FACTORING AND SECURITY AGREEMENT FACTOR SUB ACCOUNTS

1.3           Exhibits and Schedules .  All Exhibits and Schedules attached hereto are incorporated herein by reference and made a part hereof.

Section 2.               Purchase & Sale of Factor Sub Accounts.

2.1  Purchase of Factor Sub Accounts .  Client hereby sells to Factor Sub all of Client’s right, title and interest in and to all of its Factor Sub Accounts.  Factor Sub shall be the sole and exclusive owner of such Factor Sub Accounts with full power to collect and otherwise deal with such Factor Sub Accounts.  All Factor Sub Accounts shall be submitted to Factor Sub on a Schedule listing each Factor Sub Account separately.  The Schedule of Factor Sub Accounts shall be in such form as Factor Sub may prescribe from time to time and shall be signed by an officer or authorized signer of the Client.  Client may submit such Factor Sub Accounts electronically, by facsimile, by mail or other delivery service of Client’s choosing that is approved by Factor Sub.  Any Factor Sub Accounts submitted electronically shall be submitted in such electronic format as Factor Sub may require.  At the time the Schedule of Factor Sub Accounts is presented, Client shall also deliver to Factor Sub, if requested by Factor Sub, one copy of an invoice for each Account together with evidence of shipment, furnishing and/or delivery of the Inventory or rendition of service(s).

2.2  Credit Approval.

(a)  Client shall submit to Factor Sub the credit requirements of Client’s Customers, a description of its selling terms and such other information as Factor Sub may request.  Factor Sub may, in its sole credit judgment, establish credit lines for sales by Client to its Customers on its normal selling terms or such other terms as Factor Sub may approve (“Credit Lines”).  Client may also submit for credit approval specific orders from Customers and Factor Sub may, in its sole credit judgment, approve such orders on a single order approval basis (“Single Order Approval”).  Factor Sub Accounts arising under the terms of Credit Lines or Single Order Approvals are hereinafter referred to as Approved Accounts; Factor Sub Accounts not arising under Credit Lines or Single Order Approvals are hereinafter referred to as Client Risk Accounts.  All Credit Approvals must be in writing to be effective. Credit Approval(s) shall be limited to the specific terms and amounts indicated in either the Credit Line or Single Order Approval.  If Goods are shipped or services are rendered based on a verbal approval, it is Client’s responsibility to ensure that such Credit Approval is received in writing.  Any Factor Sub Account for freight, samples, or miscellaneous sales (including, the sale of Goods and/or in quantities not regularly sold by Client) shall always be a Client Risk Account, notwithstanding any written Credit Approval from Factor Sub.  For purposes of determining Factor Sub’s Credit Approval hereunder, the account(s) balance due Factor Sub from any given Customer shall be calculated as the aggregate amount owed by that Customer less any credits to which such Customer may be entitled, and is not to be construed to mean individual invoices owed by that Customer.

(b)  Credit Approval(s) may be withdrawn, either orally or in writing, in Factor Sub’s discretion at any time before actual delivery of Goods or rendering of services. Credit Approval(s) are automatically rescinded and withdrawn if the terms of sale vary from the terms approved by Factor Sub, or if the terms of sale are changed by Client without Factor Sub’s prior written approval of the new terms, or if the Account is not assigned to Factor Sub within ten days from the date of the invoice, or if the Goods are not delivered on or before the expiration of the Single Order Approval or if there is no expiration date if the Goods are not delivered within 30 days of the date of the Single Order Approval.  If Factor Sub Accounts exceed either a Credit Line or Single Order Approval, only the amount in excess of the Credit Line or Single Order Approval shall be considered Client Risk Accounts, provided, however, that if Client ships Goods or provides services to a Customer who has outstanding Factor Sub Accounts owed to Client, and such Customer’s Credit Line and/or outstanding Single Order Approval(s) have been withdrawn by Factor Sub, and the Factor Sub Accounts created by such shipment exceed ten percent (10%) of the total amount of Client’s Factor Sub Accounts outstanding, any Credit Approvals applying to those Factor Sub Accounts shall be deemed cancelled and all outstanding Factor Sub Accounts from that Customer are Client Risk Accounts for all purposes.

