AGREEMENT
AGREEMENT made by and among Optelecom, Inc., a Delaware corporation
("Optelecom"), Paragon Audio Visual Limited, a United Kingdom company
("Paragon"), Xxxxx X. Xxxxx, Xxxx X. Xxxxx, Xxxxxx X. Xxxxx and Xxxxxx X. Xxxxx
(collectively, the "Browns") and Modeledge Limited, a United Kingdom Company
("Modeledge").
WHEREAS, the Browns are officers and directors of Paragon and with
Modeledge are the sole beneficial owners of the outstanding common shares of
Paragon (the "Paragon Stockholders") and Xxxxxx X. Xxxxx, Xxxxxx X. Xxxxx and
Adventatum Jersey Limited, a Jersey Company ("Adventatum"), are the record
holders of all the outstanding common shares of Paragon (the "Paragon Record
Holders");
WHEREAS, Optelecom, Paragon and the Paragon Stockholders desire to enter
into arrangements with respect to certain of the assets of Paragon and all of
the outstanding shares of Paragon;
WHEREAS, Optelecom, Paragon and the Paragon Stockholders wish by this
Agreement to coordinate those arrangements and to provide for their
understanding of their respective obligations to each other in connection with
the implementation of the arrangements;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the parties agree as follows:
1. Acquisition of Certain Assets of Paragon.
1.01 Asset Acquisition Agreement. Optelecom shall acquire all of the
intangible assets of Paragon (and such other assets as may be agreed upon by the
parties hereto)(the "Paragon Assets") pursuant to an Asset Acquisition Agreement
containing terms substantially equivalent to those set forth in the form of
agreement which is Attachment A hereto (the "Asset Agreement").
1.02 Consideration for Assets. Optelecom shall pay to Paragon US$2.625
million for the Paragon Assets (the "Asset Consideration"). The consideration
shall consist of shares of common stock of Optelecom ("Optelecom Common Stock")
having a value of US$1.625 million (the "Optelecom Shares") and cash in the
amount of US $1.0 million (the "Asset Cash Consideration").
(a) The value of a share of Optelecom Common Stock for this
purpose will be the average of the last sale prices on the Nasdaq SmallCap
Market as reported by Nasdaq for the 20 trading days before the closing under
the Asset Agreement discounted by 5% (the "Adjusted Closing Price Per Share").
The number of shares to be issued will be determined by dividing US$1.625
million by the Adjusted Closing Price Per Share. The Adjusted Closing Price Per
Share is $9.489 and the number of Optelecom Shares is 171,252.
1.03 Distribution to the Stockholders. Paragon shall distribute to the
Paragon Record Holders an amount (the "Distribution Amount") equal to the Asset
Consideration less an amount of $728,000 relating to Paragon's tax obligations
with respect to its transfer of the Paragon Assets and receipt of the Asset
Consideration (the "Paragon Tax Obligations") and less an amount of $272,000 to
be paid into retirement benefit provisions for the Browns. The amount
distributed to each Paragon Record Holder shall be determined by multiplying the
Distribution Amount by the Paragon Record Holder's percentage ownership of all
the outstanding shares of Paragon at the time of the distribution (a "Percentage
Interest").
1.04 Escrows.
(a) Escrow for Paragon Tax Obligations. The amount of the Paragon
Tax Obligations shall be determined by the independent public accountants for
Optelecom (the "Paragon Tax Obligation Amount"). The Paragon Tax Obligation
Amount shall be reserved from the Asset Cash Consideration at the closing under
the Asset Agreement and shall be placed in an escrow pursuant to an Escrow
Agreement containing terms substantially equivalent to those set forth in the
form of agreement which is Attachment B hereto (the "Escrow Agreement"), or in
some other arrangement satisfactory to Optelecom, until used to pay the Paragon
Tax Obligations or until such Obligations have otherwise been paid in full. If,
after Optelecom is satisfied that the Paragon Tax Obligations have been paid in
full, it is determined that the Paragon Tax Obligation Amount and any interest
earned thereon exceeded the amount of those Obligations, the excess shall be
paid to the Paragon Record Holders in accordance with their respective
Percentage Interests.
(b) Escrow for Retirement Contribution. At the closing under the
Asset Agreement, there shall be deducted from the Distribution Amount an amount
of $272,000 which the parties intend shall be deemed a retirement contribution
(the "Retirement Amount"). Such Retirement Amount shall be deposited in escrow,
and disbursed therefrom upon the verification of certain matters relating to the
status of the Retirement Amount under United Kingdom law, pursuant to a Deposit
Agreement containing terms substantially equivalent to those set forth in the
form of agreement which is Attachment B-1 hereto (the "Deposit Agreement").
2. License of Assets.
2.01 License Agreement. Optelecom shall license the Paragon Assets to
Paragon pursuant to a License Agreement containing terms substantially
equivalent to those set forth in the form of agreement which is Attachment C
hereto (the "License Agreement").
2.02 Consideration for License. Paragon shall pay to Optelecom a fee
at the annual rate of US $175,000 for the License.
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3. Acquisition of Paragon Shares.
