As filed with the Securities and Exchange Commission on May 20, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OPTELECOM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1010850
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9300 Gaither Road
Gaithersburg, Maryland 20877
(301) 840-2121
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Edmund D. Ludwig
President and Chief Executive Officer
Optelecom, Inc.
9300 Gaither Road
Gaithersburg, Maryland 20877
(301) 840-2121
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
John W. Blouch, Esq.
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007
(202) 223-3500
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement. If any of the
securities being registered on this Form are to be offered pursuant to dividend
or interest reinvestment plans, please check the following box. [ ] If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X] If this Form is filed to
register additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] If delivery of the prospectus
is expected to be made pursuant to Rule 434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount To Be Proposed Proposed Amount of
Securities To Be Registered Registered Maximum Offering Maximum Registration Fee(1)
Price Per Share (1) Aggregate Offering
Price (1)
<S> <C> <C> <C> <C>
Common Stock 57,084 $7.00 $399,588 $117.88
(par value $.03 per share)
- ------------------------------ ---------------------- ---------------------- ---------------------- ----------------------
</TABLE>
(1) Estimated pursuant to Rule 457 for the purpose of calculating the
registration fee only; based upon the average of the high and low sales prices
for the Common Stock on May 19, 1998. Registration fee is calculated pursuant to
Rule 457.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION DATED May 20, 1998
PROSPECTUS
OPTELECOM, INC.
57,084 Shares of Common Stock
This Prospectus relates to the resale by the holders (the "Selling
Stockholders") of 57,084 shares of common stock, $.03 par value per share (the
"Common Stock"), of Optelecom, Inc. (the "Company") that the Company has issued
in reliance upon exemptions from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act").
See "Selling Stockholders."
It is anticipated that the 57,084 shares of Common Stock covered by
this Prospectus ("the Shares") may be sold from time to time by the Selling
Stockholders in transactions (which may include block transactions) in the
over-the-counter market, in negotiated transactions or otherwise at market
prices prevailing at the time of sale, at prices related to such market prices
or at prices otherwise negotiated. The Selling Stockholders and the brokers and
dealers through which sales of the Shares may be made may be deemed to be
"underwriters" within the meaning of the Securities Act, and the commissions or
discounts and other compensation of such brokers and dealers may be regarded as
underwriters' compensation. The Company will not receive any part of the
proceeds from the sale of the Shares by the Selling Stockholders. All expenses
of registration (other than commissions, discounts or fees payable to
broker-dealers and underwriters and the fees of counsel to the Selling
Stockholders), estimated at $30,650, are being borne by the Company. See
"Selling Stockholders" and "Plan of Distribution."
The Shares offered for resale hereby have been registered pursuant to
the Company's obligations contained in a written agreement with the Selling
Stockholders. The Selling Stockholders may elect to sell all, a portion or none
of the Shares.
The Common Stock is traded on the Nasdaq SmallCap Market under the
symbol OPTC. On May 19, 1998, the closing sale price per share for the Common
Stock was $7.00.
Information regarding the risks associated with an investment in the
Common Stock is discussed under the caption "Risk Factors" beginning on page 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is May , 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. The prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such State.
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TABLE OF CONTENTS
Page
Available Information.................................................... 3
Incorporation of Certain Documents by Reference.......................... 4
Forward-Looking Statements............................................... 5
Risk Factors............................................................. 5
The Company.............................................................. 9
The Offering............................................................. 10
Description of Securities................................................ 11
Selling Stockholders..................................................... 11
Plan of Distribution..................................................... 12
Legal Matters............................................................ 13
Experts.................................................................. 13
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation.
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AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC" or the "Commission"). Such
reports, proxy statements and other information filed by the Company can be
inspected and copied at the regional offices of the SEC at 7 World Trade Center,
13th Floor, New York, New York 10048, and Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661, and can also be
inspected and copied at, and copies obtained at prescribed rates from, the
Public Reference Section of the SEC at its principal office at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. Such materials can also be
accessed electronically through the Commission's web site (http://www.sec.gov).
The Company's Common Stock is traded on the Nasdaq SmallCap Market, and reports
and other information relating to the Company may also be inspected at the
offices of the Records Department of the Nasdaq Stock Market, 1735 K Street,
N.W., Washington, D.C. 20006.
The Company has filed a Registration Statement on Form S-3 with the SEC
under the Securities Act of 1933, as amended, with respect to the securities
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto, certain portions
of which have been omitted as permitted by the rules and regulations of the SEC.
