SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
OPTELECOM, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 13, 1999
TO OUR STOCKHOLDERS:
The Annual Meeting of Stockholders of Optelecom, Inc. (the
"Company") will be held October 13, 1999 at 1:00 PM local time at Quality
Suites, 3 Research Court, Rockville, Maryland 20850 or at any adjournment
thereof, for the following purposes:
1. to elect Richard Kreter and Carl Rubbo, Jr. as directors of the
Company for three-year terms ending in 2002.
2. to consider and act upon a stockholder proposal to redeem rights
issued pursuant to the Rights Agreement.
3. to transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on September 8,
1999 will be entitled to notice of, and to vote at, the meeting. A list of
stockholders as of such record date can be inspected by any stockholder for any
purpose germane to the meeting during the ten days preceding the meeting. Any
such inspection must be made at the Company's offices during normal business
hours.
By Order of the Board of Directors
Howard E. Deutch
Secretary
Gaithersburg, Maryland
September 15, 1999
---------------------------------------------------
IMPORTANT -
BECAUSE THE TIME IS SHORT BETWEEN THE DATE OF
MAILING OF THIS PROXY STATEMENT AND THE DATE OF THE
ANNUAL MEETING, IT IS EXTREMELY IMPORTANT THAT YOU
RETURN YOUR PROXY IMMEDIATELY.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
PERSON, PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN
ENVELOPE WHICH WILL REQUIRE NO POSTAGE IF MAILED IN
THE UNITED STATES.
---------------------------------------------------
<PAGE>
OPTELECOM, INC.
9300 GAITHER ROAD
GAITHERSBURG, MD 20877
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 13, 1999
GENERAL
SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the
solicitation by and on behalf of the Board of Directors of OPTELECOM, INC. (the
"Company") of proxies to be voted at an Annual Meeting of Stockholders. In
addition to solicitation of proxies by use of the mails, proxies may be
solicited by the officers and regular employees of the Company, without
additional remuneration, by telephone, facsimile, telegraph, cable or personal
interview. The Company will bear all costs of solicitation. The Company will
also request brokerage houses, nominees, custodians, and fiduciaries to forward
proxy material to the beneficial owners of shares held of record by them and
reimburse their expenses.
The approximate date on which this Proxy Statement and accompanying
Proxy will first be sent or given to stockholders is September 15, 1999.
TIME AND PLACE OF MEETING
The Annual Meeting of Stockholders will be held at Quality Suites, 3
Research Court, Rockville, Maryland 20850 on October 13, 1999 at 1:00 PM local
time.
VOTING AND REVOCATION OF PROXIES
All shares of Common Stock, $0.03 par value (the "Common Stock")
represented by effective proxies will be voted at the meeting or any adjournment
thereof in accordance with the instructions indicated thereon. In the absence of
instructions, shares represented by such proxies will be voted in favor of
proposals 1 and 3 and against proposal 2. With respect to any other matter that
may properly come before the meeting or any adjournment thereof, proxies will be
voted at the discretion of the Board of Directors. The Board of Directors is not
aware of any such other matters.
The holders of 33-1/3% of the stock issued and outstanding and
entitled to vote, present in person or represented by proxy, shall constitute a
quorum. (See Securities Entitled to Vote and Record Date for the number of
shares outstanding and entitled to vote). The Board of Directors reserves the
right to adjourn the Annual Meeting of Stockholders if a quorum is not obtained
by the date set for the meeting. At any subsequent reconvening of the meeting,
the Board of Directors may cause the proxies solicited hereby to be voted in the
same manner as they were voted or could have been voted at the original meeting,
except that any proxies effectively revoked prior to the reconvening of the
meeting shall not be voted.
Any stockholder who executes and delivers a proxy may revoke it at
any time prior to its use either in person at the meeting or by sending written
notice of such revocation (or a later-dated proxy) to the Company.