3.01 Stock Purchase Agreement. All the outstanding shares of Paragon
("Paragon Shares") shall be sold to Optelecom UK Limited, a United Kingdom
company and wholly-owned subsidiary of Optelecom ("Optelecom UK"), pursuant to a
Stock Purchase Agreement containing terms substantially equivalent to those set
forth in the form of agreement which is Attachment D hereto (the "Stock
Agreement"). Optelecom in its capacity as sole stockholder of Optelecom UK shall
take such action as may be necessary to cause Optelecom UK to approve, enter
into and carry out the terms of the Stock Agreement.
3.02 Consideration for Paragon Shares. Optelecom UK shall pay to the
Paragon Record Holders an aggregate of US$1.5 million in cash for the Paragon
Shares (the "Stock Acquisition Consideration"). Optelecom shall lend to
Optelecom UK the amount necessary to provide the Stock Acquisition Consideration
or shall arrange for the borrowing by Optelecom UK of that amount from another
source.
4. Relationship of this Agreement and the Related Agreements.
4.01 Related Agreements. The Asset Agreement, Escrow Agreement,
License Agreement and Stock Agreement are referred to herein collectively as the
Related Agreements.
4.02 Representations, Warranties and Covenants in the Related
Agreements. The representations, warranties and covenants made by Optelecom and
Optelecom UK in the Related Agreements shall be deemed to be representations,
warranties and covenants of Optelecom for purposes of this Agreement. The
representations, warranties and covenants made by Paragon in the Related
Agreements shall be deemed to be representations, warranties and covenants of
Paragon and the Browns for purposes of this Agreement. The representations,
warranties and covenants made by the Paragon Stockholders in the Related
Agreements shall be deemed to be representations, warranties and covenants of
the Paragon Stockholders for purposes of this Agreement. Accordingly, Optelecom
shall be entitled in bringing any claim under the representations, warranties
and covenants made by Paragon or the Paragon Stockholders in the Related
Agreements, to base such claim on the loss it may have suffered having regard to
the aggregate consideration paid to Paragon and/or the Paragon Stockholders
under all or any of the Related Agreements, provided that in any such case the
limitations of liability set out in Section 8.01(b) to this Agreement shall
apply to any such claim. For purposes of the representations and warranties, the
controlling version of any document for which there is more than one version
shall be the version included with the Disclosure Letter delivered pursuant to
the Stock Purchase Agreement provided that Optelecom shall not have objected
thereto in good faith within 10 days after the Closing.
4.03 Closings. The closing of this Agreement, the Related Agreements
and the transactions contemplated hereby and thereby (the "Closings") shall take
place at 10:00 a.m Washington D.C. time on December 12, 1997 (the "Closing
Date") at the offices of Optelecom in Gaithersburg, Maryland or at such other
time, date and place as may be agreed upon by Optelecom and Xxxxx Xxxxx. The
Closings of the acquisition of certain assets of Paragon (the "Asset Closing"),
the escrow arrangements (the "Escrow Closing"), the license of assets to Paragon
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(the "License Closing") and the acquisition of Paragon Shares (the "Stock
Closing") shall occur seriatim. The Stock Closing shall not occur until Paragon
shall have distributed the Distribution Amount to the Paragon Stockholders.
Prior to the Closings, Xxxxx & Xxxxxx L.L.P., counsel for Optelecom, shall
deliver an opinion to Paragon and the Paragon Stockholders to the effect that
the Optelecom Shares have been validly authorized, and when issued as
contemplated by this Agreement and the Related Agreements, will be legally
issued, fully paid and non-assessable. Prior to the Closings, Xxxxxx Xxxxxxxxx,
solicitors for Paragon, shall deliver an opinion to Optelecom to the effect that
the 998 shares of Paragon of which the Paragon Stockholders are the beneficial
owners are the only outstanding shares of Paragon and that such shares have been
legally issued and are fully paid and non-assessable.
5. Personnel Issues.
5.01 Termination of Existing Service Agreements. Paragon and the
Paragon Stockholders shall take such action as may be requested by Optelecom to
terminate any existing service agreements with the Browns, and each of the
Browns agrees to execute a release in a form satisfactory to Optelecom waiving
any rights he may have to notice prior to such termination and any claims he may
have against Optelecom or Paragon as a consequence of such termination.
5.02 New Employment Agreements. Each of the Browns shall enter into an
employment agreement under English Law with Optelecom, Optelecom UK or Paragon
as it shall direct containing terms substantially equivalent to those set forth
in the draft form of agreement which is Attachment E hereto (the "Employment
Agreements").
5.03 Paragon Officers. With effect from Closing, the Browns shall have
the following titles and functions: Chairman and Marketing Director - Xxxxx
Xxxxx; Managing Director - Xxxxxx Xxxxx; Sales Director - Xxxx Xxxxx; and
Operations Director - Xxxxxx Xxxxx. Job descriptions will be prepared and
notified to them within one month of Closing defining the extent of their
authority and responsibility. Such authority and responsibility will be decided
having regard to the usual meanings of those titles in UK business practice
generally.