For further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement and the exhibits filed
as a part thereof. Statements contained herein concerning any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act are incorporated in this Prospectus by reference:
(1) the Company's Annual Report on Form 10-K for the year ended December
31, 1997;
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998;
(3) the Company's Current Report on Form 8-K dated December 12, 1997 (filed
December 23, 1997); and
(4) the Company's Current Report on Form 8-K/A-1 dated December 12, 1997
(filed February 25, 1998).
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the
offering of the shares of Common Stock hereunder shall be deemed to be
incorporated herein by reference and shall be a part hereof from the date of the
filing of such documents. Any statements contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
replaced for purposes of this Prospectus and the Registration Statement to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or replaces such statement. Any such statement so modified or replaced
shall not be deemed, except as so modified or replaced, to constitute a part of
this Prospectus or the Registration Statement.
The Company will provide without charge to each person to whom a
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the documents incorporated by reference herein, other than
exhibits to such documents not specifically incorporated by reference. Such
requests should be directed to Optelecom, Inc. 9300 Gaither Road, Gaithersburg,
Maryland 20877, Attention: Robert S. Lalley (telephone (301) 840-2121).
---------------
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FORWARD-LOOKING STATEMENTS
This Prospectus, including all documents incorporated herein by
reference, includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The Reform
Act provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information about their companies, so long as
those statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those discussed in the statement. The
Company desires to take advantage of the "safe harbor" provisions of the Reform
Act. Except for the historical information contained herein, the matters
discussed in this Prospectus are forward- looking statements which involve risks
and uncertainties. Although the Company believes that the expectations reflected
in such forward-looking statements are based upon reasonable assumptions, it can
give no assurance that its expectations will be achieved. Important factors that
could cause actual results to differ materially from the Company's expectations
are disclosed in conjunction with the forward-looking statements or elsewhere
herein.
RISK FACTORS
In evaluating an investment in the Common Stock, prospective purchasers
should carefully consider the following factors as well as the other matters
discussed in this Prospectus and the documents incorporated herein by reference.
Fluctuations in Financial Performance
The Company has experienced and may in the future continue to
experience fluctuations in its quarterly and annual operating results. Factors
that may cause the Company's operating results to vary include, among other
things, customer purchasing patterns, changing technology, new product
transitions, delays in new product introductions, shortages of system
components, changes in the mix of products and services sold, the timing of
investments in additional personnel, facilities and research and development. As
a result of the impact of these and other factors, past financial performance
should not be considered to be a reliable indicator of future performance in any
particular fiscal period. Moreover, because the Company has been increasing its
operating expenses for personnel, facilities and product development and is
limited in its ability to reduce expenses quickly in response to any revenue
shortfalls, the Company's business, financial condition and operating results
would be adversely affected if increased revenues are not achieved. For example,
the Communications Products Division had revenues of $2,398,087 in the first
quarter of 1998 compared to $2,183,853 for the same period in 1997 but an
operating loss of $73,823 in the first quarter of 1998 compared to an operating
income of $145,448 for the same period in 1997. The operating loss resulted in
part because the Division increased its product development expenses,
experienced a lower rate of increase in revenues than anticipated and was unable
to reduce its expenses quickly once the lower rate of revenue increase became
known. Total revenues increased to $4,380,922 in the first quarter of 1998
compared to $2,678,211 for the same period in 1997. The increase was
attributable in large part to the acquisition of Paragon Audio Visual Limited
("Paragon") in December, 1997; Paragon's revenues of $1,546,553 were included
with those of the Company for the first quarter of 1998 but not for the same
period in 1997. The Company's results of operations was a net loss of $43,704 in
the first quarter of 1998 compared to a net income of $167,859 for the same
period in 1997. The factors contributing to the loss included expenses arising
from the acquisition of Paragon, including amortization of goodwill and
intangibles in the amount of $113,000 and interest expense of $58,000, and an
increase of inventory and account receivables reserves
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of $120,000. The Company has taken steps to reduce its expenses, but there can
be no assurance that the Company will return to profitability in any future
period.
Dependence on Major Customers
Historically, a relatively small number of customers has accounted for
a significant portion of the Company's revenues in any particular period. In
1997, approximately 64% of the Company's revenues were accounted for by sales to
the U.S. Government and three commercial customers. The U.S. Government
accounted for approximately 37% of revenues, each of two commercial customers
for 10% of revenues and a third commercial customer, for 7% of revenues. The
loss of the Company's contract with the U.S. Air Force (discussed below) or its
contract with one of these commercial customers, Fisher Control Systems, an
original equipment manufacturer, could have a material adverse effect on the
Company. The Company anticipates that sales of its products to relatively few
customers will continue to account for a significant portion of its revenues for
the foreseeable future. In the event of a reduction, delay or cancellation of
orders from one or more significant customers or if one or more significant
customers select products from one of the Company's competitors for inclusion in
future product generations, the Company's business, financial condition and
operating results could be materially and adversely affected. There can be no
assurance that the Company's current customers will continue to place orders
with the Company, that orders by existing customers will continue at current or
historical levels or that the Company will be able to obtain orders from new
customers. The loss of one or more of the Company's current significant
customers could materially and adversely affect the Company's business,
financial condition and operating results.