SECURITIES ENTITLED TO VOTE AND RECORD DATE
The Board of Directors has fixed the close of business on September
8, 1999 as the date for determining stockholders entitled to receive notice of,
and to vote at, the Annual Meeting. On that date the Company had 2,156,557
shares of Common Stock outstanding. Stockholders will be entitled to one vote on
each proposal for each share held of record on such record date.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of August 18, 1999, the name and
address of each person or group (other than directors of the Company) who is
known by the Company to be the beneficial owner of more than 5% of the Company's
outstanding Common Stock, the number of shares Common Stock so owned
beneficially owned by each such person, and the percentage of the Company's
outstanding.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
-- ---------------- -------------------- --------
<S> <C> <C>
Andrew Sean Brown 40,668(1)(3)(4) 1.89%
Coombe Folley The Grove Park Lane
Thatcham, Berkshire RG18 4NI
United Kingdom
Darren Neil Brown 40,668(1)(3)(4) 1.89%
Waverley House, Long Lane
Hermitage, Berkshire RG19 9QT
United Kingdom
Mark David Brown 40,668(1)(3)(4) 1.89%
Sandhill House, Long Lane, Hermitage
Newbury, Berkshire RG18 9XU
United Kingdom
David Arthur Brown 40,668(1)(3)(4) 1.89%
Waverly, Long Lane, Hermitage
Newbury, Berkshire RG18 9QT
United Kingdom
Adventatum Jersey Limited (a company formed under the laws of Jersey), 8,580(1) 0.40%
Wellington House, Union Street, St. Helier, Jersey.
MODELEGE LIMITED (a company formed under the laws of England) 8,580(1)(2) 0.40%
64 Queen Street, London, England
---------------- ------
TOTAL 179,832(1)(2)(a) 8.34%
================ ======
</TABLE>
- ---------------------
(1) According to the SEC Form 13D/A filed on March 2, 1999, the parties make a
statement that although the reporting persons may be deemed to constitute a
"group" within the meaning of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended, each reporting person disclaims the existence of
any such group.
(2) These shares are owned of record by Adventatum Jersey Limited.
(3) Sole power to dispose or direct the disposition of these shares.
(4) Under the terms of the Agreement among the Company, Paragon Audio Visual
Limited, David A. Brown, Mark D. Brown, Andrew S. Brown and Darren Brown
dated December 12, 1997 by which the Company acquired Paragon Audio Visual
Limited, the Company has imposed transfer restrictions on these shares
pending resolution of the Company's claim against each of David A. Brown,
Mark D. Brown, Andrew S. Brown and Darren Brown for return of a portion of
the purchase price. The Company issued such shares as consideration in
acquiring Paragon Audio Visual Limited.
2
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to
the beneficial ownership of the Common Stock of the Company as of September 8,
1999 by each director, nominee for director and all directors and officers as a
group.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER SHARES OF COMMON STOCK OWNED PERCENT
BENEFICIALLY(1) OF CLASS
<S> <C> <C>
Clyde A. Heintzelman 7,500(2) *
Alexander Karpinski 26,250(2) 1.22%
Edmund D. Ludwig 120,810(2)(3) 5.6%
Carl Rubbo, Jr. 750(2) *
Richard Kreter 11,500(2) *
------------------- -------
All directors and Executive Officers as a group (5 persons) 166,810(1)(2)(3) 7.73%
</TABLE>
* Less than 1%
(1) For purposes of this proxy statement, "beneficial ownership" of a security
exists when a person directly or indirectly has or shares "investment
power", which includes the power to dispose or direct the disposition of
such security, or "voting power", which includes the power to vote or direct
the voting of such security.
(2) Includes shares of common stock that were subject to options entitling the
holder to acquire the shares subject thereto within 60 days of September 8,
1999. On that date Messrs. Heintzelman, Karpinski, Ludwig, Rubbo and Kreter
held such options for the purchase of 7,500, 26,250, 9,000, 750, and 5250
shares respectively.