5.04 Paragon Directors. Paragon and the Paragon Stockholders shall
take such action as may be necessary (including obtaining the resignations of
incumbent directors and electing new directors) to cause the directors of
Paragon effective as of the Stock Closing to be: Xxxxx Xxxxx, Xxxxxx Xxxxx, Xxxx
Xxxxx, Xxxxxx Xxxxx and Xxxxxx Xxxxxxxx. Optelecom shall take such action as may
be necessary to cause the election of Xxxxx Xxxxx as a director of Optelecom
(UK) Limited with such election to be effective as of the Stock Closing.
Optelecom will in good faith use its best efforts to obtain the clearances
required from the United States Department of Defense for Xxxxx Xxxxx to serve
as a director of Optelecom and upon receipt of those clearances will submit to
its Board of Directors a recommendation for the election of Xxxxx Xxxxx to the
Board of Directors.
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5.05 "Key Man" Insurance. Xxxxx Xxxxx shall use his best efforts to
obtain within 21 days after closing a "Key Man" insurance policy in the amount
of US$1.0 million and naming Optelecom as the sole beneficiary.
5.06 Adjustment in Consideration. The parties acknowledge that the
consideration being paid by Optelecom in connection with the transactions
contemplated hereby (the "Transaction Consideration") was agreed to by it in
part because of the future value that it expects to be created by the services
of the Browns in connection with the operations of Paragon subsequent to the
Closings. Each of the Browns agrees that if, at any time prior to the third
anniversary of the Closing Date any of them shall voluntarily terminate his
employment (for reasons other than death, disability, or unreasonable or
oppressive conduct by the Company) or shall conduct himself in the discharge of
his duties in a manner that he knew or ought to have known to be likely to
result in material financial impairment of the Company or its prospects, an
adjustment shall be made in the Transaction Consideration. For the avoidance of
doubt, the standard for termination for cause under the Employment Agreement is
distinct, separate and different from the standards giving rise to an adjustment
in consideration set forth in preceding sentence. The adjustment shall be
determined by multiplying $406,250 by a fraction the numerator of which is the
difference between 1,095 and the number of calendar days between the Closing
Date and the date on which the cessation or termination of services occurs and
the denominator of which is 1,095 (the "Transaction Consideration Adjustment").
Within 30 days after the cessation or termination of services under his
Employment Agreement, the departing Xxxxx shall pay the amount of the
Transaction Consideration Adjustment by delivering to Optelecom cash in US
dollars or Optelecom Shares or some combination thereof (the "Adjustment
Payment"). For this purpose, Optelecom Shares shall be valued at the Adjusted
Closing Price Per Share. The certificates representing any Optelecom Shares
delivered to Optelecom shall be accompanied by a stock power therefor endorsed
in blank and the departing Xxxxx'x written representation and warranty that he
holds good and marketable title to the shares free and clear of all encumbrances
and security interests of any nature. Until the Adjustment Payment has been made
in full, Optelecom may withhold any amounts due from it or its affiliates to the
departing Xxxxx; the departing Xxxxx will not, without Optelecom's written
consent, sell or transfer any Optelecom Shares; and Optelecom may issue to its
transfer agent stop-transfer instructions with respect to any Optelecom Shares
owned of record or beneficially by the departing Xxxxx and in its sole
discretion may refuse to authorize the transfer of any such shares.
5.07 Protection of the Interests of Optelecom.
(a) In further consideration of Optelecom agreeing to pay the Transaction
Consideration, each Xxxxx shall not, directly or indirectly, alone or jointly
with any other person, and whether as shareholder, partner, director, officer,
agent, employee or consultant or in any other capacity:
(i) for a period of three years starting on the Closing Date, assist
or be engaged or interested in any business which competes with any business
carried on by Paragon as at Closing other than by holding as a passive
investment shares or other securities listed on a stock exchange or the Nasdaq
Stock Market
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representing (when aggregated with those held by each person connected with the
Paragon Stockholder) less than 5% of the outstanding shares or securities of the
relevant class;
(ii) for a period of three years starting on the Closing Date, and to
the detriment of any business of Paragon carried on as at Closing, solicit
business from any person who was a customer of Paragon during the 12 months'
period ending on the Closing Date, or accept business from any such person, or
solicit business from any person who as at the Closing Date was reasonably
likely to become a customer of Paragon or accept business from any such person;
(iii) for a period of three years starting on the Closing Date, and to
the detriment of any business of Paragon carried on as at Closing, solicit any
person known by that Xxxxx to be employed or engaged by Paragon in a senior,
managerial or sales position on the Closing Date to leave that position, or
employ any such person or any other person known by that Paragon Stockholder to
have held such a position during the six months' period ending on the Closing
Date.
(b) Following the Closing, no Xxxxx shall disclose or use any confidential
information relating to Paragon, and each Xxxxx shall use all reasonable
endeavors to prevent the disclosure of any such confidential information. This
clause shall not prohibit disclosure of confidential information pursuant to a
legal obligation involuntarily incurred or if required by any regulation or rule
of any stock exchange or governmental or other regulatory authority, but in any
such case, the Xxxxx in question shall consult with Optelecom so far as is
practicable before the relevant disclosure is made. This clause shall not apply
to confidential information which has come into the public domain without breach
of this clause or of clause (d) of this section.
