Exhibit 2i
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.
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1.03 Distribution to the Stockholders. Paragon shall
distribute to the Paragon Record Holders an amount (the "Distribution Amount")
equal to the Asset Consideration less an amount of $728,000 relating to
Paragon's tax obligations with respect to its transfer of the Paragon Assets and
receipt of the Asset Consideration (the "Paragon Tax Obligations") and less an
amount of $272,000 to be paid into retirement benefit provisions for the Browns.
The amount distributed to each Paragon Record Holder shall be determined by
multiplying the Distribution Amount by the Paragon Record Holder's percentage
ownership of all the outstanding shares of Paragon at the time of the
distribution (a "Percentage Interest").
1.04 Escrows.
(a) Escrow for Paragon Tax Obligations. The amount
of the Paragon Tax Obligations shall be determined by the independent public
accountants for Optelecom (the "Paragon Tax Obligation Amount"). The Paragon Tax
Obligation Amount shall be reserved from the Asset Cash Consideration at the
closing under the Asset Agreement and shall be placed in an escrow pursuant to
an Escrow Agreement containing terms substantially equivalent to those set forth
in the form of agreement which is Attachment B hereto (the "Escrow Agreement"),
or in some other arrangement satisfactory to Optelecom, until used to pay the
Paragon Tax Obligations or until such Obligations have otherwise been paid in
full. If, after Optelecom is satisfied that the Paragon Tax Obligations have
been paid in full, it is determined that the Paragon Tax Obligation Amount and
any interest earned thereon exceeded the amount of those Obligations, the excess
shall be paid to the Paragon Record Holders in accordance with their respective
Percentage Interests.
(b) Escrow for Retirement Contribution. At the
closing under the Asset Agreement, there shall be deducted from the Distribution
Amount an amount of $272,000 which the parties intend shall be deemed a
retirement contribution (the "Retirement Amount"). Such Retirement Amount shall
be deposited in escrow, and disbursed therefrom upon the verification of certain
matters relating to the status of the Retirement Amount under United Kingdom
law, pursuant to a Deposit Agreement containing terms substantially equivalent
to those set forth in the form of agreement which is Attachment B-1 hereto (the
"Deposit Agreement").
2. License of Assets.
2.01 License Agreement. Optelecom shall license the Paragon
Assets to Paragon pursuant to a License Agreement containing terms substantially
equivalent to those set forth in the form of agreement which is Attachment C
hereto (the "License Agreement").
2.02 Consideration for License. Paragon shall pay to Optelecom
a fee at the annual rate of US $175,000 for the License.
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3. Acquisition of Paragon Shares.
3.01 Stock Purchase Agreement. All the outstanding shares of
Paragon ("Paragon Shares") shall be sold to Optelecom UK Limited, a United
Kingdom company and wholly-owned subsidiary of Optelecom ("Optelecom UK"),
pursuant to a Stock Purchase Agreement containing terms substantially equivalent
to those set forth in the form of agreement which is Attachment D hereto (the
"Stock Agreement"). Optelecom in its capacity as sole stockholder of Optelecom
UK shall take such action as may be necessary to cause Optelecom UK to approve,
enter into and carry out the terms of the Stock Agreement.
3.02 Consideration for Paragon Shares. Optelecom UK shall pay
to the Paragon Record Holders an aggregate of US$1.5 million in cash for the
Paragon Shares (the "Stock Acquisition Consideration"). Optelecom shall lend to
Optelecom UK the amount necessary to provide the Stock Acquisition Consideration
or shall arrange for the borrowing by Optelecom UK of that amount from another
source.
4. Relationship of this Agreement and the Related Agreements.
4.01 Related Agreements. The Asset Agreement, Escrow
Agreement, License Agreement and Stock Agreement are referred to herein
collectively as the Related Agreements.