Dependence on Major Government Contract
One contract with the U.S. Air Force accounted for 14% of the Company's
revenues and 66% of its pretax operating income for 1997. The Company received
the contract in January 1996. It is a four year contract, with one base year and
three one-year options exercisable at the discretion of the Air Force, under
which the Company provides services for refurbishment of equipment for the C-130
Gunship laser illuminator system (the "Glint Contract"). In 1997, the Company
also provided technology development and engineering services under other
government contracts which accounted for 6% of its revenues, and its sales of
communication products to the U.S. Government accounted for 17% of its revenues.
Government contracts are subject to audits, and contract payments in
excess of allowable costs are subject to adjustment and repayment. Audits have
been completed through 1993. Based on its interpretation of contracting
regulations and past experience, the Company believes that cost disallowances,
if any, on government contracts will not be material, but there can be no
assurance in that regard. There can also be no assurance that the Company will
receive continuations of its existing contracts or additional contracts in the
future or that the federal government will not exercise its contractual rights
to suspend or cancel contracts, in whole or in part, on short notice. The future
revenues which the Company receives under the Glint Contract are also dependent
on U.S. Government and Air Force budgets, the defense industry, the worldwide
political situation and the continued requirements of the Air Force, including
its specific crew training schedules.
Technological Change
The Company's communication products are sold in markets that are
subject to rapid technological change. The Company's future success will depend
in part upon its ability to
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enhance its current products and to develop and introduce new products that keep
pace with technological developments and emerging industry standards and that
address the increasingly sophisticated needs of its customers. There can be no
assurance that the Company will be successful in developing and marketing such
products or producing enhancements that meet these changing demands, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products or that its
new products and product enhancements will adequately meet the demands of the
marketplace and achieve market acceptance. The Company's inability to develop
and introduce new products or product enhancements in a timely manner, or its
failure to achieve market acceptance of a new product could have a material
adverse effect on the Company.
Competition
The Company faces intense and increasing competition from a large
number of competitors, some of which are larger than the Company and have larger
product development, research and sales staffs. To enhance the technological
innovation of its products, the Company has recently increased the size of its
engineering and development staff. There can be no assurance, however, that the
Company's competitors will not develop products that are more effective than the
Company's or that would render the Company's products obsolete or
non-competitive. Furthermore, the Company's ability to expand commercial sales
of its products is dependent in part upon its becoming more competitive with
respect to manufacturing efficiency and marketing capabilities. The Company has
recently increased its investment in manufacturing facilities and the size of
its sales and production staffs for communication products. There can be no
assurance, however, that these additions will provide the efficiencies and
experience necessary for an expansion of sales.
Integration of Paragon Operations
The Company's acquisition in December, 1997 of Paragon Audio Visual
Limited, a United Kingdom company ("Paragon"), represents its first major
expansion through the acquisition of another company. The acquisition presents
risks in terms of the Company's ability to integrate the operations and customer
base of a United Kingdom company which provides copper wire communication
products with its own operations and products which focus on fiber optic
communication products. The Company believes that it has been successfully
integrating Paragon's operations with its own, but there can be no assurance
that it will be able to complete the integration efficiently.
International Operations
Export sales to foreign customers accounted for 17% of the Company's
revenues in 1997. With the acquisition of Paragon, the Company expects to expand
its presence in international markets and may in the future derive an even more
significant portion of its revenues from these markets. The Company's current
and future international business activities are subject to a variety of
potential risks, including political, regulatory and trade and economic policy
risks. The Company will also be subject to the risks attendant to transactions
in foreign currencies. These factors could have a material adverse effect on the
Company.
Future Capital Needs; Uncertainty of Additional Funding
The Company believes that its existing capital resources and future
operating cash flows will generate the funds needed for its long-term cash
requirements. If the Company's
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growth rate should exceed expectations, or if the Company should fail to
generate the anticipated operating cash flows, the Company would be required to
seek additional funding. In those circumstances, the Company would consider
public or private debt or equity financings. There can be no assurance that
additional financing will be available in a timely manner or on acceptable
terms. If additional funds are raised by issuing equity securities, further
dilution to existing stockholders may result. If adequate funds are not
available when needed, the Company may be required to delay, scale back or
eliminate its product research and development and overhead costs.