(3) Includes 24,997 shares held in trust by the Company for Mr. Ludwig and
23,693 shares which Mr. Ludwig owns jointly with his wife, Mrs. Roberta
Ludwig.
PROPOSAL 1 - ELECTION OF DIRECTORS
Directors are divided into three classes. One class of directors is
elected each year to serve for a term of three years and until successors are
duly qualified.
Mr. Richard Kreter was appointed as a Director by the Board of
Directors on February 22, 1999 and has served since that time. The Board has
nominated Mr. Richard Kreter to serve on the Board for a three- year term until
the Annual Meeting of Stockholders in 2002 and until his successor is elected.
Mr. Kreter has more than 20 years of experience consulting with
public corporations, associations and government organization on issues ranging
from financial and operational management, to strategic planning and business
development. He has assisted them in organizing, developing and establishing
operations. His experience will be applied toward orienting all Company business
functions toward attaining and sustaining long-term profitability, and achieving
acceptable investor returns.
On July 24, 1999 Dr. Gordon Smith, whose three-year term as a
Director was scheduled to expire at the Annual Meeting of Stockholders in 1999,
resigned from the Board of Directors. On August 23, 1999 Mr. Carl Rubbo, Jr. was
appointed as a Director by the Board of Directors and has served since that
time. The Board has nominated Mr. Carl Rubbo, Jr. to serve on the Board for a
three- year term until the Annual Meeting of Stockholders in 2002 and until his
successor is elected.
3
<PAGE>
Mr. Rubbo has more than 15 years of experience in commercial banking
with a strong emphasis on developing strategic business partnerships between
banks and their business customers. He possesses a technological and business
expertise that will be a valuable resource for the Company. His entrepreneurial
spirit coupled with his broad-based business acumen and strong marketing
background, will be an important element in expanding the Company's
opportunities and increasing shareholder value.
The nominees have indicated that they are willing and able to serve
as directors if elected. If either of the nominees should become unable or
unwilling to serve, it is the intention of the persons designated as proxies to
vote instead, at their discretion, for such other person or persons as may be
designated as nominee by the management of the Company.
Set forth in the table below is certain information regarding the
nominees and each person whose term of office will continue after the meeting.
Except as set forth therein and in the schedule of Security Ownership of Certain
Beneficial Owners, to the knowledge of the company, no person owns of record or
beneficially more than five percent of the Company's Common Stock.
<TABLE>
<CAPTION>
PRESENT TERM YEAR IN WHICH
NAME, AGE, POSITION WITH THE COMPANY AND EXPIRES AT ANNUAL SERVICE AS A
PRINCIPAL OCCUPATION DURING LAST 5 YEARS MEETING IN DIRECTOR BEGAN
---------------------------------------------- ---------- --------
<S> <C> <C>
Clyde A. Heintzelman, 60 - President and CEO of SAVVIS 2000 1998
Communications, Inc since December, 1998; President and COO of Digex,
Inc. from May 1995 to September 1997; co-founder of CSI, Inc. from
1992 to 1995
Alexander L. Karpinski, 66 - President of Alex International, Inc. 2000 1996
since April, 1985; Project Manager for Teleconsult from April, 1992
to June, 1995.
Richard Kreter, 53 - Managing Partner of Kreter & Associates from 1999 1999
1983 to present
Edmund D. Ludwig, 59- President and Chief Executive Officer of the 2001 1980
Company since January 1991.
Carl Rubbo, Jr., 40 - Vice President and CFO of Capital Programs 1999 1999
Management, Inc. since August 1999; Vice President of Branch Banking
&Trust Company from May 1996 to August 1999; Senior Vice President of
Chevy Chase Federal Savings Bank from 1994 to May 1996.
