SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: December 12, 1997
OPTELECOM, INC.
(exact name of registrant as specified in its charter)
Delaware 0-8828 52-1010850
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
9300 Gaither Road, Gaithersburg, Maryland 20877
(address of principal executive offices)
Registrant's telephone number, including area code: (301) 840-2121
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FORM 8-K
Optelecom, Inc.
Item 2 Acquisition or Disposition of Assets
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On December 12, 1997, Optelecom, Inc. ("Optelecom"), Paragon Audio
Visual Limited, a United Kingdom company ("Paragon"), and the beneficial owners
of the outstanding common shares of Paragon entered into a reorganization
pursuant to which: Optelecom acquired all the intangible assets of Paragon for
an aggregate consideration of $2.625 million, consisting of cash in the amount
of $1.0 million and 171,252 shares of common stock of Optelecom (which were
valued for this purpose at 95% of the average closing price of the common stock
on the Nasdaq Stock Market for the 20 trading days preceding the closing
(adjusted for the payment by the Registrant of a 50% stock dividend on December
1, 1997)); Optelecom licensed to Paragon all of its interest in those assets
acquired from Paragon which related to the family of products known as Video
Link for an annual license fee of $175,000; and Optelecom through its
wholly-owned United Kingdom subsidiary, Optelecom UK Limited, acquired from the
stockholders of Paragon all of the outstanding common shares of Paragon for an
aggregate cash consideration of $1.5 million. The four principal officers of
Paragon have agreed to enter into three-year employment agreements.
The source of the funds used in the transaction was a loan made to
Optelecom in the normal course of business by Franklin National Bank,
Washington, D.C. The loan is for a principal amount of $2.5 million, has a
floating interest rate of prime plus 1% and provides for monthly payments of
interest only until September 12, 1998 and of interest and principal thereafter
until August 12, 2002. Optelecom loaned to Optelecom UK Limited the $1.5 million
used to purchase the outstanding common shares of Paragon.
Paragon designs and markets electronic products and systems for
multi-media applications utilizing twisted pair copper or "structured" cabling
for in-house computer data networking applications. Such products include baluns
(Balanced to Unbalanced) devices which match the different impedance of
traditional coaxial and data networking cables. Optelecom believes that the
reorganization will enable it to benefit from the development and growth of both
its fiber optic communication systems and Paragon's structured cable
communications systems and their joint applications. The consideration paid by
Optelecom represents its best estimate of the value to it of Paragon as an
on-going business.
Prior to the reorganization, Optelecom had received a contract from
Paragon to supply it with products, having an estimated value of $1.5 million,
to be used in the transmission of video signals over fiber optic cabling in
support of a worldwide information television project upgrade. Except for the
reorganization, Optelecom has had no other material relationship with Paragon
and is not aware of any material relationship between any of its affiliates or
any of its directors or officers or any associate of any such director or
officer, on the one hand, and Paragon, on the other hand.
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Item 7 Financial Statements and Exhibits
(a) Financial statements of business acquired.
It is impracticable to provide the required financial
statements of Paragon at the time of filing the Form
8-K report. The required financial statements will be
filed by February 27, 1998.
(b) Pro forma financial information.
See Item 7(a).
(c) Exhibits.
2(i) - Agreement by and among Optelecom, Inc., Paragon Audio Visual
Limited, David A. Brown, Mark D. Brown, Andrew S. Brown, Darren N.
Brown and Modeledge Limited dated December 12, 1997.
2(i)(A) - [Attachment A] Asset Acquisition Agreement
by and between Optelecom, Inc. and Paragon Audio
Visual Limited dated December 12, 1997.
2(i)(B)(1) - [Attachment B] Escrow Agreement by and among
Optelecom, Inc., Paragon Audio Visual Limited, David A. Brown, Mark
D. Brown, Andrew S. Brown, Darren N. Brown and Modeledge Limited
dated December 12, 1997.
2(i)(B)(2) - Letter agreement dated December 16, 1997
substituting Walker Martinueau for Franklin National
Bank as escrow agent.
2(i)(B)(3) - Deposit Agreement by and among Optelecom, Inc.,
Paragon Audio Visual Limited, David A. Brown, Mark D. Brown, Andrew
S. Brown, Darren N. Brown and Modeledge Limited dated December 12,
1997.
2(i)(C) - [Attachment C] License Agreement by and between
Optelecom, Inc. and Paragon Audio Visual Limited dated December 12,
1997.
2(i)(D) - [Attachment D] Agreement for the Acquisition of the
Entire Issued Share Capital of Paragon Audio Visual Limited by and
among Optelecom UK Limited, David A. Brown, Mark D. Brown, Andrew
S. Brown, Darren N. Brown, Modeledge Limited and Adventatum Jersey
Limited dated December 12, 1997.
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2(i)(E) - [Attachment E] Terms of Employment Agreements to be
entered into with David A. Brown, Mark D. Brown, Andrew S. Brown
and Darren N. Brown.
2(i)(F) - [Attachment F] Investment Letters of Paragon Audio Visual
Limited, David A. Brown, Mark D. Brown, Andrew S. Brown, Darren N.
Brown and Modeledge Limited dated December 12, 1997.
2(i)(G) - [Attachment G] Additional Registration Provisions.
2(i)(I) - Override Agreement by and among Optelecom, Inc., Paragon
Audio Visual Limited, David A. Brown, Mark D. Brown, Andrew S.
Brown and Darren N. Brown dated December 12, 1997.
3(i)(A) - Complete copy of the Certificate of Incorporation of
Optelecom, Inc. as amended through December 11, 1997
3(i)(B) - Amendment to Certificate of Incorporation of Optelecom,
Inc. as filed with the Secretary of State of Delaware on December
11, 1997.
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Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
OPTELECOM, INC.
/s/ Edmund D. Ludwig
December 23, 1997 By:__________________________
Edmund D. Ludwig
President
Exhibit 2i
AGREEMENT
AGREEMENT made by and among Optelecom, Inc., a Delaware corporation
("Optelecom"), Paragon Audio Visual Limited, a United Kingdom company
("Paragon"), David A. Brown, Mark D. Brown, Andrew S. Brown and Darren N. Brown
(collectively, the "Browns") and Modeledge Limited, a United Kingdom Company
("Modeledge").
WHEREAS, the Browns are officers and directors of Paragon and with
Modeledge are the sole beneficial owners of the outstanding common shares of
Paragon (the "Paragon Stockholders") and Andrew S. Brown, Darren N. Brown and
Adventatum Jersey Limited, a Jersey Company ("Adventatum"), are the record
holders of all the outstanding common shares of Paragon (the "Paragon Record
Holders");
WHEREAS, Optelecom, Paragon and the Paragon Stockholders desire to
enter into arrangements with respect to certain of the assets of Paragon and all
of the outstanding shares of Paragon;
WHEREAS, Optelecom, Paragon and the Paragon Stockholders wish by this
Agreement to coordinate those arrangements and to provide for their
understanding of their respective obligations to each other in connection with
the implementation of the arrangements;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the parties agree as follows:
1. Acquisition of Certain Assets of Paragon.
1.01 Asset Acquisition Agreement. Optelecom shall acquire all
of the intangible assets of Paragon (and such other assets as may be agreed upon
by the parties hereto)(the "Paragon Assets") pursuant to an Asset Acquisition
Agreement containing terms substantially equivalent to those set forth in the
form of agreement which is Attachment A hereto (the "Asset Agreement").
1.02 Consideration for Assets. Optelecom shall pay to Paragon
US$2.625 million for the Paragon Assets (the "Asset Consideration"). The
consideration shall consist of shares of common stock of Optelecom ("Optelecom
Common Stock") having a value of US$1.625 million (the "Optelecom Shares") and
cash in the amount of US$1.0 million (the "Asset Cash Consideration").
(a) The value of a share of Optelecom Common Stock
for this purpose will be the average of the last sale prices on the
Nasdaq SmallCap Market as reported by Nasdaq for the 20 trading days
before the closing under the Asset Agreement discounted by 5% (the
"Adjusted Closing Price Per Share"). The number of shares to be issued
will be determined by dividing US$1.625 million by the Adjusted Closing
Price Per Share. The Adjusted Closing Price Per Share is $9.489 and the
number of Optelecom Shares is 171,252.
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1.03 Distribution to the Stockholders. Paragon shall
distribute to the Paragon Record Holders an amount (the "Distribution Amount")
equal to the Asset Consideration less an amount of $728,000 relating to
Paragon's tax obligations with respect to its transfer of the Paragon Assets and
receipt of the Asset Consideration (the "Paragon Tax Obligations") and less an
amount of $272,000 to be paid into retirement benefit provisions for the Browns.
The amount distributed to each Paragon Record Holder shall be determined by
multiplying the Distribution Amount by the Paragon Record Holder's percentage
ownership of all the outstanding shares of Paragon at the time of the
distribution (a "Percentage Interest").
1.04 Escrows.
(a) Escrow for Paragon Tax Obligations. The amount
of the Paragon Tax Obligations shall be determined by the independent public
accountants for Optelecom (the "Paragon Tax Obligation Amount"). The Paragon Tax
Obligation Amount shall be reserved from the Asset Cash Consideration at the
closing under the Asset Agreement and shall be placed in an escrow pursuant to
an Escrow Agreement containing terms substantially equivalent to those set forth
in the form of agreement which is Attachment B hereto (the "Escrow Agreement"),
or in some other arrangement satisfactory to Optelecom, until used to pay the
Paragon Tax Obligations or until such Obligations have otherwise been paid in
full. If, after Optelecom is satisfied that the Paragon Tax Obligations have
been paid in full, it is determined that the Paragon Tax Obligation Amount and
any interest earned thereon exceeded the amount of those Obligations, the excess
shall be paid to the Paragon Record Holders in accordance with their respective
Percentage Interests.
(b) Escrow for Retirement Contribution. At the
closing under the Asset Agreement, there shall be deducted from the Distribution
Amount an amount of $272,000 which the parties intend shall be deemed a
retirement contribution (the "Retirement Amount"). Such Retirement Amount shall
be deposited in escrow, and disbursed therefrom upon the verification of certain
matters relating to the status of the Retirement Amount under United Kingdom
law, pursuant to a Deposit Agreement containing terms substantially equivalent
to those set forth in the form of agreement which is Attachment B-1 hereto (the
"Deposit Agreement").
2. License of Assets.
2.01 License Agreement. Optelecom shall license the Paragon
Assets to Paragon pursuant to a License Agreement containing terms substantially
equivalent to those set forth in the form of agreement which is Attachment C
hereto (the "License Agreement").
2.02 Consideration for License. Paragon shall pay to Optelecom
a fee at the annual rate of US $175,000 for the License.
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3. Acquisition of Paragon Shares.
3.01 Stock Purchase Agreement. All the outstanding shares of
Paragon ("Paragon Shares") shall be sold to Optelecom UK Limited, a United
Kingdom company and wholly-owned subsidiary of Optelecom ("Optelecom UK"),
pursuant to a Stock Purchase Agreement containing terms substantially equivalent
to those set forth in the form of agreement which is Attachment D hereto (the
"Stock Agreement"). Optelecom in its capacity as sole stockholder of Optelecom
UK shall take such action as may be necessary to cause Optelecom UK to approve,
enter into and carry out the terms of the Stock Agreement.
3.02 Consideration for Paragon Shares. Optelecom UK shall pay
to the Paragon Record Holders an aggregate of US$1.5 million in cash for the
Paragon Shares (the "Stock Acquisition Consideration"). Optelecom shall lend to
Optelecom UK the amount necessary to provide the Stock Acquisition Consideration
or shall arrange for the borrowing by Optelecom UK of that amount from another
source.
4. Relationship of this Agreement and the Related Agreements.
4.01 Related Agreements. The Asset Agreement, Escrow
Agreement, License Agreement and Stock Agreement are referred to herein
collectively as the Related Agreements.
4.02 Representations, Warranties and Covenants in the Related
Agreements. The representations, warranties and covenants made by Optelecom and
Optelecom UK in the Related Agreements shall be deemed to be representations,
warranties and covenants of Optelecom for purposes of this Agreement. The
representations, warranties and covenants made by Paragon in the Related
Agreements shall be deemed to be representations, warranties and covenants of
Paragon and the Browns for purposes of this Agreement. The representations,
warranties and covenants made by the Paragon Stockholders in the Related
Agreements shall be deemed to be representations, warranties and covenants of
the Paragon Stockholders for purposes of this Agreement. Accordingly, Optelecom
shall be entitled in bringing any claim under the representations, warranties
and covenants made by Paragon or the Paragon Stockholders in the Related
Agreements, to base such claim on the loss it may have suffered having regard to
the aggregate consideration paid to Paragon and/or the Paragon Stockholders
under all or any of the Related Agreements, provided that in any such case the
limitations of liability set out in Section 8.01(b) to this Agreement shall
apply to any such claim. For purposes of the representations and warranties, the
controlling version of any document for which there is more than one version
shall be the version included with the Disclosure Letter delivered pursuant to
the Stock Purchase Agreement provided that Optelecom shall not have objected
thereto in good faith within 10 days after the Closing.
4.03 Closings. The closing of this Agreement, the Related
Agreements and the transactions contemplated hereby and thereby (the "Closings")
shall take place at 10:00 a.m Washington D.C. time on December 12, 1997 (the
"Closing Date") at the offices of Optelecom in
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Gaithersburg, Maryland or at such other time, date and place as may be agreed
upon by Optelecom and David Brown. The Closings of the acquisition of certain
assets of Paragon (the "Asset Closing"), the escrow arrangements (the "Escrow
Closing"), the license of assets to Paragon (the "License Closing") and the
acquisition of Paragon Shares (the "Stock Closing") shall occur seriatim. The
Stock Closing shall not occur until Paragon shall have distributed the
Distribution Amount to the Paragon Stockholders. Prior to the Closings, Jones &
Blouch L.L.P., counsel for Optelecom, shall deliver an opinion to Paragon and
the Paragon Stockholders to the effect that the Optelecom Shares have been
validly authorized, and when issued as contemplated by this Agreement and the
Related Agreements, will be legally issued, fully paid and non-assessable. Prior
to the Closings, Walker Martineau, solicitors for Paragon, shall deliver an
opinion to Optelecom to the effect that the 998 shares of Paragon of which the
Paragon Stockholders are the beneficial owners are the only outstanding shares
of Paragon and that such shares have been legally issued and are fully paid and
non-assessable.
5. Personnel Issues.
5.01 Termination of Existing Service Agreements. Paragon and
the Paragon Stockholders shall take such action as may be requested by Optelecom
to terminate any existing service agreements with the Browns, and each of the
Browns agrees to execute a release in a form satisfactory to Optelecom waiving
any rights he may have to notice prior to such termination and any claims he may
have against Optelecom or Paragon as a consequence of such termination.
5.02 New Employment Agreements. Each of the Browns shall enter
into an employment agreement under English Law with Optelecom, Optelecom UK or
Paragon as it shall direct containing terms substantially equivalent to those
set forth in the draft form of agreement which is Attachment E hereto (the
"Employment Agreements").
5.03 Paragon Officers. With effect from Closing, the Browns
shall have the following titles and functions: Chairman and Marketing Director -
David Brown; Managing Director - Andrew Brown; Sales Director - Mark Brown; and
Operations Director - Darren Brown. Job descriptions will be prepared and
notified to them within one month of Closing defining the extent of their
authority and responsibility. Such authority and responsibility will be decided
having regard to the usual meanings of those titles in UK business practice
generally.
5.04 Paragon Directors. Paragon and the Paragon Stockholders
shall take such action as may be necessary (including obtaining the resignations
of incumbent directors and electing new directors) to cause the directors of
Paragon effective as of the Stock Closing to be: David Brown, Andrew Brown, Mark
Brown, Darren Brown and Robert Fredrick. Optelecom shall take such action as may
be necessary to cause the election of David Brown as a director of Optelecom
(UK) Limited with such election to be effective as of the Stock Closing.
Optelecom will in good faith use its best efforts to obtain the clearances
required from the United States Department of Defense for David Brown to serve
as a director of Optelecom and upon receipt of those clearances will submit to
its Board of Directors a recommendation for the election of David Brown to the
Board
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of Directors.
5.05 "Key Man" Insurance. David Brown shall use his best
efforts to obtain within 21 days after closing a "Key Man" insurance policy in
the amount of US$1.0 million and naming Optelecom as the sole beneficiary.
5.06 Adjustment in Consideration. The parties acknowledge that
the consideration being paid by Optelecom in connection with the transactions
contemplated hereby (the "Transaction Consideration") was agreed to by it in
part because of the future value that it expects to be created by the services
of the Browns in connection with the operations of Paragon subsequent to the
Closings. Each of the Browns agrees that if, at any time prior to the third
anniversary of the Closing Date any of them shall voluntarily terminate his
employment (for reasons other than death, disability, or unreasonable or
oppressive conduct by the Company) or shall conduct himself in the discharge of
his duties in a manner that he knew or ought to have known to be likely to
result in material financial impairment of the Company or its prospects, an
adjustment shall be made in the Transaction Consideration. For the avoidance of
doubt, the standard for termination for cause under the Employment Agreement is
distinct, separate and different from the standards giving rise to an adjustment
in consideration set forth in preceding sentence. The adjustment shall be
determined by multiplying $406,250 by a fraction the numerator of which is the
difference between 1,095 and the number of calendar days between the Closing
Date and the date on which the cessation or termination of services occurs and
the denominator of which is 1,095 (the "Transaction Consideration Adjustment").
Within 30 days after the cessation or termination of services under his
Employment Agreement, the departing Brown shall pay the amount of the
Transaction Consideration Adjustment by delivering to Optelecom cash in US
dollars or Optelecom Shares or some combination thereof (the "Adjustment
Payment"). For this purpose, Optelecom Shares shall be valued at the Adjusted
Closing Price Per Share. The certificates representing any Optelecom Shares
delivered to Optelecom shall be accompanied by a stock power therefor endorsed
in blank and the departing Brown's written representation and warranty that he
holds good and marketable title to the shares free and clear of all encumbrances
and security interests of any nature. Until the Adjustment Payment has been made
in full, Optelecom may withhold any amounts due from it or its affiliates to the
departing Brown; the departing Brown will not, without Optelecom's written
consent, sell or transfer any Optelecom Shares; and Optelecom may issue to its
transfer agent stop-transfer instructions with respect to any Optelecom Shares
owned of record or beneficially by the departing Brown and in its sole
discretion may refuse to authorize the transfer of any such shares.
5.07 Protection of the Interests of Optelecom.
(a) In further consideration of Optelecom agreeing to pay the
Transaction Consideration, each Brown shall not, directly or indirectly, alone
or jointly with any other person, and whether as shareholder, partner, director,
officer, agent, employee or consultant or in any other capacity:
(i) for a period of three years starting on the Closing Date,
assist or be engaged or
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interested in any business which competes with any business carried on by
Paragon as at Closing other than by holding as a passive investment shares or
other securities listed on a stock exchange or the Nasdaq Stock Market
representing (when aggregated with those held by each person connected with the
Paragon Stockholder) less than 5% of the outstanding shares or securities of the
relevant class;
(ii) for a period of three years starting on the Closing Date,
and to the detriment of any business of Paragon carried on as at Closing,
solicit business from any person who was a customer of Paragon during the 12
months' period ending on the Closing Date, or accept business from any such
person, or solicit business from any person who as at the Closing Date was
reasonably likely to become a customer of Paragon or accept business from any
such person;
(iii) for a period of three years starting on the Closing
Date, and to the detriment of any business of Paragon carried on as at Closing,
solicit any person known by that Brown to be employed or engaged by Paragon in a
senior, managerial or sales position on the Closing Date to leave that position,
or employ any such person or any other person known by that Paragon Stockholder
to have held such a position during the six months' period ending on the Closing
Date.
(b) Following the Closing, no Brown shall disclose or use any
confidential information relating to Paragon, and each Brown shall use all
reasonable endeavors to prevent the disclosure of any such confidential
information. This clause shall not prohibit disclosure of confidential
information pursuant to a legal obligation involuntarily incurred or if required
by any regulation or rule of any stock exchange or governmental or other
regulatory authority, but in any such case, the Brown in question shall consult
with Optelecom so far as is practicable before the relevant disclosure is made.
This clause shall not apply to confidential information which has come into the
public domain without breach of this clause or of clause (d) of this section.
(c) No Brown shall at any time after the termination of his employment
with Paragon use in any manner in the course of any business the name Paragon
Audio Visual Limited, or any other trade or business name or any mark or logo
used by Paragon at any time during the three years' period ending on the Closing
Date, or any confusingly similar name, mark or logo.
(d) Each Brown shall ensure that each person affiliated with him from
time to time does not take or omit to take any action which, if taken or omitted
by that Brown, would constitute a breach of clause (a), (b) or (c) of this
section.
(e) Since the Browns have confidential information relating to Paragon
and a detailed awareness of Paragon's customer connections, and since the
Transaction Consideration has been calculated on the basis that the Browns would
assume the obligations in clauses (a), (b), (c) and (d) of this section, the
parties acknowledge that each of those obligations is reasonable as to subject
matter, area and duration and is necessary to provide Optelecom with the full
benefit of the goodwill of Paragon.
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(f) Each of the parties agrees that clauses (a), (b), (c) and (d) of
this section may be specifically enforced by preliminary and permanent
injunction, it being acknowledged that a breach of any of those clauses might
cause injury to Optelecom in respect of which damages would not provide an
adequate remedy.
(g) Each of the obligations assumed by the Browns under clauses (a),
(b), (c) and (d) of this section is separate and to be construed independently
of the others, and is assumed without prejudice to any other obligations of any
Browns implied at law or in equity.
6. Optelecom Shares.
6.01 Investment Letters. On or before the Closing, each of
Paragon and the Paragon Stockholders shall execute and deliver to Optelecom an
investment letter in substantially the form of, respectively, Attachments F-1
and F-2 hereto.
6.02 SEC Registration Statement. Optelecom shall prepare and
file with the US Securities and Exchange Commission ("SEC") a registration
statement on Form S-3 covering the sale by each Paragon Stockholder of one-third
of the Optelecom Shares distributed by Paragon to such stockholder or to
Adventatum for the benefit of such stockholder. Optelecom will file the
registration statement on the Registration Target Date as hereinafter defined
and will use its best efforts to have the registration statement declared
effective as promptly as practicable. Optelecom shall not be required to
maintain the registration statement effective for more than 24 months from its
effective date. The Paragon Stockholders shall reimburse Optelecom up to a
maximum of $12,500 for fees and expenses incurred by it in connection with the
registration of the Optelecom Shares. The Registration Target Date shall be the
seventh business day following the date on which Paragon delivers to Optelecom:
(i) financial statements of Paragon that in the judgment of the independent
public accountants for Optelecom meet the requirements of Rule 3.05 of the SEC's
Accounting Rules (Regulation S-X); and (ii) information regarding Paragon that
in the judgment of the independent public accountants for Optelecom is
sufficient to permit Optelecom to prepare the pro-forma financial information
required by Article 11 of Regulation S-X.
6.03 Additional Registration Rights. If Optelecom at any time
during the twelve-month period commencing on the Closing Date proposes to
register Optelecom Common Stock under the Securities Act of 1933 (the
"Securities Act") (other than a registration on Form S-4 or S-8, or any
successor or other forms promulgated for similar purposes) for sale for its own
account in a firm commitment underwritten offering, it will give written notice
to the Paragon Stockholders of its intention to do so and of such holders'
rights under this section. Upon the written request of any such holder made
within fifteen days after the receipt of any such notice (which request shall
specify the Optelecom Shares intended to be disposed of by such holder),
Optelecom will use its best efforts to effect the registration under the
Securities Act of all the Optelecom Shares which Optelecom has been so requested
to register by the Paragon Stockholders. If the managing underwriter advises
Optelecom in writing that, in its opinion, the amount of securities requested to
be included in such registration by all selling stockholders exceeds the amount
which can be sold in such offering, so
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as to be likely to have an adverse effect on such offering as contemplated by
Optelecom (including the price at which Optelecom proposes to sell such
securities), then Optelecom will include in such registration (i) first, 100% of
the securities Optelecom proposes to sell on a primary basis, and (ii) second,
the amount of securities requested to be included in such registration by
selling stockholders which, in the opinion of such managing underwriter, can be
sold without having the adverse effect referred to above, such amount to be
allocated pro rata among all selling stockholders on the basis of the relative
number of securities requested to be included in the registration statement by
each such stockholder. Unless otherwise agreed by Optelecom, the Paragon
Stockholders shall offer and sell Optelecom Shares in an underwritten offering
using the same underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares of Optelecom
Common Stock included in such underwritten offering.
6.04 Stand Aside. To the extent not inconsistent with
applicable law, each Paragon Stockholder agrees, for a period of two years
following the Stock Closing, not to offer publicly or effect any public sale or
distribution of Optelecom Shares, including a sale pursuant to a registration
statement or to Rule 144 (or any similar provision then in force) under the
Securities Act of 1933 (the "Securities Act") or pursuant to Section 4(1) of the
Securities Act, during the seven days prior to, and during the 120-day period
beginning on, the effective date of any registration statement filed by
Optelecom with the US Securities and Exchange Commission for securities being
offered by or on behalf of Optelecom, if and to the extent requested by
Optelecom in the case of a non-underwritten public offering or if and to the
extent requested by the managing underwriter or underwriters in the case of an
underwritten public offering; provided that no such request may be made during
the first 90 days following the effective date of the registration statement
referred to in Section 6.02.