(c) No Xxxxx shall at any time after the termination of his employment with
Paragon use in any manner in the course of any business the name Paragon Audio
Visual Limited, or any other trade or business name or any xxxx or logo used by
Paragon at any time during the three years' period ending on the Closing Date,
or any confusingly similar name, xxxx or logo.
(d) Each Xxxxx shall ensure that each person affiliated with him from time
to time does not take or omit to take any action which, if taken or omitted by
that Xxxxx, would constitute a breach of clause (a), (b) or (c) of this section.
(e) Since the Browns have confidential information relating to Paragon and
a detailed awareness of Paragon's customer connections, and since the
Transaction Consideration has been calculated on the basis that the Browns would
assume the obligations in clauses (a), (b), (c) and (d) of this section, the
parties acknowledge that each of those obligations is reasonable as to subject
matter, area and duration and is necessary to provide Optelecom with the full
benefit of the goodwill of Paragon.
(f) Each of the parties agrees that clauses (a), (b), (c) and (d) of this
section may be specifically enforced by preliminary and permanent injunction, it
being acknowledged that a breach of any of those clauses might cause injury to
Optelecom in respect of which damages would not provide an adequate remedy.
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(g) Each of the obligations assumed by the Browns under clauses (a), (b),
(c) and (d) of this section is separate and to be construed independently of the
others, and is assumed without prejudice to any other obligations of any Browns
implied at law or in equity.
6. Optelecom Shares.
6.01 Investment Letters. On or before the Closing, each of Paragon and
the Paragon Stockholders shall execute and deliver to Optelecom an investment
letter in substantially the form of, respectively, Attachments F-1 and F-2
hereto.
6.02 SEC Registration Statement. Optelecom shall prepare and file with
the US Securities and Exchange Commission ("SEC") a registration statement on
Form S-3 covering the sale by each Paragon Stockholder of one-third of the
Optelecom Shares distributed by Paragon to such stockholder or to Adventatum for
the benefit of such stockholder. Optelecom will file the registration statement
on the Registration Target Date as hereinafter defined and will use its best
efforts to have the registration statement declared effective as promptly as
practicable. Optelecom shall not be required to maintain the registration
statement effective for more than 24 months from its effective date. The Paragon
Stockholders shall reimburse Optelecom up to a maximum of $12,500 for fees and
expenses incurred by it in connection with the registration of the Optelecom
Shares. The Registration Target Date shall be the seventh business day following
the date on which Paragon delivers to Optelecom: (i) financial statements of
Paragon that in the judgment of the independent public accountants for Optelecom
meet the requirements of Rule 3.05 of the SEC's Accounting Rules (Regulation
S-X); and (ii) information regarding Paragon that in the judgment of the
independent public accountants for Optelecom is sufficient to permit Optelecom
to prepare the pro-forma financial information required by Article 11 of
Regulation S-X.
6.03 Additional Registration Rights. If Optelecom at any time during
the twelve- month period commencing on the Closing Date proposes to register
Optelecom Common Stock under the Securities Act of 1933 (the "Securities Act")
(other than a registration on Form S-4 or S-8, or any successor or other forms
promulgated for similar purposes) for sale for its own account in a firm
commitment underwritten offering, it will give written notice to the Paragon
Stockholders of its intention to do so and of such holders' rights under this
section. Upon the written request of any such holder made within fifteen days
after the receipt of any such notice (which request shall specify the Optelecom
Shares intended to be disposed of by such holder), Optelecom will use its best
efforts to effect the registration under the Securities Act of all the Optelecom
Shares which Optelecom has been so requested to register by the Paragon
Stockholders. If the managing underwriter advises Optelecom in writing that, in
its opinion, the amount of securities requested to be included in such
registration by all selling stockholders exceeds the amount which can be sold in
such offering, so as to be likely to have an adverse effect on such offering as
contemplated by Optelecom (including the price at which Optelecom proposes to
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sell such securities), then Optelecom will include in such registration (i)
first, 100% of the securities Optelecom proposes to sell on a primary basis, and
(ii) second, the amount of securities requested to be included in such
registration by selling stockholders which, in the opinion of such managing
underwriter, can be sold without having the adverse effect referred to above,
such amount to be allocated pro rata among all selling stockholders on the basis
of the relative number of securities requested to be included in the
registration statement by each such stockholder. Unless otherwise agreed by
Optelecom, the Paragon Stockholders shall offer and sell Optelecom Shares in an
underwritten offering using the same underwriter or underwriters and, subject to
the provisions of this Agreement, on the same terms and conditions as other
shares of Optelecom Common Stock included in such underwritten offering.
6.04 Stand Aside. To the extent not inconsistent with applicable law,
each Paragon Stockholder agrees, for a period of two years following the Stock
Closing, not to offer publicly or effect any public sale or distribution of
Optelecom Shares, including a sale pursuant to a registration statement or to
Rule 144 (or any similar provision then in force) under the Securities Act of
1933 (the "Securities Act") or pursuant to Section 4(1) of the Securities Act,
during the seven days prior to, and during the 120-day period beginning on, the
effective date of any registration statement filed by Optelecom with the US
Securities and Exchange Commission for securities being offered by or on behalf
of Optelecom, if and to the extent requested by Optelecom in the case of a non-
underwritten public offering or if and to the extent requested by the managing
underwriter or underwriters in the case of an underwritten public offering;
provided that no such request may be made during the first 90 days following the
effective date of the registration statement referred to in Section 6.02.