Need to Attract and Retain Key Employees
The Company is substantially dependent on the business and technical
expertise of its senior management and on its ability to attract and retain key
management and technical employees. The loss of members of senior management or
of other key employees or the Company's inability to attract and retain other
employees with necessary business or technical skills in the future would have a
material adverse effect on the Company's business.
Year 2000 Potential Issues
Many of the world's computer systems currently record years in a
two-digit format. Such computer systems will be unable to properly interpret
dates beyond the year 1999, which could lead to business interruptions. The
Company has established an internal committee to address this problem.
The Company is currently engaged in a comprehensive project to upgrade
its information, technology, and manufacturing and facilities computer software
to programs that will consistently and properly recognize the Year 2000. Many of
the Company's systems include new hardware and packaged software recently
purchased from large vendors who have represented that these systems are already
Year 2000 compliant. The Company is in the process of obtaining assurances from
vendors that timely updates will be made available to make all remaining
purchased software Year 2000 compliant.
The Company will utilize both internal and external resources to
reprogram or replace and test all of its software for Year 2000 compliance, and
the Company expects to complete the project in mid 1999. Failure by the Company
and/or vendors and customers to complete Year 2000 compliance work in a timely
manner could have a material adverse effect on certain of the Company
operations. The cost of this project is being funded through operating cash
flows. The estimated cost of this project is not deemed to be significant, and
it has not been, and is not anticipated to be, material to the Company's
financial position or results of operations in any fiscal year. These costs and
the time at which the company plans to complete any Year 2000 modifications are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. There can be no
assurance that these estimates will be achieved, and actual results could differ
from those plans.
Price Volatility in Public Market
The Company's Common Stock currently trades on the NASDAQ SmallCap
Market. The securities markets have from time-to-time experienced significant
price and volume fluctuations that may be unrelated to the operating performance
of the Company. In addition,
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the market prices of the common stock of many publicly traded technology
companies have in the past been, and can in the future be expected to be,
especially volatile. Announcements of technological innovations or new products
of the Company or its competitors, developments or disputes concerning
proprietary rights, publicity regarding products under development by the
Company or its competitors, regulatory developments in both the United States
and foreign countries, and economic and other external factors, as well as
period-to-period fluctuations in the Company's operating and product development
results, may have a significant impact on the market price of the Company's
Common Stock.
Absence of Dividends; Dilution
The Company has not paid any cash dividends since its inception and
does not intend to pay any cash dividends in the foreseeable future. Dilution
will occur upon the exercise of outstanding stock options of the Company and may
occur upon future equity financings of the Company that could be required to
fund operations.
THE COMPANY
General
The Company was incorporated under the laws of Delaware in 1972. Its
business consists primarily of the development, manufacture, and sale of fiber
optic communications products and laser systems for commercial and military
customers. The Company's principal executive offices are located at 9300 Gaither
Road, Gaithersburg, Maryland 20877. Its telephone number is (301) 840-2121.
The fiber optic communication business can be divided generally into
two segments: the optical fiber/cable portion which supplies the media for
transporting optical signals, and the transmission equipment portion which
generates and receives the signals. The Company participates by providing the
equipment that converts electrical signals (voice, video and data) to optical
signals at the transmitter end of a fiber optic communication link and converts
optical signals to electrical form at the receiving end. The Company sells its
products to users of these communication systems or to system integrators that
install the Company's equipment in large communication networks. The Company
provides equipment specifically designed for transmission of various
combinations of voice, data and video for a range of applications. The Company
also addresses U.S. Government defense-related markets for specialized and
proprietary applications of fiber optic and laser system technology.
Operating Divisions
Through 1996, the Company was organized into three operating divisions:
the Communications Products Division (CPD), which develops, manufactures and
sells optical fiber-based data communication equipment to the commercial
marketplace; the Government Products Division (GPD), which is primarily focused
on electro-optic technology development for the U.S. government-related defense
business; and the Research and Development Division, which addressed technology
development business opportunities. During 1997, the Company combined the
Research and Development Division with GPD. Also at the end of 1997, the Company
acquired Paragon Audio-Visual Limited, a United Kingdom company ("Paragon").
Paragon became an indirect, wholly-owned subsidiary of the Company.