6.05 Right of First Refusal. Each Paragon Stockholder agrees
that prior to selling any Optelecom Shares pursuant to an SEC registration
statement or otherwise he will offer Optelecom the opportunity to purchase the
shares. The Paragon Stockholder shall provide Optelecom with written notice of
the number of shares which the Paragon Stockholder intends to sell and of the
method in which he intends to effect the sale, including a description of the
terms and conditions of any transaction other than sales through broker-dealers
on the Nasdaq Stock Market at market prices prevailing at the time of sale (the
"Paragon Stockholder Notice"). If Optelecom wishes to purchase the shares it
must notify the Paragon Stockholder in writing of its intention within two
business days after receipt of the Paragon Stockholder Notice (the "Optelecom
Notice"). If Optelecom does not give notice, the Paragon Stockholder may proceed
with the sale specified in the Paragon Stockholder Notice. If the specified sale
is made within 14 days after the receipt by Optelecom of the Paragon Stockholder
Notice, and if the sale price is less than the closing sale price of Optelecom
Common Stock on the Nasdaq Stock Market on the date on which Optelecom received
the Paragon Stockholder Notice (the "Notice Price"), Optelecom upon request from
the Paragon Stockholder shall promptly pay to such Stockholder an amount equal
to the number of shares that were included in the Paragon Stockholder Notice and
sold multiplied by the "Spread", which shall be (i) the difference between the
Notice Price and closing sale price of Optelecom Common Stock on the date on
which Optelecom gives notice to the Paragon Stockholder that it does not intend
to
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purchase the shares or if no such notice is given on the second business day
after Optelecom received the Paragon Stockholder Notice or (ii) if less, the
difference between the Notice Price and the price or prices at which the Paragon
Stockholder sold the shares. If Optelecom gives notice, it shall proceed to
purchase the shares for cash with the price of the shares being determined by
the higher of the closing sale price of Optelecom Common Stock on the Nasdaq
Stock Market on the date on which Optelecom received the Paragon Stockholder
Notice or on the date on which Optelecom gave the Optelecom Notice. The closing
of the transaction shall be held at the main offices of Optelecom on the tenth
business day after the date on which Optelecom gives the Optelecom Notice or at
such other place or on such earlier date as may be specified by Optelecom in the
Optelecom Notice. At the closing, the Paragon Stockholder shall deliver to
Optelecom one or more certificates representing the shares being sold
accompanied by a stock power therefor endorsed in blank and a written
representation and warranty that he holds good and marketable title to the
shares free and clear of all encumbrances and security interests of any nature,
and Optelecom shall deliver to the Paragon Stockholder a check for the amount of
the aggregate sale price of the shares. In lieu of purchasing the shares itself,
Optelecom may designate a purchaser which will proceed to purchase the shares in
accordance with the foregoing procedures. All certificates representing
Optelecom Shares shall bear a legend noting conspicuously the restriction
imposed by this paragraph on the transfer of Optelecom Shares.
6.06 Additional Registration Provisions. Attachment G hereto
sets forth additional provisions regarding the registration rights granted to
the Paragon Stockholders under this Agreement.
7. Representations and Warranties.
7.01 Paragon. Paragon and each of the Browns hereby represent
and warrant to Optelecom as follows:
(a) Paragon is a corporation duly organized, validly
existing and in good standing under the laws of the United Kingdom; Paragon has
all requisite corporate power and legal authority to execute, deliver and carry
out the terms of this Agreement and the Related Agreements and all documents and
agreements necessary to give effect to the provisions of this Agreement and the
Related Agreements; all actions and authorizations, corporate and otherwise,
prerequisite to the execution of this Agreement and the Related Agreements and
the consummation of the transactions contemplated hereby and thereby have been
taken or obtained by Paragon and by the Paragon Stockholders; the execution,
delivery and performance of this Agreement and the Related Agreements and the
consummation of the transactions contemplated hereby and thereby by Paragon and
the Paragon Stockholders do not violate the terms of or require the consent of
any other person under, any agreement to which Paragon or the Paragon
Stockholders is a party or by which it is or they are bound, any provision of
any statute, rule, regulation or court or administrative order to which Paragon
or any of the Paragon Stockholders is subject, or any provision of Paragon's
Memorandum or Articles of Association; this is a valid and binding Agreement of
Paragon and the Paragon Stockholders enforceable against each of them in
accordance with its terms; neither Paragon
-9-
<PAGE>
nor any of the Paragon Stockholders has engaged any broker, finder or
intermediary in connection with the transactions contemplated by this Agreement
and the Related Agreements, and to their knowledge, no broker, finder or
intermediary will assert any claim or make any demand upon any of the parties
based upon any dealings of such broker, finder or intermediary with Paragon or
the Paragon Stockholders in connection with such transactions.
(b) Paragon has delivered to Optelecom audited
financial statements of Paragon for the fiscal period ended August 31, 1995 and
for the fiscal year ended August 31, 1996 and unaudited financial statements of
Paragon for the fiscal year ended August 31, 1997 (collectively, the "Financial
Statements") including an unaudited balance sheet of Paragon as of August 31,
1997 (the "Balance Sheet"). The Financial Statements have been prepared in
accordance with United Kingdom generally accepted accounting principles applied
on a consistent basis throughout the periods involved and present fairly the
financial position, results of operations and cash flows of Paragon as of the
dates and for the periods indicated therein. The Financial Statements reflect
all adjustments (consisting of only normal recurring adjustments) that are
necessary to a fair statement of the results for the periods presented. Paragon
does not have any liabilities of any nature, direct or indirect, contingent or
otherwise, which are not reflected or reserved against on the face of the
Balance Sheet, except for liabilities which, individually or in the aggregate,
are not material to the business, operations or financial condition of Paragon.
The assets reflected on the Balance Sheet constitute all of the properties and
assets used or held in connection with the business of Paragon during the past
12 months (except inventories sold, cash disposed of, receivables collected,
prepaid expenses realized and assets replaced by equivalent or superior assets,
in each case in the ordinary course of business) and comprise all assets the use
of which is necessary for the continued conduct of the business of Paragon.
There has been no material adverse change in the business, assets, operations or
financial condition of Paragon since the date of the Balance Sheet.
(c) All the outstanding shares of Paragon are owned
as follows:
Name of Registered Name of Beneficial
Stockholder Owner Number of Shares
- ------------------ ------------------ ----------------
Andrew Brown Andrew Brown 237
Darren Brown Darren Brown 237
Adventatum Jersey Limited Modeledge Limited 50
Mark Brown 237
David Brown 237
David Brown, Mark Brown and Modeledge will cause Adventatum to take whatever
actions may be required on its part to carry out the terms of this Agreement and
the Related Agreements and the transactions contemplated hereby and thereby.
-10-
<PAGE>
(d) No representation or warranty by Paragon or the
Paragon Stockholders, contained in this Agreement or any Related Agreement and
no writing, certificate, schedule, exhibit, list or other instrument furnished
or to be furnished to Optelecom pursuant hereto or thereto or in connection with
the transactions contemplated hereby or thereby contains any untrue statement of
a material fact, or omits to state a material fact necessary in order to make
the statements and information contained therein not misleading in light of the
circumstances in which they were made.
7.02 Optelecom. Optelecom hereby represents and warrants to
Paragon and the Paragon Stockholders as follows:
(a) Optelecom is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware;
Optelecom has all requisite corporate power and legal authority to execute,
deliver and carry out the terms of this Agreement and the Related Agreements and
all documents and agreements necessary to give effect to the provisions of this
Agreement and the Related Agreements; all actions and authorizations, corporate
and otherwise, prerequisite to the execution of this Agreement and the
consummation of the transactions contemplated hereby have been taken or obtained
by Optelecom; the execution, delivery and performance of this Agreement and the
Related Agreements by Optelecom and the consummation of the transactions
contemplated hereby and thereby do not violate the terms of, or require the
consent of any other person under, any agreement to which Optelecom is a party
or by which it is bound, any provision of any statute, rule, regulation or court
or administrative order to which Optelecom is subject, or any provision of
Optelecom's Certificate of Incorporation or By-laws; this is a valid and binding
Agreement of Optelecom enforceable against Optelecom in accordance with its
terms; Optelecom has not engaged any broker, finder or intermediary in
connection with the transactions contemplated by this Agreement, and to its
knowledge, no broker, finder or intermediary will assert any claim or make any
demand upon any of the parties based upon any dealings of such broker, finder or
intermediary with Optelecom in connection with such transactions.
(b) Optelecom has furnished to Paragon for delivery
to the Paragon Stockholders true and correct copies of Optelecom's Form 10-K
Annual Report for the year ended December 31, 1996, Form 10-Q Quarterly Reports
for the periods ended March 31, June 30 and September 30, 1997 and the
definitive proxy statement for its annual meeting held April 30, 1997 as filed
by Optelecom with the SEC (the "Optelecom SEC Filings"; the financial statements
contained in the Optelecom SEC Filings are collectively referred to hereinafter
as the "Optelecom Financial Statements"). Optelecom has filed all reports
required to be filed by it with the SEC, and no such report at the time it was
filed contained any untrue statement of material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
in such report, in light of the circumstances under which they were made, not
misleading. The Optelecom Financial Statements included in the Optelecom SEC
Filings were prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis throughout the periods
involved and present fairly the financial position, results of operations and
cash flows of Optelecom as of the dates and for the periods indicated therein,
subject in the case of unaudited interim statements to the omission of certain
footnotes and other information as permitted by SEC
-11-
<PAGE>
rules. There has been no material adverse change in the business, assets,
operations or financial condition of Optelecom since the date of the latest
balance sheet included in the Optelecom SEC Filings other than as disclosed in
or contemplated by the Optelecom SEC Filings.
(c) No representation or warranty by Optelecom
contained in this Agreement and any Related Agreement and no writing,
certificate, schedule, exhibit, list or other instrument furnished or to be
furnished to Paragon or the Paragon Stockholders pursuant hereto or thereto or
in connection with the transactions contemplated hereby or thereby contains any
untrue statement of a material fact, or omits to state a material fact necessary
in order to make the statements and information contained therein not misleading
in light of the circumstances in which they were made.
8. Indemnification.
8.01 Indemnification of Optelecom.
(a) The Browns, jointly and severally, agree to defend, indemnify, and
hold harmless Optelecom and Optelecom UK against and in respect of:
(i) Any and all loss, cost, damage, expense or
liability (including reasonable attorneys' fee) resulting from any
misrepresentation or breach of warranty or covenant on the part of Paragon or
the Paragon Stockholders under this Agreement or any of the Related Agreements
or in any certificate, list, schedule, exhibit or document delivered to
Optelecom or Optelecom UK under or in connection with this Agreement, the
Related Agreements or the transactions contemplated herein or therein; and
(ii) Any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs, and expenses (including reasonable
attorneys' fees) incident to any of the foregoing, provided, however, that if
any such action, suit or proceeding shall be commenced against, or any such
claim, demand, or assessment be asserted against, Optelecom or Optelecom UK in
respect of which Optelecom or Optelecom UK proposes to demand indemnification,
the Browns shall be notified to that effect with reasonable promptness and shall
have the right to assume control of the defense, compromise, or settlement
thereof, including the employment of counsel reasonably satisfactory to
Optelecom, and in connection therewith, each of Optelecom and Optelecom UK shall
cooperate fully and make available to the Browns all pertinent information under
its control, and shall have the right to participate therein at its expense with
counsel of its choice and to approve or reject any compromise or settlement that
could in any way , directly or indirectly, limit, restrict or impair the
operations of Optelecom.
(b) The aggregate liability of the Paragon Stockholders in respect of
all claims under this Agreement, the Asset Agreement and the Stock Agreement
("Claims") shall not exceed $4.125 million; provided that such limitation shall
not apply to any liability arising from or in connection with any criminally
fraudulent breach of warranties.
-12-
<PAGE>
(i) The Paragon Stockholders shall not be liable in
respect of any Claim unless the amount for which they would be liable (but for
this paragraph) in respect of such Claim would exceed $500 in which case the
Paragon Stockholders shall be liable for the full amount of that Claim.
(ii) Notwithstanding the immediately proceeding
clause, if there is a series of claims arising out of an incident or out of
connected incidents where the aggregate loss exceeds $500, the Paragon
Stockholders shall be liable even where the Claims individually do not exceed
$500.
(iii) The Paragon Stockholders shall not be liable in
respect of any Claim or Claims unless the aggregate amount for which they would
be liable in respect of all such Claims would exceed $10,000 in which case the
Paragon Stockholders shall be liable for the full amount of the Claim or Claims
and not just the excess.
8.02 Waiver of Right to Contribution. Each of the Paragon
Stockholders hereby waives any right such Stockholder may have by statute or
otherwise for contribution from Paragon in connection with any misrepresentation
or breach of warranty or covenant on the part of Paragon or the Paragon
Stockholders under this Agreement or any of the Related Agreements or in any
certificate, list, schedule, exhibit or document delivered to Optelecom or
Optelecom UK under or in connection with this Agreement, the Related Agreements
or the transactions contemplated herein or therein.
8.03 Indemnification of the Paragon Stockholders. Optelecom
agrees to defend, indemnify, and hold harmless the Paragon Stockholders against
and in respect of:
(a) Any and all loss, cost, damage, expense or
liability (including reasonable attorneys' fee) resulting from any
misrepresentation or breach of warranty or covenant on the part of Optelecom or
Optelecom UK under this Agreement or any of the Related Agreements or in any
certificate, list, schedule, exhibit or document delivered to the Paragon
Stockholders under or in connection with this Agreement, the Related Agreements
or the transactions contemplated herein or therein; and
(b) Any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs, and expenses (including reasonable
attorneys' fees) incident to any of the foregoing, provided, however, that if
any such action, suit or proceeding shall be commenced against, or any such
claim, demand, or assessment be asserted against, the Paragon Stockholders in
respect of which the Paragon Stockholders propose to demand indemnification,
Optelecom shall be notified to that effect with reasonable promptness and shall
have the right to assume control of the defense, compromise, or settlement
thereof, including the employment of counsel reasonably satisfactory to the
Paragon Stockholders, and in connection therewith, the Paragon Stockholders
shall cooperate fully and make available to Optelecom all pertinent information
under their control, and shall have the right to participate therein at their
expense with counsel of their choice and to approve or reject any compromise or
settlement that does not result in a full release of the Browns
-13-
<PAGE>
with respect to such claim, demand or assessment.
9. Miscellaneous.
9.01 Expenses. Each party to this Agreement will pay all its
or his own expenses, including the fees and expenses of its or his legal
counsel, accountants and other advisors, which it or he may incur in connection
with this Agreement and the Related Agreements and the transactions contemplated
hereby or thereby.
9.02 Best Efforts and Further Assurances. Subject to the
respective rights and obligations of the parties under this Agreement and the
Related Agreements, each of the parties will use its or his reasonable best
efforts to effectuate the transactions contemplated herein and therein. Each
party hereto, at the reasonable request of another party hereto, will execute
and deliver such other instruments and do and perform such other acts and things
as may be necessary or desirable for effecting completely the consummation of
the transactions contemplated by this Agreement and the Related Agreements.
9.03 Survival of Representations and Warranties. All
representations and warranties made by Optelecom, Paragon and the Paragon
Stockholders under this Agreement or the Related Agreements or in any
certificate, list, schedule, exhibit or other instrument delivered pursuant
hereto or thereto shall survive the Closing of the transactions contemplated
hereby, but shall expire 30 months after the Closing Date, except for
representations and warranties concerning capitalization which shall not expire
and representations and warranties regarding taxes which shall not expire until
applicable statutes of limitations with respect to such taxes have expired.
9.04 Notices. Any notices or other communications required or
permitted under the Agreement or Related Agreements shall be in writing and may
be personally delivered, deposited in the mail, first class postage prepaid,
return receipt requested, transmitted by telecopy or telex, or sent by a private
messenger or carrier which issues delivery receipts, to the parties at the
following addresses:
If to Optelecom: Optelecom, Inc.
9300 Gaither Road
Gaithersburg, MD 20877
U.S.A.
Attention: Edmund D. Ludwig
Telephone: 301-840-2121
Fax: 301-840-0946
with a copy to: John W. Blouch
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, N.W.
Suite 405W
-14-
<PAGE>
Washington, D.C. 20007
Telephone: 202-223-3500
Fax: 202-223-4593
If to Paragon or the Paragon Stockholders: Paragon Audio Visual Limited
Units 9 and 10
Langley Business Court
Worlds End
Beedon, Newbury
Berkshire RG20 8RY
United Kingdom
Attention: Andrew S. Brown
Telephone: 44-1635-248811
Fax: 44-1635-248111
with a copy to: Peter Hawley
Walker Martineau
64 Queen Street
London
United Kingdom
Telephone: 011-44-171-236-4232
Fax: 011-44-171-236-2525
The addresses specified above may be changed by notice in accordance with this
paragraph.
9.05 Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of any provision of this Agreement.
9.06 Entire Agreement. This Agreement (including the Related
Agreements and the exhibits, documents and instruments referred to herein and
therein) constitutes the entire agreement by and among Optelecom, Paragon and
the Paragon Stockholders with respect to the subject matter hereof.
9.07 Amendment. This Agreement may not be amended except
pursuant to an instrument in writing executed by each of the parties affected by
such amendment. Notwithstanding the foregoing, this Agreement may be amended
with respect to immaterial matters by mutual consent of the president of
Optelecom and the chairman of Paragon.
9.08 Assignment and Binding Effect. This Agreement shall inure
to the benefit of and be binding upon Optelecom, Paragon and the Paragon
Stockholders and their respective assigns, successors and legal representatives.
-15-
<PAGE>
9.09 Applicable Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Maryland, without reference
to the principles of conflict or choice law thereof. Each of Optelecom, Paragon
and the Paragon Stockholders hereby agrees to submit to the exclusive
jurisdiction of the federal and state courts within the State of Maryland in any
action or proceeding arising out of or related to this Agreement or any of the
Related Agreements, agrees that process may be served upon it or him in any
manner authorized for those courts and covenants not to assert or plead any
objection which it or he might otherwise have to such jurisdiction and such
process.
9.10 Invalid Provisions. If any term, provision or condition
of this Agreement, or the application thereof to any person or circumstance,
shall be held by a court of competent jurisdiction to be invalid, unenforceable,
or void, the remainder of this Agreement and such term, provision or condition
as applied to other persons or circumstances shall remain in full force and
effect.
9.11 Counterparts. This Agreement my be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-16-
<PAGE>
IN WITNESS WHEREOF, the Paragon Stockholders have executed this
Agreement, and Optelecom and Paragon have caused this Agreement to be executed
by their respective duly authorized officers, as of December 12, 1997.
OPTELECOM, INC.
By /s/ Edmund D. Ludwig
--------------------------
Edmund D. Ludwig
President
PARAGON AUDIO VISUAL LIMITED
By /s/ David A. Brown
--------------------------
David A. Brown
Chairman
THE PARAGON STOCKHOLDERS
/s/ David A. Brown
--------------------------
David A. Brown
/s/ Mark D. Brown
--------------------------
Mark D. Brown
/s/ Andrew S. Brown
--------------------------
Andrew S. Brown
/s/ Darren N. Brown
--------------------------
Darren N. Brown
Modeledge Limited
By /s/ Peter E. Hawley
--------------------------
Peter E. Hawley
-17-
Exhibit 2iA
ASSET ACQUISITION AGREEMENT
AGREEMENT made by and between Optelecom, Inc., a Delaware corporation
("Purchaser"), and Paragon Audio Visual Limited, a United Kingdom company
("Seller").
WHEREAS, Purchaser desires to acquire from Seller, and Seller desires
to sell to Purchaser, the Paragon Intangible Assets (as hereinafter defined),
upon the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the parties agree as follows:
1. Paragon Intangible Assets. As used herein, the term "Paragon
Intangible Assets" shall mean all the intangible assets of Seller relating to
the family of products known as "Video Link" and the other products which Seller
is selling or considering selling and includes, but is not limited to: customer
lists for all past, current and potential customers; all trademarks and trade
names, including use of the names "Paragon" and "Video Link"; all patents,
copyrights, formulae, processes, methodologies, designs, patterns, know-how,
formats or similar items; all functional specification requirements; all
technical documentation, business books and records and other product-related
information; all contractual and other relationships with suppliers of goods or
services used in connection with the products; and all contractual and other
relationships with customers, distributors and franchisees relating to the
future sale of or provision of services in connection with the products.
2. Sale and Purchase. Seller hereby sells, conveys, assigns and
transfers to Purchaser, and Purchaser hereby acquires, all of Seller's right,
title and interest in and to the Paragon Intangible Assets. Purchaser shall not
assume any liabilities of Seller. The Closing shall take place at the offices of
Purchaser at 9300 Gaither Road, Gaithersburg, Maryland 20877 immediately after
the signing of this Agreement.
3. Payment of Asset Consideration. In consideration for the sale of the
Paragon Intangible Assets, Purchaser shall pay to Seller US$ 2.625 million (the
"Asset Consideration"). The Asset Consideration shall consist of: (i) 171,252
shares of common stock of Purchaser ("Optelecom Common Stock") having a value of
US$1.625 million (the "Optelecom Shares"); and cash in the amount of US$1.0
million (the "Asset Cash Consideration"). At the Closing, Purchaser shall
deliver to Seller a copy of Purchaser's directions to its transfer agent for the
issuance of the Optelecom Shares, shall deposit the amounts of US$272,000 and
UKL443,902 in escrow accounts pursuant to Escrow Agreements of even date to
which Purchaser and Seller are parties.
4. Transfer and Delivery of Assets. At the Closing, Seller shall
deliver to Purchaser the Paragon Intangible Assets, including all original title
or right documents and all evidence of rights pertaining to the Paragon
Intangible Assets, shall execute such bills of sale, assignments and other
documents as Purchaser may reasonably request in connection therewith, and shall
take all other actions necessary to confer on Purchaser ownership and control of
the Paragon Intangible Assets. At any time and from time to time after the
Closing, Seller and its officers and directors shall take such further actions
and execute such further documents as reasonably may be requested by Purchaser
<PAGE>
- 2 -
for purposes of fully effectuating the transfer of Paragon Intangible Assets
contemplated under this Agreement.
5. Representations and Warranties by Seller. Seller represents and
warrants to Purchaser that:
5.01 Organization. Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the United Kingdom and
has all requisite corporate power and legal authority to own, lease and operate
its assets and properties and to carry on its business as presently conducted.
5.02 Authorization and Approval of Agreement. Seller has all
requisite corporate power and legal authority to execute, deliver and perform
the terms of this Agreement and all agree ments necessary to give effect to this
Agreement. All corporate action and other authorizations re quired to be taken
or obtained by Seller prerequisite to the execution of this Agreement and the
consummation of the transactions contemplated hereby have been taken or
obtained. This Agreement is a valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms.
5.03 Ability to Carry Out Agreement. Seller is not a party to,
subject to, or bound by any mortgage, deed of trust, indenture or other
instrument or agreement or by any judgment, order, writ, injunction, or decree
of any court or governmental body, and there is no provision in Seller's
Memorandum or Articles of Association or, to the knowledge of Seller, in any
statute, rule or regulation, that could prevent or materially impair (i) the
execution, delivery or performance of this Agreement or (ii) the use or
enjoyment by Purchaser of the Paragon Intangible Assets. No license, franchise,
permit, authorization or approval from any governmental or regulatory authority
required for the conduct of Seller's business and the ownership, occupancy and
operation of its property will in any material way be affected by, or terminate
or lapse by reason of, the transactions contemplated by this Agreement.
5.04 Consents. No consent, approval, order or authorization
of, or registration, declaration or filing with, any court, governmental
authority or other person, which has not been obtained, is necessary in
connection with the execution, delivery or performance of this Agreement by
Seller.
5.05 Paragon Intangible Assets. Seller either owns, or has a
valid license with respect to, all the Paragon Intangible Assets, including all
patents, copyrights, trademarks, trade secrets and other intellectual property
included therein. Seller's ownership and use of the Paragon Intangible Assets
does not violate or infringe any patent, contract right, copyright, trademark,
trade secret or other intellectual property right of any third party. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not constitute a material breach of
any instrument or agreement governing any Paragon Intangible Assets, will not
result in the creation of any lien upon any of the Paragon Assets, and will not
cause the forfeiture or termination or give rise to a right of forfeiture or
termination of any Paragon Intangible Assets or materially impair the right of
Seller or Purchaser in or to use, sell, enforce, license or otherwise exploit
any Paragon Intangible Assets or portion thereof. There is no pending or, to the
knowledge of the Seller, threatened claim or litigation contesting the validity,
ownership or right to use, sell,
<PAGE>
- 3 -
enforce, license or dispose of the Paragon Intangible Assets, nor has Seller
received any written notice asserting that any Paragon Intangible Assets or the
proposed use, sale, license or disposition thereof conflicts or will conflict
with the rights of any other party. Seller has taken reasonable and practicable
steps designed to safeguard and maintain the secrecy and confidentiality of, and
its proprietary rights in, all Paragon Intangible Assets. All the Paragon
Intangible Assets are assignable by Seller to Purchaser, and delivery thereof at
the Closing will convey to Purchaser good and marketable title to the Paragon
Intangible Assets, free and clear of all liens, encumbrances, security interests
and similar restrictions.
5.06 Claims and Rights of Stockholders, Officers, Etc. No
current or former em ployee, director, officer, stockholder or affiliate (or
affiliate of any of them) of Seller, either individu ally or in any other
capacity, has a direct or indirect claim of any kind whatsoever against Seller
or any of the Paragon Intangible Assets, and none of such persons owns or has
any rights in or to any of the Paragon Intangible Assets.
6. Representations and Warranties by Purchaser. Purchaser represents
and warrants to Seller that:
6.01 Organization. Purchaser is a corporation duly organized,
validly existing, and in good standing under the laws of the state of Delaware
and has all requisite corporate power and legal authority to own, lease and
operate its assets and properties and to carry on its business as presently
conducted.
6.02 Authorization and Approval of Agreement. Purchaser has
all requisite corporate power and legal authority to execute, deliver and
perform the terms of this Agreement and all agreements necessary to give effect
to this Agreement. All corporate action and other authorizations required to be
taken or obtained by Purchaser prerequisite to the execution of this Agreement
and the consummation of the transactions contemplated hereby have been taken or
obtained. This Agreement is a valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms.
6.03 Ability to Carry Out Agreement. Purchaser is not a party
to, subject to, or bound by any mortgage, deed of trust, indenture or other
instrument or agreement or by any judg ment, order, writ, injunction, or decree
of any court or governmental body, and there is no provision in the Certificate
of Incorporation or Bylaws of Purchaser or, to the knowledge of Purchaser, in
any statute, rule or regulation, that could prevent or materially impair the
execution, delivery or performance of this Agreement.
6.04 Consents. No consent, approval, order or authorization
of, or registration, declaration or filing with, any court, governmental
authority or other person, which has not been obtained, is necessary in
connection with the execution, delivery or performance of this Agreement by
Purchaser.
6.05 Capitalization. The authorized capital stock of Purchaser
consists of 5,000,000 shares of Optelecom Common Stock, $.03 par value per
share. There is no other capital stock authorized for issuance. As of December
2, 1997, Purchaser had 1,797,562 shares of Optelecom
<PAGE>
- 4 -
Common Stock issued and outstanding, an aggregate of 335,301 shares of Optelecom
Common Stock which were subject to options which had been granted but were
unexercised or exercised but with respect to which shares were unissued, and an
additional 537,135 shares of Optelecom Common Stock available for option under
its stock option plans. Since December 2, 1997, Purchaser has not issued any
Optelecom Common Stock or securities convertible into or exercisable for
Optelecom Common Stock and it currently has no commitment for the issuance in
the future of any other shares of Optelecom Common Stock or securities
convertible into or exercisable for Optelecom Common Stock. The Optelecom
Shares, when issued and delivered pursuant to this Agreement, shall be validly
issued and outstanding, fully paid and nonassessable.
