INCLUDING LIMITED STOCK APPRECIATION RIGHTS)........8 3.1 Grants.............................................................8 3.2 Exercise of Stock Appreciation Rights..............................8 3.3 Payment............................................................9 3.4 Limited Stock Appreciation Rights..................................9 4. RESTRICTED STOCK AWARDS.......................................................10 4.1 Grants............................................................10 4.2 Restrictions......................................................10 4.3 Return to the Corporation.........................................11 5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES....................................11 5.1 Grants of Performance Share Awards................................11 5.2 Special Performance-Based Share Awards............................11 5.3 Grants of Stock Bonuses...........................................13 5.4 Deferred Payments.................................................13 6. OTHER PROVISIONS..............................................................13 6.1 Rights of Eligible Persons, Participants and Beneficiaries........13 6.2 Adjustments; Acceleration.........................................14 6.3 Effect of Termination of Employment...............................15 6.4 Compliance with Laws..............................................16

i Exhibit 10.63
Page ---- 6.5 Tax Withholding...................................................16 6.6 Plan Amendment, Termination and Suspension........................17 6.7 Privileges of Stock Ownership.....................................18 6.8 Effective Date of the Plan........................................18 6.9 Term of the Plan..................................................18 6.10 Governing Law/Construction/Severability...........................18 6.11 Captions..........................................................19 6.12 Effect of Change of Subsidiary Status.............................19 6.13 Non-Exclusivity of Plan...........................................19 7. DEFINITIONS ..................................................................19 7.1 Definitions.......................................................19 8. NON-EMPLOYEE DIRECTOR OPTIONS.................................................24 8.1 Participation.....................................................24 8.2 Annual Option Grants..............................................25 8.3 Option Price......................................................25 8.4 Option Period and Exercisability..................................25 8.5 Termination of Directorship.......................................25 8.6 Adjustments.......................................................26 8.7 Acceleration Upon a Change in Control Event.......................26
ii Exhibit 10.63 MEADE INSTRUMENTS CORP. 1997 STOCK INCENTIVE PLAN, AS AMENDED 1. THE PLAN 1.1 Purpose The purpose of this Plan is to promote the success of the Company by providing an additional means through the grant of Awards to attract, motivate, retain and reward key employees, including officers, whether or not directors, of the Company with awards and incentives for high levels of individual performance and improved financial performance of the Company and to attract, motivate and retain experienced and knowledgeable independent directors through the benefits provided under Article 8. "Corporation" means Meade Instruments Corp., a California corporation, and "Company" means the Corporation and its Subsidiaries, collectively. These terms and other capitalized terms are defined in Article 7. 1.2 Administration and Authorization; Power and Procedure. (a) Committee. This Plan shall be administered by and all Awards to Eligible Persons shall be authorized by the Committee. Action of the Committee with respect to the administration of this Plan shall be taken pursuant to a majority vote or by written consent of its members. (b) Plan Awards; Interpretation; Powers of Committee. Subject to the express provisions of this Plan, the Committee shall have the authority: (i) to determine from among those persons eligible the particular Eligible Persons who will receive any Awards; (ii) to grant Awards to Eligible Persons, determine the price at which securities will be offered or awarded and the amount of securities to be offered or awarded to any of such persons, and determine the other specific terms and conditions of such Awards consistent with the express limits of this Plan, and establish the installments (if any) in which such Awards shall become exercisable or shall vest, or determine that no delayed exercisability or vesting is required, and establish the events of termination or reversion of such Awards; (iii) to approve the forms of Award Agreements (which need not be identical either as to type of award or among Participants); Exhibit 10.63 (iv) to construe and interpret this Plan and any agreements defining the rights and obligations of the Company and Participants under this Plan, further define the terms used in this Plan, and prescribe, amend and rescind rules and regulations relating to the administration of this Plan; (v) to cancel, modify, or waive the Corporation's rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding Awards held by Eligible Persons, subject to any required consent under Section 6.6; (vi) to accelerate or extend the exercisability or extend the term of any or all such outstanding Awards within the maximum ten-year term of Awards under Section 1.6; and (vii) to make all other determinations and take such other action as contemplated by this Plan or as may be necessary or advisable for the administration of this Plan and the effectuation of its purposes. Notwithstanding the foregoing, the provisions of Article 8 relating to Non-Employee Director Awards shall be automatic and, to the maximum extent possible, self-effectuating. (c) Binding Determinations. Any action taken by, or inaction of, the Corporation, any Subsidiary, the Board or the Committee relating or pursuant to this Plan shall be within the absolute discretion of that entity or body and shall be conclusive and binding upon all persons. No member of the Board or Committee, or officer of the Corporation or any Subsidiary, shall be liable for any such action or inaction of the entity or body, of another person or, except in circumstances involving bad faith, of himself or herself. Subject only to compliance with the express provisions hereof, the Board and Committee may act in their absolute discretion in matters within their authority related to this Plan. (d) Reliance on Experts. In making any determination or in taking or not taking any action under this Plan, the Committee or the Board, as the case may be, may obtain and may rely upon the advice of experts, including professional advisors to the Corporation. No director, officer or agent of the Company shall be liable for any such action or determination taken or made or omitted in good faith. (e) Delegation. The Committee may delegate ministerial, non-discretionary functions to individuals who are officers or employees of the Company. 1.3 Participation. Awards may be granted by the Committee only to those persons that the Committee determines to be Eligible Persons. An Eligible Person who has been granted an Award may, if otherwise eligible, be granted additional Awards if the Committee shall so determine. 2 Exhibit 10.63 1.4 Shares Available for Awards; Share Limits. (a) Shares Available. Subject to the provisions of Section 6.2, the capital stock that may be delivered under this Plan shall be shares of the Corporation's authorized but unissued Common Stock and any shares of its Common Stock held as treasury shares. The shares may be delivered for any lawful consideration. (b) Share Limits. The maximum number of shares of Common Stock that may be delivered pursuant to Awards (including Incentive Stock Options) granted to Eligible Persons under this Plan shall not exceed 5,500,000 shares (the `Share Limit'). The maximum number of shares of Common Stock that may be delivered under the provisions of Article 8 shall not exceed 250,000 shares. The maximum number of shares subject to those Options and Stock Appreciation Rights that are granted during any calendar year to any individual shall be limited to 500,000 shares. Each of the three foregoing numerical limits shall be subject to adjustment as contemplated by this Section 1.4 and Section 6.2. (b) Share Reservation; Replenishment and Reissue of Unvested Awards. No Award may be granted under this Plan unless, on the date of grant, the sum of (i) the maximum number of shares issuable at any time pursuant to such Award, plus (ii) the number of shares that have previously been issued pursuant to Awards granted under this Plan, other than reacquired shares available for reissue consistent with any applicable legal limitations, plus (iii) the maximum number of shares that may be issued at any time after such date of grant pursuant to Awards that are outstanding on such date, does not exceed the Share Limit. Shares that are subject to or underlie Awards which expire or for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered under this Plan, as well as reacquired shares, shall again, except to the extent prohibited by law, be available for subsequent Awards under the Plan. Except as limited by law, if an Award is or may be settled only in cash, such Award need not be counted against any of the limits under this Section 1.4. 1.5 Grant of Awards. Subject to the express provisions of this Plan, the Committee shall determine the number of shares of Common Stock subject to each Award, the price (if any) to be paid for the shares or the Award and, in the case of Performance Share Awards, in addition to matters addressed in Section 1.2(b), the specific objectives, goals and performance criteria (such as an increase in sales, market value, earnings or book value over a base period, the years of service before vesting, the relevant job classification or level of responsibility or other factors) that further define the terms of the Performance Share Award. Each Award shall be evidenced by an Award Agreement signed by the Corporation and, if required by the Committee, by the Participant. 3 Exhibit 10.63 1.6 Award Period. Each Award and all executory rights or obligations under the related Award Agreement shall expire on such date (if any) as shall be determined by the Committee, but in the case of Options or other rights to acquire Common Stock not later than ten (10) years after the Award Date. 1.7 Limitations on Exercise and Vesting of Awards. (a) Provisions for Exercise. Unless the Committee otherwise expressly provides, no Award shall be exercisable or shall vest until at least six months after the initial Award Date, and once exercisable an Award shall remain exercisable until the expiration or earlier termination of the Award. (b) Procedure. Any exercisable Award shall be deemed to be exercised when the Secretary of the Corporation receives written notice of such exercise from the Participant, together with any required payment made in accordance with Section 2.2(a) or 8.4, as the case may be. (c) Fractional Shares/Minimum Issue. Fractional share interests shall be disregarded, but may be accumulated. The Committee, however, may determine in the case of Eligible Persons that cash, other securities, or other property will be paid or transferred in lieu of any fractional share interests. No fewer than 100 shares may be purchased on exercise of any Award at one time unless the number purchased is the total number at the time available for purchase under the Award. 1.8 Acceptance of Notes to Finance Exercise. The Corporation may, with the Committee's approval, accept one or more notes from any Eligible Person in connection with the exercise or receipt of any outstanding Award; provided that any such note shall be subject to the following terms and conditions: (a) The principal of the note shall not exceed the amount required to be paid to the Corporation upon the exercise or receipt of one or more Awards under the Plan and the note shall be delivered directly to the Corporation in consideration of such exercise or receipt. (b) The initial term of the note shall be determined by the Committee; provided that the term of the note, including extensions, shall not exceed a period of five years. (c) The note shall provide for full recourse to the Participant and shall bear interest at a rate determined by the Committee but not less than the interest rate necessary to avoid the imputation of interest under the Code. 4 Exhibit 10.63 (d) If the employment of the Participant terminates, the unpaid principal balance of the note shall become due and payable on the 10th business day after such termination; provided, however, that if a sale of such shares would cause such Participant to incur liability under Section 16(b) of the Exchange Act, the unpaid balance shall become due and payable on the 10th business day after the first day on which a sale of such shares could have been made without incurring such liability assuming for these purposes that there are no other transactions (or deemed transactions in securities of this Corporation) by the Participant subsequent to such termination. (e) If required by the Committee or by applicable law, the note shall be secured by a pledge of any shares or rights financed thereby in compliance with applicable law. (f) The terms, repayment provisions, and collateral release provisions of the note and the pledge securing the note shall conform with applicable rules and regulations of the Federal Reserve Board as then in effect. 1.9 No Transferability; Limited Exception to Transfer Restrictions. (a) Limit On Exercise and Transfer. Unless otherwise expressly provided in (or pursuant to) this Section 1.9, by applicable law and by the Award Agreement, as the same may be amended, (i) all Awards are non-transferable and shall not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; Awards shall be exercised only by the Participant; and (ii) amounts payable or shares issuable pursuant to an Award shall be delivered only to (or for the account of) the Participant. (b) Exceptions. The Committee may permit Awards to be exercised by and paid only to certain persons or entities related to the Participant, including but not limited to members of the Participant's family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Participant's family and/or charitable institutions, or to such other persons or entities as may be approved by the Committee, pursuant to such conditions and procedures as the Committee may establish. Any permitted transfer shall be subject to the condition that the Committee receive evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes on a gratuitous or donative basis and without consideration (other than nominal consideration). Notwithstanding the foregoing, Incentive Stock Options and Restricted Stock Awards shall be subject to any and all additional transfer restrictions under the Code. (c) Further Exceptions to Limits On Transfer. The exercise and transfer restrictions in Section 1.9(a) shall not apply to: (i) transfers to the Corporation, (ii) the designation of a beneficiary to receive benefits in the event of the Participant's death or, if the Participant has died, transfers to or exercise by 5 Exhibit 10.63 the Participant's beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution, (iii) transfers pursuant to a QDRO order if approved or ratified by the Committee, (iv) if the Participant has suffered a disability, permitted transfers or exercises on behalf of the Participant by his or her legal representative, or (v) the authorization by the Committee of "cashless exercise" procedures with third parties who provide financing for the purpose of (or who otherwise facilitate) the exercise of Awards consistent with applicable laws and the express authorization of the Committee. Notwithstanding the foregoing, Incentive Stock Options and Restricted Stock Awards shall be subject to any and all additional transfer restrictions under the Code. 2. OPTIONS. 