(c)  Factor Sub shall have no liability of any kind for declining or refusing to give, or for withdrawing, revoking, or modifying, any Credit Approval pursuant to the terms of this Agreement, or for

exercising or failing to exercise any rights or remedies Factor Sub may have under this Agreement or otherwise.  In the event Factor Sub declines to give Credit Approval on any order received by Client from a Customer and in advising Client of such decline Factor Sub furnishes Client with information as to the credit standing of the Customer, such information shall be deemed to have been requested of Factor Sub by Client and Factor Sub’s advice containing such information is recognized as a privileged communication.  Client agrees that such information shall not be given to Client’s Customer or to Client’s sales representative(s).  If necessary, Client shall merely advise its Customer(s) that credit has been declined on the account and that any questions should be directed to Factor Sub.

(d)  Factor Sub will assume the Credit Risk on Approved Accounts, i.e., if a Customer, after receiving and accepting the delivery of Goods or services (subject to all warranties herein) for which Factor Sub has given written Credit Approval, fails to pay an Account when due solely for any reason other than a Bona Fide Defense, Factor Sub shall bear any loss thereon up to the amount of the Credit Approval, subject to the terms and provisions stated herein or in the Credit Approval.  Factor Sub will pay to Client on the Collection Date, the Purchase Price of any Approved Account that Factor Sub is required to purchase hereunder.

(e)  Client shall bear the Credit Risk on all Client Risk Accounts; Factor Sub shall have full recourse to Client for all Client Risk Accounts.  Upon demand by Factor Sub, Client shall pay to Factor Sub the full amount of a Client Risk Account, together with all expenses incurred by Factor Sub up to the date of such payment, including reasonable attorney’s fees in attempting to collect or enforce such payment or payment of such Account(s).

(f)  If monies are owing from a Customer for both Approved Accounts and Client Risk Accounts, Client agrees that any payments or credits applying to any Account owing by such Customer will be applied:  first , to any Approved Accounts outstanding on Factor Sub’s books and second , to any Client Risk Account outstanding on Factor Sub’s books.  This order of payment applies regardless of the respective dates the sales occurred and regardless of any notations on payment items.

2.3  Purchase Price .

(a)  On the Collection Date applicable to a Factor Sub Account, Factor Sub shall pay to Client the Purchase Price for such Factor Sub Account, less (i) moneys remitted, paid, or otherwise advanced by Factor Sub to or on behalf of Client (including any amounts which Client may reasonably be obligated to pay in the future), (ii) any other charges provided for by this Agreement or otherwise due Factor Sub by Client, and (iii) any deductions taken by the Customer in connection with such Factor Sub Account.  Any and all Purchase Price paid by Factor Sub hereunder shall be paid in accordance with any collateral assignment executed by Client and then in effect.

(b)   No discount, credit, allowance or deduction with respect to any Factor Sub Account in excess of $10,000 shall be granted or approved by Client to any Customer without the prior written consent of Factor Sub unless such discount, credit, allowance or deduction is shown on the face of an invoice at the time such invoice is submitted to Factor Sub.  Client agrees to give Factor Sub notice of all discounts, credits, allowances or deductions in excess of $10,000.

(c)   Client shall pay to Factor Sub or Factor Sub may charge Client’s account with Factor Sub, the amount of any payment that Factor Sub receives with respect to a Client Risk Account if Factor Sub is subsequently required to return such payment, whether as a result of any proceeding in bankruptcy or otherwise.  Factor Sub is authorized to withhold, without giving prior notice to Client, such payments and credits otherwise due to Client under the terms of this Agreement for reasonably anticipated claims or to adequately satisfy reasonably anticipated obligation(s) Client may owe Factor Sub.