7. Indemnification.
7.01 Indemnification of Purchaser.
(a) Seller agrees to defend, indemnify, and hold harmless
Purchaser against and in respect of:
(i) Any and all loss, cost, damage, expense or
liability (including reasonable attorneys' fees) resulting from any claim or
threatened claim that the Paragon Intangible Assets or their use by Purchaser
violates or infringes any patent, contract right, copyright, trademark, trade
secret or other proprietary right of any person;
(ii) Any and all loss, cost, damage, expense or
liability (including reasonable attorneys' fees) resulting from any
misrepresentation or breach of warranty or covenant on the part of Seller under
this Agreement or in any certificate, list, schedule, exhibit or document
delivered to Purchaser under or in connection with this Agreement or the
transactions contemplated herein; and
(iii) Any and all actions, suits, proceedings,
claims, demands, assessments, judgments, costs, and expenses (including
reasonable attorneys' fees) incident to any of the foregoing, provided, however,
that if any such action, suit, or proceeding shall be commenced against, or any
such claim, demand, or assessment be asserted against, Purchaser in respect of
which Purchaser proposes to demand indemnification, Seller shall be notified to
that effect with reasonable promptness and shall have the right to assume
control of the defense, compromise, or settlement thereof, includ ing the
employment of counsel satisfactory to Purchaser, and in connection therewith
Purchaser shall cooperate fully and make available to Seller all pertinent
information under its control, and shall have the right to participate therein
at its expense with counsel of its choice and to approve or reject any
compromise or settlement which could adversely affect Purchaser's right, title
or interest in or use or enjoyment of the Paragon Intangible Assets.
(b) The limitations contained in Section 8.01 (b) of the
Agreement to which Seller, Purchaser and the beneficial owners of the
outstanding shares of Seller are parties shall apply to limit or exclude, in
accordance with its terms, any liability which the Seller might otherwise have
in respect of a misrepresentation or a breach of warranty or covenant, provided
that no provision of such limitations shall apply to any such liability arising
from or in connection with any criminally fraudulent breach of warranty.
<PAGE>
- 5 -
7.02 Indemnification of Seller. Purchaser agrees to defend, indemnify
and hold harmless Seller against and in respect of:
(a) Any and all loss, cost, damage, expense or liability
(including reasonable attorneys' fees) resulting from any misrepresentation or
breach of warranty or covenant on the part of Purchaser under this Agreement or
in any certificate, list, schedule, exhibit or document delivered to Seller
under or in connection with this Agreement or the transactions contemplated
herein; and
(b) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs, and expenses (including reasonable attorneys'
fees) incident to any of the foregoing, provided, however, that if any such
action, suit, or proceeding shall be commenced against, or any such claim,
demand, or assessment be asserted against, Seller in respect of which Seller
proposes to demand indemnification, Purchaser shall be notified to that effect
with reasonable promptness and shall have the right to assume control of the
defense, compromise, or settlement thereof, including employment of counsel
satisfactory to Seller, and in connection therewith Seller shall cooperate fully
and make available to Purchaser all pertinent information under its control, and
shall have the right to participate therein at its expense with counsel of its
choice and to approve or reject any compromise or settlement which would not
result in a full release of Seller with respect to such claim, demand or
assessment.
8. Miscellaneous.
8.01 Survival of Representations and Warranties. All
representations and warranties made by Purchaser and Seller under this Agreement
or in any certificate, list, schedule, exhibit or other instrument delivered
pursuant hereto shall survive the Closing of the transactions contemplated
hereby, but shall expire 30 months after the Closing Date, except for
representations and warranties concerning capitalization which shall not expire.
8.02 Assignment and Binding Effect. This Agreement shall inure
to the benefit of and be binding upon Purchaser and Seller and their respective
assigns, successors and legal representatives.
8.03 Applicable Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Maryland, without reference
to the principles of conflict or choice of law thereof. Each of Purchaser and
Seller hereby agrees to submit to the exclusive jurisdiction of the federal and
state courts within the State of Maryland in any action or proceeding arising
out of or related to this Agreement, agrees that process may be served upon it
in any manner authorized for those courts and covenants not to assert or plead
any objection which it might otherwise have to such jurisdiction and such
process.
8.04 Other. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of any provision of this Agreement. This Agreement may be
executed in two or more counterparts each of which shall be deemed an original
and which together shall constitute a single agreement and may be amended only
by a written instrument executed by Purchaser and Seller.
<PAGE>
- 6 -
IN WITNESS WHEREOF, Seller and Purchaser have caused this Agreement to
be executed by their respective, duly authorized officers, as of December 12,
1997.
OPTELECOM, INC.
By /s/ Edmund D. Ludwig
-------------------------
Edmund D. Ludwig
President
PARAGON AUDIO VISUAL LIMITED
By: /s/David A. Brown
-------------------------
David A. Brown
Chairman
Exhibit 2iB1
ESCROW AGREEMENT
AGREEMENT made by and among Optelecom, Inc., a Delaware corporation
("Optelecom"), Paragon Audio Visual Limited, a United Kingdom company
("Paragon"), David A. Brown, Mark D. Brown, Andrew S. Brown and Darren N. Brown
(collectively, the "Browns"), Modeledge Limited, a United Kingdom company
("Modeledge"), and Walker Martineau as escrow agent ("Escrow Agent").
WHEREAS, the Browns and Modeledge are the sole beneficial owners of the
outstanding common shares of Paragon (the "Paragon Stockholders"), and Andrew S.
Brown, Darren N. Brown and Adventatum Jersey Limited, a Jersey company
("Adventatum"), are the record holders of all the outstanding shares of Paragon
(the "Paragon Record Holders") with each such Paragon Record Holder having the
percentage ownership interest in Paragon specified in Schedule 1 hereto (a
"Percentage Interest");
WHEREAS, Optelecom and Paragon have entered into an Asset Acquisition
Agreement of even date herewith (the "Asset Agreement") pursuant to which
Optelecom has acquired certain assets of Paragon (the "Paragon Assets") and has
agreed to pay to Paragon an aggregate consideration therefor of US$2.625 million
(the "Asset Consideration"), which Asset Consideration shall consist of: (i)
shares of common stock of Optelecom having a value of US$1.625 million and (ii)
cash in the amount of US$1.0 million (the "Asset Cash Consideration");
WHEREAS, Optelecom, Paragon and the Paragon Stockholders have entered
into an agreement of even date herewith pursuant to which: (i) Paragon shall
distribute to the Paragon Record Holders an amount (the "Distribution Amount")
equal to the Asset Consideration less an amount sufficient to cover Paragon's
tax obligations with respect to its transfer of the Paragon Assets and receipt
of the Asset Consideration (the "Paragon Tax Obligations"); (ii) the amount to
be distributed to each Paragon Record Holder shall be determined by multiplying
the Distribution Amount by the Paragon Record Holder's Percentage Interest;
(iii) the amount of the Paragon Tax Obligations (the "Paragon Tax Obligation
Amount") shall be determined by the independent public accountants for Optelecom
(the "Accountants"); and (iv) the Paragon Tax Obligation Amount shall be
reserved from the Asset Cash Consideration and placed in escrow until used to
pay the Paragon Tax Obligations or until such obligations have otherwise been
paid in full; and
WHEREAS, the Accountants have determined that the "Paragon Tax
Obligation Amount" should not exceed UKL443,902 (the "Reserve Amount");
NOW, THEREFORE, in consideration of the premises and the covenants
herein, the parties agree as follows:
1. Escrow Agent. Optelecom, Paragon, and the Paragon Stockholders
appoint and designate Franklin National Bank as the Escrow Agent for the
purposes herein set forth.
2. Deposit of Reserve Amount. Optelecom shall deposit with the Escrow
Agent, from the Asset Cash Consideration, the Reserve Amount, to be held by
Escrow Agent in an interest-bearing
<PAGE>
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account subject to the terms and conditions of this Escrow Agreement (the
Reserve Amount together with interest earned thereon shall be the "Escrow
Amount") by wire transfer to:
Account Name: Walker Martineau client account
Account Number: 77169820
Sort Code: 15-99-00
Name & Address: Messrs C Hoare & Co., 37 Fleet Street
London EC4P 4DQ
3. Disbursements from Escrow.
3.01 Written Instructions of Parties. The Escrow Agent shall
at all times have authority to pay over and disburse the Escrow Amount in
accordance with joint written instructions executed by Optelecom and by either
David A. Brown or Andrew S. Brown ("Written Instructions").
3.02 Payment of Paragon Tax Obligations. Upon receipt of
advice from the Accountants specifying the amount of a Paragon Tax Obligation,
Optelecom and either David A. Brown or Andrew S. Brown shall give Written
Instructions to the Escrow Agent directing that such amount be paid to the
appropriate taxing authority or to Paragon for reimbursement of its prior
payment of the Paragon Tax Obligation. The Escrow Agent shall make such payment
from the Escrow Amount as instructed.
3.03 Distribution of Balance. Upon receipt of advice from the
Accountants that the Paragon Tax Obligations have been paid in full, whether by
means of the disbursements provided for in Section 3.02 hereof or otherwise,
Optelecom and either David A. Brown or Andrew S. Brown shall give Written
Instructions to the Escrow Agent to disburse an aggregate amount equal to the
excess, if any, of the Escrow Amount over the Paragon Tax Obligations to the
Paragon Record Holders pro rata in accordance with the respective Percentage
Interest of each (or with respect to each Paragon Record Holder, to such other
person designated in the Written Instructions) and the balance, if any, of the
Escrow Amount to Optelecom.
4. The Escrow Agent.
4.01 Scope of Responsibilities. Notwithstanding any provisions
contained herein to the contrary, the Escrow Agent, including its officers,
directors, employees and agents, shall:
(a) not be liable for any action taken or omitted under this
Escrow Agreement so long as it shall have acted in good faith and without gross
negligence; and shall have no responsibility to inquire into or determine the
genuineness, authenticity, or sufficiency of any securities, checks, or other
documents or instruments submitted to it in connection with its duties
hereunder;
(b) in the absence of knowledge to the contrary, be entitled
to deem the signatories of any documents or instruments submitted to it
hereunder as being those purported to be authorized to sign such documents or
instruments on behalf of the parties hereto, and shall be entitled to rely upon
the genuineness of the signatures of such signatories without inquiry and
without requiring substantiating evidence of any kind;
<PAGE>
- 3 -
(c) be entitled to refrain from taking any action contemplated
by this Escrow Agreement in the event that it becomes aware of any disagreement
between the parties hereto as to any facts or as to the happening of any
contemplated event precedent to such action;
(d) be entitled to compensation for its services hereunder and
for reimbursement of its out-of-pocket expenses including, but not by way of
limitation, the fees and costs of attorneys or agents which it may find
necessary to engage in performance of its duties hereunder, all to be paid by
Paragon;
(e) be, and hereby is, jointly and severally indemnified and
saved harmless by the parties hereto from all losses, costs, and expenses,
including attorney fees, which may be incurred by it as a result of its
acceptance of the Reserve Amount or arising from the performance of its duties
hereunder, unless the Escrow Agent shall have been adjudged to have acted in bad
faith or to have been grossly negligent, and such indemnification shall survive
its resignation or removal, or the termination of this Escrow Agreement until
extinguished by any applicable statute of limitations;
(f) in the event any dispute shall arise between the parties
with respect to the disposition or disbursement of any of the assets held
hereunder, be permitted to interplead all of the assets held hereunder into a
court of competent jurisdiction, and thereafter be fully relieved from any and
all liability or obligation with respect to such interpleaded assets. The
parties further agree to pursue any redress or occurrence in connection with
such dispute, without making the Escrow Agent a party to same;
(g) only have those duties as specifically provided herein,
which shall be deemed purely ministerial in nature, and shall under no
circumstances be deemed a fiduciary for any of the parties to this Escrow
Agreement. The Escrow Agent shall neither be responsible for, nor chargeable
with, knowledge of the terms and conditions of any other agreement, instrument,
or document between the other parties hereto in connection herewith. This Escrow
Agreement sets forth all matters pertinent to the escrow contemplated hereunder,
and no additional obligations of the Escrow Agent shall be inferred from the
terms of this Escrow Agreement or any other agreement. In no event shall the
Escrow Agent be liable, directly or indirectly, for any (i) damages or expenses
arising out of the services provided hereunder, other than damages which result
from the Escrow Agent's failure to act in accordance with the reasonable
commercial standards of the banking business, or (ii) special or consequential
damages, even if the Escrow Agent has been advised of the possibility of such
damages;
(h) have the right, but not the obligation, to consult with
counsel of its choice and shall not be liable for action taken or omitted to be
taken by Escrow Agent in good faith either in accordance with the advice of such
counsel or in accordance with any opinion of counsel to Optelecom addressed and
delivered to the Escrow Agent; and
(i) shall not be required by any provision of this Agreement
to expand or risk its own funds in the performance of its duties if it shall
have reasonable grounds for believing that repayment of such funds is not
reasonably assured to it.
<PAGE>
- 4 -
4.02 Succession. Any banking association or corporation into
which the Escrow Agent (or substantially all of its corporate trust business)
may be merged, converted or with which the Escrow Agent may be consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Escrow Agent shall be a party, shall succeed to all the Escrow Agent's
rights, obligations and immunities hereunder without the execution or filing of
any paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
4.03 Resignation. The Escrow Agent may resign as such
following the giving of thirty (30) days prior written notice to the other
parties hereto. Similarly, the Escrow Agent may be removed and replaced
following the giving of thirty (30) days prior written notice to the Escrow
Agent by Optelecom and by either David A. Brown or Andrew S. Brown. In either
event, the duties of the Escrow Agent shall terminate thirty (30) days after
receipt of such notice (or as of such earlier date as may be mutually
agreeable); and the Escrow Agent shall then deliver the deposits then in its
possession to a successor escrow agent as shall be appointed by Optelecom and by
either David A. Brown or Andrew S. Brown as evidenced by a written notice filed
with the Escrow Agent.
If the other parties hereto are unable to agree upon a
successor, or shall have failed to appoint a successor prior to the expiration
of thirty (30) days following receipt of the notice of resignation or removal,
the Escrow Agent may petition any court of competent jurisdiction for the
appointment of a successor escrow agent or for other appropriate relief, and any
such resulting appointment shall be binding upon all the parties hereto.
5. Notices. Any notice, consent or request to be given in connection
with any of the terms or provisions of this Escrow Agreement shall be in writing
and be given in person, by facsimile transmission or courier delivery service or
by mail, and shall become effective (a) on delivery if given in person, (b) on
the date of delivery if sent by facsimile with receipt confirmed by telephone or
by courier delivery service, or (c) four business days after being deposited in
the mails, with proper postage prepaid for first-class registered or certified
mail.
Notices shall be addressed as follows:
(i) If to Optelecom: Optelecom, Inc.
9300 Gaither Road
Gaithersburg, MD 20877
U.S.A.
Attention: Edmund D. Ludwig
Telephone: 301-840-2121
Fax: 301-840-0946
with a copy to: John W. Blouch
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, N.W.
Suite 405W
Washington, D.C. 20007
Telephone: 202-223-3500
Fax: 202-223-4593
<PAGE>
- 5 -
(ii) If to Paragon or the Paragon Paragon Audio Visual Limited
Stockholders: Units 9 and 10
Langley Business Court
Worlds End
Beedon, Newbury
Berkshire RG20 8RY
United Kingdom
Attention: David A. Brown
Telephone: 44-1635-248811
Fax: 44-1635-248111
with a copy to: Peter Hawley
Walker Martineau
64 Queen Street
London
United Kingdom
Telephone: 011-44-171-236-4232
Fax: 011-44-171-236-2525
(iii) If to the Escrow Agent: Walker Martineau
64 Queen Street
London
United Kingdom
Telephone: 011-44-171-236-4232
Fax: 011-44-171-236-2525
6. Miscellaneous.
6.01 Binding Effect. This Agreement shall inure to the benefit
of and be binding upon the parties and their respective successors, assigns and
legal representatives.
6.02 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
6.03 Amendment. This Agreement may be amended only by a
written instrument executed by all of the parties hereto affected thereby.
6.04 Applicable Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Maryland, without reference
to the principles of conflict or choice of law thereof.
<PAGE>
- 6 -
IN WITNESS WHEREOF, the Paragon Stockholders have executed this
Agreement, and Optelecom, Paragon and Escrow Agent have caused this Agreement to
be executed by their respective duly authorized officers, as of December 12,
1997.
OPTELECOM, INC.
By /s/ Edmund D. Ludwig
-------------------------
Edmund D. Ludwig
President
PARAGON AUDIO VISUAL LIMITED
By /s/ David A. Brown
-------------------------
David A. Brown
Chairman
FRANKLIN NATIONAL BANK
By
-------------------------
THE PARAGON STOCKHOLDERS
/s/ David A. Brown /s/ Darren N. Brown
- ------------------------ ------------------------------
David A. Brown Darren N. Brown
/s/ Mark D. Brown Modeledge Limited
- ------------------------
Mark D. Brown
By /s/ Peter E. Hawley
-------------------------
Peter E. Hawley
/s/ Andrew S. Brown
- ------------------------
Andrew S. Brown
<PAGE>
- 7 -
Schedule 1
Percentage Interests of the
Paragon Record Holders
---------------------------
Andrew S. Brown 23.75%
Darren N. Brown 23.75%
Adventatum Jersey Limited 52.50%
Exhibit 2iB2
[Walker Martineau Letterhead]
December 16, 1997
Optelecom, Inc.
9300 Gaither Road
Gaithersburg, Maryland 20877
Dear Sirs:
We are writing with respect to an Escrow Agreement dated December 12,
1997 which has been executed by you and by certain other persons and which
contemplated that Franklin National Bank would serve as the Escrow Agent. The
other persons who have executed the Escrow Agreement, all of whom are
represented by this firm, have requested that Walker Martineau be substituted
for Franklin National Bank as the Escrow Agent. Walker Martineau agrees to serve
as Escrow Agent pursuant to the terms of the Escrow Agreement. If you agree to
the substitution, please direct the UKL443,902 to be deposited under the Escrow
Agreement by wire to:
Account Name: Walker Martineau client account
Account Number: 77169820
Sort Code: 15-99-00
Name & Address: Messrs C Hoare & Co., 37 Fleet Street
London EC4P 4DQ
Very truly yours,
/s/ Peter H. Hawley
----------------------
For Walker Martineau
Exhibit 2iB3
ATTACHMENT B-1
DEPOSIT AGREEMENT
AGREEMENT made by and among Optelecom, Inc., a Delaware corporation
("Optelecom"), Paragon Audio Visual Limited, a United Kingdom company
("Paragon"), and David A. Brown, Mark D. Brown, Andrew S. Brown and Darren N.
Brown (collectively, the "Browns") and Modeledge Limited, a United Kingdom
company ("Modeledge").
WHEREAS, Optelecom, Paragon, the Browns and Modeledge have entered into
an Agreement of even date herewith providing for a reorganization involving the
Company and Paragon (the "Master Agreement");
WHEREAS, pursuant to Section 1.04 of the Master Agreement, the parties
have agreed to deposit the Retirement Amount as defined therein in escrow
pending a determination of certain legal and tax issues;
NOW, THEREFORE, in consideration of the premises and the covenants
herein, the parties agree as follows:
1. Retirement Amount. The Retirement Amount shall be US$272,000.
2. Deposit of Retirement Amount. At the closing under the Master
Agreement, Optelecom shall deposit the Retirement Amount with Duane, Morris &
Heckscher LLP as escrow agent ("Escrow Agent") by wire transfer into the
following non-interest bearing escrow account:
ABA: 031201467
Bank Name: First Union National Bank
Account Name: Duane, Morris & Heckscher LLP Iolta Account
Account No.: 2000073771872
Attention: Henry F. Bullit
3. Disbursements from Escrow. The Escrow Agent shall at all times have
authority to pay over and disburse the Retirement Amount in accordance with
joint written instructions executed by Optelecom and by either David A. Brown or
Andrew S. Brown ("Written Instructions").
4. Disbursement Event. Such Written Instructions shall be given upon
receipt by Optelecom of confirmation from the Scottish Life Assurance Society or
other insurance company serving as a provider that the retirement benefit fund
has Inland Revenue approval for deductibility from United Kingdom tax; provided
that the Browns shall indemnify Paragon and hold it harmless with respect to any
tax Paragon may incur with respect to the Retirement Amount.
5. Terms of Escrow. For purposes of establishing the escrow, the
parties intend that Optelecom and David A. Brown will deliver a letter to the
Escrow Agent in substantially the form attached hereto as Exhibit A.
<PAGE>
- 2 -
IN WITNESS WHEREOF, the Browns have executed this Agreement, and
Optelecom, Paragon and Modeledge have caused this Agreement to be executed by
their respective duly authorized officers, as of December 12, 1997.
OPTELECOM, INC. PARAGON AUDIO VISUAL LIMITED
By /s/ Edmund D. Ludwig By /s/ David A. Brown
--------------------- -------------------
Edmund D. Ludwig David A. Brown
President Chairman
MODELEDGE LIMITED
By /s/ Peter H. Hawley
--------------------
Peter H. Hawley
/s/ David A. Brown
- -----------------------
David A. Brown
/s/ Mark D. Brown
- -----------------------
Mark D. Brown
/s/ Andrew S. Brown
- -----------------------
Andrew S. Brown
/s/ Darren N. Brown
- -----------------------
Darren N. Brown
<PAGE>
- 3 -
EXHIBIT A
December 12, 1997
Duane, Morris & Heckscher LLP
One Liberty Place
Philadelphia, PA 19103-7396
Re: Reorganization Involving Optelecom, Inc.,
Paragon Audio Visual Limited, et al.
----------------------------------------
Dear Sirs:
In connection with a reorganization involving Optelecom, Inc., a
Delaware Company (the "Company"), Paragon Audio Visual Limited, a United Kingdom
Company ("Paragon") and David A. Brown, Mark D. Brown, Andrew S. Brown, Darren
N. Brown and Modeledge Limited, a United Kingdom company, and pursuant to
Section 1.04(b) of the Master Agreement by and among such parties dated December
12, 1997 and relating to such reorganization:
(1) The Company hereby deposits with you, by wire transfer to the
Duane, Morris & Heckscher Iolta Account, Account No. 2000073771872, First Union
National Bank (ABA 031201467), the amount of US$272,000 (the "Deposit Amount"),
to be held in such non-interest bearing account until receipt of instructions as
provided below;
(2) You are authorized and directed to disburse the Deposit Amount in
accordance with and promptly following receipt of joint written instructions (by
facsimile or otherwise) from the Company and either David A. Brown or Andrew S.
Brown; and
(3) In furtherance and not in limitation of any other provision of law
which would limit your responsibilities as escrow agent, you shall be deemed to
have and shall have the benefit of provisions identical to those set forth in
Section 4.01 of the Escrow Agreement of even date herewith by and among the
Company, Paragon, the Browns and Modeledge.
Very truly yours,
/s/ Edmund D. Ludwig
-----------------------------
Edmund D. Ludwig
President and Chief Executive
Officer, Optelecom, Inc.
/s/ David A. Brown
-----------------------------
David A. Brown
Exhibit 2iC
ATTACHMENT C
LICENSE AGREEMENT
AGREEMENT made by and between Optelecom, Inc., a Delaware corporation
("Licensor"), and Paragon Audio Visual Limited, a United Kingdom company
("Licensee").
WHEREAS, Licensor desires to grant to Licensee, and Licensee desires to
accept from Licensor, a license with respect to those assets of Licensor set
forth in Schedule 1 hereto (the "As sets");
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the parties agree as follows:
1. Grant of License. Subject to the terms and conditions of this
Agreement, Licensor hereby grants to Licensee, to the extent of Licensor's
interest in the Assets, and Licensee hereby accepts from Licensor, a
nonexclusive, worldwide, nontransferable license to use the Assets (the
"License"). The Closing of this Agreement shall take place at the offices of
Licensor at 9300 Gaither Road, Gaithersburg, Maryland 20877 immediately after
the signing of this Agreement.
2. Consideration for License. In consideration for the grant of the
License, Licensee shall pay to Licensor, or to such other person as Licensor may
designate in writing, an annual license fee of US$175,000 which shall be due and
payable in four equal amounts on the last business day of each calendar quarter
of each year during the term of the License.
3. Delivery of Assets. At the Closing, Licensor shall deliver to
Licensee the Assets and execute such documents and take such actions as may
reasonably be necessary in connection therewith to put Licensee in actual
possession and control of the Assets. At any time and from time to time after
the Closing, Licensor and its officers and directors shall take such further
actions and execute such further documents as may reasonably be requested by
Licensee for purposes of fully effectuating the License granted under this
Agreement.
4. Termination. The License shall be perpetual; provided, however, that
Licensor shall have the right to terminate this Agreement and the License
granted hereunder in the event that Licensee ceases to be a direct or indirect
wholly-owned subsidiary of Licensor. Upon any such termination, all rights
granted to Licensee under this Agreement shall automatically revert to Licensor,
and Licensee shall refrain from further use of and promptly return the Assets to
Licensor. Licensee agrees to execute such documents as may reasonably be
necessary to confirm or accomplish such reversion of rights to Licensor.
5. Ownership of Assets. Licensee acknowledges Licensor's exclusive
right, title and interest in and to the Assets, including any and all patents,
contract rights, copyrights, trademarks, trade secrets and other intellectual
property rights included therein, and shall not at any time during the term of
this Agreement do or cause to be done any act or thing in any way impairing or
tending to
<PAGE>
- 2 -
impair such right, title and interest or represent in any manner that Licensee
has any ownership interest in the Assets. Licensee acknowledges that its use of
the Assets shall not create any right, title or interest in or to the Assets in
Licensee. Licensee shall use its best efforts to maintain the confidentiality of
any and all trade secrets and other proprietary information included in the
Assets and not otherwise publicly available. Licensee agrees to execute such
further documents as Licensor may reasonably request for purposes of protecting,
perfecting, safe-guarding or renewing its proprietary interests in the Assets.
Licensor shall have no obligation to provide support of any kind to Licensee in
connection with its use of the Assets.
6. Disclaimer of Warranties. THE ASSETS ARE LICENSED BY LICENSOR TO
LICENSEE ON AN "AS IS" BASIS. LICENSOR MAKES NO WARRANTIES WITH RESPECT TO THE
ASSETS, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. LICENSOR DOES NOT WARRANT THAT THE ASSETS
WILL MEET THE REQUIREMENTS OF LICENSEE OR ANY SUBLICENSEE OR THAT THE USE OR
OPERATION OF THE ASSETS WILL BE UNINTERRUPTED OR ERROR FREE. THE ENTIRE RISK AS
TO THE QUALITY AND PERFORMANCE OF THE ASSETS LICENSED BY LICENSOR TO LICENSEE IS
WITH LICENSEE.
7. Infringements. Licensee shall promptly notify Licensor in writing of
any infringement of any patent, contract right, copyright, trademark, trade
secret or other intellectual property right included in the Assets that may come
to Licensee's attention. Licensor shall have the sole right to determine whether
or not any suit shall be instituted or any action shall be taken on account of
any such infringement. Licensee shall cooperate with Licensor in connection with
any such suit or other action.