4.02 Representations, Warranties and Covenants in the Related
Agreements. The representations, warranties and covenants made by Optelecom and
Optelecom UK in the Related Agreements shall be deemed to be representations,
warranties and covenants of Optelecom for purposes of this Agreement. The
representations, warranties and covenants made by Paragon in the Related
Agreements shall be deemed to be representations, warranties and covenants of
Paragon and the Browns for purposes of this Agreement. The representations,
warranties and covenants made by the Paragon Stockholders in the Related
Agreements shall be deemed to be representations, warranties and covenants of
the Paragon Stockholders for purposes of this Agreement. Accordingly, Optelecom
shall be entitled in bringing any claim under the representations, warranties
and covenants made by Paragon or the Paragon Stockholders in the Related
Agreements, to base such claim on the loss it may have suffered having regard to
the aggregate consideration paid to Paragon and/or the Paragon Stockholders
under all or any of the Related Agreements, provided that in any such case the
limitations of liability set out in Section 8.01(b) to this Agreement shall
apply to any such claim. For purposes of the representations and warranties, the
controlling version of any document for which there is more than one version
shall be the version included with the Disclosure Letter delivered pursuant to
the Stock Purchase Agreement provided that Optelecom shall not have objected
thereto in good faith within 10 days after the Closing.
4.03 Closings. The closing of this Agreement, the Related
Agreements and the transactions contemplated hereby and thereby (the "Closings")
shall take place at 10:00 a.m Washington D.C. time on December 12, 1997 (the
"Closing Date") at the offices of Optelecom in
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Xxxxxxxxxxxx, Xxxxxxxx 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 (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
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of Directors.
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
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interested in any business which competes with any business carried on by
Paragon as at Closing other than by holding as a passive investment shares or
other securities listed on a stock exchange or the Nasdaq Stock Market
representing (when aggregated with those held by each person connected with the
Paragon Stockholder) less than 5% of the outstanding shares or securities of the
relevant class;
(ii) for a period of three years starting on the Closing Date,
and to the detriment of any business of Paragon carried on as at Closing,
solicit business from any person who was a customer of Paragon during the 12
months' period ending on the Closing Date, or accept business from any such
person, or solicit business from any person who as at the Closing Date was
reasonably likely to become a customer of Paragon or accept business from any
such person;
(iii) for a period of three years starting on the Closing
Date, and to the detriment of any business of Paragon carried on as at Closing,
solicit any person known by that 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.
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(f) Each of the parties agrees that clauses (a), (b), (c) and (d) of
this section may be specifically enforced by preliminary and permanent
injunction, it being acknowledged that a breach of any of those clauses might
cause injury to Optelecom in respect of which damages would not provide an
adequate remedy.
(g) Each of the obligations assumed by the Browns under clauses (a),
(b), (c) and (d) of this section is separate and to be construed independently
of the others, and is assumed without prejudice to any other obligations of any
Browns implied at law or in equity.
6. Optelecom Shares.
6.01 Investment Letters. On or before the Closing, each of
Paragon and the Paragon Stockholders shall execute and deliver to Optelecom an
investment letter in substantially the form of, respectively, Attachments F-1
and F-2 hereto.
6.02 SEC Registration Statement. Optelecom shall prepare and
file with the US Securities and Exchange Commission ("SEC") a registration
statement on Form S-3 covering the sale by each Paragon Stockholder of one-third
of the Optelecom Shares distributed by Paragon to such stockholder or to
Adventatum for the benefit of such stockholder. Optelecom will file the
registration statement on the Registration Target Date as hereinafter defined
and will use its best efforts to have the registration statement declared
effective as promptly as practicable. Optelecom shall not be required to
maintain the registration statement effective for more than 24 months from its
effective date. The Paragon Stockholders shall reimburse Optelecom up to a
maximum of $12,500 for fees and expenses incurred by it in connection with the
registration of the Optelecom Shares. The Registration Target Date shall be the
seventh business day following the date on which Paragon delivers to Optelecom:
(i) financial statements of Paragon that in the judgment of the independent
public accountants for Optelecom meet the requirements of Rule 3.05 of the SEC's
Accounting Rules (Regulation S-X); and (ii) information regarding Paragon that
in the judgment of the independent public accountants for Optelecom is
sufficient to permit Optelecom to prepare the pro-forma financial information
required by Article 11 of Regulation S-X.