2.1 Grants. One or more Options may be granted under this Article to any Eligible Person. Each Option granted shall be designated in the applicable Award Agreement, by the Committee as either an Incentive Stock Option, subject to Section 2.3, or a Non-Qualified Stock Option; provided, however, that Incentive Stock Options may only be granted to Eligible Persons who are employees of the Company. 2.2 Option Price. (a) Pricing Limits. The purchase price per share of the Common Stock covered by each Option shall be determined by the Committee at the time of the Award, but in the case of Incentive Stock Options shall not be less than 100% (110% in the case of a Participant described in Section 2.4) of the Fair Market Value of the Common Stock on the date of grant. (b) Payment Provisions. The purchase price of any shares purchased on exercise of an Option granted under this Article shall be paid in full at the time of each purchase in one or a combination of the following methods: (i) in cash or by electronic funds transfer; (ii) by check payable to the order of the Corporation; (iii) if authorized by the Committee or specified in the applicable Award Agreement, by a promissory note of the Participant consistent with the requirements of Section 1.8; (iv) by notice and third party payment in such manner as may be authorized by the Committee; or (v) by the delivery of shares of Common Stock of the Corporation already owned by the Participant, provided, however, that the Committee may in its absolute discretion limit the Participant's ability to exercise an Award by delivering such shares, 6 Exhibit 10.63 and provided further that any shares delivered which were initially acquired upon exercise of a stock option must have been owned by the Participant at least six months as of the date of delivery. Shares of Common Stock used to satisfy the exercise price of an Option shall be valued at their Fair Market Value on the date of exercise. 2.3 Limitations on Grant and Terms of Incentive Stock Options. (a) $100,000 Limit. To the extent that the aggregate "Fair Market Value" of stock with respect to which incentive stock options first become exercisable by a Participant in any calendar year exceeds $100,000, taking into account both Common Stock subject to Incentive Stock Options under this Plan and stock subject to incentive stock options under all other plans of the Company, such options shall be treated as Nonqualified Stock Options. For this purpose, the "Fair Market Value" of the stock subject to options shall be determined as of the date the options were awarded. In reducing the number of options treated as incentive stock options to meet the $100,000 limit, the most recently granted options shall be reduced first. To the extent a reduction of simultaneously granted options is necessary to meet the $100,000 limit, the Committee may, in the manner and to the extent permitted by law, designate which shares of Common Stock are to be treated as shares acquired pursuant to the exercise of an Incentive Stock Option. (b) Option Period. Each Option and all rights thereunder shall expire no later than 10 years after the Award Date. (c) Other Code Limits. Incentive Stock Options may only be granted to Eligible Employees of the Corporation or a Subsidiary that satisfies the other eligibility requirements of the Code. There shall be imposed in any Award Agreement relating to Incentive Stock Options such other terms and conditions as from time to time are required in order that the Option be an "incentive stock option" as that term is defined in Section 422 of the Code. 2.4 Limits on 10% Holders. No Incentive Stock Option may be granted to any person who, at the time the Option is granted, owns (or is deemed to own under Section 424(d) of the Code) shares of outstanding Common Stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation, unless the exercise price of such Option is at least 110% of the Fair Market Value of the stock subject to the Option and such Option by its terms is not exercisable after the expiration of five years from the date such Option is granted. 7 Exhibit 10.63 2.5 Option Repricing/Cancellation and Regrant/Waiver of Restrictions. Subject to Section 1.4 and Section 6.6 and the specific limitations on Awards contained in this Plan, the Committee from time to time may authorize, generally or in specific cases only, for the benefit of any Eligible Person any adjustment in the exercise or purchase price, the vesting schedule, the number of shares subject to, the restrictions upon or the term of, an Award granted under this Article by cancellation of an outstanding Award and a subsequent regranting of an Award, by amendment, by substitution of an outstanding Award, by waiver or by other legally valid means. Such amendment or other action may result among other changes in an exercise or purchase price which is higher or lower than the exercise or purchase price of the original or prior Award, provide for a greater or lesser number of shares subject to the Award, or provide for a longer or shorter vesting or exercise period. 2.6 Options and Rights in Substitution for Stock Options Granted by Other Corporations. Options and Stock Appreciation Rights may be granted to Eligible Persons under this Plan in substitution for employee stock options granted by other entities to persons who are or who will become Eligible Persons in respect of the Company, in connection with a distribution, merger or reorganization by or with the granting entity or an affiliated entity, or the acquisition by the Company, directly or indirectly, of all or a substantial part of the stock or assets of the other entity. 3. STOCK APPRECIATION RIGHTS (INCLUDING LIMITED STOCK APPRECIATION RIGHTS). 3.1 Grants. In its discretion, the Committee may grant Stock Appreciation Rights to any Eligible Person either concurrently with the grant of another Award or in respect of an outstanding Award, in whole or in part, or independently of any other Award. Any Stock Appreciation Right granted in connection with an Incentive Stock Option shall contain such terms as may be required to comply with the provisions of Section 422 of the Code and the regulations promulgated thereunder, unless the holder otherwise agrees. 3.2 Exercise of Stock Appreciation Rights. (a) Exercisability. Unless the Award Agreement or the Committee otherwise provides, a Stock Appreciation Right related to another Award shall be exercisable at such time or times, and to the extent, that the related Award shall be exercisable. (b) Effect on Available Shares. To the extent that a Stock Appreciation Right is exercised, only the actual number of delivered shares of Common Stock shall be charged against the maximum amount of Common Stock that may be delivered pursuant to Awards under this Plan. The number of shares subject to the Stock Appreciation Right and the related Option 8 Exhibit 10.63 of the Participant shall, however, be reduced by the number of underlying shares as to which the exercise related, unless the Award Agreement otherwise provides. (c) Stand-Alone SARs. A Stock Appreciation Right granted independently of any other Award shall be exercisable pursuant to the terms of the Award Agreement but in no event earlier than six months after the Award Date, except in the case of death or Total Disability. 3.3 Payment. (a) Amount. Unless the Committee otherwise provides, upon exercise of a Stock Appreciation Right and the attendant surrender of an exercisable portion of any related Award, the Participant shall be entitled to receive payment of an amount determined by multiplying (i) the difference obtained by subtracting the exercise price per share of Common Stock under the related Award (if applicable) or the initial share value specified in the Award from the Fair Market Value of a share of Common Stock on the date of exercise of the Stock Appreciation Right, by (ii) the number of shares with respect to which the Stock Appreciation Right shall have been exercised. (b) Form of Payment. The Committee, in its sole discretion, shall determine the form in which payment shall be made of the amount determined under paragraph (a) above, either solely in cash, solely in shares of Common Stock (valued at Fair Market Value on the date of exercise of the Stock Appreciation Right), or partly in such shares and partly in cash, provided that the Committee shall have determined that such exercise and payment are consistent with applicable law. If the Committee permits the Participant to elect to receive cash or shares (or a combination thereof) on such exercise, any such election shall be subject to such conditions as the Committee may impose. 3.4 Limited Stock Appreciation Rights. The Committee may grant to any Eligible Person Stock Appreciation Rights exercisable only upon or in respect of a change in control or any other specified event ("Limited SARs") and such Limited SARs may relate to or operate in tandem or combination with or substitution for Options, other Stock Appreciation Rights or other Awards (or any combination thereof), and may be payable in cash or shares based on the spread between the base price of the Stock Appreciation Right and a price based upon the Fair Market Value of the Shares during a specified period or at a specified time within a specified period before, after or including the date of such event. 9 Exhibit 10.63 4. RESTRICTED STOCK AWARDS. 4.1 Grants. The Committee may, in its discretion, grant one or more Restricted Stock Awards to any Eligible Person. Each Restricted Stock Award Agreement shall specify the number of shares of Common Stock to be issued to the Participant, the date of such issuance, the consideration for such shares (but not less than the minimum lawful consideration under applicable state law) by the Participant, the extent (if any) to which and the time (if ever) at which the Participant shall be entitled to dividends, voting and other rights in respect of the shares prior to vesting, and the restrictions (which may be based on performance criteria, passage of time or other factors or any combination thereof) imposed on such shares and the conditions of release or lapse of such restrictions. Such restrictions shall not lapse earlier than six months after the Award Date, except to the extent the Committee may otherwise provide. Stock certificates evidencing shares of Restricted Stock pending the lapse of the restrictions ("Restricted Shares") shall bear a legend making appropriate reference to the restrictions imposed hereunder and shall be held by the Corporation or by a third party designated by the Committee until the restrictions on such shares shall have lapsed and the shares shall have vested in accordance with the provisions of the Award and Section 1.7. Upon issuance of the Restricted Stock Award, the Participant may be required to provide such further assurance and documents as the Committee may require to enforce the restrictions. 4.2 Restrictions. (a) Pre-Vesting Restraints. Except as provided in Section 4.1 and 1.9, restricted shares comprising any Restricted Stock Award may not be sold, assigned, transferred, pledged or otherwise disposed of or encumbered, either voluntarily or involuntarily, until the restrictions on such shares have lapsed and the shares have become vested. (b) Dividend and Voting Rights. Unless otherwise provided in the applicable Award Agreement, a Participant receiving a Restricted Stock Award shall be entitled to vote such shares but shall not be entitled to dividends on any of the shares until the shares have vested. Such dividends shall be retained in a restricted account until the shares have vested and shall revert to the Corporation if they fail to vest. (c) Cash Payments. If the Participant shall have paid or received cash (including any dividends) in connection with the Restricted Stock Award, the Award Agreement shall specify whether and to what extent such cash shall be returned (with or without an earnings factor) as to any restricted shares which cease to be eligible for vesting. 10 Exhibit 10.63 4.3 Return to the Corporation. Unless the Committee otherwise expressly provides, Restricted Shares that remain subject to restrictions at the time of termination of employment or are subject to other conditions to vesting that have not been satisfied by the time specified in the applicable Award Agreement shall not vest and shall be returned to the Corporation in such manner and on such terms as the Committee shall therein provide. 5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES. 5.1 Grants of Performance Share Awards. The Committee may, in its discretion, grant Performance Share Awards to Eligible Persons based upon such factors as the Committee shall deem relevant in light of the specific type and terms of the award. An Award Agreement shall specify the maximum number of shares of Common Stock (if any) subject to the Performance Share Award, the consideration (but not less than the minimum lawful consideration) to be paid for any such shares as may be issuable to the Participant, the duration of the Award and the conditions upon which delivery of any shares or cash to the Participant shall be based. The amount of cash or shares or other property that may be deliverable pursuant to such Award shall be based upon the degree of attainment over a specified period of not more than 10 years (a "performance cycle") as may be established by the Committee of such measure(s) of the performance of the Company (or any part thereof) or the Participant as may be established by the Committee. The Committee may provide for full or partial credit, prior to completion of such performance cycle or the attainment of the performance achievement specified in the Award, in the event of the Participant's death, Retirement, or Total Disability, a Change in Control Event or in such other circumstances as the Committee may specify. 