8. Indemnification. Licensee shall defend, indemnify and hold harmless
Licensor against and in respect of any and all loss, cost, damage, expense or
liability (including reasonable attorneys' fees) resulting from any claim or
threatened claim arising out of Licensee's use of the Assets, including any
claim or threatened claim that such use violates or infringes any patent,
contract right, copyright, trademark, trade secret or other intellectual
property right of any third party, and any and all actions, suits, proceedings,
claims, demands, assessments, judgments, costs, and expenses (includ ing
reasonable attorneys' fees) incident to any of the foregoing.
9. Limitation of Liability. IN NO EVENT SHALL LICENSOR BE LIABLE TO
LICENSEE OR ANY SUBLICENSEE FOR ANY LOST PROFITS, LOST SAVINGS, LOST DATA OR
OTHER INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL COSTS OR DAMAGES ARISING
OUT OF OR RELATED TO THIS AGREEMENT.
10. Licensor's Remedies. Licensee acknowledges that its failure to
cease use of or return the Assets to Licensor upon the termination of this
Agreement will result in immediate and irreparable damage to Licensor. Licensee
acknowledges and admits that there is no adequate remedy at law for such failure
to cease use of or return the Assets, and Licensee agrees that, in any such
event, Licensor
<PAGE>
- 3 -
shall be entitled to equitable relief by way of temporary and permanent
injunctions and such further relief as any court with jurisdiction may deem just
and proper.
11. Miscellaneous.
11.01 Assignment and Binding Effect. This Agreement shall
inure to the benefit of and be binding upon Licensor and Licensee and their
respective assigns, successors and legal representatives. This Agreement may not
be assigned or sublicensed by Licensee without the written consent of Licensor.
11.02 Applicable Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Maryland, without reference
to the principles of conflict or choice of law thereof. Each of Licensor and
Licensee hereby agrees to submit to the exclusive jurisdiction of the federal
and state courts within the State of Maryland in any action or proceeding
arising out of or related to this Agreement, agrees that process may be served
upon it in any manner authorized for those courts and covenants not to assert or
plead any objection which it might otherwise have to such jurisdiction and such
process.
11.03 Other. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of any provision of this Agreement. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same instrument and may
be amended only by a written instrument executed by Licensor and Licensee.
<PAGE>
- 4 -
IN WITNESS WHEREOF, Licensor and Licensee have caused this Agreement to
be executed by their respective, duly authorized officers, as of December 12,
1997.
OPTELECOM, INC.
By /s/ Edmund D. Ludwig
---------------------------
Edmund D. Ludwig
President
PARAGON AUDIO VISUAL LIMITED
By: /s/ David A. Brown
---------------------------
David A. Brown
Chairman
<PAGE>
- 5 -
Schedule 1
The Assets
The assets covered by this License are, to the extent of the Licensor's
interest therein, the following assets in so far as they relate to the family of
products known as Video Link:
- The use of the names "Video Link" and "Paragon"
- All customer lists for past, current and potential customers
- All copyrights, formulae, processes, methodologies, designs,
patterns, know-how, formats and similar items
- All functional specification requirements
- All technical documentation, business books and records and other
product-related information
- All contractual arrangements with Studio Systems Electronics,
Hauppauge Computer Works, Inc. and STB Systems Inc. for manufacturing and other
services in connection with the Video Link products, and all other contractual
and other relationships with suppliers of goods or services used in connection
with those products
- The Reuters Master Purchase Agreement, the Reuters Approval, the
Bloomberg Approval and informal approvals of Dow Jones Markets, ICB and others.
- All contractual arrangements with Paragon Audio Visual (Asia) Limited
and Repcom Inc. for distribution and other services in connection with the Video
Link products, and all other contractual and other relationships with customers,
distributors and franchisees relating to the future sale of or provision of
services in connection with those products
Exhibit 2iD
DATED 12 DECEMBER 1997
(1) THE INDIVIDUALS LISTED IN SCHEDULE 1
(2) OPTELECOM UK LIMITED
AGREEMENT
FOR THE ACQUISITION OF THE ENTIRE
ISSUED SHARE CAPITAL OF
PARAGON AUDIO VISUAL LIMITED
FRERE CHOLMELEY BISCHOFF
4 John Carpenter Street
London EC4Y 0NH
Tel: 0171-615 8000
Fax: 0171-615 8080
Internet: [email protected]
Ref: NSPB/LKH
<PAGE>
INDEX
Page No.
--------
1. INTERPRETATION ...................................... 1
2. AGREEMENT FOR SALE .................................. 4
3. CONSIDERATION ....................................... 4
4. COMPLETION .......................................... 4
5. SELLERS' OBLIGATIONS ON COMPLETION .................. 4
6. PURCHASER'S OBLIGATIONS ON COMPLETION ............... 5
7. WARRANTIES .......................................... 5
8. GENERAL PROVISIONS .................................. 7
SCHEDULE 1
The Sellers .................................................. 10
SCHEDULE 2
Paragon ...................................................... 11
SCHEDULE 3
The Properties ............................................... 12
SCHEDULE 4
Tax Covenant ................................................. 13
SCHEDULE 5
Warranties ................................................... 19
i
<PAGE>
AGREED FORM DOCUMENTS:
Completion board minutes
Written resolution
ii
<PAGE>
THIS AGREEMENT is made on December 12, 1997
BETWEEN:
(1) THE INDIVIDUALS whose names and addresses are set out in
schedule 1;
(2) ADVENTATUM LIMITED a company registered in England and
Wales under number 20030 whose registered office is at
Wellington House, Union Street, St. Helier, Jersey,
Channel Islands ("Adventatum");
(3) MODELEDGE LIMITED a company registered in England and Wales under
number 1871218 whose registered office is at 64 Queen Street, London
EC4R 1AD ("Modeledge"); and
(4) OPTELECOM UK LIMITED a company registered in England and Wales under
number 3427882 whose registered office is at 4 John Carpenter Street,
London EC4Y 0NH (the
"Purchaser").
BACKGROUND:
A. On 12 December 1997 the Sellers, Optelecom, Inc. and
Paragon Audio Visual Limited ("Paragon") entered into an
agreement relating to arrangements for the acquisition
by Optelecom, Inc. of Paragon ("Master Agreement").
B. The Purchaser is the wholly owned subsidiary of Optelecom, Inc.
C. Adventatum Limited is the nominee of Mr Mark Brown, Mr David Brown
and Modeledge Limited.
D. This Agreement is the Stock Purchase Agreement referred
to in the Master Agreement.
IT IS AGREED as follows:
1. INTERPRETATION
A. In this Agreement:
"Accounts" means the draft balance sheet of Paragon as at the
Accounts Date, and the draft profit and loss account of Paragon for
the period ended on the Accounts Date, in each case with all notes
and attached reports or statements;
1
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"Accounts Date" means 31 August 1997;
"business day" means a day (excluding a Saturday, Sunday
or public holiday) on which banks in London and New York
are open for the full range of banking business;
"Claim" means any claim for breach of any of the
Warranties or any claim under the Tax Covenant;
"Completion" means completion of the sale and purchase
of the Shares in accordance with this Agreement;
"Completion Date" means the date when Completion takes place
in accordance with this Agreement;
"Disclosure Documents" means the documents attached to the
Disclosure Letter;
"Disclosure Letter" means the disclosure letter from the
Sellers to the Purchaser, dated with the date of this
Agreement;
"Employee" means an employee of Paragon;
"Encumbrance" means any right or interest of any third party,
including any mortgage, charge, lien, option, encumbrance, right of
pre-emption or first refusal, or any agreement to create any such
right or interest;
"Intellectual Property Rights" means (whether registered or
unregistered) patents, trade marks, service marks, trade names,
registered designs, design rights, copyrights, moral rights, renewal
rights, reversionary rights, rights relating to confidential
information or know-how and any other intellectual property rights,
applications for the grant of any such rights, and all analogous or
similar rights or forms of protection anywhere in the world;
"Leases" means the leases of the leasehold properties
referred to in part 1 of schedule 3;
"Optelecom" means Optelecom, Inc. the parent company of the
Purchaser;
"Paragon" means Paragon Audio Visual Limited, details of
which are set out in schedule 2;
"Properties" means the leasehold properties referred to in
schedule 3;
"Purchaser's Solicitors" means Frere Cholmeley Bischoff of 4
John Carpenter Street,
2
<PAGE>
London EC4Y 0NH;
"Sellers" means each of the Warrantors and Adventatum;
"Sellers' Solicitors" means Walker Martineau of 64 Queen
Street, London, EC4R 1AD;
"Shares" means all the issued shares of Paragon, being 998
ordinary shares of (pound)1 each;
"Taxation" has the meaning given to it in the Tax Covenant;
"Tax Covenant" means the provisions of schedule 4;
"Taxes Act" means the Income and Corporation Taxes Act 1988;
"TCGA" means the Taxation of Chargeable Gains Act 1992;
"Town and Country Planning Acts" means the Town and Country Planning
Act 1990 and every other statute relating to planning for the time
being in force;
"VATA" means the Value Added Tax Act 1994;
"Warranties" means the warranties and representations set
out in schedule 5; and
"Warrantors" means Mr Andrew Brown, Mr Darren Brown, Mr Mark
Brown and Mr David Brown.
B. In this Agreement, unless expressly stated otherwise:
1. a reference to a person or people includes a reference to
any entity which has legal personality by the law of any
applicable country or territory;
2. a reference to a statute or a provision of a statute
includes a reference to any amendment, repeal or reenactment
of it, any subordinate legislation (as defined in s.21(1)
Interpretation Act 1978) made under it and any previous
statute or provision re-enacted by it, in any case before or
after the date of this Agreement;
3. a reference to the "agreed form" of a document is to a form
of that document initialled by or on behalf of the Sellers
and the Purchaser before execution of this Agreement, with
any amendments which they subsequently agree in writing;
4. a reference to any action, legal document, remedy,
proceedings, status or other legal concept shall, in respect
of any foreign jurisdiction, relate to whatever in that
3
<PAGE>
jurisdiction most closely corresponds to the relevant
English term;
5. a reference to an agreement includes any form of
arrangement, whether or not in writing and whether or not
legally binding; and
6. a reference to any Seller includes his personal
representatives.
C. Headings shall be disregarded in construing this Agreement.
D. People will be taken to be connected if they would be treated as
connected for the purposes of s.839 Taxes Act as in effect on the
date of this Agreement.
E. The expressions "subsidiary undertaking" and "financial year" have
the meanings given to them by the Companies Act 1985 as in effect on
the date of this Agreement.
F. The ejusdem generis rule shall not apply in the construction of this
Agreement, and accordingly general words shall not be given a
restrictive meaning by reason of their being followed or preceded by
words indicating a particular class or examples of acts or matters.
G. All obligations of the Sellers under this Agreement are joint and
several unless expressly stated otherwise.
II. AGREEMENT FOR SALE
A. The Sellers agree to sell and the Purchaser agrees to buy the Shares.
B. The Sellers shall sell the Shares free from all Encumbrances and
otherwise with full title guarantee, together with the right to all
dividends and other distributions declared, made or paid by Paragon
on or after the date of this Agreement and all other rights attaching
to them on or after that date. For the avoidance of doubt, the
Distribution Amount (as defined in the Master Agreement) shall be
paid to the Sellers in accordance with clause 1.03 of the Master
Agreement before the Shares are sold under this Agreement.
C. Each Seller and Modeledge waives all rights of pre-emption in respect
of any of the Shares, whether conferred by the articles of
association of Paragon or in any other way.
D. Mr. Mark Brown, Mr. David Brown and Modeledge each confirm his or its
agreement to the sale by Adventatum of the Shares subject to and in
accordance with the terms of this Agreement.
4
<PAGE>
III. CONSIDERATION
The consideration for the sale of the Shares shall be the payment by
the Purchaser to the Sellers of the aggregate sum of $1.5 million in
accordance with clause 6. Each Seller shall be entitled to the amount
set against his or its name in column 4 of schedule 1.
IV. COMPLETION
Completion shall take place in accordance with the Master Agreement.
V. SELLERS' OBLIGATIONS ON COMPLETION
A. On Completion, the Sellers shall deliver to the Buyer or to the
Buyer's solicitors:
1. stock transfer forms in respect of the Shares duly completed
in favour of the Buyer or its nominees and executed by the
relevant registered holders;
2. the share certificates in respect of the Shares in the
name of the relevant transferors;
3. the statutory registers and minute books of Paragon duly
written up to Completion (with any unissued share
certificates), and the certificate of incorporation, the
certificate(s) of incorporation on change of name and the
seal of Paragon;
4. the documents relating to the Properties listed in part
2 of schedule 3;
5. unconditional receipts for rent and any charges due
under any of the Leases on the last rent day before the
Completion Date;
6. cheque books and bank mandates in respect of all bank
accounts operated by Paragon, together with statements from
the relevant banks showing the balance on those accounts
drawn up to the last business day before the Completion
Date, and details of all credits and debits on those
accounts since that day and all uncleared cheques as at
Completion; and
7. a written resolution duly executed by each Seller to adopt
new Articles of Association of Paragon in such form as the
Purchaser shall decide.
5
<PAGE>
VI. PURCHASER'S OBLIGATIONS ON COMPLETION
On Completion, the Purchaser shall by telegraphic or electronic
transfer pay the sum of $1.5 million into the following bank account
of the Sellers' Solicitors:
Account name: Walker Martineau client dollar account
Account number: 66520001
Sort code: 15-99-00
Bank name and address: Messrs C. Hoare & Co., 37 Fleet
Street, London EC4P 4DQ
The payment of any sum to the Sellers' Solicitors shall discharge the
Purchaser's obligation under clause 3 to make that payment to the
Sellers, and the Purchaser shall not be concerned to ensure that each
Seller receives his due proportion of that payment.
VII. WARRANTIES
A. The Warrantors represent and warrant that subject only to matters
disclosed by the Disclosure Letter, each of the Warranties is
accurate and not misleading as at the date of this Agreement.
B. Modeledge represents and warrants that the Warranties contained in
paragraphs 1.1, 1.2 and 3.2 of Schedule 5 are accurate and not
misleading as at the date of this Agreement.
C. Adventatum represents and warrants that the Warranties contained in
paragraphs 1.1 and 1.2 of Schedule 5 are accurate and not misleading
as at the date of this Agreement.
D. In the event of a breach of any of the Warranties, the Warrantors or
(in respect of the Warranties given by Adventatum), Adventatum shall
on demand pay to the Purchaser or (at the Purchaser's option) to
Paragon (but without restricting the Purchaser's ability to claim
damages on any other basis) an amount equal to the diminution in the
assets of Paragon and/or the increase in the liabilities of Paragon
caused by that breach.
E. A matter shall be regarded as disclosed by the Disclosure Letter only
to the extent that accurate information about that matter is
contained in the Disclosure Letter in sufficient detail to identify
the nature and scope of that matter and the Warranties which are to
be regarded as qualified by it.
F. Each of the Warranties is separate and to be construed independently
of the others.
G. The Warrantors, Modeledge and Adventatum acknowledge that the
Purchaser is entering into this Agreement in reliance on the
Warranties.
6
<PAGE>
H. Each Warrantor unconditionally and irrevocably releases any right
which he may have in respect of information or advice supplied by any
Employee on which he may have relied in connection with the giving of
the Warranties or the preparation of the Disclosure Letter. The
Purchaser accepts the benefit of this clause as trustee and agent for
the Employees. In exercising such right the Purchaser may take such
actions as it considers appropriate in its sole discretion.
I. The limitations contained in clause 8.01(b) of the Master Agreement
shall apply to limit or exclude, in accordance with its terms, any
liability which the Sellers might otherwise have under the Tax
Covenant or in respect of a breach of the Warranties, provided that
no provision of clause 8.01(b) of the Master Agreement shall apply to
any such liability arising from or in connection with any fraudulent
breach of the Warranties.
J. Schedule 4 (Tax Covenant) shall have effect on Completion.
K. Where any statement in this Agreement or the Disclosure Letter is
qualified by reference to the knowledge, awareness or belief of any
of the Sellers, each Seller shall be deemed to know, be aware of and
believe all matters which any of his professional advisers, the other
Sellers and their professional advisers know, are aware of or
believe, or which any of them would have known, been aware of or
believed, if they had made due and careful enquiries in connection
with all relevant matters.
VIII. GENERAL PROVISIONS
A. Severability
The unenforceability or illegality for any reason of any provision of
this Agreement (including without limitation any obligation of any of
the Sellers) shall not affect the enforceability of any of the other
provisions of this Agreement (including any obligation of any other
Seller).
B. Assignment
The Purchaser may assign (at law or in equity) any or all of its
rights under this Agreement (so that, without limitation, each of the
Warranties shall on assignment be deemed to have been given to that
assignee). References in this Agreement to the Buyer are references
to a person who for the time being is entitled to exercise any of
those rights.
C. Costs
Each party shall pay the costs and expenses (together with VAT) of
its advisers and agents incurred in connection with this Agreement.
7
<PAGE>
D. Notices
1. Any notice (which for the purposes of this clause includes
any request, instruction, waiver, consent or copy notice
given pursuant to this Agreement shall be in writing and in
English. Each such notice shall be delivered by hand or sent
by facsimile or pre-paid registered post (or pre-paid
airmail if sent internationally). Notices shall be given as
follows:
to the Purchaser Mr Edmund O. Ludwig,
Optelecom Inc.,
9300 Gaither Road,
Gaithersburg,
MD20877
U.S.A.
Tel: 1-301840 2121
Fax: 1-301840 0946
with a copy (which shall not constitute notice) by
courier to the Purchaser's Solicitors ref NSPB; and
to the Sellers Mr David A. Brown
25 Scrivens Mead
Thatcham
Newbury
Berkshire RG19 4SQ
Tel: 44 1635-248811
Fax: 44 1635 248111
to Modeledge WHSS Limited
64 Queen Street
London EC4R 1AD
Tel: 44 171236 4232
Fax: 44 171236 2525
Any party may nominate, by notice given to the other parties
in accordance with this clause, another person, address or
facsimile number for the receipt of notices, subject to
clause 8.4(b). Any such nomination shall take effect five
business days after it is
8
<PAGE>
received.
2. Notices to the Sellers under this Agreement shall be valid
if given only to the individual named in clause 8.4(a), and
that individual (or in the event of his death any of his
personal representatives) shall exclusively be entitled to
give notices on behalf of the Sellers, unless in either case
the Purchaser is otherwise notified by a majority in number
of the Sellers nominating any other Seller for the purpose.
A notice to any Seller for the time being authorised to
receive and give notices on behalf of the Sellers shall be
valid notwithstanding the death of that Seller if it is
given in accordance with this clause 8.4.
E. Cumulative Rights
No exercise or partial exercise of any right or failure to exercise
any right shall prevent the exercise of any other right. References
throughout this Agreement to the rights of any party are to rights or
remedies of that party at law and/or in equity.
F. Waivers
No failure to exercise or delay in exercising any right shall
constitute a waiver of that right by any party, and no course of
conduct or acquiescence shall constitute such a waiver other than a
notice to that effect given to the other party specifying this clause
and the right in question. If the Purchaser releases or waives any
liability of any Seller for any obligation which is both joint and
several, the remaining Sellers shall continue to be severally and
together to be jointly liable for that obligation.
G. No set-off etc
All sums payable under this Agreement shall be paid without set-off,
counter-claim or deduction and free of all withholdings.
H. Law
This Agreement and the documents to be entered into under it shall be
governed by and construed in accordance with English law. Each of the
parties irrevocably submits to the non-exclusive jurisdiction of the
English courts in respect of any matter arising from or in connection
with this Agreement or any such document.
ACCORDINGLY this Agreement has been entered into by each of the parties on the
date set out on page 1.
9
<PAGE>
SCHEDULE 1
The Sellers
(1) (2) (3) (4)
Name Address Shares Held Amount Payable
- ---- ------- ----------- --------------
(US$)
Andrew Sean 42 Ashman Way 237 356,212
Brown Thatcham
Berkshire RG19 4DW
Darren Neil 12 Herons Way 237 356,212
Brown Thatcham
Berkshire RG19 3SR
Adventatum Wellington House 524 787,576
Jersey Limited Union Street
St. Helier
Jersey
10
<PAGE>
SCHEDULE 2
Paragon
1. Date of incorporation : 13 April 1994
2. Registered number : 2918877
3. Previous names : Canarysound Limited
4. Directors : Andrew Sean Brown
Darren Brown
David Arthur Brown
Mark David Brown
5. Secretary : WMSS Limited
6. Auditors : L J Smith & Co
7. Accounting Reference Date : 31 August
8. Registered Office : Units 9 and 10, Langley
Business Court, Worlds End,
Beedon, Newbury, Berkshire
RG20 8RY
9. Authorised Share Capital : (pound)1,000 divided into 1,000
shares of(pound)1 each
10. Issued Share Capital : (pound)998 divided into 998 shares
of(pound)1 each
11. Shareholders :
Name of Registered Name of Beneficial Number of Shareholder Owner
- ------------------ ------------------ --------------------- -----
Shares
------
Andrew Sean Brown Andrew Sean Brown 237
Darren Brown Darren Brown 237
Adventatum Jersey Mark David Brown 237
Limited
David Arthur Brown 237
11
<PAGE>
Modeledge Limited 50
12. Charges : None
12
<PAGE>
SCHEDULE 3
The Properties
1. Leasehold Properties
Ground Floor, Unit 9, Langley Business Court, Worlds End, Beedon,
Newbury, Berkshire RG20 8RY.
Ground Floor, Unit 10, Langley Business Court, Worlds End, Beedon,
Newbury, Berkshire RG20 8RY.
2. Documents to be delivered on Completion
[Walker Martineau to draft]
13
<PAGE>
SCHEDULE 4
Tax Covenant
1. DEFINITIONS
1.1 In this schedule:
"Claim for Taxation" means any claim, assessment, notice, demand or
other document issued or action taken by or on behalf of any person,
authority or body (including Paragon) responsible for the assessment,
collection or recovery of Taxation anywhere in the world by which
Paragon is liable or is sought to be made liable to make any payment
of Taxation or is denied or sought to be denied a Relief;
"Event" means (without limitation) any payment, event, transaction or
series of transactions of whatever nature, act, omission or
occurrence, whether or not Paragon or the Buyer is a party to it, and
includes completion of the sale of the Shares to the Buyer;
"Relief" means any relief from Taxation, any loss, allowance,
exemption, set-off or deduction in computing or against any profits,
income or gains or credit against Taxation or any right to repayment
of Taxation; and
"Taxation" means all forms of taxation, duty, rate, impost,
contribution including social security contributions, charge or levy
(in the nature of taxation) imposed by any body or authority
whatsoever, in the United Kingdom or elsewhere, including any payment
which Paragon may be or become bound to make as a result of any
enactment relating to taxation, whenever enacted, including under any
settlement of any Claim for Taxation and including any interest,
surcharge, penalty or fine in relation to any of these, whether or
not such Taxation is attributable to, chargeable against or
recoverable from any other person.
1.2 For the purposes of this schedule:
(a) any reference to any Event includes any Event which is
deemed to have occurred pursuant to any enactment
whenever enacted;
(b) any reference to income, profits or gains earned, accrued or
received includes any income, profits or gains which are
deemed to be earned, accrued or received pursuant to any
enactment whenever enacted;
(c) any reference to an Event occurring on or before Completion
includes the combined result of two or more Events, the
first of which has taken place or the commencement of which
has occurred on or before Completion;
14
<PAGE>
(d) any reference to "loss" includes cancellation,
counteraction, counterclaim, nullification, disallowance
and clawback and "lost" shall be construed accordingly;
(e) references to Taxation include:
(i) the loss, in whole or part, of any Relief which
would (were it not for the Claim for Taxation in
question) have been available to or which has been
claimed by Paragon; and
(ii) the utilisation against profits or against a
Taxation liability (in either case in respect of
which but for that utilisation, Paragon would have
had a liability to pay Taxation in respect of which
a Claim could have been made under this schedule)
of any Relief which is not available before
Completion but arises in respect of an Event or
Events occurring after Completion;
and in any such case the amount of the Relief so lost or, if
that Relief is deducted from or set against income or
profits, the amount of Taxation which would have been saved
thereby but for that loss, shall be treated as an amount of
Taxation for which a liability on Paragon has arisen and
fallen due.
2. COVENANT TO PAY
2.1 Subject to schedule 6, the Warrantors shall pay, as directed by the
Buyer, to the Buyer or to Paragon an amount equal to:
(a) any Taxation for which Paragon is or may become liable in
respect of or arising from any Event occurring on or before
Completion or by reference to any income, profits or gains
earned, accrued or received on or before Completion;
(b) any inheritance tax for which Paragon is or may become
liable which:
(i) is at Completion a charge on any of the shares or
assets of Paragon or gives rise to a power to sell,
mortgage or charge any of the shares or assets of
Paragon; or
(ii) after Completion becomes a charge on or gives rise
to a power to sell, mortgage or charge any of the
shares or assets of Paragon, being a liability in
respect of inheritance tax payable as a result of
the death of any person within seven years after a
transfer of value (or a deemed transfer of value)
if a charge on or power to sell, mortgage or charge
any such shares or assets existed at Completion or
would, if the death had occurred immediately before
15
<PAGE>
Completion and the inheritance tax payable as a
result had not been paid, have existed at
Completion; or
(iii) arises as a result of a transfer of value by or to
Paragon occurring on or before Completion (whether
or not in conjunction with the death of any person
whenever occurring);
(c) without prejudice to the generality of paragraph 2.1(a), any
liability of Paragon under s.767A Taxes Act or any
legislation introduced after the date of this Agreement
extending such provisions as announced in the Press Release
Inland Revenue 7 of 2 July 1997 paragraphs 15-25 Company
Purchase Schemes: Collection of Outstanding Tax (together
with any related liability for interest) as being a person
to whom sub-section (2) of that section applies by virtue of
circumstances existing at any time before Completion;
(d) all costs and expenses incurred or payable by the Buyer
and/or Paragon in connection with or in consequence of any
matter for which a Claim is made by the Buyer under this
schedule, including the costs and expenses of taking or
defending any action under this schedule;
(e) any Taxation for which Paragon is or may become liable in
respect of or arising from the sale of the Paragon Assets
(as defined in the Master Agreement);
(f) any Taxation or other costs and expenses for which Paragon
may become liable as a result of adjustments to any accounts
of Paragon after the Completion Date made in order to comply
with the law, Statements of Standard Accounting Practice,
statements of the Urgent Issues Task Force and other
generally accepted accounting princples then in force.
2.2 In determining for the purposes of this schedule whether a charge on
or power to sell, mortgage or charge any of the shares or assets of
Paragon exists at any time, the fact that any inheritance tax is not
yet payable or may be paid by instalments shall be disregarded, and
that inheritance tax shall be treated as becoming due and a charge or
power to sell, mortgage or charge as arising on the date of the
transfer of value or other date or event on or in respect of which it
becomes payable or arises.