CPD addresses business opportunities in the world-wide commercial
communication equipment marketplace, and specializes in optical fiber
technology. Currently, the majority of
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its revenues are provided from several niche market areas including original
equipment manufacturer (OEM) equipment for process control, video signal
transmission equipment for financial brokerage desks, and communications systems
for highway traffic monitoring and advanced air traffic control video monitor
displays. GPD is composed of two operating groups, Electro/Optics (E/O)
Technology, and Laser Illuminator Technology. The E/O Technology group provides
technology development and engineering services to the U.S. Government and its
prime contractors. The Laser Illuminator Technology Group derives its revenues
entirely from the U.S. Government and its agencies in support of the U.S. Air
Force's C-130 Gunship laser illuminator system.
Paragon Acquisition
On December 12, 1997, the Company acquired Paragon, which designs and
markets electronic products and systems utilizing copper cabling for in-house
computer data networking applications. The total cost of the acquisition was
$4,422,000, consisting of $2.5 million in cash and 171,252 shares of Common
Stock of the Company (with a fair value of $1,625,000 at the acquisition date),
plus acquisition costs, in exchange for certain assets of Paragon which were
acquired by the Company and all the common shares of Paragon which were acquired
by a wholly-owned subsidiary of the Company. The cash payment was financed under
a new debt agreement entered into by the Company. The Company's note is
collateralized by substantially all the assets and contracts of the Company, and
includes certain financial and other covenants. The principal amount of the note
is $2,500,000, which is payable in monthly installments of $52,083 beginning in
September 1998 and ending in August 2002. Interest is payable monthly, beginning
in January 1998, at prime plus 1% (9.5% at December 31, 1997). The acquisition
was accounted for as a purchase. The Company agreed to register for resale
one-third of the shares of Common Stock acquired by each of the former
beneficial owners of the shares of Paragon. This Prospectus covers the sale of
such shares. See "Selling Stockholders."
Paragon was organized in 1994. The electronic communication products
and systems which it designs and markets utilize twisted pair copper or
"structured" cabling as the transmission media. Such products include baluns
(Balanced to Unbalanced) devices which match the different impedance of
traditional coaxial and data networking cables. The use of active baluns with
higher grade cables and high performance integrated circuit devices allows for
the transmission of high resolution video, voice and data signals without
noticeable signal degradation.
Structured cable communications systems and fiber optic communications
systems offer comparable services in some applications and have distinct
advantages or disadvantages in others. For example, the use of baluns with
structured cabling has becoming common for in-house computer networking
applications, while fiber optic systems afford increased distance and higher
bandwidths to information systems. The Company believes that its acquisition of
Paragon will enable it to participate in and benefit from the development and
growth of both technologies and their joint applications.
THE OFFERING
By this Prospectus, the Selling Stockholders are offering the Shares. The
Company will not receive any proceeds from the sale of securities by the Selling
Stockholders. See "Selling Stockholders" and "Plan of Distribution."
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DESCRIPTION OF SECURITIES
The following statements with respect to the Company's securities are
subject to, and qualified in their entirety by reference to, the detailed
provisions of the Company's Certificate of Incorporation and Bylaws.
The Company is authorized to issue up to 5,000,000 shares of Common
Stock, $.03 par value, of which 2,110,490 shares were outstanding at May 14,
1998.
All holders of Common Stock are entitled to one vote per share on any
matter coming before the stockholders for a vote, unless the matter is one upon
which by express provision of law a different vote is required. The Common Stock
does not have cumulative voting rights, which means, in effect, that holders of
more than 50% of the shares can generally elect all the directors.
Each holder of Common Stock is entitled to receive ratably such
dividends on the Common Stock as may be declared by the Board of Directors out
of funds legally available therefor and, in the event of the liquidation,
dissolution or winding up of the Company, is entitled to share ratably in all
assets of the Company remaining after payment of liabilities. Holders of Common
Stock have no conversion, preemptive or other rights to subscribe for additional
shares, and there are no redemption rights or sinking fund provisions with
respect to the Common Stock. The outstanding shares of Common Stock are validly
issued, fully paid and nonassessable.
The Company has never paid any cash dividends on the Common Stock and
does not anticipate paying any such dividends in the foreseeable future.
Pursuant to the Company's Certificate of Incorporation and under
Delaware law, directors of the Company are not liable for monetary damages for
breach of their fiduciary duty as directors except (i) for a breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions by the director not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for a willful or negligent
declaration of an unlawful dividend, stock purchase or redemption or (iv) for
transactions from which the director derived an improper personal benefit.
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company, Inc., 40 Wall Street, New York, New York 10005.