</TABLE>
REQUIRED STOCKHOLDER VOTE
The affirmative vote of the holders of a majority of the outstanding
Common Stock represented at the meeting is required to elect directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
4
<PAGE>
PROPOSAL 2 - STOCKHOLDER PROPOSAL
The following proposal was submitted to the Company by Andrew Brown
of the U.K. who holds beneficially 40,668 shares of Company Common Stock, and is
included in this Proxy Statement in compliance with SEC rules and regulations.
"Resolved that the stockholders of Optelecom, Inc. (the "Company")
recommend that the Board of Directors immediately redeem the rights
issued pursuant to the Rights Agreement dated as of June 15, 1998,
and refrain from issuing any additional rights or adopting any
amended or other Rights Agreement unless and until otherwise
recommended by the holders of a majority of the outstanding Common
Stock of the Company."
PROPONENT'S STATEMENT IN SUPPORT OF PROPOSAL
"The Stockholder Proposal is designed to permit the stockholders of
the Company to express to the Company's Board of Directors their desire that the
rights issued pursuant to the recently adopted Rights Agreement be redeemed,
that the Company refrain from issuing any additional rights under the Rights
Agreement -- commonly known as a "Poison Pill" (which Rights Agreement was
originally adopted by the Company on June 15, 1998) -- and that no amended or
additional Rights Agreement be adopted by the Board of Directors without the
consent of the holders of a majority of the Common Stock of the Company.
"It has become all too apparent that the Company's management has
been unresponsive to stockholder concerns and proposals for internal
improvements, has (in my opinion) substantially damaged its U.K. investment and
has failed to carry out any meaningful plan to maximize stockholder values.
Current management has been unable or unwilling to provide the leadership or
creative initiatives necessary to advance the substantial interests of the
Company's stockholders. It is now manifestly apparent that the current strategic
and financial management of the Company is so weak and the failure of management
to take decisive and corrective action is so complete that there is no viable
alternative left other than to look outside the Company for a sale of the
Company to a third-party in order to maximize the value of the Company for all
stockholders.
"In that regard, the Company's Poison Pill, which was hastily
adopted by the Board without stockholder input or approval last year,
unnecessarily restricts the free and open ability of stockholders to receive and
accept offers to purchase all or a majority of the outstanding stock of the
Company. Should the Board of Directors comply with the Stockholder Proposal and
redeem the rights issued pursuant to the Poison Pill defensive device, the
Company and the Board will be better positioned to advance the interests of the
stockholders and maximize stockholder values by being able to receive offers to
acquire the Company's outstanding stock at a premium to the Company's market
price, which offers may not materialize if the rights were still outstanding and
the Poison Pill was still in place.
"If you agree that the time has come for this Board to shake up
management in order to respond to the interests of the stockholders, I urge you
to mark your proxy FOR this Proposal."
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THIS
PROPOSAL FOR THE FOLLOWING REASONS:
The Board of Directors has an obligation to all the Company's
stockholders to prevent coercive tactics that could deprive them of a meaningful
choice or vote with respect to their investment in the Company. In June, 1998
the Board adopted the Company's Rights Agreement (the "Rights Agreement "). It
was adopted so that, in a volatile takeover environment, the Board would be
better positioned to take appropriate action to promote the best long-term and
short-term interests of the Company and its stockholders, and to assist the
Board in responding to any bidder who tries to take control of the Company
unfairly or at an inadequate value.
5
<PAGE>
The Board of Directors continues to believe that the Rights
Agreement will assist it in fulfilling its traditional role of responding to and
negotiating with prospective acquirers in an orderly and considered manner. The
Rights Agreement is intended to discourage potential acquirers from attempting
to gain control of the Company through coercive means that are not in the
stockholders' best interests. It will not prevent or interfere with a negotiated
merger or other business combination which the Board deems to be in the best
interest of the Company and its stockholders. The Rights Agreement is designed
to accomplish its objective by encouraging a potential bidder to negotiate with
the Board to assess the fairness and adequacy of an offer. It is the Board's
belief that rescission of the Agreement may deprive the Company of potentially
valuable protection against abusive takeover attempts.