6.05 Right of First Refusal. Each Paragon Stockholder agrees that
prior to selling any Optelecom Shares pursuant to an SEC registration statement
or otherwise he will offer Optelecom the opportunity to purchase the shares. The
Paragon Stockholder shall provide Optelecom with written notice of the number of
shares which the Paragon Stockholder intends to sell and of the method in which
he intends to effect the sale, including a description of the terms and
conditions of any transaction other than sales through broker-dealers on the
Nasdaq Stock Market at market prices prevailing at the time of sale (the
"Paragon Stockholder Notice"). If Optelecom wishes to purchase the shares it
must notify the Paragon Stockholder in writing of its intention within two
business days after receipt of the Paragon Stockholder Notice (the "Optelecom
Notice"). If Optelecom does not give notice, the Paragon Stockholder may proceed
with the sale specified in the Paragon Stockholder Notice. If the specified sale
is made within 14 days after the receipt by Optelecom of the Paragon Stockholder
Notice, and if the sale price is less than the closing sale price of Optelecom
Common Stock on the Nasdaq Stock Market on the date on which Optelecom received
the Paragon Stockholder Notice (the "Notice Price"), Optelecom upon request from
the Paragon Stockholder shall promptly pay to such Stockholder an amount equal
to the number of shares that were included in the Paragon Stockholder Notice and
sold multiplied by the "Spread", which shall be (i) the difference between the
Notice Price and closing sale price of Optelecom Common Stock on the date on
which Optelecom gives notice to the Paragon Stockholder that it does not intend
to purchase the shares or if no such notice is given on the second business day
after Optelecom received the Paragon Stockholder Notice or (ii) if less, the
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difference between the Notice Price and the price or prices at which the Paragon
Stockholder sold the shares. If Optelecom gives notice, it shall proceed to
purchase the shares for cash with the price of the shares being determined by
the higher of the closing sale price of Optelecom Common Stock on the Nasdaq
Stock Market on the date on which Optelecom received the Paragon Stockholder
Notice or on the date on which Optelecom gave the Optelecom Notice. The closing
of the transaction shall be held at the main offices of Optelecom on the tenth
business day after the date on which Optelecom gives the Optelecom Notice or at
such other place or on such earlier date as may be specified by Optelecom in the
Optelecom Notice. At the closing, the Paragon Stockholder shall deliver to
Optelecom one or more certificates representing the shares being sold
accompanied by a stock power therefor endorsed in blank and a written
representation and warranty that he holds good and marketable title to the
shares free and clear of all encumbrances and security interests of any nature,
and Optelecom shall deliver to the Paragon Stockholder a check for the amount of
the aggregate sale price of the shares. In lieu of purchasing the shares itself,
Optelecom may designate a purchaser which will proceed to purchase the shares in
accordance with the foregoing procedures. All certificates representing
Optelecom Shares shall bear a legend noting conspicuously the restriction
imposed by this paragraph on the transfer of Optelecom Shares.
6.06 Additional Registration Provisions. Attachment G hereto sets
forth additional provisions regarding the registration rights granted to the
Paragon Stockholders under this Agreement.
7. Representations and Warranties.
7.01 Paragon. Paragon and each of the Browns hereby represent and
warrant to Optelecom as follows:
(a) Paragon is a corporation duly organized, validly existing and
in good standing under the laws of the United Kingdom; Paragon has all requisite
corporate power and legal authority to execute, deliver and carry out the terms
of this Agreement and the Related Agreements and all documents and agreements
necessary to give effect to the provisions of this Agreement and the Related
Agreements; all actions and authorizations, corporate and otherwise,
prerequisite to the execution of this Agreement and the Related Agreements and
the consummation of the transactions contemplated hereby and thereby have been
taken or obtained by Paragon and by the Paragon Stockholders; the execution,
delivery and performance of this Agreement and the Related Agreements and the
consummation of the transactions contemplated hereby and thereby by Paragon and
the Paragon Stockholders do not violate the terms of or require the consent of
any other person under, any agreement to which Paragon or the Paragon
Stockholders is a party or by which it is or they are bound, any provision of
any statute, rule, regulation or court or administrative order to which Paragon
or any of the Paragon Stockholders is subject, or any provision of Paragon's
Memorandum or Articles of Association; this is a valid and binding Agreement of
Paragon and the Paragon Stockholders enforceable against each of them in
accordance with its terms; neither Paragon nor any of the Paragon Stockholders
has engaged any broker, finder or intermediary in connection with the
transactions contemplated by this Agreement and the Related Agreements, and to
their knowledge, no broker, finder or intermediary will assert any claim or make
any demand upon any of the parties based upon any dealings of such broker,
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finder or intermediary with Paragon or the Paragon Stockholders in connection
with such transactions.