SELLING STOCKHOLDERS
This Prospectus covers the resale of an aggregate of 57,084 shares of
Common Stock by the Selling Stockholders who acquired the shares in connection
with the Company's purchase of Paragon. The Selling Stockholders had been
beneficial owners of the outstanding common shares of Paragon prior to the
acquisition. The Company agreed to register for resale by the Selling
Stockholders one-third of the shares of Common Stock acquired by each. The
following table sets forth as of May 14, 1998 information regarding the
beneficial ownership of Common Stock by the Selling Stockholders.
<TABLE>
<CAPTION>
Shares Beneficially Shares to Be Shares Beneficially
Name of Selling Owned Prior to Sold in Owned After
Stockholder Offering Offering Offering
Number Percent Number Percent
<S> <C> <C> <C> <C> <C>
Andrew S. Brown 40,668 1.9% 13,556 27,112 1.3%
Darren N. Brown 40,668 1.9% 13,556 27,112 1.3%
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David A. Brown 40,668 1.9% 13,556 27,112 1.3%
Mark D. Brown 40,668 1.9% 13,556 27,112 1.3%
Modeledge Limited 8,580 -- 2,860 5,720 --
</TABLE>
Based on information furnished by the Selling Stockholders, the Company
believes that each of Andrew S. Brown and Darren N. Brown has sole voting and
investment power with respect to the shares of Common Stock which he owns and
that each of David A. Brown, Mark D. Brown and Modelege Limited shares voting
and investment power with respect to the shares of Common Stock which he or it
owns with Adventatum Jersey Limited, a company formed under the laws of and
located in Jersey ("Adventatum"). The principal business of Adventatum is
providing trustee and nominee services. Adventatum was the registered holder of
all the common shares of Paragon beneficially owned by David A. Brown, Mark D.
Brown and Modeledge Limited prior to the Company's acquisition of Paragon. It is
also the registered holder of the 89,916 shares of Common Stock which those
three Selling Stockholders own in the aggregate, including the 29,972 shares of
Common Stock covered by this Prospectus for resale by them.
Each of Messrs. Andrew S. Brown, Darren N. Brown, David A. Brown and Mark
D. Brown has served as an officer and director of Paragon since its organization
in 1994. In connection with the acquisition each has entered into an employment
agreement with the Company and agreed to continue to serve as an officer and
director of Paragon. David A. Brown became a director of the Company in May
1998.
PLAN OF DISTRIBUTION
The Shares registered on behalf of the Selling Stockholders may be sold
from time to time by the Selling Stockholders, or by pledgees, donees,
transferees or other successors in interest, in one or more transactions in the
over-the-counter market, in negotiated transactions or otherwise at market
prices prevailing at the time of sale, at prices related to such market prices
or at prices otherwise negotiated. In addition, any Shares that qualify for sale
under the Securities Act pursuant to Rule 144 thereunder may be sold under Rule
144 rather than pursuant hereto.
The Selling Stockholders may sell some or all of the Shares in
transactions involving broker-dealers, who may act as agent or acquire the
Shares as principal. Any broker-dealer participating in such transactions as
agent may receive commissions from the Selling Stockholders (and, if the
broker-dealer acts as agent for the purchaser of such Shares, from such
purchaser). Broker-dealers may agree with the Selling Stockholders to sell a
specified number of Shares at a stipulated price per Share and, to the extent
such broker-dealers are unable to do so acting as agents for the Selling
Stockholders, to purchase as principals any unsold Shares at the price required
to fulfill the respective broker-dealer's commitment to the Selling
Stockholders. Broker-dealers who acquire Shares as principals may thereafter
resell such Shares from time to time in transactions (which may involve cross
and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale, at prices related to such market prices
or at negotiated prices, and in connection with such resales may pay to or
receive from the purchasers of such Shares commissions. The Selling Stockholders
also may sell some or all of the Shares directly to purchasers without the
assistance of any broker-dealer. At the time a particular offer of the Shares is
made, if required, a supplement to the Prospectus will be distributed, or a
post-effective amendment to the registration statement will be filed, which will
set forth the number of shares of Common Stock being offered and the terms of
the
12
<PAGE>
offering, including the purchase price, public offering price, name or names of
any agents, dealers or underwriters, any discounts, commissions and other items
constituting compensation from the Selling Stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Shares may be limited in its ability to
engage in market activities with respect to shares of Common Stock. In addition
and without limiting the foregoing, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, rule 10b-5 and Regulation M, which
provisions may limit the timing of purchases and sales of any of the Shares.