The Company's Rights Agreement is by no means unique and, in fact,
is not unlike stockholder rights plans adopted by hundreds of corporations
across the country over the past fifteen years. The Board adopted the Company's
Rights Agreement as a legitimate exercise of its fiduciary duty to all
stockholders, and believes that continuation of the Rights Agreement is
appropriate as a means of maximizing and preserving the long-term value of the
Company for all stockholders. FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
The approval of a majority of the shares of Common Stock present in
person or represented by proxy at the meeting is required to adopt this
resolution.
PROXIES RECEIVED IN RESPONSE TO THIS SOLICITATION WILL BE VOTED
AGAINST THE ADOPTION OF THIS RESOLUTION UNLESS OTHERWISE SPECIFIED IN THE PROXY.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held 12 meetings during 1998 and all
directors attended at least 75% of such meetings. The Board of Directors does
not have a nominating committee.
EXECUTIVE COMPENSATION COMMITTEE
The duties of the Executive Compensation Committee are to review
executive compensation and make recommendations to the Board of Directors
concerning compensation levels of officers. The current members of the Executive
Compensation Committee are Mr. Clyde Heintzelman and Mr. Richard Kreter. During
1998 the members of the Executive Compensation Committee were Dr. Gordon Smith
and Mr. Alex Karpinski. In 1998 Mr. Karpinski was Chairman of the Committee. Mr.
Kreter has been the Chairman since August 23, 1999. The Executive Compensation
Committee met 4 times during 1998.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
To the Stockholders
Optelecom, Inc.
COMPENSATION PHILOSOPHY
The Company's philosophy is that total compensation for its Chief
Executive Officer ("CEO") and other executives should be established by the same
process used for its other salaried employees, except that: (1) executives
should have a greater portion of their compensation at risk than other
employees, (2) a larger portion of executive compensation should be tied
directly to the performance of the business and (3) executives should share in
the same risks and rewards as do stockholders of the Company.
The Company also believes that executive compensation should be
subject to objective review. For this reason, the Compensation Committee of the
Board of Directors ("Committee") has been established. The Committee is
comprised of two directors, neither of whom are employees or former employees of
the Company. The Committee's role is to assure that the compensation strategy of
the Company is aligned with the interests of the stockholders, and that the
Company's compensation structure will allow for fair and reasonable base salary
levels
6
<PAGE>
and the opportunity for senior executives to earn short-term and long-term
compensation that reflects both Company and individual performance as well as
industry practice. The Committee has, from time to time, utilized the expertise
of independent compensation consultants in discharging its responsibilities.
It is the Company's practice to set total compensation targets for
each executive at levels equivalent to the median (50th percentile) of
comparable electronic technology and general industry companies of similar size,
as measured by annual revenues.
COMPENSATION PROGRAMS AND POLICIES
The Company's executive compensation programs are designed to
motivate, retain and reward executives who are successful in helping the Company
achieve its business objectives. The Company operates in a growing industry
characterized by increasingly demanding technology and highly competitive global
operating environments. Executives compensation programs of the Company are
designed to address these considerations.
For the CEO and other executive officers, base salary is determined
by the level of job responsibility, the competitiveness of the executive's
salaries to the external marketplace and the degree to which established
objectives have been achieved.
Based on these factors and the recent financial performance of the
Company, the committee decided that the compensation provided to the CEO was
appropriate.
SALARY, STOCK OPTIONS AND BONUS
The CEO's compensation is composed of the following elements:
1. A minimum annual salary of $150,000.
2. A stock option for 30,000 shares which vests according to
the following schedule:
(a) if the closing price of Company common stock
on December 31, 1998 is at least 150% but no
more than 200% of the closing price of such
stock on the measuring date, the stock
option shall be effective as to 10,000 of
such shares, and the option shall be
cancelled as to the remaining 20,000 shares
under the option.