5.2 Special Performance-Based Share Awards. Without limiting the generality of the foregoing, and in addition to Options and Stock Appreciation Rights granted under other provisions of this Plan which are intended to satisfy the exception for "performance-based compensation" under Section 162(m) of the Code (with such Awards hereinafter referred to as a "Qualifying Option" or a "Qualifying Stock Appreciation Right," respectively), other performance-based awards within the meaning of Section 162(m) of the Code ("Performance-Based Awards"), whether in the form of restricted stock, performance stock, phantom stock or other rights, the grant, vesting, exercisability or payment of which depends on the degree of achievement of the Performance Goals relative to preestablished targeted levels for the Corporation or the Corporation and one or more of its Subsidiaries, may be granted under this Plan. Any Qualifying Option or Qualifying Stock Appreciation Right shall be subject only to the requirements of subsections (a) and (c) below in order for such Awards to satisfy the requirements for Performance-Based Awards under this Section 5.2. With the exception of any Qualifying Option or Qualifying Stock Appreciation 11 Exhibit 10.63 Right, an Award that is intended to satisfy the requirements of this Section 5.2 shall be designated as a Performance-Based Award at the time of grant. (a) Eligible Class. The eligible class of persons for Performance-Based Awards under this Section shall be the executive officers of the Corporation. (b) Performance Goal Alternatives. The specific performance goals for Performance-Based Awards granted under this Section (other than Qualifying Options and Qualifying Stock Appreciation Rights) shall be, on an absolute or relative basis, one or more of the Performance Goals, as selected by the Committee in its sole discretion. The Committee shall establish in the applicable Award Agreement the specific performance target(s) relative to the Performance Goal(s) which must be attained before the compensation under the Performance-Based Award becomes payable. The specific targets shall be determined within the time period permitted under Section 162(m) of the Code (and any regulations issued thereunder) so that such targets are considered to be preestablished and so that the attainment of such targets is substantially uncertain at the time of their establishment. The applicable performance measurement period may not be less than one nor more than 10 years. (c) Maximum Performance-Based Award. Notwithstanding any other provision of the Plan to the contrary, the maximum number of shares of Common Stock which may be delivered pursuant to options, stock appreciation rights, restricted stock or other share-based awards that are granted as Performance-Based Awards to any Participant in any calendar year shall not exceed 350,000 shares, either individually or in the aggregate, subject to adjustment as provided in Section 6.2. Awards that are cancelled during the year shall be counted against this limit to the extent required by Section 162(m) of the Code. In addition, the aggregate amount of compensation to be paid to any Participant in respect of any Cash-Based Awards that are granted during any calendar year as Performance-Based Awards shall not exceed $1,000,000. (d) Committee Certification. Before any Performance-Based Award under this Section 5.2 (other than Qualifying Options or Qualifying Stock Appreciation Rights) is paid, the Committee must certify in writing that the Performance Goal(s) and any other material terms of the Performance-Based Award were satisfied; provided, however, that a Performance-Based Award may be paid without regard to the satisfaction of the applicable Performance Goal in the event of a Change in Control Event in accordance with Section 6.2(d). (e) Terms and Conditions of Awards. The Committee will have the discretion to determine the restrictions or other limitations of the individual Awards granted under this Section 5.2 including the authority to reduce Awards, payouts or vesting or to pay no Awards, in its sole discretion, if the Committee preserves such authority at the time of grant by language to this effect in its authorizing resolutions or otherwise. (f) Adjustments for Changes in Capitalization and other Material Changes. In the event of a change in corporate capitalization, such as a stock split or stock dividend, or a corporate transaction, such as a merger, consolidation, spinoff, reorganization or similar event, or 12 Exhibit 10.63 any partial or complete liquidation of the Corporation, or any similar event consistent with regulations issued under Section 162(m) of the Code including, without limitation, any material change in accounting policies or practices affecting the Corporation and/or the Performance Goals or targets, then the Committee may make adjustments to the Performance Goals and targets relating to outstanding Performance-Based Awards to the extent such adjustments are made to reflect the occurrence of such an event; provided, however, that adjustments described in this subsection may be made only to the extent that the occurrence of an event described herein was unforeseen at the time the targets for a Performance-Based Award were established by the Committee. 5.3 Grants of Stock Bonuses. The Committee may grant a Stock Bonus to any Eligible Person to reward exceptional or special services, contributions or achievements in the manner and on such terms and conditions (including any restrictions on such shares) as determined from time to time by the Committee. The number of shares so awarded shall be determined by the Committee. The Award may be granted independently or in lieu of a cash bonus. 5.4 Deferred Payments. The Committee may authorize for the benefit of any Eligible Person the deferral of any payment of cash or shares that may become due or of cash otherwise payable under this Plan, and provide for accredited benefits thereon based upon such deferment, at the election or at the request of such Participant, subject to the other terms of this Plan. Such deferral shall be subject to such further conditions, restrictions or requirements as the Committee may impose, subject to any then vested rights of Participants. 6. OTHER PROVISIONS. 6.1 Rights of Eligible Persons, Participants and Beneficiaries. (a) Employment Status. Status as an Eligible Person shall not be construed as a commitment that any Award will be made under this Plan to an Eligible Person or to Eligible Persons generally. (b) No Employment Contract. Nothing contained in this Plan (or in any other documents related to this Plan or to any Award) shall confer upon any Eligible Person or other Participant any right to continue in the employ or other service of the Company or constitute any contract or agreement of employment or other service, nor shall interfere in any way with the right of the Company to change such person's compensation or other benefits or to terminate the employment of such person, with or without cause, but nothing contained in this Plan or any document related hereto shall adversely affect any independent contractual right of such person without his or her consent thereto. 13 Exhibit 10.63 (c) Plan Not Funded. Awards payable under this Plan shall be payable in shares or from the general assets of the Corporation, and (except as provided in Section 1.4) no special or separate reserve, fund or deposit shall be made to assure payment of such Awards. No Participant, Beneficiary or other person shall have any right, title or interest in any fund or in any specific asset (including shares of Common Stock, except as expressly otherwise provided) of the Company by reason of any Award hereunder. Neither the provisions of this Plan (or of any related documents), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan shall create, or be construed to create, a trust of any kind or a fiduciary relationship between the Company and any Participant, Beneficiary or other person. To the extent that a Participant, Beneficiary or other person acquires a right to receive payment pursuant to any Award hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company. 6.2 Adjustments; Acceleration. (a) Adjustments. If there shall occur any extraordinary dividend or other extraordinary distribution in respect of the Common Stock (whether in the form of cash, Common Stock, other securities, or other property), or any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend), reverse stock split, reorganization, merger, combination, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Stock or other securities of the Corporation, or there shall occur any similar, unusual or extraordinary corporate transaction or event in respect of the Common Stock or a sale of substantially all the assets of the Corporation as an entirety, then the Committee shall, in such manner and to such extent (if any) as it deems appropriate and equitable (1) proportionately adjust any or all of (a) the number and type of shares of Common Stock (or other securities) which thereafter may be made the subject of Awards (including the specific maxima and numbers of shares set forth elsewhere in this Plan), (b) the number, amount and type of shares of Common Stock (or other securities or property) subject to any or all outstanding Awards, (c) the grant, purchase, or exercise price of any or all outstanding Awards, (d) the securities, cash or other property deliverable upon exercise of any outstanding Awards, or (e) the performance standards appropriate to any outstanding Awards, or (2) in the case of an extraordinary dividend or other distribution, recapitalization, reclassification, merger, reorganization, consolidation, combination, sale of assets, split up, exchange, or spin off, make provision for a cash payment or for the substitution or exchange of any or all outstanding Awards or the cash, securities or property deliverable to the holder of any or all outstanding Awards based upon the distribution or consideration payable to holders of the Common Stock of the Corporation upon or in respect of such event; provided, however, in each case, that with respect to Awards of Incentive Stock Options, no such adjustment shall be made which would cause the Plan to violate Section 424(a) of the Code or any successor provisions thereto without the written consent of holders materially adversely affected thereby. In any of such events, the Committee may take such action sufficiently prior to such event if necessary to permit the Participant to realize the benefits intended to be conveyed with respect to the underlying shares in the same manner as is available to shareholders generally. 14 Exhibit 10.63 (b) Acceleration of Awards Upon Change in Control. As to any Participant, unless prior to a Change in Control Event the Board determines that, upon its occurrence, there shall be no acceleration of benefits under Awards or determines that only certain or limited benefits under Awards shall be accelerated and the extent to which they shall be accelerated, and/or establishes a different time in respect of such Event for such acceleration, then upon the occurrence of a Change in Control Event: (i) each Option and Stock Appreciation Right shall become immediately exercisable, (ii) Restricted Stock shall immediately vest free of restrictions, and (iii) each Performance Share Award shall become payable to the Participant. The Committee may override the limitations on acceleration in this Section 6.2(b) by express provision in the Award Agreement and may accord any Eligible Person a right to refuse any acceleration, whether pursuant to the Award Agreement or otherwise, in such circumstances as the Committee may approve. Any acceleration of Awards shall comply with applicable regulatory requirements, including without limitation Section 422 of the Code. (c) Possible Early Termination of Accelerated Awards. If any Option or other right to acquire Common Stock under this Plan (other than under Article 8) has been fully accelerated as permitted by Section 6.2(b) but is not exercised prior to (i) a dissolution of the Corporation, or (ii) an event described in Section 6.2(a) that the Corporation does not survive, or (iii) the consummation of an event described in Section 6.2(a) that results in a Change of Control approved by the Board, such Option or right shall thereupon terminate, subject to any provision that has been expressly made by the Committee for the survival, substitution, exchange or other settlement of such Option or right. 6.3 Effect of Termination of Employment. (a) Options - Resignation or Dismissal. If the Participant's employment by (or other service specified in the Award Agreement to) the Company terminates for any reason (the date of such termination being referred to as the "Severance Date") other than Retirement, Total Disability or death, or "for cause" (as determined in the discretion of the Committee), the Participant shall have, unless otherwise provided in the Award Agreement and subject to earlier termination pursuant to or as contemplated by Section 1.6 or 6.2, three months after the Severance Date to exercise any Option to the extent it shall have become exercisable on the Severance Date. In the case of a termination "for cause", the Option shall terminate on the Severance Date. In other cases, the Option, to the extent not exercisable on the Severance Date, shall terminate. (b) Options - Death or Disability. If the Participant's employment by (or specified service to) the Company terminates as a result of Total Disability or death, the Participant, Participant's Personal Representative or his or her Beneficiary, as the case may be, shall have, unless otherwise provided in the Award Agreement and subject to earlier termination pursuant to or as contemplated by Section 1.6 or 6.2, until 12 months after the Severance Date to exercise any Option to the extent it shall have become exercisable by the Severance Date. Any Option to the extent not exercisable on the Severance Date shall terminate. 15 Exhibit 10.63 (c) Options - Retirement. If the Participant's employment by (or specified service to) the Company terminates as a result of Retirement, the Participant, Participant's Personal Representative or his or her Beneficiary, as the case may be, shall have, unless otherwise provided in the Award Agreement and subject to earlier termination pursuant to or as contemplated by Section 1.6 or 6.2, until 12 months after the Severance Date to exercise any Nonqualified Stock Option (three months after the Severance Date in the case of an Incentive Stock Option) to the extent it shall have become exercisable by the Severance Date. The Option, to the extent not exercisable on the Severance Date, shall terminate. (d) Certain SARs. Any SAR granted concurrently or in tandem with an Option shall have the same post-termination provisions and exercisability periods as the Option to which it relates, unless the Committee otherwise provides. (e) Other Awards. The Committee shall establish in respect of each other Award granted hereunder the Participant's rights and benefits (if any) in the event of a termination of employment and in so doing may make distinctions based upon the cause of termination and the nature of the Award. (f) Committee Discretion. Notwithstanding the foregoing provisions of this Section 2.6, in the event of, or in anticipation of, a termination of employment with the Company for any reason, other than discharge for cause, the Committee may, in its discretion, increase the portion of the Participant's Award available to the Participant, or Participant's Beneficiary or Personal Representative, as the case may be, or, subject to the provisions of Section 1.6, extend the exercisability period upon such terms as the Committee shall determine and expressly set forth in or by amendment to the Award Agreement. 6.4 Compliance with Laws. This Plan, the granting and vesting of Awards under this Plan and the offer, issuance and delivery of shares of Common Stock and/or the payment of money under this Plan or under Awards granted hereunder are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities law and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Corporation, be necessary or advisable in connection therewith. Any securities delivered under this Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Corporation, provide such assurances and representations to the Corporation as the Corporation may deem necessary or desirable to assure compliance with all applicable legal requirements. 6.5 Tax Withholding. (a) Cash or Shares. Upon any exercise, vesting, or payment of any Award or upon the disposition of shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option prior to satisfaction of the holding period requirements of Section 422 of the Code, the Company shall have the right at its option to (i) require the Participant (or Personal 16 Exhibit 10.63 Representative or Beneficiary, as the case may be) to pay or provide for payment of the amount of any taxes which the Company may be required to withhold with respect to such Award event or payment or (ii) deduct from any amount payable in cash the amount of any taxes which the Company may be required to withhold with respect to such cash payment. In any case where a tax is required to be withheld in connection with the delivery of shares of Common Stock under this Plan, the Committee may in its sole discretion grant (either at the time of the Award or thereafter) to the Participant the right to elect, pursuant to such rules and subject to such conditions as the Committee may establish, to have the Corporation reduce the number of shares to be delivered by (or otherwise reacquire) the appropriate number of shares valued at their then Fair Market Value, to satisfy such withholding obligation. (b) Tax Loans. If so provided in the Award Agreement, the Company may, in its discretion and to the extent permitted by law, authorize a loan to an Eligible Person in the amount of any taxes which the Company may be required to withhold with respect to shares of Common Stock received (or disposed of, as the case may be) pursuant to a transaction described in Section 6.5 (a). Such a loan shall be for a term, at a rate of interest and pursuant to such other terms and conditions as the Company, under applicable law may establish and such loan need not comply with the provisions of Section 1.8. 