(b) Paragon has delivered to Optelecom audited financial
statements of Paragon for the fiscal period ended August 31, 1995 and for the
fiscal year ended August 31, 1996 and unaudited financial statements of Paragon
for the fiscal year ended August 31, 1997 (collectively, the "Financial
Statements") including an unaudited balance sheet of Paragon as of August 31,
1997 (the "Balance Sheet"). The Financial Statements have been prepared in
accordance with United Kingdom generally accepted accounting principles applied
on a consistent basis throughout the periods involved and present fairly the
financial position, results of operations and cash flows of Paragon as of the
dates and for the periods indicated therein. The Financial Statements reflect
all adjustments (consisting of only normal recurring adjustments) that are
necessary to a fair statement of the results for the periods presented. Paragon
does not have any liabilities of any nature, direct or indirect, contingent or
otherwise, which are not reflected or reserved against on the face of the
Balance Sheet, except for liabilities which, individually or in the aggregate,
are not material to the business, operations or financial condition of Paragon.
The assets reflected on the Balance Sheet constitute all of the properties and
assets used or held in connection with the business of Paragon during the past
12 months (except inventories sold, cash disposed of, receivables collected,
prepaid expenses realized and assets replaced by equivalent or superior assets,
in each case in the ordinary course of business) and comprise all assets the use
of which is necessary for the continued conduct of the business of Paragon.
There has been no material adverse change in the business, assets, operations or
financial condition of Paragon since the date of the Balance Sheet.
(c) All the outstanding shares of Paragon are owned as follows:
Name of Registered Name of Beneficial
Stockholder Owner Number of Shares
------------------ ------------------ ----------------
Xxxxxx Xxxxx Xxxxxx Xxxxx 237
Xxxxxx Xxxxx Xxxxxx Xxxxx 237
Adventatum Jersey Limited Modeledge Limited 50
Xxxx Xxxxx 237
Xxxxx Xxxxx 237
Xxxxx Xxxxx, Xxxx Xxxxx and Modeledge will cause Adventatum to take whatever
actions may be required on its part to carry out the terms of this Agreement and
the Related Agreements and the transactions contemplated hereby and thereby.
(d) No representation or warranty by Paragon or the Paragon
Stockholders, contained in this Agreement or any Related Agreement and no
writing, certificate, schedule, exhibit, list or other instrument furnished or
to be furnished to Optelecom pursuant hereto or thereto or in connection with
the transactions contemplated hereby or thereby contains any untrue statement of
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a material fact, or omits to state a material fact necessary in order to make
the statements and information contained therein not misleading in light of the
circumstances in which they were made.
7.02 Optelecom. Optelecom hereby represents and warrants to Paragon
and the Paragon Stockholders as follows:
(a) Optelecom is a corporation duly organized, validly existing
and in good standing under the laws of the state of Delaware; Optelecom has all
requisite corporate power and legal authority to execute, deliver and carry out
the terms of this Agreement and the Related Agreements and all documents and
agreements necessary to give effect to the provisions of this Agreement and the
Related Agreements; all actions and authorizations, corporate and otherwise,
prerequisite to the execution of this Agreement and the consummation of the
transactions contemplated hereby have been taken or obtained by Optelecom; the
execution, delivery and performance of this Agreement and the Related Agreements
by Optelecom and the consummation of the transactions contemplated hereby and
thereby do not violate the terms of, or require the consent of any other person
under, any agreement to which Optelecom is a party or by which it is bound, any
provision of any statute, rule, regulation or court or administrative order to
which Optelecom is subject, or any provision of Optelecom's Certificate of
Incorporation or By-laws; this is a valid and binding Agreement of Optelecom
enforceable against Optelecom in accordance with its terms; Optelecom has not
engaged any broker, finder or intermediary in connection with the transactions
contemplated by this Agreement, and to its knowledge, no broker, finder or
intermediary will assert any claim or make any demand upon any of the parties
based upon any dealings of such broker, finder or intermediary with Optelecom in
connection with such transactions.
(b) Optelecom has furnished to Paragon for delivery to the
Paragon Stockholders true and correct copies of Optelecom's Form 10-K Annual
Report for the year ended December 31, 1996, Form 10-Q Quarterly Reports for the
periods ended March 31, June 30 and September 30, 1997 and the definitive proxy
statement for its annual meeting held April 30, 1997 as filed by Optelecom with
the SEC (the "Optelecom SEC Filings"; the financial statements contained in the
Optelecom SEC Filings are collectively referred to hereinafter as the "Optelecom
Financial Statements"). Optelecom has filed all reports required to be filed by
it with the SEC, and no such report at the time it was filed contained any
untrue statement of material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements in such report, in
light of the circumstances under which they were made, not misleading. The
Optelecom Financial Statements included in the Optelecom SEC Filings were
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis throughout the periods involved and
present fairly the financial position, results of operations and cash flows of
Optelecom as of the dates and for the periods indicated therein, subject in the
case of unaudited interim statements to the omission of certain footnotes and
other information as permitted by SEC rules. There has been no material adverse
change in the business, assets, operations or financial condition of Optelecom
since the date of the latest balance sheet included in the Optelecom SEC Filings
other than as disclosed in or contemplated by the Optelecom SEC Filings.rules.
There has been no material adverse change in the business, assets, operations or
financial condition of Optelecom since the date of the latest balance sheet
included in the Optelecom SEC Filings other than as disclosed in or contemplated
by the Optelecom SEC Filings.