(b) if the closing price of Company common stock
on December 31, 1998 is more than 200%, but
no more than 300% of the closing of such
stock on the measuring date, the stock
option shall be effective as to 20,000 of
such shares, and the option shall be
cancelled as to the remaining 10,000 shares
under the option.
(c) if the closing price of Company common stock
on December 31, 1998 is more than 300% of
the closing price of such stock on the
measuring date, the stock option shall be
effective as to 30,000 of such shares.
3. A special bonus based on annual revenues, bookings, and net
income measures in addition to qualitative goals that the
Committee, in its sole discretion, considers to be
appropriate.
Mr. Ludwig did not earn any stock options under the above.
AUDIT COMMITTEE
The Audit Committee was established in February of 1998. This
Committee is charged with the responsibility for:
1. Reviewing the annual financial report to shareholders
and the annual report (Form 10-K) filed with the
Securities and Exchange Commission;
7
<PAGE>
2. Reviewing the quarterly reporting process;
3. Overseeing the monitoring of the Company's system of
internal controls;
4. Recommending annually to the Board of Directors the
selection of the Company's independent auditors;
5. Determining the independent auditors' qualifications
including the firm's membership in the SEC practice
section of the AICPA and compliance with that
organization's requirements for peer review and
independence;
6. Reviewing annually the audit plans of the independent
auditors;
7. Meeting with the independent auditors at the completion
of their annual examination to review their evaluation
of the financial reporting and internal controls of the
Company and any changes required in the originally
planned audit program;
8. Reviewing the reports on examinations by regulatory
authorities;
9. Monitoring the Company's policies and procedures for the
review of expenses and perquisites of selected members
of senior management;
10. Performing any special reviews, investigations or
oversight responsibilities required by the Board of
Directors; and
11. Reporting to the Board of Directors on the results of
the activities of the Committee.
The current members of the Audit Committee are Mr. Alexander
Karpinski and Mr. Carl Rubbo. During 1998 the members of the Audit Committee
were Dr. Gordon Smith and Mr. Alex Karpinski. In 1998 Mr. Karpinski was Chairman
of the Committee. Mr. Rubbo has been the Chairman since August 23, 1999. The
Audit Committee met 3 times during 1998
SUMMARY COMPENSATION TABLE
The following table shows a three-year history of the Company's
compensation of its Chief Executive Officer and the other two most highly
compensated executive officers of the Company (the "Named Executives") serving
as such as of the end of 1998, each of whose total salary and bonus for the year
ended December 31, 1998 was in excess of $100,000 for services rendered in all
capacities for such year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (#) COMPENSATION
- ------------------------------ ----- --------- ------------ --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Edmund Ludwig, President, 1998 $147,433 $34,000(1) - - -
Chief Executive Officer 1997 133,613 30,000(1) - 12,000 $6,810
and Director 1996 105,000 - - 22,500 $56,712(2)
- ------------------------------ ----- --------- ------------ --------------- ------------- ----------------
Andrew Brown, Managing 1998 $102,920 - - - -
Director, Paragon Audio 1997 - - - - -
Visual Ltd. (3),(5) 1996 - - - - -
- ------------------------------ ----- --------- ------------ --------------- ------------- ----------------
David Brown, Chairman 1998 $102,920 - - - -
And Marketing Director, 1997 - - - - -
Paragon Audio Visual, 1996 - - - - -
Ltd. and Director(4),(5)
- ------------------------------ ----- --------- ------------ --------------- ------------- ----------------
</TABLE>
8
<PAGE>
(1) Bonus paid for the prior fiscal year-end results.
(2) Includes debt forgiveness of $22,207 to cover income tax expense incurred
in acquiring shares under an escrow plan and $34,505 associated with cost
of living adjustments for years 1984 through 1995, which was included in
employment contract of 1984.