6.03 Additional Registration Rights. If Optelecom at any time
during the twelve-month period commencing on the Closing Date proposes to
register Optelecom Common Stock under the Securities Act of 1933 (the
"Securities Act") (other than a registration on Form S-4 or S-8, or any
successor or other forms promulgated for similar purposes) for sale for its own
account in a firm commitment underwritten offering, it will give written notice
to the Paragon Stockholders of its intention to do so and of such holders'
rights under this section. Upon the written request of any such holder made
within fifteen days after the receipt of any such notice (which request shall
specify the Optelecom Shares intended to be disposed of by such holder),
Optelecom will use its best efforts to effect the registration under the
Securities Act of all the Optelecom Shares which Optelecom has been so requested
to register by the Paragon Stockholders. If the managing underwriter advises
Optelecom in writing that, in its opinion, the amount of securities requested to
be included in such registration by all selling stockholders exceeds the amount
which can be sold in such offering, so
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as to be likely to have an adverse effect on such offering as contemplated by
Optelecom (including the price at which Optelecom proposes to sell such
securities), then Optelecom will include in such registration (i) first, 100% of
the securities Optelecom proposes to sell on a primary basis, and (ii) second,
the amount of securities requested to be included in such registration by
selling stockholders which, in the opinion of such managing underwriter, can be
sold without having the adverse effect referred to above, such amount to be
allocated pro rata among all selling stockholders on the basis of the relative
number of securities requested to be included in the registration statement by
each such stockholder. Unless otherwise agreed by Optelecom, the Paragon
Stockholders shall offer and sell Optelecom Shares in an underwritten offering
using the same underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares of Optelecom
Common Stock included in such underwritten offering.
6.04 Stand Aside. To the extent not inconsistent with
applicable law, each Paragon Stockholder agrees, for a period of two years
following the Stock Closing, not to offer publicly or effect any public sale or
distribution of Optelecom Shares, including a sale pursuant to a registration
statement or to Rule 144 (or any similar provision then in force) under the
Securities Act of 1933 (the "Securities Act") or pursuant to Section 4(1) of the
Securities Act, during the seven days prior to, and during the 120-day period
beginning on, the effective date of any registration statement filed by
Optelecom with the US Securities and Exchange Commission for securities being
offered by or on behalf of Optelecom, if and to the extent requested by
Optelecom in the case of a non-underwritten public offering or if and to the
extent requested by the managing underwriter or underwriters in the case of an
underwritten public offering; provided that no such request may be made during
the first 90 days following the effective date of the registration statement
referred to in Section 6.02.
6.05 Right of First Refusal. Each Paragon Stockholder agrees
that prior to selling any Optelecom Shares pursuant to an SEC registration
statement or otherwise he will offer Optelecom the opportunity to purchase the
shares. The Paragon Stockholder shall provide Optelecom with written notice of
the number of shares which the Paragon Stockholder intends to sell and of the
method in which he intends to effect the sale, including a description of the
terms and conditions of any transaction other than sales through broker-dealers
on the Nasdaq Stock Market at market prices prevailing at the time of sale (the
"Paragon Stockholder Notice"). If Optelecom wishes to purchase the shares it
must notify the Paragon Stockholder in writing of its intention within two
business days after receipt of the Paragon Stockholder Notice (the "Optelecom
Notice"). If Optelecom does not give notice, the Paragon Stockholder may proceed
with the sale specified in the Paragon Stockholder Notice. If the specified sale
is made within 14 days after the receipt by Optelecom of the Paragon Stockholder
Notice, and if the sale price is less than the closing sale price of Optelecom
Common Stock on the Nasdaq Stock Market on the date on which Optelecom received
the Paragon Stockholder Notice (the "Notice Price"), Optelecom upon request from
the Paragon Stockholder shall promptly pay to such Stockholder an amount equal
to the number of shares that were included in the Paragon Stockholder Notice and
sold multiplied by the "Spread", which shall be (i) the difference between the
Notice Price and closing sale price of Optelecom Common Stock on the date on
which Optelecom gives notice to the Paragon Stockholder that it does not intend
to
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purchase the shares or if no such notice is given on the second business day
after Optelecom received the Paragon Stockholder Notice or (ii) if less, the
difference between the Notice Price and the price or prices at which the Paragon
Stockholder sold the shares. If Optelecom gives notice, it shall proceed to
purchase the shares for cash with the price of the shares being determined by
the higher of the closing sale price of Optelecom Common Stock on the Nasdaq
Stock Market on the date on which Optelecom received the Paragon Stockholder
Notice or on the date on which Optelecom gave the Optelecom Notice. The closing
of the transaction shall be held at the main offices of Optelecom on the tenth
business day after the date on which Optelecom gives the Optelecom Notice or at
such other place or on such earlier date as may be specified by Optelecom in the
Optelecom Notice. At the closing, the Paragon Stockholder shall deliver to
Optelecom one or more certificates representing the shares being sold
accompanied by a stock power therefor endorsed in blank and a written
representation and warranty that he holds good and marketable title to the
shares free and clear of all encumbrances and security interests of any nature,
and Optelecom shall deliver to the Paragon Stockholder a check for the amount of
the aggregate sale price of the shares. In lieu of purchasing the shares itself,
Optelecom may designate a purchaser which will proceed to purchase the shares in
accordance with the foregoing procedures. All certificates representing
Optelecom Shares shall bear a legend noting conspicuously the restriction
imposed by this paragraph on the transfer of Optelecom Shares.