6.6 Plan Amendment, Termination and Suspension. (a) Board Authorization. The Board may, at any time, terminate or, from time to time, amend, modify or suspend this Plan, in whole or in part. No Awards may be granted during any suspension of this Plan or after termination of this Plan, but the Committee shall retain jurisdiction as to Awards then outstanding in accordance with the terms of this Plan. (b) Shareholder Approval. Any amendment that would (i) materially increase the benefits accruing to Participants under this Plan, (ii) materially increase the aggregate number of securities that may be issued under this Plan, or (iii) materially modify the requirements as to eligibility for participation in this Plan, shall be subject to shareholder approval only to the extent then required by Section 422 of the Code or applicable law, or deemed necessary or advisable by the Board. (c) Amendments to Awards. Without limiting any other express authority of the Committee under but subject to the express limits of this Plan, the Committee by agreement or resolution may waive conditions of or limitations on Awards to Eligible Persons that the Committee in the prior exercise of its discretion has imposed, without the consent of a Participant, and may make other changes to the terms and conditions of Awards that do not affect in any manner materially adverse to the Participant, his or her rights and benefits under an Award. (d) Limitations on Amendments to Plan and Awards. No amendment, suspension or termination of this Plan or change of or affecting any outstanding Award shall, without written consent of the Participant, affect in any manner materially adverse to the Participant any rights or benefits of the Participant or obligations of the Corporation under any 17 Exhibit 10.63 Award granted under this Plan prior to the effective date of such change. Changes contemplated by Section 6.2 shall not be deemed to constitute changes or amendments for purposes of this Section 6.6. 6.7 Privileges of Stock Ownership. Except as otherwise expressly authorized by the Committee or this Plan, a Participant shall not be entitled to any privilege of stock ownership as to any shares of Common Stock not actually delivered to and held of record by him or her. No adjustment will be made for dividends or other rights as a shareholder for which a record date is prior to such date of delivery. 6.8 Effective Date of the Plan. This Plan shall be effective as of February 4, 1997, the date of Board approval, subject to shareholder approval within 12 months thereafter. 6.9 Term of the Plan. No Award shall be granted under this Plan after more than ten years after the effective date of this Plan (the "termination date"). Unless otherwise expressly provided in this Plan or in an applicable Award Agreement, any Award granted prior to the termination date may extend beyond such date, and all authority of the Committee with respect to Awards hereunder, including the authority to amend an Award, shall continue during any suspension of this Plan and in respect of Awards outstanding on the termination date. 6.10 Governing Law/Construction/Severability. (a) Choice of Law. This Plan, the Awards, all documents evidencing Awards and all other related documents shall be governed by, and construed in accordance with the laws of the state of incorporation of the Corporation. (b) Severability. If any provision shall be held by a court of competent jurisdiction to be invalid and unenforceable, the remaining provisions of this Plan shall continue in effect. (c) Plan Construction. (1) Rule 16b-3. It is the intent of the Corporation that transactions in and affecting Awards in the case of Participants who are or may be subject to Section 16 of the Exchange Act satisfy any then applicable requirements of Rule 16b-3 so that such persons (unless they otherwise agree) will be entitled to the benefits of Rule 16b-3 or other exemptive rules under Section 16 of the Exchange Act in respect of those transactions and will not be subjected to avoidable liability thereunder. If any provision of this Plan or of any Award would otherwise frustrate or conflict with the intent expressed above, that provision to the extent possible shall be interpreted as to avoid such conflict. If the conflict remains irreconcilable, the 18 Exhibit 10.63 Committee may disregard the provision if it concludes that to do so furthers the interest of the Corporation and is consistent with the purposes of this Plan as to such persons in the circumstances. (2) Section 162(m). It is the further intent of the Company that Options or SARs with an exercise or base price not less than Fair Market Value on the date of grant and performance awards under Section 5.2 of this Plan that are granted to or held by a Section 16 Person shall qualify as performance-based compensation under Section 162(m) of the Code, and this Plan shall be interpreted consistent with such intent. 6.11 Captions. Captions and headings are given to the sections and subsections of this Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Plan or any provision thereof. 6.12 Effect of Change of Subsidiary Status. For purposes of this Plan and any Award hereunder, if an entity ceases to be a Subsidiary a termination of employment and service shall be deemed to have occurred with respect to each Eligible Person in respect of such Subsidiary who does not continue as an Eligible Person in respect of another entity within the Company. 6.13 Non-Exclusivity of Plan. Nothing in this Plan shall limit or be deemed to limit the authority of the Board or the Committee to grant awards or authorize any other compensation, with or without reference to the Common Stock, under any other plan or authority. 7. DEFINITIONS. 7.1 Definitions. (a) "Award" shall mean an award of any Option, Stock Appreciation Right, Restricted Stock, Stock Bonus, Performance Share Award, dividend equivalent or deferred payment right or other right or security that would constitute a "derivative security" under Rule 16a-1(c) of the Exchange Act, or any combination thereof, whether alternative or cumulative, authorized by and granted under this Plan. (b) "Award Agreement" shall mean any writing setting forth the terms of an Award that has been authorized by the Committee. 19 Exhibit 10.63 (c) "Award Date" shall mean the date upon which the Committee took the action granting an Award or such later date as the Committee designates as the Award Date at the time of the Award or, in the case of Awards under Article 8, the applicable dates set forth therein. (d) "Award Period" shall mean the period beginning on an Award Date and ending on the expiration date of such Award. (e) "Beneficiary" shall mean the person, persons, trust or trusts designated by a Participant or, in the absence of a designation, entitled by will or the laws of descent and distribution, to receive the benefits specified in the Award Agreement and under this Plan in the event of a Participant's death, and shall mean the Participant's executor or administrator if no other Beneficiary is designated and able to act under the circumstances. (f) "Board" shall mean the Board of Directors of the Corporation. (g) "Cash Flow" shall mean cash and cash equivalents derived from either (i) net cash flow from operations or (ii) net cash flow from operations, financings and investing activities, as determined by the Committee at the time an Award is granted. (h) "Change in Control Event" shall mean any of the following: (1) Approval by the shareholders of the Corporation of the dissolution or liquidation of the Corporation; (2) Approval by the shareholders of the Corporation of an agreement to merge or consolidate, or otherwise reorganize, with or into one or more entities that are not Subsidiaries or other affiliates, as a result of which less than 50% of the outstanding voting securities of the surviving or resulting entity immediately after the reorganization are, or will be, owned, directly or indirectly, by shareholders of the Corporation immediately before such reorganization (assuming for purposes of such determination that there is no change in the record ownership of the Corporation's securities from the record date for such approval until such reorganization and that such record owners hold no securities of the other parties to such reorganization), but including in such determination any securities of the other parties to such reorganization held by affiliates of the Corporation); (3) Approval by the shareholders of the Corporation of the sale of substantially all of the Corporation's business and/or assets to a person or entity which is not a Subsidiary or other affiliate; or; (4) Any `person' (as such term is used in Sections 13(d) and 14(d) of the Exchange Act but excluding any person described in and satisfying the conditions of Rule 13d-1(b)(1) thereunder) becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 30% or more of the combined voting power of the Corporation's then 20 Exhibit 10.63 outstanding securities entitled to then vote generally in the election of directors of the Corporation; or (5) During any period not longer than two consecutive years, individuals who at the beginning of such period constituted the Board cease to constitute at least a majority thereof, unless the election, or the nomination for election by the Corporation's shareholders, of each new Board member was approved by a vote of at least three-fourths of the Board members then still in office who were Board members at the beginning of such period (including for these purposes, new members whose election or nomination was so approved). (i) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (j) "Commission" shall mean the Securities and Exchange Commission. (k) "Committee" shall mean the Board or a committee appointed by the Board to administer this Plan, which committee shall be comprised only of two or more directors or such greater number of directors as may be required under applicable law, each of whom, (i) in respect of any decision at a time when the Participant affected by the decision may be subject to Section 162(m) of the Code, shall be an "outside director" within the meaning of Section 162(m) of the Code, and/or (ii) in respect of any decision at a time when the Participant affected by the decision may be subject to Section 16 of the Exchange Act, shall be a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3). (l) "Common Stock" shall mean the Common Stock of the Corporation and such other securities or property as may become the subject of Awards, or become subject to Awards, pursuant to an adjustment made under Section 6.2 of this Plan. (m) "Company" shall mean, collectively, the Corporation and its Subsidiaries. (n) "Corporation" shall mean Meade Instruments Corp., a California corporation, and its successors. (o) "Eligible Employee" shall mean an officer (whether or not a director) or key employee of the Company. (p) "Eligible Person" means an Eligible Employee, or any Other Eligible Person, as determined by the Committee in its discretion. (q) "EPS" shall mean earnings per common share on a fully diluted basis determined by dividing (i) net earnings, less dividends on preferred stock of the Corporation by (ii) the weighted average number of common shares and common shares equivalents outstanding (all as determined in accordance with generally accepted accounting principles). 21 Exhibit 10.63 (r) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. (s) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (t) "Fair Market Value" on any date shall mean (i) if the stock is listed or admitted to trade on a national securities exchange, the closing price of the stock on the Composite Tape, as published in the Western Edition of The Wall Street Journal, of the principal national securities exchange on which the stock is so listed or admitted to trade, on such date, or, if there is no trading of the stock on such date, then the closing price of the stock as quoted on such Composite Tape on the next preceding date on which there was trading in such shares; (ii) if the stock is not listed or admitted to trade on a national securities exchange, the last price for the stock on such date, as furnished by the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ National Market Reporting System or a similar organization if the NASD is no longer reporting such information; (iii) if the stock is not listed or admitted to trade on a national securities exchange and is not reported on the National Market Reporting System, the mean between the bid and asked price for the stock on such date, as furnished by the NASD or a similar organization; or (iv) if the stock is not listed or admitted to trade on a national securities exchange, is not reported on the National Market Reporting System and if bid and asked prices for the stock are not furnished by the NASD or a similar organization, the value as established by the Committee at such time for purposes of this Plan. (u) "Incentive Stock Option" shall mean an Option which is intended, as evidenced by its designation, as an incentive stock option within the meaning of Section 422 of the Code, the award of which contains such provisions (including but not limited to the receipt of shareholder approval of this Plan, if the Award is made prior to such approval) and is made under such circumstances and to such persons as may be necessary to comply with that section. (v) "Nonqualified Stock Option" shall mean an Option that is designated as a Nonqualified Stock Option and shall include any Option intended as an Incentive Stock Option that fails to meet the applicable legal requirements thereof. Any Option granted hereunder that is not designated as an incentive stock option shall be deemed to be designated a nonqualified stock option under this Plan and not an incentive stock option under the Code. (w) "Non-Employee Director" shall mean a member of the Board of Directors of the Corporation who is not an officer or employee of the Company. (x) "Non-Employee Director Participant" shall mean a Non-Employee Director who holds an outstanding Award under the provisions of Article 8. (y) "Option" shall mean an option to purchase Common Stock granted under this Plan. The Committee shall designate any Option granted to an Eligible Person as a Nonqualified Stock Option or an Incentive Stock Option. 