2.4   Commission.

(a)           For Factor Sub’s services hereunder, Client shall pay and Factor Sub shall be entitled to receive a Factoring Commission equal to three-quarters of one percent (0.75%) of the gross invoice amount of each Factor Sub Account (“Commission”).  The Commission shall be due and payable to Factor Sub on the date of creation of each Factor Sub Account and shall be chargeable to Client’s account with Factor

Sub.  Factor Sub shall be entitled to receive a surcharge equal to two percent (2%) of the gross invoice amount of all Factor Sub Accounts arising out of sales to any Customer that is a debtor-in-possession.

(b)           Factor Sub’s Commission is based upon Client’s maximum selling terms of ninety (90) days.  Client will not grant additional dating to any Customer without Factor Sub’s prior written approval.  If Factor Sub approves extended terms or additional dating, the rate of Commission shall be increased by one-quarter of one percent (0.25%) of the gross invoice amount of each Factor Sub Account for each 30 days or portion thereof of extended or additional dating.

(c)           The minimum aggregate Factoring Commissions payable under this Agreement for each Contract Year hereof shall be One Hundred Fifty Thousand and No/100 Dollars ($150,000), which shall be payable at the rate of Twelve Thousand Five Hundred and No/100 Dollars ($12,500) per month or part thereof.  To the extent of any deficiency (after giving effect to Commissions payable under the foregoing subsections), the difference between the minimum and the amount already charged shall be chargeable to Client’s account with Factor Sub, or at Factor Sub’s option, payable by Client on Factor Sub’s demand.  Client shall pay the difference between the minimum Commissions due hereunder for each Contract Year less the amount of Commissions actually paid to date for the Contract Year prior to the termination of this Agreement.

2.5           Notice Of Purchase .  All invoices submitted to Customers by Client shall plainly state on their face that the amounts payable thereunder are payable at such lockbox address as Factor Sub may designate to Client in writing from time to time.

2.6           Repurchase Obligation .  Client agrees to repurchase and accept reconveyance from Factor Sub of any Approved Account in the event that (a) there occurs a breach of any representation or warranty relating to such Account or there shall exist a Bona Fide Defense with respect to such Account, (b) Factor Sub provides Client written notice thereof requesting repurchase of such Account under this Section 2.6 and (c) Client fails to cure such breach or Bona Fide Defense, to the reasonable satisfaction of Factor Sub, within fifteen (15) business days of such notice. Client agrees to repurchase and accept reconveyance from Factor Sub of any Account that is not an Approved Account in the event that there occurs a breach of any representation or warranty relating to such Account or a Dispute with respect to such Account.  The repurchase price of an Approved Account shall be paid by Client to Factor Sub on such 15th business day in an amount equal to the Purchase Price previously paid, if any, by Factor Sub therefor or by cancellation of Factor Sub’s purchase obligation if payment has not previously been made by Factor Sub to Client. The repurchase price of Factor Sub Account that is not an Approved Account shall be paid by Client to Factor Sub upon demand by Factor Sub in an amount equal to the Purchase Price previously paid, if any, by Factor Sub therefor or by cancellation of Factor Sub’s purchase obligation if payment has not previously been made by Factor Sub to Client.  Interest shall accrue on the repurchase price from and including the date that Factor Sub originally paid the Purchase Price for the applicable Account to but excluding the date that such repurchase price therefor is paid in full at a rate equal the Interest Rate. All such interest shall be computed for the actual number of days elapsed on the basis of year consisting of 360 days.

Section 3.  Collections.