2.3 The provisions of s.213 Inheritance Tax Act 1984 shall not apply to
any payments falling to be made under this schedule.
16
<PAGE>
3. TIME FOR PAYMENT
A payment to be made by the Warrantors under paragraph 2 shall be
made in cleared funds on or before the relevant payment date, which
shall be ascertained as follows:
(a) insofar as that payment represents Taxation to be borne by
Paragon, the payment date shall be the last business day
before the day on which payment of the relevant Taxation is
due;
(b) insofar as that payment represents Taxation which would have
been payable but for the utilisation of a Relief arising
after Completion as referred to in paragraph 1.2(e)(ii), the
payment date shall be the date on which payment of the
relevant Taxation would have been due but for the
utilisation of the relevant Relief;
(c) insofar as that payment relates to a claim under paragraph
1.2(e)(i), the payment date shall be the earliest date on
which Taxation becomes payable which would not have been
payable had the relevant Relief not been so lost or, where
the Relief is a repayment of Taxation, the date the
repayment would have been obtained;
(d) in any other case, seven days after the date on which a
notice setting out details of the amount claimed is
delivered to the Warrantor.
4. DEFENCE OF CLAIMS
4.1 Within a reasonable time after the Buyer becomes aware of a Claim for
Taxation which could give rise to a liability under this schedule or
under the Warranties contained in paragraph 18 of Schedule 5, it
shall notify the Warrantors in writing, specifying the nature of that
claim in reasonable detail. Subject to paragraph 4.2, the Buyer shall
then take or ensure that Paragon shall take such action to avoid,
resist, appeal or compromise the Claim for Taxation as the Warrantor
may reasonably request, provided that the Warrantor has first
indemnified and secured the Buyer to its reasonable satisfaction
against all liabilities or losses, costs, damages and expenses
(including interest on overdue Taxation) which the Buyer and Paragon
may incur as a result of or in connection with any such action taken
by the Buyer or Paragon.
4.2 Neither the Buyer nor Paragon shall be obliged to appeal against any
Claim for Taxation raised on it if, within 15 days of having given
the Warrantor written notice of the receipt of that Claim for
Taxation, the Buyer has not received instructions in writing from the
Warrantors to do so. For the avoidance of doubt the Warrantor shall
not be entitled to request Paragon to apply for a postponement of the
payment of any Taxation or to take over (at their own expense) the
conduct of all proceedings relating to the Claim for Taxation in
question.
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4.3 Notwithstanding paragraph 4.1 above:
(a) Paragon and the Buyer shall be kept fully informed of all
matters pertaining to the Claim for Taxation and shall be
entitled to see copies of all correspondence pertaining
thereto;
(b) the Warrantor shall make no settlement or compromise of the
Claim for Taxation or agree any matter in the conduct
thereof which is likely to affect the future liability to
Taxation of Paragon or the Buyer without the prior approval
of Paragon or the Buyer as appropriate;
(c) any appointment of solicitors, counsel or other
professional advisers shall be subject to the prior
written approval of the Buyer;
(d) the Buyer shall not be obliged to take any action or cause
Paragon to take any action pursuant to paragraph 4.1 which
the Buyer believes to be likely to affect the future
liability to Taxation of Paragon or the Buyer;
(e) if the Warantor fails to comply with the provisions of
paragraphs 4.1 and 4.3 or delay unreasonably in giving any
such requests as are mentioned in paragraph 4.1, the Buyer
and Paragon shall be free without reference to the Warrantor
to pay, settle or otherwise deal with the Claim for Taxation
on such terms as they may in their absolute discretion think
fit and without prejudice to their rights and remedies under
this schedule.
4.4 The provisions of paragraph 4.1 shall not apply if it is alleged that
the Warrantor or Paragon have committed fraud, wilful default or
neglect in relation to any Taxation.
4.5 All requests and instructions given by the Warrantors for the
purposes of this paragraph 4 shall be given by Mr Andrew Brown (the
"Representative") on their behalf. The Buyer and Paragon shall be
entitled to rely on the requests and instructions of the
Representative as the duly appointed representative of the
Warrantors, and any unreasonable delay in giving or failure to give
requests or instructions on the part of the Representative shall
constitute failure or delay by the Warrantors under paragraph 4.3(e).
The Buyer and Paragon shall not be subject to any claim by, or
liability to, any of the Warrantors on the ground that it has not
complied with the provisions of this paragraph 4 if it has acted in
accordance with the requests and instructions of the Representative.
5. GROSSING-UP
If any sum payable by the Warrantor to the Buyer or Paragon under
this schedule is subject
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to Taxation, then the sum so payable shall be grossed up by such
amount or amounts as will ensure that after payment of Taxation,
there shall be left a sum equal to the sum that would otherwise be
payable under this schedule. For this purpose the availability of any
Relief shall be ignored in determining whether any sum is subject to
Taxation.
6. EFFECT OF DISCHARGE OF CLAIM
For the avoidance of doubt, the Warrantor shall remain liable in
accordance with the terms of this schedule notwithstanding that any
Taxation giving rise to a liability to make a payment under paragraph
2 is or has been discharged or suffered by the relevant Company,
whether before or after the date of this Agreement and whether by
payment or by the loss or utilisation of any Relief or right to
repayment of Taxation.
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SCHEDULE 5
Warranties
1. CAPACITY AND AUTHORITY
1.1 No petition for a bankruptcy order has been presented, and no
bankruptcy order has been made, in respect of any Warrantor,
Adventatum or Modeledge.
1.2 None of the Warrantors, Adventatum or Modeledge requires the consent
of any third party to enter into or perform his or its obligations
under this Agreement or is prohibited by any court order from doing
so.
2. ACCURACY AND ADEQUACY OF INFORMATION
2.1 The information in schedules 2 and 3 is complete and accurate.
2.2 The information in the Disclosure Letter and the Disclosure Documents
is complete, accurate and not misleading.
2.3 Each document comprised within the Disclosure Documents is a complete
and accurate copy of the original, and no such document has been
amended (orally or in writing) or superseded.
2.4 All forecasts and projections given by or on behalf of the Sellers to
the Buyer or any of its professional advisers for the two years
ending 31 August 1999 were prepared with due care on the basis of the
assumptions set out in the Disclosure Documents. All of those
assumptions were made in good faith, were reasonable when made and
remain reasonable.
3. SHARE CAPITAL
3.1 The Shares represent the entire issued and allotted share capital of
Paragon.
3.2 The Shares are legally owned by the Warrantors and are beneficially
owned by the Warrantors and Mr Peter Hawley free from all
Encumbrances.
3.3 No person has or is entitled to acquire the right (conditional or
not) to subscribe for, or to convert any security into, any share or
security in Paragon (including pursuant to an option or warrant).
3.4 No person has claimed to be entitled to any Encumbrance in respect of
any issued or unissued
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share or security in Paragon.
3.5 No share in Paragon was allotted at a discount or otherwise than as
fully paid up.
3.6 No share in Paragon was transferred at an undervalue for the purposes
of ss.238 or 339 Insolvency Act 1986 during the five years' period
ending on the date of this Agreement.
3.7 Paragon has not purchased its own shares or redeemed or forfeited any
shares.
3.8 The copy of the articles of association of Paragon included in the
Disclosure Documents sets out all of the rights and restrictions
attaching to the issued shares in the capital of that company, and
embodies or has annexed to it a copy of each resolution and agreement
required by s.380 Companies Act 1985 to be so embodied or annexed.
3.9 Paragon does not have any interest in any shares, debentures or other
securities of any person and is not under a subsisting obligation to
acquire any such interest. Paragon does not have, and never has had,
any subsidiary undertakings.
4. FINANCIAL INFORMATION
4.1 The Accounts give a true and fair view of the state of affairs of
Paragon as at the Accounts Date and of its profit or loss for the
period ended on the Accounts Date in accordance with the requirements
of the Companies Act 1985.
4.2 The Accounts were prepared in accordance with the requirements of all
relevant Statements of Standard Accounting Practice, Financial
Reporting Standards, statements from the Urgent Issues Task Force and
other generally accepted accounting principles then in force.
4.3 The Accounts make full provision for or disclose all bad or doubtful
debts and all liabilities of Paragon as at the Accounts Date, whether
actual, contingent or disputed.
4.4 The audited accounts of Paragon for each of the last three financial
years ended on the Accounts Date were prepared applying the same
accounting policies and bases.
4.5 The profits of Paragon as disclosed in the Accounts were not affected
by extraordinary or exceptional item or any matter rendering those
profits unusually high.
4.6 The accounting records of Paragon comply with the requirements of
s.221 Companies Act 1985.
4.7 The unaudited monthly management accounts of Paragon for the period
ended on 30
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November 1997 were derived from the accounting records of Paragon,
were compiled with due care, applying the same accounting policies
and bases as those used in the management accounts for the previous
twelve monthly periods, and are not considered misleading by the
Warrantors.
5. POSITION SINCE THE ACCOUNTS DATE
5.1 Since the Accounts Date, Paragon has carried on its business in the
ordinary and proper course, and there has been no material adverse
change in the financial or trading position or prospects of Paragon.
There are no circumstances which might give rise to such a change,
other than circumstances likely to affect generally the industry in
which Paragon operates.
5.2 Without limiting the generality of paragraph 5.1, since the Accounts
Date:
(a) there has been no increase or decrease in turnover or stocks
of finished goods/work in progress or operating expenses by
comparison with the same period in the previous financial
period;
(b) there has been no material increase or decrease in the cost
of materials used by Paragon in its business or in the cost
of services supplied to Paragon;
(c) Paragon has not disposed of or acquired, and has not agreed
and is not negotiating to dispose of or acquire, any
business or any shares in a body corporate, or any other
asset outside the ordinary and proper course of business;
(d) Paragon has not created or incurred, or agreed or is
negotiating to create or incur, any debt or any other
obligation or liability, whether actual or contingent,
except for full value and in the ordinary and proper course
of business;
(e) no customer of or supplier of Paragon has ceased to deal, or
has indicated an intention to cease to deal or deal on a
smaller scale, with Paragon, or has changed or indicated
that it wishes to change the terms on which it deals with
Paragon;
(f) Paragon has not written off, regarded as irrecoverable or
released any debt or right, in whole or part, or repaid
wholly or in part any debt in advance of the due date for
repayment, or in any case agreed to do so;
(g) no Employee has been made redundant or been dismissed, no
person has been employed by Paragon whose basic salary is
more than (pound)10,000 per annum, and there has been no
increase in basic salary or benefits, and no such increase
is under negotiation;
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(h) no dividend or other distribution has been declared,
paid or made by Paragon except as provided in the
Accounts; and
(i) no resolution of the shareholders of Paragon has been
passed.
6. BOOKS, RECORDS AND RETURNS
6.1 The statutory registers and minute books of, and all other records
required to be kept by, Paragon have been duly kept and are in the
possession of Paragon.
6.2 No claim has been made by any person that any of the statutory
registers of Paragon is incorrect.
6.3 All notices and other documents required to be given or delivered by
Paragon to the Registrar of Companies or any other governmental,
regulatory or other body of competent jurisdiction have been given or
delivered in accordance with all relevant requirements.
7. AGREEMENTS AND TRADING ARRANGEMENTS
In this paragraph 7, references to any agreement to which Paragon is
party include references to any agreement by which Paragon is bound
or under which it enjoys rights, and references to Material
Agreements are to subsisting agreements to which Paragon is party and
which are material to the conduct of Paragon's business.
7.1 All Material Agreements are in writing.
7.2 A copy of each Material Agreement is included in the Disclosure
Documents, and an original counterpart of that agreement is in the
possession or under the control of Paragon.
7.3 All Material Agreements are valid and binding, and no such agreement
is voidable.
7.4 Neither Paragon nor any other party is in default (nor, with the
lapse of time, will be in default) under any agreement to which
Paragon is party, being a default which would be material in the
context of the financial or trading position or prospects of Paragon,
no claim alleging any such default has been made by or against
Paragon and there are no circumstances which might give rise to any
such default.
7.5 Paragon is not a party to any subsisting agreement, is not in the
course of negotiating any agreement and has not submitted an offer or
tender which is capable of being converted into an agreement:
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(a) which involves or may involve obligations, restrictions
or expenditure of an unusual, onerous or exceptional
nature, or which is or is likely to be loss-making;
(b) which imposes limits on Paragon's ability to carry on
any business in any part of the world or which restricts
its ability to use or disclose information;
(c) which provides for any financial commitment of any party
to be adjusted with reference to any index of retail
prices or other index;
(d) which cannot be terminated without cost to Paragon on less
than 3 months' notice or which has a fixed term of more than
1 year;
(e) which requires further expenditure of more than
(pound)50,000 in aggregate (excluding supply agreements with
Studio Systems Electronics Limited);
(f) which establishes any joint venture, consortium,
partnership or profit or other income (or loss) sharing
arrangement;
(g) pursuant to which Paragon has disposed of any shares or
business and remains subject to any actual or contingent
liability;
(h) pursuant to which Paragon has advanced money (including to
any Seller) other than trade credit extended in the ordinary
and proper course of business;
(i) which entitles any third party to any commission or
broker's or finder's fee in connection with the
acquisition by the Purchaser of the Shares;
(j) which provides for Paragon to receive any sum, right or
other asset, or discharge any liability, whose amount or
value is expressed in or by reference to any foreign
currency or any change in foreign exchange rates;
(k) under which any sole or exclusive rights are granted by
or to Paragon;
(l) which is subject to registration or has been registered
under the Restrictive Trade Practices Act 1976;
(m) which is a finance lease, hire purchase, rental or credit
sale agreement or which otherwise provides for the purchase
of any asset or the right to purchase any asset by way of
periodical payment; or
(n) for the provision of services to Paragon by a director of
Paragon or any other person,
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including without limitation any consultancy agreement.
7.6 Paragon has not given or received notice terminating any subsisting
agreement to which it is party.
7.7 There is no outstanding guarantee, indemnity, security agreement,
comfort letter or other analogous or similar agreement given by or
for the benefit of Paragon.
7.8 Paragon has not been a party to any agreement during the three years'
period ending on the date of this Agreement to or by which any Seller
or any person connected with any Seller (including, without
limitation, Modeledge) was or is a party or bound, or in which any
Seller or any such person was or is otherwise interested.
7.9 Paragon has not been a party to any agreement during the three years'
period ending on the date of this Agreement which was entered into
otherwise than on arm's length terms.
7.10 None of the Warrantors or Paragon has commissioned any report from
any financial or management consultants during the three years'
period ending on the date of this Agreement.
7.11 There is no subsisting power of attorney or other written authority
authorising any person to bind Paragon.
7.12 The Disclosure Letter contains accurate details of all customers (or
groups of connected customers) responsible for more than 5% of the
turnover of Paragon, and of all suppliers (or groups of connected
supplies, since the Accounts Date or in the financial period ending
on the Accounts Date.
8. ASSETS
The Warranties contained in this paragraph 8 are given in respect of
all the assets of Paragon other than the Properties.
8.1 Paragon is the sole legal and beneficial owner, free from any
Encumbrance, of each asset necessary for the continuation of
Paragon's business in the manner currently conducted, and no person
has claimed to be entitled to an Encumbrance in respect of any such
asset.
8.2 All of the tangible assets owned by Paragon, or which Paragon has the
right to use, are located at one of the Properties or are under the
control of Paragon.
8.3 All charges in favour of Paragon which require registration under
Part XII Companies Act 1985 have been duly registered.
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8.4 None of the stock of Paragon is obsolete, unusable, or unsaleable by
it in the ordinary course of its business in accordance with its
current price list.
8.5 The levels of stocks are adequate to support expected demand for
products during the period of one week starting on the date of this
Agreement.
9. PLANT AND MACHINERY
9.1 The plant registers of Paragon comprise a complete and accurate
record of all the plant, equipment, machinery and vehicles owned or
in the possession of Paragon.
9.2 All plant, equipment, machinery and vehicles owned or used by Paragon
are in good working order, have been properly and regularly
maintained and comply with all applicable safety laws and regulations
currently in force.
10. INTELLECTUAL PROPERTY RIGHTS
10.1 Paragon has not used any confidential information in circumstances
which might entitle a third party to make a claim against it, and no
third party has made or threatened to make a claim against Paragon in
respect of any such rights or information.
10.2 Paragon has not committed any act constituting an actionable
passing-off in relation to a business carried on by a third party.
10.3 All information not at present in the public domain which is owned by
Paragon is properly documented in records held by Paragon, and no
such information has been disclosed, and Paragon is not obliged to
disclose it, to any person other than its professional advisers, the
Purchaser and its professional advisers and Employees for the proper
performance of their duties.
10.4 Paragon does not trade or carry on business under, or use, any name
or style other than its corporate name.
11. DEBT
11.1 The Disclosure Documents contain accurate details of each bank
accounts operated by Paragon and copies of all documents establishing
or varying the overdraft and other bank facilities of Paragon.
11.2 The Disclosure Documents contain complete and accurate details of all
the debts of Paragon as at the close of business on the day preceding
the date of this Agreement, other than trade
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debts incurred in the ordinary and proper course of business.
11.3 No sum is owing by Paragon to its auditors, solicitors or other
professional advisers, and no accrual has been made by Paragon in
respect of any such sum.
11.4 Paragon has not factored or discounted any debts owing to it or has
agreed to do so or has engaged in any financing which is not required
to be disclosed in its accounts.
11.5 There has not occurred any event of default or other circumstance
which would (or which would with the lapse of time) entitle any
person to call for early repayment under any agreement relating to
any debt of Paragon or to enforce any security given by Paragon,
including without limitation any breach of any borrowing limits
imposed on Paragon.
11.6 No person has threatened to call for early repayment of or to enforce
any security relating to any debt of Paragon and there are no
circumstances which might give rise to any such threat.
11.7 Paragon has not obtained any grant, allowance or financial aid from
any governmental or other agency, body or authority which is or might
still be repayable in whole or part.
11.8 Paragon does not have any credit cards in issue in its own name.
11.9 The Disclosure Documents contain complete and accurate lists of the
trade debtors and creditors of Paragon which are unpaid at 60 days
after invoice.
11.10 The Disclosure Documents contain complete and accurate details of all
advances made by Paragon which are still outstanding on the date of
this Agreement.
12. INSURANCE
12.1 The Disclosure Documents contain complete and accurate details of all
the subsisting insurance policies of Paragon.
12.2 No subsisting insurance policy of Paragon is subject to any special
or unusual terms.
12.3 Paragon has not been refused insurance during the 3 years' period
ending on the date of this Agreement.
12.4 All premiums due in relation to the subsisting insurance policies of
Paragon have been paid, and there are no circumstances which might
give rise to any such policy being void or voidable or the premiums
being increased.
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12.5 The Disclosure Documents contain complete and accurate details of all
insurance claims made by Paragon during the period of two years
ending on the date of this Agreement, whether or not still
outstanding, and there are no circumstances which might give rise to
a claim or notification under any insurance policy of Paragon.
13. CONSEQUENCES OF PURCHASE
The sale of the Shares to the Purchaser will not:
(a) create or accelerate any obligation of Paragon
(including the repayment of any debt) or cause or
require Paragon to lose any right or lose or dispose of any
asset or any interest in any asset (including by the
creation or crystallisation of any Encumbrance over any
asset);
(b) cause any event of default or breach by Paragon, relieve any
person of any obligation or give any person a right of
termination or any other right under any agreement to or by
which Paragon is a party or by which it is bound.
14. LITIGATION AND COMPLIANCE WITH LAW
14.1 Neither Paragon nor any person for whose acts or defaults it may be
liable is engaged, or has during the two years ended on the date of
this Agreement been engaged, whether as plaintiff, defendant or in
any other capacity, in any civil, criminal, arbitration, regulatory
or other proceedings in any jurisdiction.
14.2 No such proceedings as are referred to in paragraph 14.1 are
threatened or expected by or against Paragon or any person for whom
it may be liable, and no claims have been made or threatened or are
expected against Paragon, and there are no other circumstances, which
might give rise to any such proceedings.
14.3 Paragon has conducted its business in accordance with all applicable
laws and regulations.
14.4 Paragon has not manufactured or supplied any goods, services or
rights which are or were, or may become, faulty or defective, or
which do not or did not accord with any conditions, warranties or
representations expressly or impliedly made by Paragon, or which (in
the case of goods) carry any false or misleading trade description
within the meaning of the Trade Descriptions Act 1968.
14.5 Paragon has not done or omitted to do any act or thing in
contravention or breach of any of the following:
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(a) the Fair Trading Act 1973;
(b) the Resale Prices Act 1976;
(c) the Competition Act 1980;
(d) the Treaty of Rome.
14.6 Paragon has unconditionally obtained all licences, authorisations and
consents necessary to carry on its business as conducted at the date
of this Agreement. All those licences, authorisations and consents
are in full force and effect, there has been no breach of their terms
and there are no circumstances which might cause them not to be
renewed.
14.7 Paragon has not given to a court or a governmental or other agency or
body in any country any undertaking or assurance that is still in
force.
14.8 No investigation or enquiry concerning Paragon by any governmental or
other agency or body in any country (including without limitation the
Director General of Fair Trading, the Monopolies and Mergers
Commission or the European Commission) has taken place or is in
progress, threatened or expected, and there are no circumstances
which might give rise to any such investigation or enquiry.
14.9 No notice has been served on Paragon by the Director General of Fair
Trading under s.36 Restrictive Trades Practices Act
1976.
14.10 No inspectors have been appointed under s.431 or 432 Companies Act
1985 to investigate the affairs of Paragon or of any other company of
which any Seller was a shareholder or officer.
14.11 Paragon does not have any agency, branch or other place of business
outside the United Kingdom.
15. INSOLVENCY
15.1 Paragon is able to pay its debts as they fall due, does not have
liabilities of a greater amount than the value of its assets, taking
into account contingent and prospective liabilities, and is not
deemed unable to pay its debts within the meaning of s.123(1)(a)
Insolvency Act 1986.
15.2 No order has been made, petition presented or resolution passed for
the winding up of Paragon and no meeting has been convened to
consider any such resolution.
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15.3 No petition has been presented for an administration order to be made
in relation to Paragon.
15.4 No receiver, manager or administrative receiver has been appointed in
respect of the whole or part of any of the property, assets and/or
undertaking of Paragon,
15.5 Paragon has not convened a meeting of its creditors nor is proposing
to do so, and Paragon has not made a proposal to its creditors under
Part I Insolvency Act 1986 for a composition in satisfaction of its
debts or a scheme or arrangement of is affairs, nor has proposed a
composition or arrangement with its creditors or any class of them,
whether under s.425 Companies Act 1985 or in any other way, nor in
any case is proposing to do so.
15.6 No judgment, decree or order for payment of money given or made by
any court in any country against Paragon remains unsatisfied.
15.7 Paragon has not been party to any transaction which might constitute
in whole or in part a transaction at an undervalue or a preference
for the purposes of ss. 238, 239, 339 or 340 Insolvency Act 1986.
16. EMPLOYEES
16.1 The Disclosure Documents contain complete and accurate details of the
name, date of birth, employer, date of commencement of employment,
period of continuous employment, notice period, basic annual salary,
non-cash benefits and restrictive covenants of or payable or
applicable to each present Employee and copies of all subsisting
written employment contracts with all such Employees.
16.2 The Disclosure Documents contain complete and accurate details of
each share option or share incentive scheme or employee share
ownership plan or trust operated by Paragon.
16.3 There is no outstanding claim against Paragon by any person who is
now or has been an Employee, no dispute has arisen within the last
five years between Paragon and a material number or category of
Employees, and there are no circumstances which might give rise to
any such claim or dispute.
16.4 The employment of each present Employee may be terminated by not more
than three months' notice without liability on the part of Paragon to
make any payment to that Employee.
16.5 Paragon does not operate a share option or share incentive scheme and
has not established an employee share ownership plan or trust.
Paragon has never contributed to or maintained, or had any obligation
to contribute to or maintain, any pension scheme or retirement
benefits scheme.
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16.6 Paragon is not party to a subsisting contract for services (including
without limitation a consultancy agreement) with a director of
Paragon.
16.7 No Employee has given or been given a period of notice of termination
of employment which has not yet expired.
16.8 The Company has not entered into any union membership, security of
employment, recognition or other collective agreement or any other
agreement with a trade union or another body or organisation
representing any Employees.
17. PROPERTY
17.1 The Properties are legally and beneficially owned, used and occupied
exclusively by Paragon.
17.2 Paragon does not have any interest or estate in or over, or is
contractual licensee of, land within the meaning of the Law of
Property Act 1925 other than the Properties nor has it entered into
any agreement to buy or sell any such interest in land which has not
been completed.
17.3 Paragon has good and marketable title to each of the Properties and
title to each of the Properties is duly registered at H.M. Land
Registry with title absolute or is not registered only because that
interest was not capable of registration at the time of grant of the
relevant Leases.
17.4 The Properties are free from any land charge, local land charge,
caution, restriction, inhibition or notice.
17.5 Paragon is unconditionally entitled for the term of the relevant
Lease to all rights of way and easements which are necessary for the
present use and enjoyment of, and the passage of services to and
from, each of the Properties.
17.6 There are no outstanding or threatened disputes or claims relating to
any of the Properties or orders or notices affecting the Properties
(whether served by a landlord, tenant, local authority or any other
person), and there are no circumstances which might give rise to any
such dispute or to any such notice or order being served or made.
17.7 The present user of each of the Properties is a permitted use under
the Town and Country Planning Acts, and no development of or
building, erection, alteration or improvement on any of the
Properties contravenes the Town and Country Planning Acts or any
applicable bye-laws or building regulations.
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17.8 No planning consent in relation to any of the Properties has been
issued within the three months' period ending on the date of this
Agreement.
17.9 There are no compulsory purchase notices, orders or resolutions or
blight notices affecting the Properties or any private access to any
of them, and there are no circumstances which might lead to any being
made.
17.10 There is no agreement or planning obligation affecting the Properties
under s.18 Public Health Act 1936, s.52 Town and Country Planning Act
1971, s.38 and 278 Highways Act 1980, s.33 Local Government
(Miscellaneous Provisions) Act 1982, s.106 Town and Country Planning
Act 1990, s.104 Water Industry Act 1991 or any provision in
legislation of a similar nature, and Paragon is required to enter
into any such agreement or obligation.
17.11 The requirements of all statutes and bye-laws affecting any of the
Properties have been duly complied with.
17.12 Each of the Properties is in a good and substantial state of repair
and condition and fit for the purpose for which it is currently used.
17.13 There are no development, redevelopment, reinstatement or fitting-out
works or repairs outstanding or proposed in respect of any of the
Properties.