(3) On February 26, 1999, the Company terminated Andrew Brown's employment.
(4) On December 21, 1998, the Company terminated David Brown's employment. On
February 19, 1999, David Brown resigned as a Director of the Company.
(5) The Company acquired Paragon Audio Visual, Ltd. in December 1997.
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR-END OPTION VALUES
The Company did not grant any stock options to any Named
Executives during 1998. The following table shows information regarding the
stock options exercised by the Company's Named Executives during 1998 and the
number and value of unexercised stock options at December 31, 1998. The value of
unexercised stock options is based on the closing price of $2-13/16 per share of
common stock on December 31, 1998, the last trading day of 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares Acquired Value December 31, 1998 (#) December 31, 1998 ($)
Name on Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------- ------------------- ----------- --------------------- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Edmund Ludwig 30,000 $29,490 27,000 13,500 $0 $0
David Brown - - - - - -
Andrew Brown - - - - - -
</TABLE>
1996 DIRECTORS STOCK OPTION PLAN
On May 17, 1995 the Board of Directors approved the 1996 Directors
Stock Option Plan (the "1996 Directors Plan") under which each non-employee
director who attends a Board meeting is granted as remuneration for attendance
at such Board meeting, an option to purchase 500 of common stock at the fair
market value of the Common Stock shares (750 shares after giving effect to the
1997 50% stock dividend) on the date of such Board meeting.
At December 31, 1998 options to purchase 60,000 shares were
outstanding under the 1996 Directors Plan at an average exercise price of $7.44
per share. Options for 3,750 shares were exercised at an average exercise price
of $3.48 per share.
EMPLOYMENT CONTRACTS
Mr. Edmund D. Ludwig is compensated pursuant to an employment
agreement which expires December 31, 1999. The agreement continues for
successive one-year periods thereafter unless terminated by either party upon at
least on 60 days notice. Under terms of the agreement, the Board of Directors
establishes Mr. Ludwig's salary each year for the succeeding year. The agreement
provides that if Mr. Ludwig dies, the Company will pay his estate one year's
salary. Mr. Ludwig was elected President and Chief Executive Officer on January
1, 1991.
REPORT ON REPRICING OF OPTIONS
On December 31, 1998 the Stock Option Committee adopted a resolution
to grant new Incentive Stock Options under the Optelecom, Inc. 1991 Stock Option
Plan to non-management employees who have incentive stock options with an
exercise price equivalent to the market price of the Common Stock on the date of
the resolution ($2 625) or higher and who agree in writing to cancel those stock
options by signing a form of Cancellation and Replacement Agreement on or before
January 30, 1999. The exercise price of each new option was to be the market
price of the Common Stock on the date when each optionee signed the Cancellation
and Replacement Agreement. Thirty-five employees, who had options with exercise
prices ranging from $2.83 to $12.33, accepted the Company's
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offer to replace 55 options (several employees had two options and one had three
options) for a total of 50,869 shares at exercise prices ranging from $2.75 to
$3.50 per share. On September 8, 1999 the closing price of Company Common Stock
as reported by NASDAQ was $2.00.
FIVE YEAR PERFORMANCE COMPARISON
The following graph compares the cumulative total shareholder return
on the Common Stock of the Company for the last five fiscal years with the
cumulative total return on the NASDAQ US Index, the S&P 500 Index and the NASDAQ
Telecom Index. The comparisons in this table are required by the Securities and
Exchange Commission and are not intended to forecast or be indicative of
possible future performance of the Company's stock.
(The Performance Graph appears here. See the table below for plot points.)
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
NASDAQ US 299.95 213.38 173.92 141.44 100
S&P 500 291.74 226.51 169.69 137.63 100
NASDAQ TELECOM 323.72 198.24 133.87 130.92 100
OPTC 135.22 468.75 264.42 88.13 100
MISCELLANEOUS
TRANSACTIONS WITH MANAGEMENT
During 1998, the Company retained Kreter & Associates to perform
consulting services in connection with certain financial and operations matters.