3.1 General . (a)  IT IS THE INTENTION OF THE PARTIES HERETO THAT AS TO ALL FACTOR SUB ACCOUNTS, THE TRANSACTIONS CONTEMPLATED HEREBY SHALL CONSTITUTE A TRUE PURCHASE AND SALE OF ACCOUNT(S) UNDER § 9-318 OF THE UCC AS IN EFFECT IN THE STATE OF CALIFORNIA AND AS SUCH, THE CLIENT SHALL HAVE NO LEGAL OR EQUITABLE INTEREST IN SUCH PROPERTY SOLD.

3.2 Collections.

(a)  Factor Sub shall have the right at any time with or without notice to Client, to notify any or all Customers of the sale and assignment of the Factor Sub Accounts to Factor Sub and to direct such Customers to make payment of all amounts due or to become due to Client directly to Factor Sub.  Client agrees not to change any of such instructions or to give its Customers different instructions so long as this Agreement shall remain in effect.  To the extent there are no Obligations of Client owed to Factor Sub hereunder and so long as Client is not in Default, Factor Sub shall be deemed to have received any such

proceeds of Factor Sub Accounts in excess of the amount of such proceeds to which Factor Sub is entitled as the owner of such Factor Sub Accounts as a pure pass-through for and on account of Client.

(b)   Factor Sub, as the sole and absolute owner of the Factor Sub Accounts, shall have the sole and exclusive power and authority to collect each such Account, through legal action or otherwise, and Factor Sub may, in its sole discretion, settle, compromise, or assign (in whole or in part) any of such Factor Sub Accounts, or otherwise exercise, to the maximum extent permitted by applicable law, any other right now existing or hereafter arising with respect to any of such Factor Sub Accounts.

(c)  Should Client receive payment of all or any portion of any Factor Sub Account, Client shall immediately notify Factor Sub of the receipt of such payment, hold such payment in trust for Factor Sub separate and apart from Client’s own property and funds, and shall deliver such payment to Factor Sub without delay in the identical form in which received.  Should Client receive any check or other payment instrument with respect to any Factor Sub Account and fail to surrender and deliver to Factor Sub such check or payment instrument within five (5) days, Factor Sub shall be entitled to charge Client a Misdirected Payment Fee to compensate Factor Sub for the additional administrative expenses that the parties acknowledge are likely to be incurred as a result of such breach.

(d) In the event any Goods, the sale of which gave rise to a Factor Sub Account, are returned to or repossessed by Client, such Goods shall be held by Client in trust for Factor Sub, separate and apart from Client’s own property and subject to Factor Sub’s sole direction and control.

(f)  Client agrees to notify Factor Sub promptly in writing of any credit loss, or anticipated credit loss, for Approved Accounts, such notice in any event to be received by Factor Sub no longer than 120 days after the maturity date of the invoice (based on its longest optional terms).  Client’s failure to provide such notice to Factor Sub within the 120 day period shall result in Client assuming the entire Credit Risk on such Factor Sub Account, and Factor Sub shall be deemed free of any such Credit Risk.

Section 4.  Power of Attorney.

4.1 Power of Attorney .  Client hereby grants to Factor Sub an irrevocable power of attorney authorizing and permitting Factor Sub, at its option, without notice to Client to do any or all of the following:  (a) endorse the name of Client on any checks or other evidences of payment whatsoever that may come into the possession of Factor Sub regarding Factor Sub Accounts;  (b) receive, open and dispose of any mail addressed to Client and put Factor Sub’s address on any statements mailed to Customers; (c) pay, settle, compromise, prosecute or defend any action, claim, conditional waiver and release, or proceeding relating to Factor Sub Accounts; (d) upon the occurrence of a Default, notify in the name of the Client, the U.S. Post Office to change the address for delivery of mail addressed to Client to such address as Factor Sub may designate, however, Factor Sub shall turn over to Client all such mail not relating to Factor Sub Accounts; (e) file any Financing Statement deemed necessary or appropriate by Factor Sub to protect Factor Sub’s interest in and to the Factor Sub Accounts, or under any provision of this Agreement; (f) effect debits to any deposit account or other account that Client or Client’s principals who have executed a guaranty agreement maintain at any bank for any sums due to or from the Client under this Agreement; (g) upon a Default, to prepare and mail all invoices relating to Factor Sub Accounts; and (h) to take all actions necessary and proper in order to carry out this Agreement.  The authority granted to Factor Sub herein is irrevocable until this Agreement is terminated and all Obligations are fully satisfied.