17.14 All rents, service charges and other sums due from Paragon under the
Leases have been paid, and the latest demands (or receipts for rent
if issued) were unqualified, and all other covenants on the part of
the tenant contained in the Leases have been duly performed.
17.15 Paragon has not at any time been the tenant of or a guarantor in
respect of any leasehold property save for the leasehold property
demised under the Leases.
17.16 All licences and consents required from the landlords and any
superior landlords under any of the Leases have been obtained, and
the covenants on the part of the tenant contained in those licences
and consents have been performed.
17.17 There are no rent reviews in progress or outstanding under any of the
Leases at the date of this Agreement.
17.18 The Leases are valid and subsisting and there are no side letters,
collateral assurances, undertakings or concessions which have been
made by any party to any of the Leases.
18. TAXATION
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General
18.1 All returns, computations and notices which are or have been required
to be made or given by Paragon for any Taxation purpose:
(a) have been made or given within the requisite periods and
on a proper basis and are up to date and correct; and
(b) none of them is, or is likely to be, the subject of any
outstanding queries or disputes with the Inland Revenue or
other Taxation authority.
18.2 All information required to be provided to the Inland Revenue, HM
Customs & Excise or any Taxation authority has been duly provided by
Paragon within the requisite period and is complete, accurate and up
to date.
18.3 Paragon is not, and has not in the last six years been involved in,
and the Warrantors, having made all due enquiries, have no reason to
anticipate, any dispute with or investigation, audit or discovery by
any Taxation authority concerning any matter likely to affect the
liability of Paragon to Taxation.
18.4 The Disclosure Letter contains full and accurate particulars of all
matters in respect of which Paragon is required to make a return or
provide information to the relevant Taxation authorities and in
respect of which the time for making such return or providing such
information will expire on or after Completion.
18.5 No accounting period of Paragon for corporation tax purposes has
ended since the Accounts Date.
18.6 The provisions or reserve for Taxation appearing in the Accounts of
Paragon are sufficient (on the basis of the rates of taxation current
at the date hereof) to cover all Taxation for which Paragon was at
the Accounts Date or may after that date become, or have become,
liable to pay or account on or in respect of or by reference to any
profits, gains or income (whether deemed or actual) for any period
ended on or before the Accounts Date or in respect of any
distribution or transaction made or entered into, or deemed made or
entered into, on or before the Accounts Date.
18.7 Paragon:
(a) has duly and punctually paid all Taxation which it has
become liable to pay before the date of this Agreement;
33
<PAGE>
(b) has duly deducted and accounted for all Taxation due to
have been deducted or accounted for by it before the
date of this Agreement; and
(c) is not and has not at any time within the last six years
been liable to pay interest on or penalties in respect of
any unpaid Taxation or default in respect of any Taxation
matter.
18.8 In respect of the period commencing immediately after the Accounts
Date and ending on Completion, Paragon will not have any liability
for Taxation which has not been either paid prior to Completion or
provided for in the Accounts, other than Taxation on profits realised
in the ordinary course of trading.
18.9 Paragon is not and will not become liable to pay, or make
reimbursement or indemnity in respect of, any Taxation (or amounts
corresponding thereto) in consequence of the failure by any other
person to discharge that Taxation within any specified period or
otherwise, where such Taxation relates to a profit, income or gain,
transaction, event, omission or circumstance arising, occurring or
deemed to arise or occur (whether wholly or partly) prior to
Completion.
18.10 Paragon has not made, or committed to, any payment of a revenue
nature since the Accounts Date which is not wholly deductible in
computing its taxable profits.
18.11 Paragon has not entered into any transaction or series of
transactions, scheme or arrangement of which the main purpose, or one
of the main purposes, was the avoidance or reduction of a Taxation
liability and for which there was no commercial purpose.
19. VAT
19.1 Paragon is registered for the purposes of value added tax and has
complied at all times with all statutory requirements, regulations,
notices, orders, directions or conditions relating to value added
tax, including the terms of any agreement made with HM Customs &
Excise.
19.2 Paragon has not at any time been, or applied to be, a member of a
group registration for the purposes of value added tax.
19.3 No transaction or arrangement has been effected as a result of which
Paragon is or may be liable for any value added tax chargeable
against any other person.
19.4 All supplies made by Paragon in the current prescribed accounting
period for value added tax purposes are taxable and not exempt
supplies.
34
<PAGE>
20. Chargeable Gains
The book value of each of the capital assets of Paragon in or adopted
for the purposes of the Accounts of Paragon does not exceed the
amount deductible under section 38 Taxation of Chargeable Gains Act
1992 (excluding any indexation allowance) and the Group Company has
all necessary records to calculate any future liability to
corporation tax on capital gains in respect of each such capital
asset.
21. Groups
Paragon does not have and has never had any subsidiaries.
22. Capital Allowances
If the plant and machinery of Paragon were disposed of in total for a
consideration equal to its book value in or adopted for the purposes
of the Accounts of Paragon, no balancing charge under the Capital
Allowances Act 1990 not fully provided for in the Accounts would
arise.
23. Residence
Paragon is and has at all times been resident in the United Kingdom
and not elsewhere for taxation purposes, has no branch, agent or
permanent establishment outside the UK and is not liable to pay
Taxation under the laws of any territory other than the UK.
24. Inheritance Tax
24.1 Paragon is not liable, and there are no circumstances in existence as
a result of which it may become liable, to be assessed to Taxation as
donor or donee of any gift, or transferor or transferee of value.
24.2 No circumstances exist under which any power within Section 212
Inheritance Tax Act 1984 could be exercised in relation to, and there
is no Inland Revenue charge within the meaning of Section 237
Inheritance Tax Act 1984 attaching to or over, any shares or
securities in or assets of Paragon.
25. Stamp Taxes
25.1 There are no circumstances or transactions to which Paragon is, or
has been, a party which may result in Paragon becoming liable to or
accountable for stamp duty reserve tax or any penalty in respect of
such stamp duty reserve tax.
35
<PAGE>
25.2 All documents to which Paragon is a party and/or which relate to or
are necessary to prove the title of Paragon to any asset owned or
possessed by it and/or contain material rights on the part of Paragon
are in the United Kingdom and have been duly stamped.
36
<PAGE>
SIGNED by ANDREW SEAN BROWN ) /s/ A. S. Brown
------------------------
SIGNED by DARREN BROWN ) /s/ D. Brown
------------------------
SIGNED by DAVID ARTHUR BROWN ) /s/ D. A. Brown
------------------------
SIGNED by MARK DAVID BROWN ) /s/ M. D. Brown
------------------------
EXECUTED as a DEED by PETER HAWLEY ) /s/ P. Hawley, Attorney
------------------------
as lawful attorney for MODELEDGE )
LIMITED )
37
<PAGE>
SIGNED by PETER HAWLEY as lawful ) /s/ P. Hawley, Attorney
attorney for ADVENTATUM JERSEY LIMITED) ------------------------
SIGNED by ) /s/ R. L. Fredrick
------------------------
for and on behalf of: )
OPTELECOM UK LIMITED )
38
Exhibit 2iE
ATTACHMENT E
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") by and between Optelecom, Inc., a
Delaware corporation ("the Company"), and the person identified on the signature
page of this Agreement as the Employee (the "Employee");
WHEREAS, the Company, in connection with its acquisition of a company
with which the Employee was associated as an officer, director and stockholder
(the "Acquired Company"), desires to secure the services of the Employee and to
enter into an agreement embodying the terms of such employment; and
WHEREAS, the Employee desires to accept such employment and enter into
such agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants herein contained, the parties hereto mutually agree as
follows:
1. Employment. The Company hereby employs the Employee for the term and
upon the terms and subject to the conditions hereinafter set forth. The Employee
hereby accepts such employment.
2. Term. The Company shall employ the Employee for the term specified
in Appendix A hereto (the "Minimum Term"). Following the expiration of the
Minimum Term, the Employee's employment by the Company shall continue subject to
termination by either party upon at least 90- days written notice to the other.
For the avoidance of doubt, such notice may be given not less than 90 days prior
to the end of the Minimum Term therein to be effective following the expiration
of the Minimum Term. Upon expiration of this Agreement pursuant to this Section
2, the Employee shall have no statutory or regulatory claim for unfair dismissal
or for redundancy payment.
3. Duties. During the term of this Agreement, the Employee shall serve
in the position specified in Appendix A hereto, or in such other positions with
the Company or its affiliates as the Board of Directors or the President of the
Company shall from time to time specify. As used hereinafter, the term
"Employer" refers to the Company or to the affiliate of the Company referred to
in Appendix A in specifying the Employee's primary position. The Employee shall
devote his full time and attention and his best efforts to the business of the
Employer and the furthering of its interests and to the discharge of the duties,
functions and responsibilities that are customary for the position for which he
is employed. The Employee shall comply with all Company rules and regulations of
the Employer and the Company applicable to their respective executive employees
or to employees generally and with all policies approved by the Board of
Directors of the Company. The Employee represents that his employment hereunder
and compliance by him with the terms and conditions of this Agreement will not
conflict with, result in the breach of or a default under, or require the
consent of any person under any other agreement to which he is a party or which
purports to bind him.
<PAGE>
4. Compensation. As the Employee's compensation during the term of the
Employee's employment hereunder, the Employer shall pay to the Employee, and the
Employee shall accept, a base salary at the annual rate set forth on Appendix A
hereto, to be paid in equal monthly installments or pursuant to such other
schedule to which the parties may subsequently agree. Any increases in the base
salary of the Employee shall be within the sole discretion of the Board of
Directors of the Company, which at its option, from time to time may authorize
an annual base salary at a higher rate than provided herein. The Employee shall
also be entitled to such bonuses and such other compensation arrangements, if
any, as may be set forth in Appendix A hereto.
5. Expenses. The Employee is authorized to incur reasonable expenses in
performing his services hereunder, including expenses for business entertainment
and travel. The Employer shall promptly reimburse the Employee for such expenses
upon presentation of an itemized expense statement together with supporting
vouchers therefor and such other information as the Employer may from time to
time reasonably require.
6. Fringe Benefits. The Employee shall have the right to participate,
on the same terms and subject to the same conditions, limitations, restrictions
and requirements as the other executive employees of the Employer, in such
medical, health, insurance, pension, profit sharing and other plans, if any, as
the Company or the Employer may from time to time provide for the benefit of the
employees of the Employer and in which the other executive employees of the
Employer are eligible to participate.
7. Proprietary Property; Confidential Information.
(a) Proprietary Property. The term "Proprietary Property"
includes any and all ideas, creations, developments, improvements, inventions,
trade secrets, patents, copyrights, trademarks, trade names, logos, processes,
computer programs, databases, spread sheets, documentation, models,
methodologies, strategies, material works of authorship, know-how and methods of
applying and putting into practice any such items that are created, developed or
discovered by or for the Company or are acquired or licensed on a proprietary
basis by the Company from others. Proprietary Property does not include
proprietary technical information generally known in the business in which the
Company operates, even if disclosed to the Employee or known or developed by
Employee as a consequence of or through his employment.
(b) Confidential Information. The term "Confidential
Information" includes any and all information which relates to the Company's
products and services (including their development, manufacture, marketing and
sale), the financial, marketing and other aspects of the Company's operations,
and the intellectual property and business and other rights which it owns,
licenses or otherwise has the right to use, which is not generally known outside
the Company (other than to the Company's customers or suppliers or other third
parties in connection with their business with the Company) and which is
disclosed or accessible to Employee or known or developed by Employee as a
consequence of or through his employment. It includes, but is not limited to,
memoranda, files, books and records, financial and accounting methodologies,
catalogs, lists of customers or prospects, price lists, advertising and
promotional materials, packaging design, business plans, operating policies and
manuals, internal controls, policies, procedures and guidelines, and other
business information and records used in the conduct of business (whether in
tangible -- including written documents,
<PAGE>
magnetic tapes, disks or other media -- or intangible form), agreements and
understandings between the Company and third parties, and trade secrets,
software and other licenses, source codes and object codes, designs, drawings,
plans, and other such information and rights, intangible or otherwise, whether
or not such information comes with the term "Proprietary Property."
(c) Rights to Proprietary Property. The Employee agrees that,
except as the Company may otherwise expressly agree in writing, (i) the Employee
shall have no rights and shall acquire no rights to any Proprietary Property
that comes within the Employee's knowledge or possession through or as a
consequence of his employment with the Company, and (ii) any information or
other property that is invented, created, discovered, written, developed,
furnished or produced by the Employee, solely or jointly, wholly or partly,
while employed by the Company or with information proprietary to the Company
("Developments") shall be the exclusive property of the Company, and the
Employee shall have no right, title or interest of any kind in and to the
Developments, including any results or proceeds therefrom. The Employee hereby
sells, transfers, and assigns to the Company all right, title and interest which
the Employee may be deemed to have in and to the Developments, including the
right to patent, register copyrights for or obtain legal protection for the
Developments, and agrees to communicate promptly and disclose to the Company, in
such form as the Company requests, all information, details and data pertaining
to any Developments. At any time during or subsequent to employment, upon the
request and at the election and expense of the Company, the Employee will
patent, register copyrights for or obtain other legal protection for, or permit
the Company to patent, register copyrights for or obtain other legal protection
for, any Developments and execute any and all assignments, instruments of
transfer, or other documents that the Company deems necessary or appropriate to
transfer to the Company all rights in or to the Developments or to evidence the
Company's ownership of such rights or any of them.
(d) Use and Disclosure. Except as may be otherwise expressly
authorized in writing by the Company, the Employee shall not use any Proprietary
Property or Confidential Information except for the benefit of the Company and
shall not disclose any Confidential Information to any other person. As used in
this Agreement, unless the context otherwise requires, the term "person"
includes, but is not limited to, any individual, partnership, association, firm,
corporation, trust, unincorporated organization, joint venture or other entity.
This restriction on use and disclosure applies without limitation as to time or
place.
(e) Applicability to the Company and Its Affiliates. For
purposes of this Section and Sections 8, 9 and 10 of this Agreement, references
to the Company shall be deemed to include the Company and any corporations or
other business entities affiliated with it, including the Acquired Company.
8. Company Property. Following termination of the Employee's employment
with the Company for any reason, the Employee shall promptly return to the
Company all property of the Company in his possession or control (and any and
all copies thereof) including, without limitation, all Proprietary Property and
Confidential Information.
9. Non-Competition. During the period commencing on this date of this
Agreement and ending on the date on which the Post-Employment Restricted Period
(as set forth in Appendix A
<PAGE>
hereto) ends (the "Restricted Period"), the Employee shall not, either on his
own account or for any other person or entity, directly or indirectly, (a)
engage in any activities or render any services, which are similar or reasonably
related to those performed for or rendered to or on behalf of the Company or the
Acquired Company during the Restricted Period or the one-year period preceding
the date of this Agreement (together, the "Extended Period"), to any business
which competes with the Company in any place where the Company is engaged or, to
the knowledge of the Employee, intends to engage in business or (b) own a
greater than five percent equity interest in or be connected with the
management, operation, or control of any such business, but the foregoing shall
not be deemed to exclude the Employee from acting as a director of or consultant
to other businesses for the benefit of the Company with the consent of the
Company's Board of Directors.
10. Non-Solicitation. During the Restricted Period, the Employee shall
not directly or indirectly: (a) attempt to induce, or assist others to attempt
to induce, any person who was or was actively negotiating to become a customer
of the Company or the Acquired Company at any time during the Extended Period to
reduce or terminate such customer's business with the Company or to direct any
of its business that is then being or may be done with the Company to any other
person; (b) attempt to induce, or assist others to attempt to induce, any
employee of the Company to terminate his or her employment with the Company; and
(c) whether in his individual capacity or as the owner, partner, employee or
agent of any entity, employ or offer employment to any person who is or was
employed by the Company during the Restricted Period unless such person shall
cease to have been employed by the Company in any capacity for a period of at
least six months.
11. Termination.
(a) For cause. The Company shall have the right to terminate
this Agreement at any time during the Minimum Term for cause upon 10 days'
written notice of such termination specifying the reasons therefor. In the event
of such termination for cause, Employee shall only be entitled to receive
accrued base pay and benefits as of the date of termination. The term "cause"
shall mean any act or omission to act, or series of acts or omissions to act, or
course of conduct of the Employee that, in the reasonable opinion of the Board
of Directors of the Company acting in good faith, constitutes gross negligence,
dishonesty, willful malfeasance, unlawful or unethical activity, other serious
misconduct or material breach in the performance of his duties under this
Agreement.
(b) Upon death or disability. This Agreement will terminate
upon the Employee's death or upon a determination by a qualified physician
selected by the Board of Directors of the Company that the Employee is incapable
of substantially fulfilling the duties and responsibilities of his position due
to physical, emotional or mental incapacity. In the case of such termination,
the Employee shall be entitled to receive three months' base salary, at the rate
being paid as of the date of death or disability, against which the Employer
shall be entitled to offset any amounts due to the Employee or his estate under
death or disability insurance policies maintained by the Employer or the Company
on behalf of the Employee.
(c) General. All rights to damages or other remedies that
either party may have (under this Agreement or otherwise) by reason of any acts
or omissions of the other party prior to termination shall survive such
termination.
<PAGE>
12. Notices. Notices, demands and all other communications provided for
in this Agreement shall be in writing and shall be deemed to have been duly
given when delivered by hand or overnight package delivery service or mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company: Optelecom, Inc.
9300 Gaither Road
Gaithersburg, MD 20877
Attention: Edmund D. Ludwig, President
If to the Employee: As set forth in Appendix A
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Survival. Sections 7, 8, 9, 10, 14 and 16 shall survive the
termination of this Agreement, except as otherwise provided in such sections.
14. Remedies for Breach of Agreement. If the Employee commits a breach
or threatens to commit a breach of any of the provisions of this Agreement, the
Company shall have the right to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction without having to
prove the inadequacy of the available remedies at law or irreparable injury, it
being acknowledged and agreed as between the parties hereto that any such breach
or threatened breach will cause irreparable injury to the Company and that money
damages may not provide an adequate remedy to the Company. In addition, the
Company may take and pursue all such other actions and remedies as may be
available to the Company at law or in equity and shall be entitled to such
damages as the Company can show the Company has sustained by reason of such
breach, together with court costs and attorneys fees.
15. Other Terms and Conditions of Employment. The written Additional
Terms and Conditions of Employment between the Company and the Employee in the
form attached hereto as Appendix B shall govern the matters set forth therein,
except to the extent the Company and the Employee have expressly agreed
otherwise in this Agreement.
16. Other. This Agreement contains the entire understanding of the
parties with respect to the subject matter hereof, supersedes all prior
agreements and understandings between the parties regarding that subject matter,
may be executed in two or more counterparts which together shall constitute a
single agreement, may be amended only by a written instrument executed by the
parties hereto, may not be assigned by either party without the written consent
of the other (except that it may be assigned by the Company to any affiliated
company or to a successor in connection with a merger, consolidation or sale of
all or substantially all of the assets of the Company or any such assignee), and
shall inure to the benefit of and be binding upon the parties and their
respective successors. Forbearance by either party to require performance of any
provision hereof shall not constitute or be deemed a waiver by such party of
such provision or of the right thereafter to enforce
<PAGE>
the same, and no waiver by either party of any breach or default hereunder shall
constitute or be deemed a waiver of any subsequent breach or default, whether of
the same or similar nature or of any other nature, or a waiver of the provision
or provisions breached or with respect to which such default occurred. In the
event any of Sections 7, 8, 9 or 10 is held not to be enforceable in accordance
with its terms, the Employee and the Company hereby agree that such Section
shall be reformed to make such Section enforceable in a manner which provides
the Company the maximum rights permitted by law. Unless the context otherwise
requires, this Agreement shall be governed in all respects by the laws of the
State of Maryland, without reference to the principles of conflict or choice of
law thereof, and both the Company and the Employee hereby agree to submit to the
exclusive jurisdiction of the federal and state courts within the State of
Maryland in any action or proceeding arising out of or relating to this
Agreement, agree that process may be served upon them in any manner authorized
for those courts and covenant not to assert or plead any objection which they
might otherwise have to such jurisdiction and such process.
IN WITNESS WHEREOF, the parties have duly executed this Agreement this
12th day of December, 1997.
OPTELECOM, INC. EMPLOYEE
By
--------------------------- ---------------------------
Edmund D. Ludwig
President
<PAGE>
EMPLOYMENT AGREEMENT
APPENDIX A
--------------------
Employee: David A. Brown
Minimum Term (Section 2): Three years commencing December 12, 1997
Position (Section 3): Chairman and Marketing Director of
Paragon Audio Visual Limited
Annual Base Salary
(Section 4): 62,000 Pounds Sterling, subject to deductions
of Tax and Employee National Insurance
Contributions
Additional Compensation
Arrangements (Section 4): See Attachment A - Paragon Executive Bonus Plan
Post-Employment Restricted
Period (Section 9): Six months
Employee Address
(Section 12): Paragon Audio Visual Limited
Langley Business Court
Worlds End
Beedon, Newbury
Berkshire RG20 8RY
United Kingdom
<PAGE>
EMPLOYMENT AGREEMENT
APPENDIX A
--------------------
Employee: Andrew S. Brown
Minimum Term (Section 2): Three years commencing December 12, 1997
Position (Section 3): Managing Director of
Paragon Audio Visual Limited
Annual Base Salary
(Section 4): 62,000 Pounds Sterling, subject to deductions
of Tax and Employee National Insurance
Contributions
Additional Compensation
Arrangements (Section 4): See Attachment A - Paragon Executive Bonus Plan
Post-Employment Restricted
Period (Section 9): Six months
Employee Address
(Section 12): Paragon Audio Visual Limited
Langley Business Court
Worlds End
Beedon, Newbury
Berkshire RG20 8RY
United Kingdom
<PAGE>
EMPLOYMENT AGREEMENT
APPENDIX A
--------------------
Employee: Mark D. Brown
Minimum Term (Section 2): Three years commencing December 12, 1997
Position (Section 3): Sales Director of
Paragon Audio Visual Limited
Annual Base Salary
(Section 4): 62,000 Pounds Sterling, subject to deductions
of Tax and Employee National Insurance
Contributions
Additional Compensation
Arrangements (Section 4): See Attachment A - Paragon Executive Bonus Plan
Post-Employment Restricted
Period (Section 9): Six months
Employee Address
(Section 12): Paragon Audio Visual Limited
Langley Business Court
Worlds End
Beedon, Newbury
Berkshire RG20 8RY
United Kingdom
<PAGE>
EMPLOYMENT AGREEMENT
APPENDIX A
--------------------
Employee: Darren N. Brown
Minimum Term (Section 2): Three years commencing December 12, 1997
Position (Section 3): Operations Director of
Paragon Audio Visual Limited
Annual Base Salary
(Section 4): 62,000 Pounds Sterling, subject to deductions
of Tax and Employee National Insurance
Contributions
Additional Compensation
Arrangements (Section 4): See Attachment A - Paragon Executive Bonus Plan
Post-Employment Restricted
Period (Section 9): Six months
Employee Address
(Section 12): Paragon Audio Visual Limited
Langley Business Court
Worlds End
Beedon, Newbury
Berkshire RG20 8RY
United Kingdom
<PAGE>
ATTACHMENT A
TO APPENDIX A OF
EMPLOYMENT AGREEMENT
Executive Bonus Plan
For
Paragon Audio Visual Limited
----------------------------
Under the Plan, a bonus is payable to designated key executives of
Paragon Audio Visual Limited ("Paragon") for each of the five fiscal years of
Optelecom, Inc. (the "Company") beginning January 1, 1998. The Employee shall be
entitled to participate in the Plan and to receive for each year an amount equal
to 25% of the Bonus Pool for that year. The Bonus Pool shall be an amount equal
to 25% of Paragon's Gross Operating Profits in excess of US$400,000 for each of
1998,1999 and 2000 and equal to 10% of Paragon's Gross Operating Profits in
excess of US $1 million for each of 2001 and 2002. The Company's independent
public accountants shall determine Paragon's Gross Operating Profits for each
year in connection with their audit of the Company's financial statements for
that year. Paragon's Gross Operating Profits for a year shall be determined by
adding to the annual net income of Paragon, before accrual of any expense for
bonuses payable under the Plan, an amount equal to the sum of the expenses
included in such determination of net income for (i) amortization of goodwill,
(ii) license fees and interest related to the acquisition of Paragon by the
Company (including, without limitation, the annual payments of $175,000 under
the License Agreement) (iii) income taxes, and (iv) research and development and
other forms of developmental expenditures beyond Paragon's average historic
levels of such costs. In determining Paragon's Gross Operating Profit for any
year, the Company's independent public accountants shall also make an
appropriate adjustment to (i) render neutral any distorting effects of sales
discounts within the Optelecom group of companies, (ii) give credit for sales
made directly by other Optelecom companies that, prior to the acquisition of
Paragon, would have been made by Paragon and (iii) give compensatory credit for
any loss or diminution of revenue resulting from the actions or omissions of any
person employed by or company within the Optelecom group of companies not under
the supervision or managerial control of one or more of the Browns. The
Employee's bonus for each year shall be paid in cash within 15 days after
completion of the audit of the Company's financial statements for that year.
If the Employee shall voluntarily terminate his employment (for reasons
other than death, disability, or unreasonable or oppressive conduct by the
Company) or shall conduct himself in the discharge of his duties in a manner
that he knew or ought to have known to be likely to result in a material
financial impairment of the Company or its prospects, the Employee shall not be
entitled to payment of a bonus for the year in which such election is made or
such conduct occurs or for any succeeding year. For the avoidance of doubt, the
standard for termination for cause under the Employment Agreement to which this
Attachment relates is distinct, separate and different from the standards giving
rise to a forfeiture of bonus set forth in the preceding sentence.
<PAGE>
EMPLOYMENT AGREEMENT
APPENDIX B
Terms and Conditions of Employment
The particulars herein contained satisfy the requirements of the
Employment Rights Act 1996.
COMMENCEMENT OF CONTINUOUS EMPLOYMENT
The Employee's employment with the Company began on December 12, 1997.
The Employee's employment with his previous employer (Paragon Audio Visual
Limited) commencing on 1st July 1994 counts as part of his continuous period of
employment.
LOCATION
The Employee's employment will be based at Beedon or such other
location within a 25 mile radius of Beedon as the Company may from time to time
direct, but he may be required to travel in the course of his duties. All
traveling and out-of-pocket expenses reasonably incurred by the Employee in the
course of his duties and supported by receipts will be reimbursed to him by the
Employer.
WORKING HOURS
Normal working hours are 37.5 hours per week, commencing 08:30 to
17:00, with a lunch break between the hours of 13:00 - 14:00. The Employee will
work such additional hours as are necessary for the proper performance of his
duties.
HOLIDAYS
The holiday year will run from 1st January to 31st December.
The annual holiday allowance is 20 working days. Up to 3 days of the
annual allowance may be determined by the Company to arrange the Christmas
holiday dependant on when Christmas falls.