Mr. Richard Kreter, now a Director, is managing partner of Kreter & Associates.
Total fees paid to Kreter & Associates for its work for Optelecom amounted to
approximately $54,000 for strategic planning for the research and development
project and $61,000 for accounting, finance and budgetary consulting during the
absence of a company Chief Financial Officer.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the NASD. Officers, directors and greater than ten-percent stockholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
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Based solely on a review of the copies of such forms furnished to
the Company, or written representations that no Forms 4 were required, the
Company believes that during 1998 all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent beneficial
owners were complied with.
ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche LLP as
independent public accountants for the Company for the year ending December 31,
1999. Deloitte & Touche LLP has served as independent public accountants for the
Company since October 20, 1995. To the knowledge of the Company, at no time has
Deloitte & Touche LLP had any direct or indirect financial interest in or any
connection with the Company other than in connection with services rendered to
the Company.
The selection of Deloitte & Touche LLP was based on the
recommendation of the Audit Committee, which is composed wholly of outside
directors. The Audit Committee meets periodically with the Company's Chief
Financial Officer and independent public accountants to review the scope and
results of the audit function and the policies relating to audit scope and
estimated fees for the coming year.
The Company anticipates that a representative of Deloitte & Touche
LLP will attend the Annual Meeting for the purpose of responding to appropriate
questions from stockholders.
NOMINATIONS, OTHER BUSINESS AND DEADLINE FOR STOCKHOLDER PROPOSALS
Under an amendment to the Company's By-Laws adopted in February,
1998, nominations for director may be made only by the Board or a Board
committee or by a stockholder entitled to vote in accordance with the following
procedures. A stockholder may nominate a candidate for election as a director at
an Annual Meeting of stockholders only by delivering notice to the Company not
less than 90 nor more than 120 days prior to the first anniversary of the
preceding year's Annual Meeting, except that if the Annual Meeting is called for
a date that is not within 30 days before or after such anniversary date, notice
must be received not later than the tenth day following the earlier of the date
the Company's notice of the meeting is first given or announced publicly. With
respect to a Special Meeting called to elect directors because the election of
directors is not held on the date fixed for the Annual Meeting, a stockholder
must deliver notice not later than the tenth day following the earlier of the
date that the Company's notice of the meeting is first given or announced
publicly. Any stockholder delivering notice of nomination must include certain
information about the stockholder and the nominee, as well as a written consent
of the proposed nominee to serve if elected.
The By-Laws also provide that no business may be brought before an
Annual Meeting except as specified in the notice of the meeting (which includes
stockholder proposals that the Company is required to set forth in its proxy
statement under SEC Rule 14a-8) or as otherwise brought before the meeting by or
at the direction of the Board or by a stockholder entitled to vote in accordance
with the following procedures. A stockholder may bring business before an Annual
Meeting only by delivering notice to the Company within the time limits
described above for delivering notice of a nomination for the election of a
director at an Annual Meeting. Such notice must include a description of and the
reasons for bringing the proposed business before the meeting, any material
interest of the stockholder in such business and certain other information about
the stockholder. These requirements are separate and apart from and in addition
to the SEC's requirements that a stockholder must meet in order to have a
stockholder proposal included in the Company's proxy statement under SEC Rule
14a-8.
A copy of the full text of the By-Law provisions discussed above may
be obtained by writing to the Secretary of the Company.
ELIMINATE DUPLICATE MAILINGS
Securities and Exchange Commission (SEC) rules require the Company
to provide an Annual Report to stockholders who receive this proxy statement. If
you are a stockholder of record and have more than one account in your name or
the same address as other stockholders of record, you may authorize the Company
to discontinue mailings of multiple Annual Reports. To do so, mark the
appropriate box on each proxy card for which you do not wish to receive an
Annual Report.
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