The Company will bear all fees and expenses incurred in connection with
the registration of the Shares (other than commissions, discounts or fees
payable to broker-dealers and underwriters and the fees of counsel to the
Selling Stockholders), estimated at $30,650. The Company has no obligation to
maintain the effectiveness of the Registration Statement with respect to the
Shares for more than 24 months from its effective date.
Each of the Selling Stockholders has agreed that, prior to selling any
shares of the Common Stock pursuant to a registration statement filed with the
SEC or otherwise, he will offer the Company the opportunity to purchase the
shares. The Selling Stockholder will provide the Company with written notice of
the number of shares intended to be sold and the intended method of effecting
the sale. If the Company wishes to purchase the shares, it must so notify the
Selling Stockholder in writing within two business days after receipt of the
Selling Stockholder's notice. If the Company does not give notice, the Selling
Stockholder may proceed with the proposed sale. If such sale is made within 14
days after the Company's receipt of the Selling Stockholder's notice, and if the
sale price is less than the closing sale price of the Common Stock on the Nasdaq
Stock Market on the date of such receipt (the "Notice Price"), the Company will
pay the Selling Stockholder upon request an amount equal to the number of shares
of Common Stock that were sold multiplied by the "Spread," which shall be (i)
the difference between the Notice Price and the closing sale price of the Common
Stock on the date on which the Company gives notice to the Selling Stockholder
that it does not intend to purchase the shares or if no such notice is given on
the second business day after the Company received the Selling Stockholder's
notice or (ii) if less, the difference between the Notice Price and the price or
prices at which the Selling Stockholder sold the shares. If the Company gives
notice, it will proceed to purchase the shares for cash with the price being the
higher of the Notice Price or the closing sale price of the Common Stock on the
Nasdaq Stock Market on the date on which the Company gave its notice. The
Company may designate another purchaser to proceed with purchasing the shares in
accordance with the foregoing procedures.
LEGAL MATTERS
The legality of issuance of the shares of Common Stock offered hereby
has been passed upon for the Company by Jones & Blouch L.L.P., Washington, D.C.
EXPERTS
The financial statements and the related financial statement schedules
incorporated in this Prospectus by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 have been audited by Deloitte &
Touche, LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Paragon Audio Visual Limited for the years
ended August 31, 1997 and 1996 (all expressed in pounds sterling), prepared in
accordance with
13
<PAGE>
accounting principles generally accepted in the United Kingdom, incorporated in
this Prospectus by reference from item 7 of the Form 8-K/A-1 of Optelecom, Inc.
dated December 12, 1997 (filed February 25, 1998), have been audited by Deloitte
& Touche, Bracknell, England, independent accountants, as stated in their
report, which is incorporated herein by reference, and has been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
14
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred in connection with the
issuance and distribution of the Common Stock that is the subject of this
Registration Statement, other than underwriting discounts and commissions and
the fees of counsel to the Selling Stockholders. All such expenses are to be
borne by the Company. All the amounts shown are estimates except for the SEC
registration fee.
SEC Registration Fee..................................... $ 118
Blue Sky Filing Fees and Expenses........................ 2,000
Printing Costs........................................... -
Legal Fees and Expenses.................................. 20,000
Accounting Fees and Expenses............................. 8,000
Miscellaneous............................................ 500
TOTAL.................................................... $ 30,618
========
Item 15. Indemnification of Directors and Officers.
Delaware General Corporation Law, Section 102(b)(7), enables a
corporation in its certificate of incorporation to eliminate or limit personal
liability of members of its Board of Directors for monetary damages for breach
of a director's fiduciary duty of care. The elim ination or limitation does not
apply where there has been a breach of the duty of loyalty, failure to act in
good faith, engaging in intentional misconduct or knowingly violating a law,
paying a dividend or approving a stock repurchase which was deemed illegal or
obtaining an improper personal benefit. The Company's Certificate of
Incorporation provides in effect for the elimination of the liability of
directors to the extent permitted by Delaware law.
Delaware General Corporation Law, Section 145, permits a corporation
organized under Delaware law to indemnify directors and officers with respect to
any matter in which the director or officer acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful. The Bylaws of the Company
entitle directors and officers of the Company to indemnification to the extent
permitted by Delaware law.
Directors and officers are also insured against certain liabilities
under a directors and officers' liability insurance policy maintained by the
Company.
Item 16. Exhibits.
(a) The following exhibits are filed herewith or incorporated herein by
reference:
Exhibit
Number Exhibit
5 Opinion of Jones & Blouch, L.L.P. as to the legality of the registered
securities.