22 Exhibit 10.63 (z) "Other Eligible Person" shall mean any Non-Employee Director or any individual consultant or advisor who renders or has rendered bona fide services (other than services in connection with the offering or sale of securities of the Company in a capital raising transaction) to the Company, and who is selected to participate in this Plan by the Committee. (aa) "Participant" shall mean an Eligible Person who has been granted an Award under this Plan and a Non-Employee Director who has been received an Award under Article 8 of this Plan. (bb) "Performance Goals" shall mean Cash Flow, EPS, ROE, Total Stockholder Return and any other criterion established by the Committee. (cc) "Performance Share Award" shall mean an Award of a right to receive shares of Common Stock or other compensation (including cash) under Section 5.2, the issuance or payment of which is contingent upon, among other conditions, the attainment of performance objectives specified by the Committee. (dd) "Personal Representative" shall mean the person or persons who, upon the disability or incompetence of a Participant, shall have acquired on behalf of the Participant, by legal proceeding or otherwise, the power to exercise the rights or receive benefits under this Plan and who shall have become the legal representative of the Participant. (ee) "Plan" shall mean this Stock Incentive Plan. (ff) "QDRO" shall mean a qualified domestic relations order. (gg) "Restricted Shares" or "Restricted Stock" shall mean shares of Common Stock awarded to a Participant under this Plan, subject to payment of such consideration, if any, and such conditions on vesting (which may include, among others, the passage of time, specified performance objectives or other factors) and such transfer and other restrictions as are established in or pursuant to this Plan and the related Award Agreement, for so long as such shares remain unvested under the terms of the applicable Award Agreement. (hh) "Retirement" shall mean retirement with the consent of the Company or, from active service as an employee or officer of the Company on or after attaining age 55 with 10 or more years of service or after age 65. (ii) "ROE" shall mean consolidated net income of the Corporation (less preferred dividends), divided by the average consolidated common shareholders equity. (jj) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the Commission pursuant to the Exchange Act, as amended from time to time. (kk) "Section 16 Person" shall mean a person subject to Section 16(a) of the Exchange Act. 23 Exhibit 10.63 (ll) "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. (mm) "Stock Appreciation Right" shall mean a right authorized under this Plan to receive a number of shares of Common Stock or an amount of cash, or a combination of shares and cash, the aggregate amount or value of which is determined by reference to a change in the Fair Market Value of the Common Stock. (nn) "Stock Bonus" shall mean an Award of shares of Common Stock granted under this Plan for no consideration other than past services and without restriction other than such transfer or other restrictions as the Committee may deem advisable to assure compliance with law. (oo) "Subsidiary" shall mean any corporation or other entity a majority of whose outstanding voting stock or voting power is beneficially owned directly or indirectly by the Corporation. (pp) "Total Disability" shall mean a "permanent and total disability" within the meaning of Section 22(e)(3) of the Code and such other disabilities, infirmities, afflictions or conditions as the Committee by rule may include. (qq) "Total Stockholder Return" shall mean with respect to the Corporation or other entities (if measured on a relative basis), the (i) change in the market price of its common stock (as quoted in the principal market on which it is traded as of the beginning and ending of the period) plus dividends and other distributions paid, divided by (ii) the beginning quoted market price, all of which is adjusted for any changes in equity structure, including but not limited to stock splits and stock dividends. 8. NON-EMPLOYEE DIRECTOR OPTIONS 8.1 Participation. Awards under this Article 8 shall be made only to Non-Employee Directors and shall be evidenced by Award Agreements substantially in the form of Exhibit A hereto. 24 Exhibit 10.63 8.2 Annual Option Grants. (a) Time of Initial Award. Persons who are Non-Employee Directors in office at the time this Plan is first approved by the shareholders of the Corporation shall be granted without further action a Nonqualified Stock Option to purchase 5,000 shares of Common Stock. After approval of this Plan by the shareholders of the Corporation, if any person who is not then an officer or employee of the Company shall become a director of the Corporation, there shall be granted automatically to such person (without any action by the Board or Committee) a Non-qualified Stock Option (the Award Date of which shall be the date such person takes office) to purchase 5,000 shares of Common Stock. (b) Subsequent Annual Awards. Immediately following the annual shareholders meeting in each year during the term of the Plan commencing 1998, there shall be granted automatically (without any action by the Committee or the Board) a Nonqualified Stock Option (the Award Date of which shall be such date) to each Non-Employee Director then continuing in office to purchase 5,000 shares of Common Stock. (c) Maximum Number of Shares. A Non-Employee Director shall not receive more than one Nonqualified Stock Option under this Section 8.2 in any calendar year, nor more than 75,000 shares on exercise of all Options awarded under this Section 8.2. 8.3 Option Price. The purchase price per share of the Common Stock covered by each Option granted pursuant to Section 8.2 hereof shall be 100 percent of the Fair Market Value of the Common Stock on the Award Date (or the initial public offering price for any grants made to Non-Employee Directors on or prior to the closing date of the Corporation's initial public offering). The exercise price of any Option granted under this Article shall be paid in full at the time of each purchase in cash or by check or in shares of Common Stock valued at their Fair Market Value on the date of exercise of the Option, or partly in such shares and partly in cash, provided that any such shares used in payment shall have been owned by the Participant at least six months prior to the date of exercise. 8.4 Option Period and Exercisability. Each Option granted under this Article 8 and all rights or obligations thereunder shall expire ten years after the Award Date and shall be subject to earlier termination as provided below. Each Option granted under Section 8.2 shall become exercisable at the rate of 33 1/3% per annum commencing on the first anniversary of the Award Date and each of the next two anniversaries thereof. 8.5 Termination of Directorship. If a Non-Employee Director's services as a member of the Board of Directors terminate by reason of death, Disability or Retirement, an Option granted pursuant to this Article 25 Exhibit 10.63 held by such Participant shall immediately become and shall remain exercisable for two years after the date of such termination or until the expiration of the stated term of such Option, whichever first occurs. If a Non-Employee Director's services as a member of the Board of Directors terminate for any other reason, any portion of an Option granted pursuant to this Article which is not then exercisable shall terminate and any portion of such Option which is then exercisable may be exercised for three months after the date of such termination or until the expiration of the stated term whichever first occurs. 8.6 Adjustments. Options granted under this Article 8 shall be subject to adjustment as provided in Section 6.2, but only to the extent that (a) such adjustment and the Committee's actions in respect thereof satisfy any applicable criteria in respect of formula plans under Rule 16, (b) such adjustment in the case of a Change in Control Event is effected pursuant to the terms of a reorganization agreement approved by shareholders of the Corporation, and (c) such adjustment is consistent with adjustments to Options held by persons other than executive officers or directors of the Corporation. 8.7 Acceleration Upon a Change in Control Event. Upon the occurrence of a Change in Control Event, each Option granted under Section 8.2 hereof shall become immediately exercisable in full. To the extent that any Option granted under this Article 8 is not exercised prior to (i) a dissolution of the Corporation or (ii) a merger or other corporate event that the Corporation does not survive, and no provision is (or consistent with the provisions of Section 8.7 can be) made for the assumption, conversion, substitution or exchange of the Option, the Option shall terminate upon the occurrence of such event. 26 EX-10.64 5 a09557exv10w64.txt EXHIBIT 10.64 Exhibit 10.64 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of ______________________, _____, 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 ____________ ________ and continuing in effect until terminated pursuant to Section 5 hereof. 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 of the Company ("CEO")]. Without the prior express written authorization of 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. 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] [CEO] of the Company and shall be subject to the direction 1 Exhibit 10.64 of the [Board] [CEO] and to such limits on Employee's authority as the [Board] [CEO] 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. 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 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] [CEO] 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 2 Exhibit 10.64 and Assistance in Patent Applications) which shall survive any termination hereunder) shall terminate upon the earliest to occur of any of the following: (a) Voluntary Termination. 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) shall cease, 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 disability, 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 3 Exhibit 10.64 materially adversely affects the Company and/or its reputation in the community and which involves moral turpitude or is punishable by imprisonment in the jurisdiction involved. (iii) Employee's willful failure or refusal to perform Employee's duties or responsibilities under this Agreement or Employee's material violation of any duty of loyalty to the Company or a material breach of Employee's fiduciary duties. (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 for a period of one year (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. 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 termination of the fiscal year ending immediately after the termination of this Agreement. (e) Good Reason. In the event Employee voluntarily terminates his employment pursuant to Section 5(a) hereof, and such termination is made by Employee for Good Reason, the following shall apply. 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 fulfill 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 or Additional Benefits 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, employment terms, severance terms or 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. 4 Exhibit 10.64 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. 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. In the event of such election by Employee, Employee shall receive a lump sum payment equal to the greater of (i) 2.99 times Employee's highest annual amount of compensation (including Base Salary and Additional Benefits) during the preceding three fiscal years, or (ii) 2.99 times the Employee's Base Salary and Additional Benefits, including the full targeted amount of any bonus or incentive agreement for the fiscal year in which the Employee's resignation or discharge occurs. Notwithstanding anything contained in this Agreement to the contrary, to the extent that any payment or distribution of any type to or for Employee by the Company or any of its affiliates, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (including, without limitation, any accelerated vesting of stock options or restricted stock granted by the Company pursuant to this Agreement or otherwise) (collectively, the "Total Payments") is or will be subject to the excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the Total Payments shall be reduced (but not below zero) so that the maximum amount of the Total Payments (after reduction) shall be one dollar ($1.00) less than the amount which would cause the Total Payments to be subject to the excise tax imposed by Section 4999 of the Code; provided, however, that such reduction to the Total Payments shall be made only if the total after-tax benefit to Employee (as determined Employee's sole discretion) is greater after giving effect to such reduction than if no such reduction had been made. Unless Employee shall have given prior written notice to the Company to effectuate a reduction in the Total Payments in a manner other than as set forth below, if such a reduction is required, the Company shall reduce or eliminate the Total Payments by first reducing or eliminating any cash severance benefits, then by reducing or eliminating any accelerated vesting of stock options, then by reducing or eliminating any accelerated vesting of restricted stock, then by reducing or eliminating any other remaining Total Payments. The preceding provisions of this Section 7 shall take precedence over the provisions of any other plan, arrangement or agreement governing Employee's rights and entitlements to any benefits or compensation. 5 Exhibit 10.64 As a result of the uncertainty in the application of Sections 280G and 4999 of the Code at the time of the determination of whether a reduction to the Total Payments is required, it is possible that Total Payments to Employee which will not have been made by the Company (if a reduction to the Total Payments is made in accordance with the preceding paragraph) should have been made ("Underpayment"). Any such Underpayment shall be promptly paid by the Company to or for the benefit of Employee. In the event that a reduction to the Total Payments is required in accordance with the preceding paragraph and all or a portion of the Total Payments actually made to Employee (after reduction) shall be determined to result on the imposition of any tax under Section 4999 of the Code, the Employee shall promptly reimburse the Company for the amount of such excess together with interest on such amount (at the same rate as is applied to determine the present value of payments under Section 280G or any successor thereto), from the date the reimbursable payment was received by Employee to the date the same is repaid to the Company. 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,, through merger or otherwise, 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. 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 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 or any of its subsidiaries (the "Confidential Information"). Employee acknowledges that the Confidential Information constitutes trade secrets of the Company. 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 6 Exhibit 10.64 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. Employee acknowledges that the Confidential Information constitutes trade secrets of the Company, and Employee acknowledges that the following is necessary 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 business of the Company or any of its subsidiaries in any jurisdiction in which the Company or any of its subsidiaries 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. 11. NON-SOLICITATION OF CUSTOMERS. Employee acknowledges that the Confidential Information constitutes trade secrets of the Company, and Employee acknowledges that the following is necessary to protect the Confidential Information: Employee agrees that for a period of one year after the termination of employment with the Company or any of its subsidiaries, 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 or any of its subsidiaries 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 or any of its subsidiaries, 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. Employee acknowledges that the Confidential Information constitutes trade secrets of the Company, and Employee acknowledges that the following is necessary 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 or any of its subsidiaries 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 7 Exhibit 10.64 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. 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. 8 Exhibit 10.64 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. 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 92618 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 All actions or proceedings under or relating to this Agreement will be resolved in a state or federal court located in Orange County, California; provided, however, that in the Company's discretion, such an action may be heard in some other place designated by it if necessary to acquire jurisdiction over third persons so that the dispute can be resolved in one action. Each party hereby (i) agrees to submit to the exclusive jurisdiction of the federal and state courts located in Orange County, California, (ii) agrees to appear in any such action, (iii) consents to the exclusive jurisdiction of such courts and (iv) waives any objections it might have as to exclusive venue in any such court. Service of 9 Exhibit 10.64 process may be made in any action, suit or proceeding by mailing or delivering a copy of such process to a party at its address and in the manner set forth in the Notice Section contained herein. 