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(c) No representation or warranty by Optelecom contained in this
Agreement and any Related Agreement and no writing, certificate, schedule,
exhibit, list or other instrument furnished or to be furnished to Paragon or the
Paragon Stockholders pursuant hereto or thereto or in connection with the
transactions contemplated hereby or thereby contains any untrue statement of a
material fact, or omits to state a material fact necessary in order to make the
statements and information contained therein not misleading in light of the
circumstances in which they were made.
8. Indemnification.
8.01 Indemnification of Optelecom.
(a) The Browns, jointly and severally, agree to defend, indemnify, and hold
harmless Optelecom and Optelecom UK against and in respect of:
(i) Any and all loss, cost, damage, expense or liability
(including reasonable attorneys' fee) resulting from any misrepresentation or
breach of warranty or covenant on the part of Paragon or the Paragon
Stockholders under this Agreement or any of the Related Agreements or in any
certificate, list, schedule, exhibit or document delivered to Optelecom or
Optelecom UK under or in connection with this Agreement, the Related Agreements
or the transactions contemplated herein or therein; and
(ii) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs, and expenses (including reasonable attorneys'
fees) incident to any of the foregoing, provided, however, that if any such
action, suit or proceeding shall be commenced against, or any such claim,
demand, or assessment be asserted against, Optelecom or Optelecom UK in respect
of which Optelecom or Optelecom UK proposes to demand indemnification, the
Browns shall be notified to that effect with reasonable promptness and shall
have the right to assume control of the defense, compromise, or settlement
thereof, including the employment of counsel reasonably satisfactory to
Optelecom, and in connection therewith, each of Optelecom and Optelecom UK shall
cooperate fully and make available to the Browns all pertinent information under
its control, and shall have the right to participate therein at its expense with
counsel of its choice and to approve or reject any compromise or settlement that
could in any way , directly or indirectly, limit, restrict or impair the
operations of Optelecom.
(b) The aggregate liability of the Paragon Stockholders in respect of all
claims under this Agreement, the Asset Agreement and the Stock Agreement
("Claims") shall not exceed $4.125 million; provided that such limitation shall
not apply to any liability arising from or in connection with any criminally
fraudulent breach of warranties.
(i) The Paragon Stockholders shall not be liable in respect of
any Claim unless the amount for which they would be liable (but for this
paragraph) in respect of such Claim would exceed $500 in which case the Paragon
Stockholders shall be liable for the full amount of that Claim.
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(ii) Notwithstanding the immediately proceeding clause, if there
is a series of claims arising out of an incident or out of connected incidents
where the aggregate loss exceeds $500, the Paragon Stockholders shall be liable
even where the Claims individually do not exceed $500.
(iii) The Paragon Stockholders shall not be liable in respect of
any Claim or Claims unless the aggregate amount for which they would be liable
in respect of all such Claims would exceed $10,000 in which case the Paragon
Stockholders shall be liable for the full amount of the Claim or Claims and not
just the excess.
8.02 Waiver of Right to Contribution. Each of the Paragon Stockholders
hereby waives any right such Stockholder may have by statute or otherwise for
contribution from Paragon in connection with any misrepresentation or breach of
warranty or covenant on the part of Paragon or the Paragon Stockholders under
this Agreement or any of the Related Agreements or in any certificate, list,
schedule, exhibit or document delivered to Optelecom or Optelecom UK under or in
connection with this Agreement, the Related Agreements or the transactions
contemplated herein or therein.
8.03 Indemnification of the Paragon Stockholders. Optelecom agrees to
defend, indemnify, and hold harmless the Paragon Stockholders against and in
respect of:
(a) Any and all loss, cost, damage, expense or liability
(including reasonable attorneys' fee) resulting from any misrepresentation or
breach of warranty or covenant on the part of Optelecom or Optelecom UK under
this Agreement or any of the Related Agreements or in any certificate, list,
schedule, exhibit or document delivered to the Paragon Stockholders under or in
connection with this Agreement, the Related Agreements or the transactions
contemplated herein or therein; and
(b) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs, and expenses (including reasonable attorneys'
fees) incident to any of the foregoing, provided, however, that if any such
action, suit or proceeding shall be commenced against, or any such claim,
demand, or assessment be asserted against, the Paragon Stockholders in respect
of which the Paragon Stockholders propose to demand indemnification, Optelecom
shall be notified to that effect with reasonable promptness and shall have the
right to assume control of the defense, compromise, or settlement thereof,
including the employment of counsel reasonably satisfactory to the Paragon
Stockholders, and in connection therewith, the Paragon Stockholders shall
cooperate fully and make available to Optelecom all pertinent information under
their control, and shall have the right to participate therein at their expense
with counsel of their choice and to approve or reject any compromise or
settlement that does not result in a full release of the Browns
with respect to such claim, demand or assessment.
9. Miscellaneous.
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9.01 Expenses. Each party to this Agreement will pay all its or his
own expenses, including the fees and expenses of its or his legal counsel,
accountants and other advisors, which it or he may incur in connection with this
Agreement and the Related Agreements and the transactions contemplated hereby or
thereby.