Section 5. Client’s Representations, Covenants and Warranties.

Section 5.1 Client’s Representations, Covenants and Warranties .  Client represents, warrants and covenants to Factor Sub that:

(a)           Client is a corporation or limited liability company, duly organized, validly existing and in good standing under the laws of the state of Delaware and is qualified and authorized to do business and is in good standing in all states in which such qualification and good standing are necessary or desirable;

(b)           The execution, delivery and performance by Client of this Agreement does not and will not constitute a violation of any applicable law, violation of Client’s articles of incorporation or organization or bylaws or any material breach of any other document, agreement or instrument to which

Client is a party or by which Client is bound.  The Agreement is a legal, valid and binding obligation of Client enforceable against it in accordance with its terms;

(c)           Client is the sole owner and holder of all Factor Sub Accounts and there is no security interest, lien, judgment or other encumbrance in or affecting such Factor Sub Accounts.  At the time of assignment to Factor, the Account is a valid, bona fide account, representing an undisputed indebtedness incurred by the named Customer for goods actually sold and delivered or for services completely rendered;

(d)           Other than those discounts, allowances and deductions set forth on the face of the invoice at the time it was assigned to Factor Sub, there are and shall be no set-offs, allowances, discounts, deductions, counterclaims, or disputes with respect to any Account.  Client shall inform Factor Sub, in writing, immediately upon learning that there exists any Dispute.  Client shall accept no returns and shall grant no allowance or credit to any Customer without prior written notice to Factor Sub.  If required by Factor Sub, Client shall submit to Factor Sub credit memos itemized on a separate Schedule for all returns and allowances made during the previous week.  At Factor Sub’s option, Factor Sub may require that Client pay Factor Sub for the amount of such credit memos, or in Factor Sub’s sole and exclusive discretion, Factor Sub may agree to accept the Schedule of Factor Sub Accounts and apply same to Client’s account;

(e)           Client’s address, as set forth below its signature line hereto, is Client’s mailing address, its chief executive office, principal place of business and the office where all of the books and records concerning the Factor Sub Accounts are maintained which shall not be changed without giving thirty (30) days prior written notice to Factor Sub;

(f)            Client shall maintain its books and records in accordance with GAAP and shall reflect on its books the absolute sale of the Factor Sub Accounts to Factor Sub.  Client shall furnish Factor Sub, upon request, such information and statements, as Factor Sub shall require from time to time regarding Client’s business affairs, financial condition and results of its operations.  Without limiting the generality of the foregoing, Client shall provide Factor Sub, (i) on or prior to the 30 th  day of each month, unaudited financial statements with respect to the prior month, (ii) within forty-five (45) days after the end of each of Client’s quarters, unaudited financial statements (on a fiscal year-to-date basis) prepared by a CPA acceptable to Factor Sub, (iii) within ninety (90) days after the end of each of Client’s fiscal years, audited financial statements prepared by a CPA acceptable to Factor Sub, (iv) a certificate from the president or chief financial officer of Client stating whether any Default has occurred and stating the nature of the Default, and (v) such other information as Factor Sub may request.  Client will furnish to Factor Sub upon request a current listing of all open and unpaid accounts payable. All financial statements and reports furnished to Factor Sub hereunder shall be prepared and all financial computations and determinations pursuant hereto shall be made in accordance with GAAP;

(g)           Client has paid and will pay all taxes and governmental charges imposed with respect to sale of Goods and rendition of services and shall furnish to Factor Sub upon request satisfactory proof of payment and compliance with all federal, state and local tax requirements;