Holiday pay will be accrued at a rate calculated by the total annual
holiday, excluding statutory public holidays, divided by 12 per month. One
additional day's holiday will be given for each completed calendar year of
service (Jan-Dec) working up to a maximum of 5 days per year.
In the last calendar year of employment the amount of paid holiday will
be calculated proportionately for each calendar month served in that year. The
Company reserves the right to recover from the Employee any payment in respect
of holidays taken in excess of his entitlement accrued at the date of his
leaving. Upon termination of the employment, the Employee shall be entitled to
salary in lieu of any outstanding holiday entitlement. All annual holidays are
to be taken at dates mutually agreed with the Company and not more than 10
consecutive days may be taken at
<PAGE>
any one time without the Company's consent. All annual holidays must be taken
before the 31st March of the following year. Holidays not taken will be
forfeited.
In addition to annual holidays the Company observes the statutory
public holidays appropriate to the location of the Employee's appointment to
which the Employee is also entitled.
SICKNESS AND STATUTORY SICK PAY
Statutory sick pay will be paid in accordance with current legislation
in the United Kingdom. Any additional sick pay will be at the Company's absolute
discretion.
PENSION
The Company does not operate a pension scheme for employee based in the United
Kingdom.
DISCIPLINARY RULES & GRIEVANCE PROCEDURES
There are no disciplinary rules in force in relation to the Employee
who is at all times expected to conduct himself in a manner consistent with his
senior status.
There is no formal or contractual Grievance and Appeals procedure
applicable to the Employee's employment but if the Employee has any grievance in
relation to the employment he may apply in writing to the President of the
Company.
COLLECTIVE AGREEMENTS
There are no collective agreements in force which affect the terms of
this Employment.
Exhibit 2iF
ATTACHMENT F-1
[Paragon Investment Letter]
Optelecom, Inc.
9300 Gaither Road
Gaithersburg, Maryland 20877
Attention: Edmund D. Ludwig, President
Dear Sirs:
Paragon Audio Visual Limited, a United Kingdom company (the "Company"),
and the beneficial owners of the outstanding common shares of the Company (the
"Paragon Stockholders") have entered into an Agreement (the "Agreement") with
Optelecom, Inc., a Delaware corporation ("Optelecom"), which contemplates
Optelecom's acquisition of certain assets of the Company and issuance to the
Company, in partial consideration for the assets, of the number of shares of
Optelecom common stock determined by the formula set forth in the Agreement (the
"Shares"). The Agreement contemplates that, promptly after the effective time of
the foregoing transaction, the Company will distribute the Optelecom Shares to
the Paragon Stockholders. The Company understands that upon distribution of the
shares Optelecom will issue certificates only to those Paragon Stockholders who
have executed letters that contain representations, warranties, agreements and
consents that are substantially the same as those contained in this letter. The
following statements are qualified to the extent necessary to account for the
Company's distribution of the Shares to the Paragon Stockholders. With respect
to the Shares, the Company hereby represents and warrants to Optelecom and
agrees and consents as follows:
(1) The Company is acquiring the Shares for investment and not with a
view to the resale or distribution thereof. The Company has no present intention
of selling or otherwise disposing of all or any part of the Shares. The Company
is acquiring the Shares for its own account. No other person will have a direct
or indirect beneficial interest in the Shares.
(2) The Company understands that the Shares are not registered under
the Securities Act of 1933 (the "Act"); that the Shares are being issued in
reliance upon the provisions of Section 4(2) of the Act, exempting from the
registration requirements of the Act transactions not involving any public
offering; that the Shares must be held indefinitely unless they are subsequently
registered under the Act or unless an exemption from such registration is
available, such as that provided by Rule 144 under the Act; and that Optelecom
is under no obligation to register the Shares, except as provided in the
Agreement, or to comply with any condition required for an exemption from
registration.
(3) Either alone or together with a "purchaser representative" (as
defined in Rule 501(h) under the Act), the Company has such knowledge and
experience in financial and business affairs as to be capable of evaluating the
merits and risks of acquiring the Shares, has adequate means of
<PAGE>
providing for current needs and contingencies, is able to bear the economic risk
of acquiring the Shares, has no need for liquidity with respect to such
investment and could afford the complete loss thereof. The Company, either alone
or together with a purchaser representative, has received and examined the Form
10-K Annual Report of Optelecom for the year ended December 31, 1996, the Form
10-Q Quarterly Reports of Optelecom for the periods ended March 31, June 30 and
September 30, 1997, the Definitive Proxy Statement of Optelecom for its annual
meeting of stockholders held April 30, 1997, and other information concerning
Optelecom, and has had the opportunity to request additional information from
and to ask questions of Optelecom.
(4) The Company agrees not to sell any of the Shares without
registration under applicable United States federal and state securities laws or
an opinion of counsel satisfactory to Optelecom that registration under
applicable federal and state securities laws is not required.
(5) The Company consents to the issuance of stop transfer instructions
to Optelecom's transfer agent with respect to the Shares, to the notation of
stop transfer instructions in appropriate records of Optelecom and to the
placement of restrictive legend on the certificates evidencing the Shares in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS
OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE
EXEMPTIONS THEREFROM.
Dated: December 12, 1997 Very truly yours,
PARAGON AUDIO VISUAL LIMITED
By /s/ David A. Brown
--------------------------
David A. Brown
Chairman
2
<PAGE>
ATTACHMENT F-2
[Paragon Stockholder Investment Letter]
Optelecom, Inc.
9300 Gaither Road
Gaithersburg, Maryland 20877
Attention: Edmund D. Ludwig, President
Dear Sirs:
Paragon Audio Visual Limited, a United Kingdom company (the "Company"),
and the beneficial owners of the outstanding common shares of the Company (the
"Paragon Stockholders") have entered into an Agreement (the "Agreement") with
Optelecom, Inc., a Delaware corporation ("Optelecom"), which contemplates
Optelecom's acquisition of certain assets of the Company and issuance to the
Company, in partial consideration for the assets, of the number of shares of
Optelecom common stock determined by the formula set forth in the Agreement (the
"Optelecom Shares"). The Agreement contemplates that, promptly after the
effective time of the foregoing transaction, the Company will distribute the
Optelecom Shares to the Paragon Stockholders. The Optelecom Shares to be
distributed to the undersigned are hereinafter referred to as the "Shares." With
respect to the Shares, the undersigned hereby represents and warrants to
Optelecom and agrees and consents as follows:
(1) The undersigned is acquiring the Shares for investment and not with
a view to the resale or distribution thereof. The undersigned has no present
intention of selling or otherwise disposing of all or any part of the Shares,
except for sales which may be made pursuant to the registration statement
provided for in the Agreement. The undersigned is acquiring the Shares for his
own account. No other person will have a direct or indirect beneficial interest
in the Shares. If the Shares are registered at the request of the undersigned in
a name other than the name of the undersigned, such registration shall not
confer any beneficial interest in the Shares to anyone other than the
undersigned who shall retain the sole economic interest in the Shares and the
sole right to vote or direct the voting of the Shares and the sole right to
dispose or direct the disposition of the Shares.
(2) The undersigned understands that the Shares are not registered
under the Securities Act of 1933 (the "Act"); that the Shares are being issued
in reliance upon the provisions of Section 4(2) of the Act, exempting from the
registration requirements of the Act transactions not involving any public
offering; that the Shares must be held indefinitely unless they are subsequently
registered under the Act or unless an exemption from such registration is
available, such as that provided by Rule 144 under the Act; and that Optelecom
is under no obligation to register the Shares, except as provided in the
Agreement, or to comply with any condition required for an exemption from
registration.
3
<PAGE>
(3) Either alone or together with a "purchaser representative" (as
defined in Rule 501(h) under the Act), the undersigned has such knowledge and
experience in financial and business affairs as to be capable of evaluating the
merits and risks of acquiring the Shares, has adequate means of providing for
current needs and contingencies, is able to bear the economic risk of acquiring
the Shares, has no need for liquidity with respect to such investment and could
afford the complete loss thereof. The undersigned, either alone or together with
a purchaser representative, has received and examined the Form 10-K Annual
Report of Optelecom for the year ended December 31, 1996, the Form 10-Q
Quarterly Reports of Optelecom for the periods ended March 31, June 30 and
September 30, 1997, the Definitive Proxy Statement of Optelecom for its annual
meeting of stockholders held April 30, 1997, and other information concerning
Optelecom, and has had the opportunity to request additional information from
and to ask questions of Optelecom.
(4) The undersigned agrees not to sell any of the Shares without
registration under applicable United States federal and state securities laws or
an opinion of counsel satisfactory to Optelecom that registration under
applicable federal and state securities laws is not required.
(5) The undersigned consents to the issuance of stop transfer
instructions to Optelecom's transfer agent with respect to the Shares, to the
notation of stop transfer instructions in appropriate records of Optelecom and
to the placement of restrictive legend on the certificates evidencing the Shares
in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS
OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE
EXEMPTIONS THEREFROM.
Dated: December 12, 1997 Very truly yours,
/s/ David A. Brown
----------------------------
David A. Brown
4
<PAGE>
ATTACHMENT F-2
[Paragon Stockholder Investment Letter]
Optelecom, Inc.
9300 Gaither Road
Gaithersburg, Maryland 20877
Attention: Edmund D. Ludwig, President
Dear Sirs:
Paragon Audio Visual Limited, a United Kingdom company (the "Company"),
and the beneficial owners of the outstanding common shares of the Company (the
"Paragon Stockholders") have entered into an Agreement (the "Agreement") with
Optelecom, Inc., a Delaware corporation ("Optelecom"), which contemplates
Optelecom's acquisition of certain assets of the Company and issuance to the
Company, in partial consideration for the assets, of the number of shares of
Optelecom common stock determined by the formula set forth in the Agreement (the
"Optelecom Shares"). The Agreement contemplates that, promptly after the
effective time of the foregoing transaction, the Company will distribute the
Optelecom Shares to the Paragon Stockholders. The Optelecom Shares to be
distributed to the undersigned are hereinafter referred to as the "Shares." With
respect to the Shares, the undersigned hereby represents and warrants to
Optelecom and agrees and consents as follows:
(1) The undersigned is acquiring the Shares for investment and not with
a view to the resale or distribution thereof. The undersigned has no present
intention of selling or otherwise disposing of all or any part of the Shares,
except for sales which may be made pursuant to the registration statement
provided for in the Agreement. The undersigned is acquiring the Shares for his
own account. No other person will have a direct or indirect beneficial interest
in the Shares. If the Shares are registered at the request of the undersigned in
a name other than the name of the undersigned, such registration shall not
confer any beneficial interest in the Shares to anyone other than the
undersigned who shall retain the sole economic interest in the Shares and the
sole right to vote or direct the voting of the Shares and the sole right to
dispose or direct the disposition of the Shares.
(2) The undersigned understands that the Shares are not registered
under the Securities Act of 1933 (the "Act"); that the Shares are being issued
in reliance upon the provisions of Section 4(2) of the Act, exempting from the
registration requirements of the Act transactions not involving any public
offering; that the Shares must be held indefinitely unless they are subsequently
registered under the Act or unless an exemption from such registration is
available, such as that provided by Rule 144 under the Act; and that Optelecom
is under no obligation to register the Shares, except as provided in the
Agreement, or to comply with any condition required for an exemption from
registration.
5
<PAGE>
(3) Either alone or together with a "purchaser representative" (as
defined in Rule 501(h) under the Act), the undersigned has such knowledge and
experience in financial and business affairs as to be capable of evaluating the
merits and risks of acquiring the Shares, has adequate means of providing for
current needs and contingencies, is able to bear the economic risk of acquiring
the Shares, has no need for liquidity with respect to such investment and could
afford the complete loss thereof. The undersigned, either alone or together with
a purchaser representative, has received and examined the Form 10-K Annual
Report of Optelecom for the year ended December 31, 1996, the Form 10-Q
Quarterly Reports of Optelecom for the periods ended March 31, June 30 and
September 30, 1997, the Definitive Proxy Statement of Optelecom for its annual
meeting of stockholders held April 30, 1997, and other information concerning
Optelecom, and has had the opportunity to request additional information from
and to ask questions of Optelecom.
(4) The undersigned agrees not to sell any of the Shares without
registration under applicable United States federal and state securities laws or
an opinion of counsel satisfactory to Optelecom that registration under
applicable federal and state securities laws is not required.
(5) The undersigned consents to the issuance of stop transfer
instructions to Optelecom's transfer agent with respect to the Shares, to the
notation of stop transfer instructions in appropriate records of Optelecom and
to the placement of restrictive legend on the certificates evidencing the Shares
in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS
OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE
EXEMPTIONS THEREFROM.
Dated: December 12, 1997 Very truly yours,
/s/ Mark D. Brown
-----------------------------
Mark D. Brown
6
<PAGE>
ATTACHMENT F-2
[Paragon Stockholder Investment Letter]
Optelecom, Inc.
9300 Gaither Road
Gaithersburg, Maryland 20877
Attention: Edmund D. Ludwig, President
Dear Sirs:
Paragon Audio Visual Limited, a United Kingdom company (the "Company"),
and the beneficial owners of the outstanding common shares of the Company (the
"Paragon Stockholders") have entered into an Agreement (the "Agreement") with
Optelecom, Inc., a Delaware corporation ("Optelecom"), which contemplates
Optelecom's acquisition of certain assets of the Company and issuance to the
Company, in partial consideration for the assets, of the number of shares of
Optelecom common stock determined by the formula set forth in the Agreement (the
"Optelecom Shares"). The Agreement contemplates that, promptly after the
effective time of the foregoing transaction, the Company will distribute the
Optelecom Shares to the Paragon Stockholders. The Optelecom Shares to be
distributed to the undersigned are hereinafter referred to as the "Shares." With
respect to the Shares, the undersigned hereby represents and warrants to
Optelecom and agrees and consents as follows:
(1) The undersigned is acquiring the Shares for investment and not with
a view to the resale or distribution thereof. The undersigned has no present
intention of selling or otherwise disposing of all or any part of the Shares,
except for sales which may be made pursuant to the registration statement
provided for in the Agreement. The undersigned is acquiring the Shares for his
own account. No other person will have a direct or indirect beneficial interest
in the Shares. If the Shares are registered at the request of the undersigned in
a name other than the name of the undersigned, such registration shall not
confer any beneficial interest in the Shares to anyone other than the
undersigned who shall retain the sole economic interest in the Shares and the
sole right to vote or direct the voting of the Shares and the sole right to
dispose or direct the disposition of the Shares.
(2) The undersigned understands that the Shares are not registered
under the Securities Act of 1933 (the "Act"); that the Shares are being issued
in reliance upon the provisions of Section 4(2) of the Act, exempting from the
registration requirements of the Act transactions not involving any public
offering; that the Shares must be held indefinitely unless they are subsequently
registered under the Act or unless an exemption from such registration is
available, such as that provided by Rule 144 under the Act; and that Optelecom
is under no obligation to register the Shares, except as provided in the
Agreement, or to comply with any condition required for an exemption from
registration.
7
<PAGE>
(3) Either alone or together with a "purchaser representative" (as
defined in Rule 501(h) under the Act), the undersigned has such knowledge and
experience in financial and business affairs as to be capable of evaluating the
merits and risks of acquiring the Shares, has adequate means of providing for
current needs and contingencies, is able to bear the economic risk of acquiring
the Shares, has no need for liquidity with respect to such investment and could
afford the complete loss thereof. The undersigned, either alone or together with
a purchaser representative, has received and examined the Form 10-K Annual
Report of Optelecom for the year ended December 31, 1996, the Form 10-Q
Quarterly Reports of Optelecom for the periods ended March 31, June 30 and
September 30, 1997, the Definitive Proxy Statement of Optelecom for its annual
meeting of stockholders held April 30, 1997, and other information concerning
Optelecom, and has had the opportunity to request additional information from
and to ask questions of Optelecom.
(4) The undersigned agrees not to sell any of the Shares without
registration under applicable United States federal and state securities laws or
an opinion of counsel satisfactory to Optelecom that registration under
applicable federal and state securities laws is not required.
(5) The undersigned consents to the issuance of stop transfer
instructions to Optelecom's transfer agent with respect to the Shares, to the
notation of stop transfer instructions in appropriate records of Optelecom and
to the placement of restrictive legend on the certificates evidencing the Shares
in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS
OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE
EXEMPTIONS THEREFROM.
Dated: December 12, 1997 Very truly yours,
/s/ Andrew S. Brown
-----------------------------
Andrew S. Brown
8
<PAGE>
ATTACHMENT F-2
[Paragon Stockholder Investment Letter]
Optelecom, Inc.
9300 Gaither Road
Gaithersburg, Maryland 20877
Attention: Edmund D. Ludwig, President
Dear Sirs:
Paragon Audio Visual Limited, a United Kingdom company (the "Company"),
and the beneficial owners of the outstanding common shares of the Company (the
"Paragon Stockholders") have entered into an Agreement (the "Agreement") with
Optelecom, Inc., a Delaware corporation ("Optelecom"), which contemplates
Optelecom's acquisition of certain assets of the Company and issuance to the
Company, in partial consideration for the assets, of the number of shares of
Optelecom common stock determined by the formula set forth in the Agreement (the
"Optelecom Shares"). The Agreement contemplates that, promptly after the
effective time of the foregoing transaction, the Company will distribute the
Optelecom Shares to the Paragon Stockholders. The Optelecom Shares to be
distributed to the undersigned are hereinafter referred to as the "Shares." With
respect to the Shares, the undersigned hereby represents and warrants to
Optelecom and agrees and consents as follows:
(1) The undersigned is acquiring the Shares for investment and not with
a view to the resale or distribution thereof. The undersigned has no present
intention of selling or otherwise disposing of all or any part of the Shares,
except for sales which may be made pursuant to the registration statement
provided for in the Agreement. The undersigned is acquiring the Shares for his
own account. No other person will have a direct or indirect beneficial interest
in the Shares. If the Shares are registered at the request of the undersigned in
a name other than the name of the undersigned, such registration shall not
confer any beneficial interest in the Shares to anyone other than the
undersigned who shall retain the sole economic interest in the Shares and the
sole right to vote or direct the voting of the Shares and the sole right to
dispose or direct the disposition of the Shares.
(2) The undersigned understands that the Shares are not registered
under the Securities Act of 1933 (the "Act"); that the Shares are being issued
in reliance upon the provisions of Section 4(2) of the Act, exempting from the
registration requirements of the Act transactions not involving any public
offering; that the Shares must be held indefinitely unless they are subsequently
registered under the Act or unless an exemption from such registration is
available, such as that provided by Rule 144 under the Act; and that Optelecom
is under no obligation to register the Shares, except as provided in the
Agreement, or to comply with any condition required for an exemption from
registration.
9
<PAGE>
(3) Either alone or together with a "purchaser representative" (as
defined in Rule 501(h) under the Act), the undersigned has such knowledge and
experience in financial and business affairs as to be capable of evaluating the
merits and risks of acquiring the Shares, has adequate means of providing for
current needs and contingencies, is able to bear the economic risk of acquiring
the Shares, has no need for liquidity with respect to such investment and could
afford the complete loss thereof. The undersigned, either alone or together with
a purchaser representative, has received and examined the Form 10-K Annual
Report of Optelecom for the year ended December 31, 1996, the Form 10-Q
Quarterly Reports of Optelecom for the periods ended March 31, June 30 and
September 30, 1997, the Definitive Proxy Statement of Optelecom for its annual
meeting of stockholders held April 30, 1997, and other information concerning
Optelecom, and has had the opportunity to request additional information from
and to ask questions of Optelecom.
(4) The undersigned agrees not to sell any of the Shares without
registration under applicable United States federal and state securities laws or
an opinion of counsel satisfactory to Optelecom that registration under
applicable federal and state securities laws is not required.
(5) The undersigned consents to the issuance of stop transfer
instructions to Optelecom's transfer agent with respect to the Shares, to the
notation of stop transfer instructions in appropriate records of Optelecom and
to the placement of restrictive legend on the certificates evidencing the Shares
in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS
OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE
EXEMPTIONS THEREFROM.
Dated: December 12, 1997 Very truly yours,
/s/ Darren N. Brown
-----------------------------
Darren N. Brown
10
<PAGE>
ATTACHMENT F-2
[Paragon Stockholder Investment Letter]
Optelecom, Inc.
9300 Gaither Road
Gaithersburg, Maryland 20877
Attention: Edmund D. Ludwig, President
Dear Sirs:
Paragon Audio Visual Limited, a United Kingdom company (the "Company"),
and the beneficial owners of the outstanding common shares of the Company (the
"Paragon Stockholders") have entered into an Agreement (the "Agreement") with
Optelecom, Inc., a Delaware corporation ("Optelecom"), which contemplates
Optelecom's acquisition of certain assets of the Company and issuance to the
Company, in partial consideration for the assets, of the number of shares of
Optelecom common stock determined by the formula set forth in the Agreement (the
"Optelecom Shares"). The Agreement contemplates that, promptly after the
effective time of the foregoing transaction, the Company will distribute the
Optelecom Shares to the Paragon Stockholders. The Optelecom Shares to be
distributed to the undersigned are hereinafter referred to as the "Shares." With
respect to the Shares, the undersigned hereby represents and warrants to
Optelecom and agrees and consents as follows:
(1) The undersigned is acquiring the Shares for investment and not with
a view to the resale or distribution thereof. The undersigned has no present
intention of selling or otherwise disposing of all or any part of the Shares,
except for sales which may be made pursuant to the registration statement
provided for in the Agreement. The undersigned is acquiring the Shares for his
own account. No other person will have a direct or indirect beneficial interest
in the Shares. If the Shares are registered at the request of the undersigned in
a name other than the name of the undersigned, such registration shall not
confer any beneficial interest in the Shares to anyone other than the
undersigned who shall retain the sole economic interest in the Shares and the
sole right to vote or direct the voting of the Shares and the sole right to
dispose or direct the disposition of the Shares.
(2) The undersigned understands that the Shares are not registered
under the Securities Act of 1933 (the "Act"); that the Shares are being issued
in reliance upon the provisions of Section 4(2) of the Act, exempting from the
registration requirements of the Act transactions not involving any public
offering; that the Shares must be held indefinitely unless they are subsequently
registered under the Act or unless an exemption from such registration is
available, such as that provided by Rule 144 under the Act; and that Optelecom
is under no obligation to register the Shares, except as provided in the
Agreement, or to comply with any condition required for an exemption from
registration.
11
<PAGE>
(3) Either alone or together with a "purchaser representative" (as
defined in Rule 501(h) under the Act), the undersigned has such knowledge and
experience in financial and business affairs as to be capable of evaluating the
merits and risks of acquiring the Shares, has adequate means of providing for
current needs and contingencies, is able to bear the economic risk of acquiring
the Shares, has no need for liquidity with respect to such investment and could
afford the complete loss thereof. The undersigned, either alone or together with
a purchaser representative, has received and examined the Form 10-K Annual
Report of Optelecom for the year ended December 31, 1996, the Form 10-Q
Quarterly Reports of Optelecom for the periods ended March 31, June 30 and
September 30, 1997, the Definitive Proxy Statement of Optelecom for its annual
meeting of stockholders held April 30, 1997, and other information concerning
Optelecom, and has had the opportunity to request additional information from
and to ask questions of Optelecom.
(4) The undersigned agrees not to sell any of the Shares without
registration under applicable United States federal and state securities laws or
an opinion of counsel satisfactory to Optelecom that registration under
applicable federal and state securities laws is not required.
(5) The undersigned consents to the issuance of stop transfer
instructions to Optelecom's transfer agent with respect to the Shares, to the
notation of stop transfer instructions in appropriate records of Optelecom and
to the placement of restrictive legend on the certificates evidencing the Shares
in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS
OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE
EXEMPTIONS THEREFROM.
Dated: December 12, 1997 Very truly yours,
Modeledge
/s/ Peter H. Hawley
-----------------------------
Peter H. Hawley
12
Exhibit 2iG
ATTACHMENT G
ADDITIONAL REGISTRATION PROVISIONS
1. Procedures.
In connection with each registration statement which it files
pursuant to this Agreement (a "Registration Statement"), Optelecom shall as
promptly as practicable:
(a) prepare and file the Registration Statement with the SEC on any
form for which Optelecom then qualifies or which counsel for Optelecom deems
appropriate and which is available for the sale of Optelecom Shares subject to
registration rights under the Agreement ("Registrable Securities") in accordance
with the intended method of distribution thereof, and use its best efforts to
cause such Registration Statement to become and remain effective; and cause all
Registrable Securities included in such Registration Statement to be listed on
each securities exchange, or to be made eligible for trading on the NASDAQ Stock
Market, on which similar securities issued by Optelecom are then listed or
eligible for trading, if the applicable listing or trading requirements are
satisfied;
(b) notify each Paragon Stockholder who owns Registrable Securities (a
"Holder") of any stop order issued or threatened by the SEC and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered;
(c) prepare and file with the SEC such amendments and supplements to
the Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective until the agreed upon expiration date and comply with the provisions
of the Securities Act with respect to the disposition of all Registrable
Securities covered by the Registration Statement during such period in
accordance with the intended methods of disposition by the Holders set forth in
the Registration Statement;
(d) furnish the Holders such number of copies of the Registration
Statement and of each amendment and supplement thereto (in each case including
all exhibits), such number of copies of the prospectus contained in the
Registration Statement (including each preliminary prospectus) and such other
documents as the Holders may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by the Holders;
(e) use its best efforts to cause Registrable Securities to be
registered or qualified for sale under the securities or blue sky laws of such
jurisdictions in the United States as the Holders reasonably request and do any
and all other acts and things that may be reasonably necessary or advisable to
enable the Holders to consummate the disposition in such jurisdictions of the
Registrable Securities owned by the Holders, including continuing such
registration or qualification in effect in such jurisdictions during the time
period referred to in subparagraph 1.(c) above, provided that Optelecom will not
be required: (A) to qualify generally to do business in any jurisdiction where
it
<PAGE>
would not otherwise be required to qualify but for this subparagraph (v); (B) to
subject itself to taxation in any such jurisdiction; or (C) to consent to
general service of process in any such jurisdiction;
(f) use its best efforts to cause the Registrable Securities covered by
the Registration Statement to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary by
virtue of the business and operations of Optelecom to enable the Holders thereof
to consummate the disposition of Registrable Securities;
(g) notify the Holders, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in the Registration Statement
contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and prepare and file with the SEC and deliver to the Holders of
Registrable Securities a reasonable number of copies of a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of any Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(h) make available for inspection by the Holders and any attorney,
accountant or other agent retained by any Holder (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of Optelecom (collectively, the "Records") as are reasonably
necessary to enable them to exercise their due diligence responsibility, and
cause Optelecom's officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement, provided that Records that Optelecom determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors, unless: (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in a Registration
Statement; or (ii) the release of such Records is ordered pursuant to a subpoena
or other order from a court of competent jurisdiction (the Holders agree that
the Holders will, upon learning that disclosure of such Records is sought in a
court of competent jurisdiction, give notice to Optelecom and allow Optelecom,
at Optelecom's expense, to undertake appropriate action to prevent disclosure of
the Records deemed confidential);
(i) in the event the Registration Statement covers an underwritten
public offering, use its best efforts to obtain a letter from Optelecom's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters; and
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make available to the Holders, as soon as
reasonably practicable, an earnings statement covering a period of twelve
months, beginning within three months after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act.