9.02 Best Efforts and Further Assurances. Subject to the respective
rights and obligations of the parties under this Agreement and the Related
Agreements, each of the parties will use its or his reasonable best efforts to
effectuate the transactions contemplated herein and therein. Each party hereto,
at the reasonable request of another party hereto, will execute and deliver such
other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of the
transactions contemplated by this Agreement and the Related Agreements.
9.03 Survival of Representations and Warranties. All representations
and warranties made by Optelecom, Paragon and the Paragon Stockholders under
this Agreement or the Related Agreements or in any certificate, list, schedule,
exhibit or other instrument delivered pursuant hereto or thereto shall survive
the Closing of the transactions contemplated hereby, but shall expire 30 months
after the Closing Date, except for representations and warranties concerning
capitalization which shall not expire and representations and warranties
regarding taxes which shall not expire until applicable statutes of limitations
with respect to such taxes have expired.
9.04 Notices. Any notices or other communications required or
permitted under the Agreement or Related Agreements shall be in writing and may
be personally delivered, deposited in the mail, first class postage prepaid,
return receipt requested, transmitted by telecopy or telex, or sent by a private
messenger or carrier which issues delivery receipts, to the parties at the
following addresses:
If to Optelecom: Optelecom, Inc.
0000 Xxxxxxx Xxxx
Xxxxxxxxxxxx, XX 00000
X.X.X.
Attention: Xxxxxx X. Xxxxxx
Telephone: 000-000-0000
Fax: 000-000-0000
with a copy to: Xxxx X. Xxxxxx
Xxxxx & Xxxxxx L.L.P.
0000 Xxxxxx Xxxxxxxxx Xxxxxx, X.X.
Xxxxx 000X
Xxxxxxxxxx, X.X. 00000
Telephone: 000-000-0000
Fax: 000-000-0000
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If to Paragon or the Paragon Stockholders: Paragon Audio Visual Limited
Xxxxx 0 xxx 00
Xxxxxxx Xxxxxxxx Xxxxx
Xxxxxx Xxx
Xxxxxx, Xxxxxxx
Xxxxxxxxx XX00 0XX
Xxxxxx Xxxxxxx
Attention: Xxxxxx X. Xxxxx
Telephone: 00-0000-000000
Fax: 00-0000-000000
with a copy to: Xxxxx Xxxxxx
Xxxxxx Xxxxxxxxx
00 Xxxxx Xxxxxx
Xxxxxx
Xxxxxx Xxxxxxx
Telephone: 000-00-000-000-0000
Fax: 000-00-000-000-0000
The addresses specified above may be changed by notice in accordance with this
paragraph.
9.05 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of any provision of this Agreement.
9.06 Entire Agreement. This Agreement (including the Related
Agreements and the exhibits, documents and instruments referred to herein and
therein) constitutes the entire agreement by and among Optelecom, Paragon and
the Paragon Stockholders with respect to the subject matter hereof.
9.07 Amendment. This Agreement may not be amended except pursuant to
an instrument in writing executed by each of the parties affected by such
amendment. Notwithstanding the foregoing, this Agreement may be amended with
respect to immaterial matters by mutual consent of the president of Optelecom
and the chairman of Paragon.
9.08 Assignment and Binding Effect. This Agreement shall inure to the
benefit of and be binding upon Optelecom, Paragon and the Paragon Stockholders
and their respective assigns, successors and legal representatives.
9.09 Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Maryland, without reference to the
principles of conflict or choice law thereof. Each of Optelecom, Paragon and the
Paragon Stockholders hereby agrees to submit to the exclusive jurisdiction of
the federal and state courts within the State of Maryland in any action or
proceeding arising out of or related to this Agreement or any of the Related
-15-
Agreements, agrees that process may be served upon it or him in any manner
authorized for those courts and covenants not to assert or plead any objection
which it or he might otherwise have to such jurisdiction and such process.
9.10 Invalid Provisions. If any term, provision or condition of this
Agreement, or the application thereof to any person or circumstance, shall be
held by a court of competent jurisdiction to be invalid, unenforceable, or void,
the remainder of this Agreement and such term, provision or condition as applied
to other persons or circumstances shall remain in full force and effect.
9.11 Counterparts. This Agreement my be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Paragon Stockholders have executed this Agreement,
and Optelecom and Paragon have caused this Agreement to be executed by their
respective duly authorized officers, as of December 12, 1997.
OPTELECOM, INC.
By /s/ Xxxxxx X. Xxxxxx
----------------------
Xxxxxx X. Xxxxxx
President
PARAGON AUDIO VISUAL LIMITED
By /s/ Xxxxx X. Xxxxx
----------------------
Xxxxx X. Xxxxx
Chairman
THE PARAGON STOCKHOLDERS
/s/ Xxxxx X. Xxxxx
----------------------
Xxxxx X. Xxxxx
/s/ Xxxx X. Xxxxx
----------------------
Xxxx X. Xxxxx
/s/ Xxxxxx X. Xxxxx
----------------------
Xxxxxx X. Xxxxx
/s/ Xxxxxx X. Xxxxx
----------------------
Xxxxxx X. Xxxxx
Modeledge Limited
By /s/ Xxxxx X. Xxxxxx
----------------------
Xxxxx X. Xxxxxx
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