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, ARISING OUT OF OR RELATED TO 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. As a material inducement to enter into this Agreement, Employee and the Company each hereby agree that any "Claims" or "Controversies" (as defined below) arising out of or in respect to this Agreement (or its validity, interpretation or enforcement), or Employee's employment or termination, that Employee may have against the Company or it officers, directors, employees, or agents, in their capacity as such, or that the Company may have against Employee, shall be resolved solely through binding arbitration. EMPLOYEE AND THE COMPANY EACH HEREBY ACKNOWLEDGE THAT THIS AGREEMENT TO ARBITRATE MEANS THAT EMPLOYEE AND THE COMPANY ARE RELINQUISHING HIS/HER/ITS RIGHTS TO EITHER A JURY TRIAL OR COURT TRIAL FOR THE RESOLUTION OF ANY CLAIMS THAT EMPLOYEE AND THE COMPANY MAY HAVE AGAINST THE OTHER. "Claims" or "Controversies" arising out of this Agreement or Employee's employment or termination means and includes all claims for breach of this Agreement, harassment and/or discrimination (including sexual harassment and harassment or discrimination based on race, color, religion, age, sex, sexual orientation, ancestry, national origin, marital status, military service, pregnancy, physical or mental disability, medical condition or any other protected class or condition), breach of any contract or covenant (express or implied), tort claims, wrongful termination, whistle-blowing and all other claims relating to this Agreement or Employee's employment or termination, except that claims covered by the Workers' Compensation Act and claims for unemployment benefits are not covered by this agreement to arbitrate. 10 Exhibit 10.64 All Claims or Controversies shall be submitted to a single neutral arbitrator. The arbitration shall take place in Orange County, California, unless otherwise mutually agreed. The arbitrator shall be mutually agreed-upon by Employee and the Company. If Employee and the Company cannot agree upon an arbitrator, the selection process shall be governed by the employment arbitration rules and procedures of the American Arbitration Association ("AAA"). Regardless of the arbitrator chosen, the arbitration proceedings shall be governed by the then current AAA procedural rules, except that if a contrary rule exists: (1) all monetary or provisional remedies available under applicable state or federal statutory law or common law will remain available to both parties, (2) except as mutually agreed upon by the parties, there will be no limitation on discovery beyond that which exists in cases litigated in Orange County Superior Court and (3) the California Rules of Evidence shall apply to the arbitration hearing. In connection with any arbitration proceeding commenced hereby, the prevailing party shall be entitled to reimbursement of its reasonable attorney's fees and costs, including arbitrator fees. This agreement to arbitrate and arbitration procedure is intended to be the exclusive method of resolving all Claims or Controversies as described above between Employee and the Company and judgment upon the award rendered by the arbitrator hereunder may be entered in any court having jurisdiction thereof. 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. 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. 11 Exhibit 10.64 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. MEADE INSTRUMENTS CORP. By ____________________________________ Its ___________________________________ EMPLOYEE __________________________________ [name] __________________________________ __________________________________ __________________________________ [address] 12 EX-10.65 6 a09557exv10w65.txt EXHIBIT 10.65 Exhibit 10.65 MEADE INSTRUMENTS CORP. NONQUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT is dated as of this _____ day of ___________, _______, between Meade Instruments Corp., a Delaware corporation (the "Corporation"), and _____________________ (the "Employee"). WITNESSETH WHEREAS, the Corporation has adopted and the stockholders of the Corporation have approved the Meade Instruments Corp. 1997 Stock Incentive Plan (the "Plan"). WHEREAS, pursuant to the Plan, the Corporation has granted an option to the Employee upon the terms and conditions evidenced hereby, as required by the Plan, which Option is not intended as and shall not be deemed to be an incentive stock option within the meaning of Section 422 of the Code. NOW, THEREFORE, in consideration of the services rendered and to be rendered by the Employee, the Corporation and the Employee agree to the terms and conditions set forth herein as required by the terms of the Plan. 1. Grant of Option. Subject to Section 5 below, this Agreement evidences the Corporation's grant to the Employee, as of ________________, ______ (the "Option Date"), of the right and option to purchase, on the terms and conditions set forth herein and in the Plan, all or any part of an aggregate of ________ shares of the Common Stock, par value $0.01 per share, at the price of $_______ per share (the "Option"), which amount represents the Fair Market Value of the shares as of the Option Date, exercisable from time to time, subject to the provisions of this Agreement and the Plan, prior to the close of business on the day before the tenth anniversary of the Option Date (the "Expiration Date"). 2. Option Exercisability and Term. Subject to adjustment pursuant to the terms of the Plan, the Option shall first become and remain exercisable as to _____ of the shares on the first anniversary of the Option Date and as to an additional _____ of the shares on and after the last day of each succeeding calendar month until all remaining Options have become exercisable. 3. Exercisability of Option. To the extent the Employee does not in any year purchase all or any part of the shares to which the Employee is entitled, the Employee has the right cumulatively thereafter to purchase any shares not so purchased and such right shall continue until the Option terminates or expires. Fractional share interests shall be disregarded, but may be cumulated. No fewer than ten (10) shares may be purchased at any one time, unless the number purchased is the total number at the time available for purchase under the Option. Exhibit 10.65 4. Method of Exercise of Option. The Option shall be exercisable by the delivery to the Corporation of a written notice stating the number of shares to be purchased pursuant to the Option and accompanied by payment made in accordance with and in a form permitted by Section 2.2 of the Plan for the full purchase price of the shares to be purchased, subject to such further limitations and rules or procedures as the Board or Committee may from time to time establish as to any non-cash payment and as to the tax withholding requirements of Section 6.5 of the Plan. 5. Substituting SARs. Notwithstanding anything to the contrary in this Agreement, in the event the Corporation is not accounting for equity compensation under APB Opinion 25, the Corporation shall have the ability to substitute, without receiving Employee's permission, Stock Appreciation Rights ("SARs") paid only in stock for outstanding Options; provided, the terms of the substituted stock SARs are the same as the terms for the Options and the aggregate difference between the Fair Market Value of the underlying shares and the grant price of the SARs is equivalent to the aggregate difference between the Fair Market Value of the underlying shares and the exercise price of the Options. 6. Non-Transferability of Option. Subject to limited exceptions set forth in the Plan, the Option and any other rights of the Employee under this Agreement or the Plan are nontransferable. 7. Notices. Any notice to be given under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal office to the attention of the Chief Financial Officer, and to the Employee at the address given beneath the Employee's signature hereto, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be deemed to have been duly given when enclosed in a properly sealed envelope addressed as aforesaid, registered or certified, and deposited (postage and registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government. 8. General Terms. The Option and this Agreement are subject to, and the Corporation and the Employee agree to be bound by, the provisions of the Plan that apply to the Option. Such provisions are incorporated herein by this reference. The Employee acknowledges receiving a copy of the Plan and reading its applicable provisions. In the event of a conflict or inconsistency between the terms and conditions of this Agreement and of the Plan, the terms and conditions of the Plan shall govern. Capitalized terms not otherwise defined herein shall have the meaning assigned to such terms in the Plan. 2 Exhibit 10.65 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. MEADE INSTRUMENTS CORP., a Delaware corporation By: ___________________________ Name: _________________________ Title: ________________________ EMPLOYEE ____________________________ (Signature) ____________________________ (Print Name) ____________________________ (Address) ____________________________ (City, State, Zip Code) 3 Exhibit 10.65 SPOUSAL CONSENT In consideration of the execution of the foregoing Stock Option Agreement by Meade Instruments Corp., I, ____________________________, the spouse of the Employee therein named, do hereby agree to be bound by all of the terms and provisions thereof and of the Plan. DATED: ______________, ______. ________________________________ Signature of Spouse 4 EX-10.66 7 a09557exv10w66.txt EXHIBIT 10.66 Exhibit 10.66 MEADE INSTRUMENTS CORP. NON-EMPLOYEE DIRECTOR NONQUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT dated as of the _____ day of _____________, between Meade Instruments Corp., a Delaware corporation (the "Corporation"), and ________________ (the "Director"). WITNESSETH WHEREAS, the Corporation has adopted and the stockholders of the Corporation have approved the Meade Instruments Corp. 1997 Stock Incentive Plan (the "Plan"). WHEREAS, pursuant to Article 8 of the Plan, the Corporation has granted an option to the Director upon the terms and conditions evidenced hereby, as required by the Plan, which Option is not intended as and shall not be deemed to be an incentive stock option within the meaning of Section 422 of the Code. NOW, THEREFORE, in consideration of the services rendered and to be rendered by the Director, the Corporation and the Director agree to the terms and conditions set forth herein as required by the terms of the Plan. 1. Grant of Option. Subject to Section 5 below, this Agreement evidences the Corporation's grant to the Director, as of ___________ (the "Option Date"), of the right and option to purchase, under Section 8 of the Plan, on the terms and conditions set forth herein and in the Plan, all or any part of an aggregate of _________ shares of the Common Stock, par value $0.01 per share, at the price of $__________ per share (the "Option"), which amount represents the Fair Market Value of the shares as of the Option Date, exercisable from time to time, subject to the provisions of this Agreement and the Plan, prior to the close of business on the day before the tenth anniversary of the Option Date (the "Expiration Date"). 2. Option Exercisability and Term. Subject to adjustment pursuant to Section 8.6 of the Plan, the Option shall first become and remain exercisable as to ______ of the shares on the first anniversary of the Option Date and as to an additional ______ of the shares on each of the __________________________ of the Option Date. Exhibit 10.66 3. Exercisability of Option. To the extent the Director does not in any year purchase all or any part of the shares to which the Director is entitled, the Director has the right cumulatively thereafter to purchase any shares not so purchased and such right shall continue until the Option terminates or expires. Fractional share interests shall be disregarded, but may be cumulated. No fewer than ten (10) shares may be purchased at any one time, unless the number purchased is the total number at the time available for purchase under the Option. 4. Method of Exercise of Option. The Option shall be exercisable by the delivery to the Corporation of a written notice stating the number of shares to be purchased pursuant to the Option and accompanied by payment made in accordance with and in a form permitted by Section 8.3 of the Plan for the full purchase price of the shares to be purchased. 5. Substituting SARs. Notwithstanding anything to the contrary in this Agreement, in the event the Corporation is not accounting for equity compensation under APB Opinion 25, the Corporation shall have the ability to substitute, without receiving Employee's permission, Stock Appreciation Rights ("SARs") paid only in stock for outstanding Options; provided, the terms of the substituted stock SARs are the same as the terms for the Options and the aggregate difference between the Fair Market Value of the underlying shares and the grant price of the SARs is equivalent to the aggregate difference between the Fair Market Value of the underlying shares and the exercise price of the Options. 6. Non-Transferability of Option. Subject to limited exceptions set forth in the Plan, the Option and any other rights of the Director under this Agreement or the Plan are nontransferable. 7. Service and Effect of Termination of Service. The Director agrees to serve as a director in accordance with the provisions of the Corporation's Certificate of Incorporation, Bylaws and applicable law. If the Director's service as a member of the Board shall terminate, this Option shall terminate at the times and to the extent set forth in Section 8.5 of the Plan. 8. Notices. Any notice to be given under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal office to the attention of the Chief Financial Officer, and to the Director at the address given beneath the Director's signature hereto, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be deemed to have been duly given when enclosed in a properly sealed envelope addressed as aforesaid, registered or certified, and deposited (postage and registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government. 9. General Terms. The Option and this Agreement are subject to, and the Corporation and the Director agree to be bound by, the provisions of the Plan that apply to the Option. Such provisions are incorporated herein by this reference. The Director acknowledges receiving a copy of the Plan and reading its applicable provisions. In the event of a conflict or inconsistency between the terms and conditions of this Agreement and of the Plan, the terms and conditions of the Plan shall govern. Capitalized terms not otherwise defined herein shall have 2 Exhibit 10.66 the meaning assigned to such terms in the Plan. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. MEADE INSTRUMENTS CORP., a Delaware corporation By ___________________________ Title ________________________ NON-EMPLOYEE DIRECTOR _____________________________ (Signature) ___________________________ (Print Name) _____________________________ (Address) ______________________________ (City, State, Zip Code) 3 Exhibit 10.66 SPOUSAL CONSENT In consideration of the execution of the foregoing Stock Option Agreement by Meade Instruments Corp., I, ____________________________, the spouse of the Director therein named, do hereby agree to be bound by all of the terms and provisions thereof and of the Plan. DATED: ______________,___________ . _____________________________ Signature of Spouse 4 EX-10.67 8 a09557exv10w67.txt EXHIBIT 10.67 Exhibit 10.67 MEADE INSTRUMENTS CORP. RESTRICTED STOCK AWARD AGREEMENT THIS RESTRICTED STOCK AWARD AGREEMENT (this "Award Agreement") is dated as of ____________, 200___ (the "Award Date") by and between Meade Instruments Corp., a Delaware corporation (the "Corporation"), and ______________ ("Employee"). WITNESSETH WHEREAS, the Corporation has adopted and the stockholders of the Corporation have approved the Meade Instruments Corp. 1997 Stock Incentive Plan (the "Plan"). WHEREAS, pursuant to the Plan, the Corporation hereby grants to Employee, effective as of the date hereof, a restricted stock award (the "Award"), upon the terms and conditions set forth herein and in the Plan. NOW THEREFORE, in consideration of services rendered and to be rendered by Employee, and the mutual promises made herein and the mutual benefits to be derived therefrom, the parties agree as follows: 1. DEFINED TERMS. Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such terms in the Plan. 2. GRANT. Subject to the terms of this Award Agreement, the Corporation hereby grants to Employee an Award with respect to an aggregate of ________ restricted shares of Common Stock of the Corporation (the "Restricted Stock"). 3. VESTING. Subject to Section 8 below, the Award shall vest, and restrictions (other than those set forth in the Plan) shall lapse, according to the following schedule [Insert Schedule]. 4. CONTINUANCE OF EMPLOYMENT. Subject to Section 8 below, the vesting schedule set forth above requires continued employment or service through each applicable vesting date as a condition to the vesting of the applicable installment of the Award and the rights and benefits under this Award Agreement. Partial employment or service, even if substantial, during any vesting period will not entitle Employee to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination of employment or services as provided in Section 8 below or under the Plan. Unless otherwise set forth in writing, nothing contained in this Award Agreement or the Plan constitutes an employment or service commitment by the Corporation, affects Employee's status as an employee at will who is subject to termination without cause, confers upon Employee any right to remain employed by or in service to the Corporation or any of its Subsidiaries, interferes in any way with the right of the Corporation or any of its Subsidiaries at any time to terminate such employment or services, or affects the right of the Corporation or any of its Subsidiaries to increase or decrease Employee's other compensation or benefits. Nothing 1 Exhibit 10.67 in this paragraph, however, is intended to adversely affect any independent contractual right of Employee without his or her consent thereto. 5. DIVIDEND AND VOTING RIGHTS. After the Award Date, Employee shall be entitled to cash dividends and voting rights with respect to the shares of Restricted Stock subject to the Award even though such shares are not vested, provided that such rights shall terminate immediately as to any shares of Restricted Stock that are forfeited pursuant to Section 8 below. 6. RESTRICTIONS ON TRANSFER. Prior to the time that they have become vested pursuant to Section 3, neither the Restricted Stock, nor any interest therein, amount payable in respect thereof, or Restricted Property (as defined in Section 9 hereof) may be sold, assigned, transferred, pledged or otherwise disposed of, alienated or encumbered, either voluntarily or involuntarily. The transfer restrictions in the preceding sentence shall not apply to (a) transfers to the Corporation, or (b) transfers by will or the laws of descent and distribution. 7. STOCK CERTIFICATES. (a) Book Entry Form. The Corporation shall issue the shares of Restricted Stock subject to the Award either: (a) in certificate form as provided in Section 7(b) below; or (b) in book entry form, registered in the name of Employee with notations regarding the applicable restrictions on transfer imposed under this Award Agreement. (b) Certificates to be Held by Corporation; Legend. Any certificates representing shares of Restricted Stock that may be delivered to Employee by the Corporation prior to vesting shall be redelivered to the Corporation to be held by the Corporation until the restrictions on such shares shall have lapsed and the shares shall thereby have become vested or the shares represented thereby have been forfeited hereunder. Such certificates shall bear the following legend: "The ownership of this certificate and the shares of stock evidenced hereby and any interest therein are subject to substantial restrictions on transfer under an Agreement entered into between the registered owner and Meade Instruments Corp. A copy of such Agreement is on file in the office of the Secretary of Meade Instruments Corp." (c) Delivery of Certificates upon Vesting. Promptly after the vesting of any shares of Restricted Stock pursuant to Section 3, the Corporation shall, as applicable, either remove the notations on any shares of Restricted Stock issued in book entry form which have vested or deliver to Employee a certificate or certificates evidencing the number of shares of Restricted Stock which have vested. Employee (or the beneficiary or personal representative of Employee in the event of Employee's death or disability, as the case may be) shall deliver to the Corporation any representations or other documents or assurances required pursuant to the Plan. The shares so delivered shall no longer be restricted shares hereunder. (d) Stock Power; Power of Attorney. Concurrently with the execution and delivery of this Award Agreement, Employee shall deliver to the Corporation an executed stock power in the form attached hereto as Exhibit A, in blank, with respect to such shares. Employee, by acceptance of the Award, shall be deemed to appoint, and does so appoint by execution of this 2 Exhibit 10.67 Award Agreement, the Corporation and each of its authorized representatives as Employee's attorney(s)-in-fact to effect any transfer of unvested forfeited shares (or shares otherwise reacquired by the Corporation hereunder) to the Corporation as may be required pursuant to the Plan or this Award Agreement and to execute such documents as the Corporation or such representatives deem necessary or advisable in connection with any such transfer. 8. EFFECT OF TERMINATION OF EMPLOYMENT OR SERVICES. Subject to earlier vesting as provided in the Plan, Section 9 hereof, or in the event of a Change in Control (as discussed below), if Employee ceases to be employed by or ceases to provide services to the Corporation or a Subsidiary, Employee's shares of Restricted Stock (and related Restricted Property as defined in Section 9 hereof) shall be forfeited to the Corporation to the extent such shares have not become vested pursuant to Section 3 upon the date Employee's employment or services terminate. Upon the occurrence of any forfeiture of shares of Restricted Stock hereunder, such unvested, forfeited shares and related Restricted Property shall be automatically transferred to the Corporation, without any other action by Employee (or Employee's beneficiary or personal representative in the event of Employee's death or disability, as applicable) and the Corporation shall refund the Purchase Price (if any) for such forfeited shares to Employee (or Employee's beneficiary or personal representative in the event of Employee's death or disability, as applicable). No additional consideration shall be paid by the Corporation with respect to such transfer. No interest shall be credited with respect to nor shall any other adjustments be made to the Purchase Price for fluctuations in the fair market value of the Common Stock either before or after the transfer date (except for customary adjustments to reflect stock splits, reverse stock splits, and stock dividends). The Corporation may exercise its powers under Section 7(d) hereof and take any other action necessary or advisable to evidence such transfer. Employee (or Employee's beneficiary or personal representative in the event of Employee's death or disability, as applicable) shall deliver any additional documents of transfer that the Corporation may request to confirm the transfer of such unvested, forfeited shares and related Restricted Property to the Corporation. 9. ADJUSTMENTS UPON SPECIFIED EVENTS. Upon the occurrence of certain events relating to the Corporation's stock contemplated by the Plan, the Committee shall make adjustments if appropriate in the number and kind of securities that may become vested under the Award. If any adjustment shall be made under the Plan or an event described in the Plan shall occur and the shares of Restricted Stock are not fully vested upon such event or prior thereto, the restrictions applicable to such shares of Restricted Stock shall continue in effect with respect to any consideration or other securities (the "Restricted Property" and, for the purposes of this Award Agreement, "Restricted Stock" shall include "Restricted Property", unless the context otherwise requires) received in respect of such Restricted Stock. Such Restricted Property shall vest at such times and in such proportion as the shares of Restricted Stock to which the Restricted Property is attributable vest, or would have vested pursuant to the terms hereof if such shares of Restricted Stock had remained outstanding. 10. TAX WITHHOLDING. The Corporation (or any of its Subsidiaries last employing Employee) shall be entitled to require a cash payment by or on behalf of Employee and/or to deduct from other compensation payable to Employee any sums required by federal, state or local tax law to be withheld with respect to the vesting of any Restricted Stock. Alternatively, Employee or other person in whom the Restricted Stock vests may irrevocably elect, in such 3 Exhibit 10.67 manner and at such time or times prior to any applicable tax date as may be permitted or required under the Plan and rules established by the Committee, to have the Corporation withhold and reacquire shares of Restricted Stock at their fair market value at the time of vesting to satisfy any withholding obligations of the Corporation or its Subsidiaries with respect to such vesting. Any election to have shares so held back and reacquired shall be subject to such rules and procedures, which may include prior approval of the Committee, as the Committee may impose, and shall not be available if Employee makes or has made an election pursuant to Section 83(b) of the Code with respect to such Award. 11. NOTICES. Any notice to be given under the terms of this Award Agreement shall be in writing and addressed to the Corporation at its principal office to the attention of the Secretary, and to Employee at Employee's last address reflected on the Corporation's payroll records. Any notice shall be delivered in person or shall be enclosed in a properly sealed envelope, addressed as aforesaid, registered or certified, and deposited (postage and registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government. Any such notice shall be deemed to have been duly given five business days after the date mailed in accordance with the foregoing provisions of this Section 11. 12. PLAN. The Award and all rights of Employee under this Award Agreement are subject to the terms and conditions of the provisions of the Plan, incorporated herein by reference. Employee agrees to be bound by the terms of the Plan and this Award Agreement. Employee acknowledges having read and understanding the Plan, the Prospectus for the Plan, and this Award Agreement. Unless otherwise expressly provided in other sections of this Award Agreement, provisions of the Plan that confer discretionary authority on the Board or the Committee do not (and shall not be deemed to) create any rights in Employee unless such rights are expressly set forth herein or are otherwise in the sole discretion of the Board or the Committee so conferred by appropriate action of the Board or the Committee under the Plan after the date hereof. 13. ENTIRE AGREEMENT. This Award Agreement and the Plan together constitute the entire agreement and supersede all prior understandings and agreements, written or oral, of the parties hereto with respect to the subject matter hereof. The Plan and this Award Agreement may be amended pursuant to the Plan. Such amendment must be in writing and signed by the Corporation. The Corporation may, however, unilaterally waive any provision hereof in writing to the extent such waiver does not adversely affect the interests of Employee hereunder, but no such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision hereof. 14. COUNTERPARTS. This Award Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 15. SECTION HEADINGS. The section headings of this Award Agreement are for convenience of reference only and shall not be deemed to alter or affect any provision hereof. 4 Exhibit 10.67 16. GOVERNING LAW. This Award Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California without regard to conflict of law principles thereunder. IN WITNESS WHEREOF, the Corporation has caused this Award Agreement to be executed on its behalf by a duly authorized officer and Employee has hereunto set his or her hand as of the date and year first above written. MEADE INSTRUMENTS CORP., A DELAWARE CORPORATION By:____________________________ Print Name:____________________ Its:___________________________ EMPLOYEE _______________________________ Signature _______________________________ Print Name 5 Exhibit 10.67 CONSENT OF SPOUSE In consideration of the execution of the foregoing Restricted Stock Award Agreement by Meade Instruments Corp., I, _____________________________, the spouse of Employee therein named, do hereby join with my spouse in executing the foregoing Restricted Stock Award Agreement and do hereby agree to be bound by all of the terms and provisions thereof and of the Plan. Dated: _____________, 200___ _______________________________ Signature of Spouse _______________________________ Print Name 6 Exhibit 10.67 EXHIBIT A STOCK POWER FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Award Agreement between Meade Instruments Corp., a Delaware corporation (the "Corporation"), and the employee named below ("Employee") dated as of _____________, 200___, Employee, hereby sells, assigns and transfers to the Corporation, an aggregate ________ shares of Common Stock of the Corporation, standing in Employee's name on the books of the Corporation and represented by stock certificate number(s)_______________________________________ to which this instrument is attached, and hereby irrevocably constitutes and appoints ______________________________________ as his or her attorney in fact and agent to transfer such shares on the books of the Corporation, with full power of substitution in the premises. Dated _____________, ________ ________________________ Signature ________________________ Print Name (Instruction: Please do not fill in any blanks other than the signature line. The purpose of the assignment is to enable the Corporation to exercise its sale/purchase option set forth in the Restricted Stock Award Agreement without requiring additional signatures on the part of Employee.) EX-21.1 9 a09557exv21w1.txt EXHIBIT 21.1 Exhibit 21.1 The following is a complete list of all operating subsidiaries of Meade Instruments Corp. as of February 28, 2005: 1) Simmons Outdoor Corp., a Delaware corporation 2) Coronado Instruments, Inc., a California corporation 3) Meade Instruments Verwaltungs GmbH, organized under the laws of Germany 4) Meade Instruments Europe GmbH and Co. KG, organized under the laws of Germany 5) Meade Instruments Mexico, S. de R.L. de C.V., organized under the laws of Mexico 6) Meade Instruments (Guangzhou) Co., Ltd., organized under the laws of the People's Republic of China In addition the Company has various other subsidiaries that act as holding and other non-operating companies. EX-23.1 10 a09557exv23w1.htm EXHIBIT 23.1 exv23w1

Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (File Nos. 333-64609, 333-94933, 333-94937, 333-42832, and 333-86818) and Form S-3 (File No. 333-101404) of Meade Instruments Corporation of our report dated May 27, 2005 relating to the financial statements and financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Orange County, California
May 27, 2005

EX-31.1 11 a09557exv31w1.htm EXHIBIT 31.1 exv31w1

Exhibit 31.1
CERTIFICATIONS
     I, Steven G. Murdock, certify that:
     1. I have reviewed this annual report on Form 10-K of Meade Instruments Corp.;
     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting

Date: May 31, 2005

By:
/s/ Steven G. Murdock

President, CEO and Secretary

EX-31.2 12 a09557exv31w2.htm EXHIBIT 31.2 exv31w2

Exhibit 31.2
CERTIFICATIONS
     I, Brent W. Christensen, certify that:
     1. I have reviewed this annual report on Form 10-K of Meade Instruments Corp.;
     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting

Date: May 31, 2005

By:
/s/ Brent W. Christensen

Senior
Vice President – Finance and CFO

EX-32.1 13 a09557exv32w1.htm EXHIBIT 32.1 exv32w1

Exhibit 32.1
Written Statement
Pursuant To
18 U.S.C. Section 1350
     The undersigned, Steven G. Murdock, the Chief Executive Officer of Meade Instruments Corp. (the “Company”), pursuant to 18 U.S.C. ss. 1350, hereby certifies that:
     (i) the Form 10-K for the fiscal year ended February 28, 2005 of the Company (the “Report”) fully complies with the requirements of section 13(a) and 15(d) of the Securities Exchange Act of 1934; and
     (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 31, 2005
By: /s/ Steven G. Murdock

EX-32.2 14 a09557exv32w2.htm EXHIBIT 32.2 exv32w2

Exhibit 32.2
Written Statement
Pursuant To
18 U.S.C. Section 1350
     The undersigned, Brent W. Christensen, the Chief Financial Officer of Meade Instruments Corp. (the “Company”), pursuant to 18 U.S.C. ss. 1350, hereby certifies that:
     (i) the Form 10-K for the fiscal year ended February 28, 2005 of the Company (the “Report”) fully complies with the requirements of section 13(a) and 15(d) of the Securities Exchange Act of 1934; and
     (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 31, 2005
By: /s/ Brent W. Christensen

~~-----END PRIVACY-ENHANCED MESSAGE-----~~

	•	a decline in general economic conditions;

	•	uncertainties affecting consumer spending; and

	•	changes in interest rates causing a reduction of investment income or in the value of market interest rate sensitive instruments.

	•	a general decline in demand for the Company’s products;

	•	an inability to continue to design and manufacture products that will achieve and maintain commercial success;

	•	the potential that we may fail to penetrate the binocular and riflescope markets and achieve meaningful sales;

	•	any significant interruption of our manufacturing abilities in our domestic or Mexican facilities or in any of our suppliers located in the Far East;

	•	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; and

	•	increasing ESOP charges in the event the market price of the Company’s stock increases.


Dated: May 31, 2005	MEADE INSTRUMENTS CORP.
	By:	*/s/ STEVEN G. MURDOCK*
		Steven G. Murdock
		President, Chief Executive Officer and Secretary

	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting


Date: May 31, 2005

By:		/s/ Steven G. Murdock

President, CEO and Secretary


Date: May 31, 2005

By:		/s/ Brent W. Christensen

Senior		Vice President – Finance and CFO