2
<PAGE>
2. Indemnification.
(a) Optelecom shall indemnify and hold harmless the Holders, each
underwriter of the Registrable Securities registered (if any)each broker or any
other person acting on behalf of a Holder and each person who controls any of
the foregoing persons within the meaning of Section 15 of the Securities Act
against any and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the Securities Act or
otherwise, including any amount paid with the consent of Optelecom in settlement
of any litigation, commenced or threatened, and to reimburse them for any legal
or other expenses incurred by them in connection with investigating any claims
and defending any action, insofar as any losses, claims, damages, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or any preliminary prospectus or prospectus (as
amended or supplemented) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or any violation by the Company of the Securities Act or
state securities or blue sky laws applicable to the Company and relating to
action or inaction required of the Company in connection with such registration
or qualification under such state securities or blue sky laws; and shall
reimburse each person indemnified hereunder for all legal or other expenses
reasonably incurred by him or it in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
indemnification agreement contained in this paragraph (a) shall not apply to
such losses, claims, damages, liabilities or actions arising out of, or based
upon, any such untrue statement or alleged untrue statement, or any such
omission or alleged omission, if such statement or omission was made in reliance
upon and in conformity with information furnished in writing to Optelecom by the
Holders or such underwriter specifically for use in connection with the
preparation of the Registration Statement or any preliminary prospectus or
prospectus contained in the Registration Statement or any such amendment thereof
or supplement thereto.
(b) The Holders and each underwriter (if any) participating in such
registration shall, in the same manner and to the same extent as set forth in
paragraph (a) above, indemnify and hold harmless Optelecom and each person, if
any, who controls Optelecom within the meaning of Section 15 of the Securities
Act, its directors and officers, with respect to any statement in or omission
from the Registration Statement or any post-effective amendment thereof or any
preliminary prospectus or prospectus (as amended or supplemented) contained in
the Registration Statement, if such statement or omission was made in reliance
upon and in conformity with information furnished in writing to Optelecom by
such Holders or underwriter specifically for use in connection with the
Registration Statement or any post-effective amendment thereof or any
preliminary prospectus or prospectus contained in the Registration Statement or
any such amendment thereof or supplement thereto.
3. Rule 144; Current Reports. The Company covenants that it
will file in a timely manner the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder (or, if the Company is not required to file such reports, it will,
upon the request of any Holder of Registrable Shares, make publicly available
such information), and it will take such further action as any Holder of
Registrable Shares may reasonably request, all to the extent required from time
to time to enable such Holder to sell Registrable Shares
3
<PAGE>
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the SEC. Upon the request of any Holder of Registrable Shares, the
Company shall deliver to such Holder a written statement as to whether it has
complied with such requirements.
4
Exhibit 2iI
Override Agreement / Early Retirement and Outside Interests
An Agreement made by and between Optelecom Inc., a Delaware Corporation
("Optelecom"), Paragon Audio Visual Limited, a United Kingdom company
("Paragon"), David Brown, Mark Brown, Andrew Brown, and Darren Brown
(collectively the "Browns") supplemental to an agreement between the said
parties and others of the same date relating to the sale of the shares and
assets of Paragon and other matters (the "Master Agreement") and the Employment
Agreement entered into under its terms by each of the Browns (the "Employment
Agreement").
1. Any one of the Browns, but no more than one, other than David Brown,
shall by agreement with the other Browns be entitled to serve not less than 90
days' written notice pursuant to or on the same terms as contained in clause 2
of the Employment Agreement expiring not earlier than 18 months from the closing
date to terminate his employment with Optelecom within the minimum term. In the
event of the exercise of the right so granted the following provisions shall
apply;
(i) the employment shall terminate at the expiry of the notice
on the terms of the Employment Agreement other than those relating to
termination by the company "by cause" or in a manner constituting "breach".
(ii) any such notice shall not constitute breach of the
Employment Agreement or other terms of the transactions referred to in the
Master Agreement; but such notice shall constitute an election by the Brown
giving the notice to terminate the Employment Agreement for purposes of
Attachment A to Appendix A to the Employment Agreement.
(iii) if the Executive Bonus Plan provisions of the Employment
Agreement shall be withdrawn from the Brown departing in consequence of
termination of employment pursuant to any such notice, the entitlement of the
other Browns under the Executive Bonus Plan shall be increased in equal shares
to absorb the amount otherwise payable to the employee giving such notice.
2. The provisions for "Adjustment in Consideration" at clause 5.06 of
the Master Agreement shall not apply to any Brown who may serve notice pursuant
to Clause 1 of this Agreement, but in the event of such notice being served, the
base figure of $406,250 for calculating the Adjustment in Consideration for the
other Browns under clause 5.06 of the Master Agreement will thereafter be
$541,667.
3. It is recognized and understood that the Browns have with the
knowledge and consent of Optelecom certain shareholdings and nonexecutive
directorships in the companies indicated in the schedule attached as attributed
to them in that schedule. It is hereby confirmed that:
<PAGE>
(i) no objection or action shall be raised or initiated under
the terms of the Employment Agreement or Master Agreement or any other
obligations of the Browns to Optelecom in respect of such interests and
activities or the use of the word Paragon in the names and businesses of those
companies or the inclusion of products or services competitive to those of
Optelecom or Optelecom group companies as an incidental part of contracts
undertaken by them.
(ii) in particular the Browns and each of them shall be
permitted to give casual time and attention to the overseeing of such interests
without being in breach of the Employment Agreement or Master Agreement or any
other obligations of the Browns to Optelecom and shall not be under obligation
to pass to Optelecom any Proprietary Property (as referred to in the Employment
Agreement), Customer Information or other commercially valuable information
acquired or utilized in the business of those companies.
(iii) the noncompetition and nonsolicitation provisions of the
Employment Agreement, the Master Agreement and any other obligations of the
Browns to Optelecom shall not be exercisable by Optelecom in respect of any
person or organization now or in the future giving to those companies business
of the kind they currently conduct.
4. For the avoidance of doubt the provisions of this agreement (to the
extent stated and no further) override or vary the terms of the Master Agreement
and all other agreements referred to by it, including any provision purporting
to establish that such documents constitute the whole agreement between the
parties.
5. A draft of this agreement has been exhibited to the Disclosure
Letter for the sale of the Paragon business and the extent of the seller's
warranties will be limited by the exclusion of all matters referred to by it.
6. This Agreement shall continue until such time as it may be
terminated or amended by agreement between the parties in which event the
override on the provisions referred to shall cease or be varied and the
overridden provisions shall resume effect to the extent so agreed.
<PAGE>
IN WITNESS WHEREOF the parties have duly executed this Agreement this
12th day of December, 1997.
OPTELECOM, INC.
By /s/ Edmund D. Ludwig
--------------------------
Edmund D. Ludwig
President
PARAGON AUDIO VISUAL LIMITED
By /s/ David A. Brown
--------------------------
David A. Brown
Chairman
/s/ David A. Brown
----------------------------
David A. Brown
/s/ Mark D. Brown
----------------------------
Mark D. Brown
/s/ Andrew S. Brown
----------------------------
Andrew S. Brown
/s/ Darren N. Brown
----------------------------
Darren N. Brown
<PAGE>
PARAGON AUDIO VISUAL LIMITED (PAV)
Businesses in which the shareholders have interests not included in
sale and in respect of which they will require exemption in employment
agreements to manage businesses on a nonexecutive basis:
1. Paragon Security and Communications Limited.
--------------------------------------------
100% Shareholding allotted as for PAV
Directors: Andrew, Darren, David and Mark Brown.
2. Paragon Advanced Cabling & Communications Limited.
--------------------------------------------------
81% Shareholding allotted as for PAV
Directors: Andrew and Mark Brown.
(Note: company name in course of being changed to the above from Active
Communication Company Limited, and full share allotment as above not yet
completed, following the purchase of Mr. W. Connors' shares by the other
shareholders)
3. Adwood Research and Development Limited.
----------------------------------------
81% Shareholding allotted as for PAV
Directors: Andrew, Darren, David and Mark Brown and Peter Hawley.
(Note: Share allotments not yet completed)
Exhibit 3iA
RESTATED CERTIFICATE OF INCORPORATION
OF
OPTELECOM, INC.
(As amended through December 11, 1997)
FIRST. The name of the corporation (which is hereinafter referred to
as the "Corporation") is OPTELECOM, INC.
SECOND. The address of the registered office of the Corporation in the
State of Delaware is 25 Greystone Manor Street, in the City of Lewes, County of
Sussex. The name of the Corporation's registered agent at such address is
Harvard Business Services, Inc.
THIRD. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH. The total number of shares of stock which the Corporation is
authorized to issue is five million (5,000,000) shares of Common Stock, $.03 par
value per share.
Each three (3) shares of Common Stock of the Corporation, $0.01 par
value per share that was issued and outstanding immediately prior to the time of
the filing of this Restated Certificate of Incorporation ("Certificate") with
the Secretary of State of Delaware shall, upon the filing of this Certificate
with the Secretary of State of Delaware, thereby and thereupon automatically be
combined without any further action into one (1) validly issued, fully paid and
nonassessable share of common stock of the corporation, $0.03 par value per
share. Further, every right, option and warrant to acquire three (3) shares of
common stock of the corporation, outstanding immediately prior to the time of
filing of this Certificate with the Secretary of State of Delaware, thereby and
thereupon automatically be converted without any further action into the right
to acquire one (1) share of common stock of the Corporation, upon the terms of
the right, option or warrant, except that the purchase price of the common
stock, upon exercising the right, option or warrant, shall be proportionately
increased. The Corporation shall not issue fractional shares with respect to the
combination or conversion. To the extent that a stockholder holds a number of
shares of common stock immediately prior to the filing of this Certificate that
is not evenly divisible by three (3), such stockholder shall receive a cash
payment from the Corporation. If the common stock is quoted on the National
Association of Security Dealers, Inc. Automated Quotation ("NASDAQ") System, the
cash payment from the Corporation will be determined by multiplying the fraction
of a share by the equivalent of the average of the closing bid prices for one
share of common stock for the ten business days immediately preceding the
effective date (the date of filing of this Certificate with the Secretary of
State of Delaware) for the reverse stock split for which transactions in the
common stock are reported, as reported by NASDAQ.
FIFTH. The Board of Directors is expressly authorized to make, alter
and repeal the By-laws of the Corporation.
SIXTH. (a) The number of directors of the Corporation shall not be less
than three (3) nor more than nine (9), the exact number of directors to be
determined from time to time by resolution adopted by the affirmative vote of a
majority of the Whole Board of Directors. As used in this Article Sixth, the
terms "Whole Board" and "Whole Board of Directors" means the total number of
directors which the Corporation would have if there were no vacancies on the
Board of Directors.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors constituting the
Whole Board permits, with the term of office of one class expiring each year. No
class of directors shall contain more than one director more than any other
class. Any vacancies in the Board of Directors for any reason, and any newly
created directorship resulting from any increase in the number of directors, may
be filled by the Board of Directors, acting by a majority of the directors then
in office, although less than a quorum, and any directors so chosen shall hold
office until the next election of the
<PAGE>
respective class for which such director shall have been chosen and their
successors shall be elected and qualified. No decrease in the number of
directors shall shorten the term of office of any incumbent director. At each
annual meeting of stockholders, the successors to the class of directors whose
terms shall then expire shall be elected to hold office for a term expiring at
the third succeeding annual meeting. Directors shall hold office until
expiration of their respective terms and thereafter until their successors shall
have been duly elected and have qualified.
(c) Notwithstanding any other provisions of this Certificate of
Incorporation or the By-laws of the Corporation (and notwithstanding the fact
that some lesser percentage may be provided for by law, this Certificate of
Incorporation or the By-laws of the Corporation), any director or the entire
Board of Directors of the Corporation may be removed at any time but only for
cause and only by the affirmative vote of the holders of at least 66 2/3% of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors at a meeting of the stockholders called
for that purpose.
(d) Elections of directors need not be written ballot unless the
By-laws of the Corporation shall so provide.
(e) Notwithstanding any other provision of this Certificate of
Incorporation or the By-laws of this Corporation (and notwithstanding the fact
that some lesser percentage may be provided for by law, this Certificate of
Incorporation or the By-laws of the Corporation), the affirmative vote of the
holders of at least 66 2/3% of the then issued and outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of directors
shall be required to amend, alter, change or repeal this Article Sixth of this
Certificate of Incorporation.
SEVENTH. (a)(1) In addition to any affirmative vote required by law
or under any other provision of this Certificate of Incorporation, and except as
otherwise expressly provided in this Article Seventh:
(A) any merger or consolidation of this Corporation or any Subsidiary
(as hereinafter defined in paragraph (c)(8) of this Article Seventh)
with or into (i) any Substantial Stockholder (as hereinafter defined in
paragraph (c)(2) of this Article Seventh) or (ii) any other corporation
(whether or not itself a Substantial Stockholder) which, after such
merger or consolidation, would be an Affiliate (as hereinafter defined
in paragraph (c)(7) of this Article Seventh) of a Substantial
Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related transactions) to
or with any Substantial Stockholder of any substantial part (as
hereinafter defined in paragraph (c)(9) of this Article Seventh) of the
assets of this Corporation or of any Subsidiary, or
(C) the issuance or transfer by this Corporation or by any Subsidiary
(in one transaction or a series of related transactions) of any equity
securities (as hereinafter defined in paragraph (c)(11) of this Article
Seventh) of this Corporation or any Subsidiary to any Substantial
Stockholder in exchange for cash, securities or other property (or a
combination thereof) having an aggregate fair market value of
$2,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation or
dissolution of this Corporation if, as of the record date for the
determination of stockholders entitled to notice thereof and to vote
thereon, any person shall be a Substantial Stockholder, or
(E) any reclassification of securities (including any reverse stock
split) or recapitalization of this Corporation, or any reorganization,
merger or consolidation of this Corporation with any of its
Subsidiaries or any similar transaction (whether or not with or into or
otherwise involving a Substantial Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate
2
<PAGE>
share of the outstanding securities of any class of equity securities
of this Corporation or any Subsidiary which is directly or indirectly
beneficially owned (as hereinafter defined in paragraph (c)(3) of this
Article Seventh) by any Substantial Stockholder.
shall (except as otherwise expressly provided in this Certificate of
Incorporation) require the affirmative vote of the holders of then outstanding
Voting Shares (as hereinafter defined in paragraph (c)(10) of this Article
Seventh) entitled to cast at least 66 2/3% of the votes entitled to be cast by
the holders of all of the then outstanding Voting Shares; provided that such
affirmative vote must include the affirmative vote of the holders of Voting
Shares entitled to cast a majority of the votes entitled to be cast by the
holders of all then outstanding Voting Shares not beneficially owned by any
Substantial Stockholder. Each such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that some lesser
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(a)(2) The term "business combination" as used in this Article Seventh
shall mean any transaction which is described in any one or more of clauses (A)
through (E) of paragraph (a)(1) of this Article Seventh.
(b) The provisions of this Article Seventh shall not be applicable to
any business combination, the terms of which shall be approved, prior to the
date the Substantial Stockholder which is a party thereto or whose proportionate
share of the outstanding securities of any class of equity securities of this
corporation or any Subsidiary is increased by reason thereof, or, in the case of
a business combination described in clause (D) of paragraph (a)(1) of this
Article Seventh, prior to the date any Substantial Stockholder affected by such
business combination, became a Substantial Stockholder, by two-thirds of the
whole board (as hereinafter defined in paragraph (c)(6) of this Article
Seventh), but only if a majority of the members of the Board of Directors acting
upon such matter shall be continuing directors (as hereinafter defined in
paragraph (c)(5) of this Article Seventh).
(c) For the purpose of this Article Seventh:
(c)(1) A "person" shall mean any individual, firm, corporation or other
entity.
(c)(2) "Substantial Stockholder" shall mean any person (other than this
Corporation or any Subsidiary) who or which, as of the record date for the
determination of stockholders entitled to notice of and to vote on any business
combination, or immediately prior to the consummation of any such business
combination (other than a business combination referred to in paragraph
(a)(1)(D) of this Article Seventh).
(A) is the beneficial owner (as hereinafter defined in
subparagraph (3) of this paragraph (c), directly or
indirectly, of more than 15% of the then outstanding Voting
Shares (determined as aforesaid), or
(B) is an Affiliate of this Corporation and at any time within
three years prior thereto was the beneficial owner, directly
or indirectly, of more than 15% of the then outstanding Voting
Shares (determined as aforesaid), or,
(C) is an assignee of or has otherwise succeeded to any shares
of capital stock of this Corporation which were at any time
within three years prior thereto beneficially owned by any
Substantial Stockholder, and such assignment or succession
shall have occurred in the course of a transaction or series
of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(c)(3) "Beneficial ownership" shall be determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Securities Exchange Act of
1934 (or any successor rule or statutory provision) or, if said Rule 13d-3 shall
be rescinded and there shall be no successor rule or statutory provision
thereto, pursuant to
3
<PAGE>
said Rule 13d-3 as in effect on January 1, 1983; provided, however, that a
person shall, in any event, also be deemed to be the "beneficial owner" of any
Voting Shares:
(A) which such person or any of its Affiliates or Associates
(as hereinafter defined in subparagraph (7) of this paragraph
(c)) beneficially own, directly or indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding (but
shall not be deemed to be the beneficial owner of any Voting
Shares solely by reason of an agreement, arrangement or
understanding with the Corporation to effect a business
combination ) or upon the exercise of conversion rights,
exchange rights, warrants, or options, or otherwise, or (ii)
sole or shared voting or investment power with respect thereto
pursuant to any agreement, arrangement, understanding,
relationship or otherwise (but solely by reason of a revocable
proxy granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such meeting,
with respect to shares of which neither such person nor any
such Affiliate or Associate is otherwise deemed the beneficial
owner), or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or any
of its Affiliates or Associates acts as a partnership, limited
partnership, syndicate or other group pursuant to any
agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of
capital stock of this Corporation;
and provided further, however, that (i) no director or officer of this
Corporation, nor any Associate or Affiliate of any such director or officer,
shall, solely by reason of any or all of such directors and officers acting in
their capacities as such, be deemed, for any purposes hereof, to beneficially
own any Voting Shares beneficially owned by any other such director or officer
(or any Associate or Affiliate thereof), and (ii) no employee stock ownership or
similar plan of this Corporation or any Subsidiary nor any trustee with respect
thereto, nor any Associate or Affiliate of any such trustee, shall, solely by
reason of such capacity of such trustee, be deemed, for any purposes hereof, to
beneficially own any Voting Shares held under any such plan.
(c)(4) For purposes of computing the percentage beneficial ownership of
Voting Shares of a person in order to determine whether such person is a
Substantial Stockholder, the outstanding Voting Shares shall include shares
deemed owned by such person through application of subparagraph (3) of this
paragraph (c) but shall not include any other Voting Shares which may be
issuable by this Corporation pursuant to any agreement, or upon the exercise of
conversion rights, warrants or options, or otherwise. For all other purposes,
the outstanding Voting Shares shall include only Voting Shares then outstanding
and shall not include any Voting Shares which may be issuable by this
Corporation pursuant to any agreement, or upon the exercise of conversion
rights, warrants or options, or otherwise.
(c)(5) "Continuing director" shall mean a person who was a member of
the Board of Directors of this Corporation as of January 1, 1983 or thereafter
elected by the stockholders or appointed by the Board of Directors of this
Corporation prior to the date as of which the Substantial Stockholder (or
Substantial Stockholders) in question became a Substantial Stockholder (or
Substantial Stockholders), or a person designated (before his initial election
or appointment as a director) as a continuing director by a majority of the
whole board, but only if a majority of the whole board shall then consist of
continuing directors, or, if a majority of the whole board shall not then
consist of continuing directors, by a majority of the then continuing directors.
(c)(6) "Whole board" shall mean the total number of directors which
this Corporation would have if there were no vacancies.
(c)(7) An "Affiliate" of a specified person is a person that directly,
or indirectly through one or more
4
<PAGE>
intermediaries, controls, or is controlled by, or is under common control with
the person specified. The term "Associate" used to indicate a relationship with
any person shall mean (i) any corporation or organization (other than this
Corporation or a Subsidiary) of which such person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10 percent or more of any
class of equity securities, (ii) any trust or other estate in which such person
has a substantial beneficial interest or as to which such person serves as
trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of
such person, or any relative of such spouse, who has the same home as such
person, or is an officer or director of any corporation controlling or
controlled by such person.
(c)(8) "Subsidiary" shall mean any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by this
Corporation; provided, however, that for the purposes of the definition of
Substantial Stockholder set forth in subparagraph (2) of this paragraph (c), the
term "Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by this Corporation.
(c)(9) "Substantial part" shall mean assets having a book value
(determined in accordance with generally accepted accounting principles) in
excess of 10% of the book value (determined in accordance with generally
accepted accounting principles) of the total consolidated assets of this
Corporation, at the end of its most recent fiscal year ending prior to the time
the determination is made.
(c)(10) "Voting Shares" shall mean any shares of capital stock of this
Corporation entitled to vote generally in the election of directors.
(c)(11) "Equity security" shall have the meaning given to such term
under Rule 3a11-1 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on January 1, 1983.
(d) A majority of the whole board shall have the power to determine,
but only if a majority of the whole board shall then consist of continuing
directors, or, if a majority of the whole board shall not then consist of
continuing directors, a majority of the then continuing directors shall have the
power to determine, for the purposes of this Article Seventh, on the basis of
information known to them, (i) the number of Voting Shares beneficially owned by
any person, (ii) whether a person is an Affiliate or Associate of another, (iii)
whether a person has an agreement, arrangement or understanding with another as
to any matter referred to in subparagraph (3) (C) of paragraph (c) of this
Article Seventh, (iv) whether the assets subject to any business combination
constitute a substantial part of the assets of the corporation in question,
and/or (v) any other factual matter relating to the applicability or effect of
this Article Seventh.
(e) A majority of the whole board shall have the right to demand, but
only if a majority of the whole board shall then consist of continuing
directors, or, if a majority of the whole board shall not then consist of
continuing directors, a majority of the then continuing directors shall have the
right to demand, that any person who it is reasonably believed is a Substantial
Stockholder (or holds of record Voting Shares beneficially owned by any
Substantial Stockholder) supply this Corporation with complete information as to
(i) the record owner(s) of all shares beneficially owned by such person who it
is reasonably believed is a Substantial Stockholder, (ii) the number, of and
class or series of, shares beneficially owned by such person who it is
reasonably believed is a Substantial Stockholder and held of record by each such
record owner and the number(s) of the stock certificate(s) evidencing such
shares, and (iii) any other factual matter relating to the applicability or
effect of this Article Seventh, as may be reasonably requested of such person,
and such person shall furnish such information within 10 days after receipt of
such demand.
(f) Any determination made by the Board of Directors, or by the
continuing directors, as the case may be, pursuant to this Article Seventh in
good faith and on the basis of such information and assistance as was then
reasonably available for such purpose shall be conclusive and binding upon this
Corporation and its stockholders, including any Substantial Stockholder.
5
<PAGE>
(g) Any amendment, alteration, change or repeal of this Article Seventh
shall, in addition to any other vote or approval required by law or by this
Certificate of Incorporation, require the affirmative vote of the holders of
then outstanding Voting Shares entitled to cast at least 66 2/3% of the votes
entitled to be cast by the holders of then outstanding Voting Shares (and such
affirmative vote must include the affirmative vote of the holders of Voting
Shares entitled to cast a majority of the votes entitled to be cast by the
holders of all Voting Shares not beneficially owned and any Substantial
Stockholder); provided, however, that this paragraph (g) shall not apply to, and
such 66 2/3% vote (and such further majority vote) shall not be required for,
any amendment, alteration, change or repeal declared advisable by the Board of
Directors by the affirmative vote of two-thirds of the whole board and submitted
to the stockholders for their consideration, but only if a majority of the
members of the Board of Directors acting upon such matter shall be continuing
directors.
(h) Nothing contained in this Article Seventh shall be construed to
relieve any Substantial Stockholder from any fiduciary obligation imposed by
law.
(i) In the event any paragraph (or portion thereof) of this Article
Seventh shall be found to be invalid, prohibited or unenforceable for any
reason, the remaining provisions (or portions thereof) of this Article Seventh
shall be deemed to remain in full force and effect, and shall be construed as if
such invalid, prohibited or enforceable provision had been stricken herefrom or
otherwise rendered inapplicable, it being the intent of this Corporation and its
stockholders that each such remaining provision (or portion thereof) of this
Article Seventh remain, to the fullest extent permitted by law, applicable and
enforceable as to all stockholders, including Substantial Stockholders,
notwithstanding any such finding.
EIGHTH. Except as provided below, a director shall have no personal
liability to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director; however, the foregoing provision shall not
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware Corporation Law, (iv) for any
transaction from which the director derived an improper personal benefit, or (v)
for any act or omission occurring prior to the date when this Article Eighth
becomes effective.
NINTH. The Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this Restated
Certificate of Incorporation in the manner now or hereafter prescribed by law;
and all rights, preferences and privileges of whatsoever nature conferred upon
stockholders, directors or any other persons whomsoever by and pursuant to this
Restated Certificate of Incorporation in its present form or as hereafter
amended are granted subject to the right reserved in this Article Ninth.
6
Exhibit 3iB
OPTELECOM, INC.
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
OPTELECOM, INC.
---------------
Pursuant to Section 242 of the Delaware General Corporation Law and for
purposes of amending the Certificate of Incorporation of Optelecom, Inc., a
Delaware corporation (the "Corporation"), the undersigned, being the President
and Chief Executive Officer of the Corporation, hereby certifies as follows:
(1) Article FOURTH of the Corporation's Certificate of Incorporation
has been amended to read in its entirety as follows:
FOURTH. The total number of shares of stock which the
Corporation is authorized to issue is five million (5,000,000) shares
of Common Stock, $.03 par value per share.
(2) The amendment of the Certificate of Incorporation of the
Corporation set forth in paragraph (1) hereof has been duly adopted by the vote
of the Stockholders of the Corporation in accordance with the provisions of
Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment of Certificate of Incorporation on this 11th day of December, 1997.
/s/ Edmund D. Ludwig
----------------------------------
Edmund D. Ludwig
President and Chief Executive Officer