(h)           Client will promptly notify Factor Sub of (i) the filing of any lawsuit against Client involving amounts greater than $100,000.00, and (ii) any attachment or any other legal process levied against Client;

(i)            The application made and information delivered by or on behalf of Client in connection with this Agreement, and the statements made therein are true and correct at the time that this Agreement is executed.  There is no fact which Client has not disclosed to Factor Sub in writing which could materially adversely affect the properties, business or financial condition of Client, or any of the Factor Sub Accounts or which is necessary to disclose in order to keep the foregoing representations and warranties from being misleading;

(j)            In no event shall the funds paid to Client hereunder be used directly or indirectly for personal, family, household or agricultural purposes;

(k)           Client does business under no trade or assumed names except as indicated below.  These names are a trade name and/or tradestyle by which Client will or may identify and sell certain of its products and under which Client will or may conduct a portion of its business, and are not an independent

corporation or other legal entity.  Factor is hereby authorized to receive, endorse and deposit any and all checks sent to it in payment of such Accounts including such checks as are payable to any of the trade styles or tradenames.  Accounts invoiced in the name of any tradename or tradestyle are subject to all of the terms and conditions of this Agreement with the same force and effect as if they were Client’s corporate name:

Meade
Meade.com
Coronado

(l)            Any invoice or written communication that is issued by Client to Factor Sub by facsimile transmission is a duplicate of the original;

(m)          Any electronic communication of data, whether by e-mail, tape, disk, or otherwise that Client remits or causes to be remitted to Factor Sub shall be authentic and genuine; and

(n)           Client does not own, control or exercise dominion over, in any way whatsoever, the business of any Account or Customer.

(o)           Client will not merge or consolidate with any other Person or sell, transfer, lease, abandon, or otherwise dispose of a substantial portion of Client’s assets or any interest therein except that, so long as no Default has occurred and is continuing, Client may sell Inventory in the ordinary course of Client’s business, provided, however, that the sale of Meade Germany is specifically permitted.

(p)           Client will not obtain or attempt to obtain from any Person other than Factor Sub or FCC, any loans, advances, or other financial accommodations or indebtedness of any kind, nor will Factor Sub enter into any direct or indirect guaranty of any obligation of another Person.  Client will not permit any of Client’s assets to be subject to any Lien other than a Lien in favor of FCC or its affiliates.

Section 6.  Administration.

6.1 Expenses .  Client shall pay all costs incurred by Factor Sub pursuant to this Agreement, including search and filing fees, wire and ACH transfer fees, audit and field examination fees, legal fees (including the allocated cost of internal counsel) for preparation of this Agreement and any other Factoring Documents and the perfection, preservation and enforcement of any of Factor Sub’s rights hereunder.

6.2 Credit Inquiries .  Client authorizes Factor Sub to disclose such information as Factor Sub deems appropriate to persons making credit inquiries about Client.

6.3 Field Examinations .  During the term of this Agreement and so long as there exists or has existed no Default, Factor may conduct up to four (4) field examinations per contract year; provided, however, that upon the occurrence of a Default and so long as it continues, Factor may conduct additional field examinations.  Client agrees to pay to Factor an audit fee of $900  per auditor, per day (including partial days), plus all of Factor’s out-of-pocket travel and living expenses incurred while performing each field examination.

Section 7. Accounting Information.

7.1  Accounting Statements .  Factor Sub shall provide Client with information on the Factor Sub Accounts and a monthly reconciliation of the factoring relationship relating to billing, collection, and account maintenance such as aging, posting, error resolution and e-mailing or mailing of statements.  All of the foregoing shall be in a format and in such detail, as Factor Sub, in its sole discretion, deems appropriate.  Factor Sub’s books and records shall be admissible in evidence without objection as prima facie evidence of the status of the Factor Sub