15
<PAGE>
10 Agreement dated December 12, 1997 among the Company, Paragon Audio
Visual Limited, David A. Brown, Mark D. Brown, Andrew S. Brown, Darren
N. Brown and Modeledge Limited, hereby incorporated by reference to the
exhibits to the Company's Form 8-K filed with the Commission on
December 23, 1997 (File No. 0-08828).
23.1 Consent of Jones & Blouch, L.L.P. (contained in opinion filed as
Exhibit 5).
23.2 Consent of Deloitte & Touche, LLP, as independent public accountants
for the Company.
23.3 Consent of Deloitte & Touche, Chartered Accountants, as independent
public accountants for Paragon.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in the Registration Statement.
(2) For the purpose of determining any liability under the Securities
Act of 1933, that each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities that remain unsold at the end of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions set forth in response to
Item 15, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnifi cation by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the under signed, thereunto duly
authorized, in the City of Gaithersburg, State of Maryland, on May 20, 1998.
OPTELECOM, INC.
By: /s/Edmund D. Ludwig
Edmund D. Ludwig
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Title Date
/s/ Edmund D. Ludwig Director, President and May 20, 1998
Edmund D. Ludwig Chief Executive Officer
/s/ Alexander L. Karpinski Director May 20, 1998
Alexander L. Karpinski
/s/ David A. Brown Director May 20, 1998
David A. Brown
Director May , 1998
Gordon A. Smith
/s/ Robert S. Lalley Chief Financial Officer May 20, 1998
Robert S. Lalley (Principal Financial
Officer and Principal
Accounting Officer)
17
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
5 Opinion of Jones & Blouch, L.L.P. as to the legality of the
registered securities.
23.2 Consent of Deloitte & Touche, LLP, as independent public accountants
for the Company.
23.3 Consent of Deloitte & Touche, Charted Accounts, as independent public
accountants for Paragon.
18
<PAGE>
Exhibit No. 5
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007
(202) 223-3500
May 20, 1997
Board of Directors
Optelecom, Inc.
9300 Gaither road
Gaithersburg, Maryland 20877
Gentlemen:
This firm has represented Optelecom, Inc., a Delaware corporation (the
"Company"), in connection with the preparation and filing of the Company's
Registration Statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), in which the Company is
registering 57,084 shares of its Common Stock, $.03 per value, for sale by the
holders (the "Shares").
We are familiar with the Certificate of Incorporation and Bylaws, as
amended, of the Company as they applied to, and with the corporate proceedings
taken by the Company in connection with, the issuance of the Shares. In
connection with this opinion, we have examined and relied upon the originals or
copies of such agreements, memoranda, certificates, records and other documents
("Documents") as in our judgment are necessary to enable us to render the
opinion expressed below. We have assumed, without investigation, the
authenticity of all Documents submitted to us as originals or copies, the
genuineness of all signatures, the conformity to original Documents of all
copies, the legal capacity of each individual who has executed Documents and the
due authorization, execution and delivery of Documents by each party thereto
other than the Company. As to factual matters, we have relied upon, and assumed
without independent investigation the completeness and accuracy of, certificates
of public officials and of officers of the Company. Nothing has come to our
attention, however, that would cause us to believe that the information
contained in such certificates is not true and correct in all material respects.
Based upon a review of such documents and consideration of such matters
of law and fact as we deem appropriate, we are of the opinion that the Shares
have been legally issued by the Company and are fully paid and nonassessable.
<PAGE>
This opinion is provided solely for the benefit of the addressee hereof
and is not to be relied upon by any other person. We hereby consent to the use
of this opinion and to references to our firm in the Registration Statement and
any amendments thereto.
Very truly yours,
/s/Jones & Blouch L.L.P.
<PAGE>
Exhibit No. 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of Optelecom, Inc. on Form S-3 of our report dated March 20, 1998,
appearing in the Annual Report on Form 10-K of Optelecom, Inc. for the year
ended December 31, 1997 and to the reference to us under the heading "Experts"
in the Prospectus, which is part of this Registration Statement.
Deloitte & Touche LLP Washington, D.C.
May 20, 1998
<PAGE>
Exhibit No. 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of Optelecom, Inc. on Form S-3 of our report dated February , 1998,
relating to the financial statements of Paragon Audio Visual Limited as at
August 31, 1997 and 1996 and for the years then ended (all expressed in pounds
sterling) prepared in accordance with accounting principles generally accepted
in the United Kingdom, which appear in item 7 on Form 8-K/A-1 of Optelecom, Inc.
dated December 12, 1997 (filed February 25, 1998) and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
Deloitte & Touche
Chartered Accountants
Bracknell
England
May 20, 1998
<PAGE>