6.06 Additional Registration Provisions. Attachment G hereto
sets forth additional provisions regarding the registration rights granted to
the Paragon Stockholders under this Agreement.
7. Representations and Warranties.
7.01 Paragon. Paragon and each of the Browns hereby represent
and warrant to Optelecom as follows:
(a) Paragon is a corporation duly organized, validly
existing and in good standing under the laws of the United Kingdom; Paragon has
all requisite corporate power and legal authority to execute, deliver and carry
out the terms of this Agreement and the Related Agreements and all documents and
agreements necessary to give effect to the provisions of this Agreement and the
Related Agreements; all actions and authorizations, corporate and otherwise,
prerequisite to the execution of this Agreement and the Related Agreements and
the consummation of the transactions contemplated hereby and thereby have been
taken or obtained by Paragon and by the Paragon Stockholders; the execution,
delivery and performance of this Agreement and the Related Agreements and the
consummation of the transactions contemplated hereby and thereby by Paragon and
the Paragon Stockholders do not violate the terms of or require the consent of
any other person under, any agreement to which Paragon or the Paragon
Stockholders is a party or by which it is or they are bound, any provision of
any statute, rule, regulation or court or administrative order to which Paragon
or any of the Paragon Stockholders is subject, or any provision of Paragon's
Memorandum or Articles of Association; this is a valid and binding Agreement of
Paragon and the Paragon Stockholders enforceable against each of them in
accordance with its terms; neither Paragon
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nor any of the Paragon Stockholders has engaged any broker, finder or
intermediary in connection with the transactions contemplated by this Agreement
and the Related Agreements, and to their knowledge, no broker, finder or
intermediary will assert any claim or make any demand upon any of the parties
based upon any dealings of such broker, finder or intermediary with Paragon or
the Paragon Stockholders in connection with such transactions.
(b) Paragon has delivered to Optelecom audited
financial statements of Paragon for the fiscal period ended August 31, 1995 and
for the fiscal year ended August 31, 1996 and unaudited financial statements of
Paragon for the fiscal year ended August 31, 1997 (collectively, the "Financial
Statements") including an unaudited balance sheet of Paragon as of August 31,
1997 (the "Balance Sheet"). The Financial Statements have been prepared in
accordance with United Kingdom generally accepted accounting principles applied
on a consistent basis throughout the periods involved and present fairly the
financial position, results of operations and cash flows of Paragon as of the
dates and for the periods indicated therein. The Financial Statements reflect
all adjustments (consisting of only normal recurring adjustments) that are
necessary to a fair statement of the results for the periods presented. Paragon
does not have any liabilities of any nature, direct or indirect, contingent or
otherwise, which are not reflected or reserved against on the face of the
Balance Sheet, except for liabilities which, individually or in the aggregate,
are not material to the business, operations or financial condition of Paragon.
The assets reflected on the Balance Sheet constitute all of the properties and
assets used or held in connection with the business of Paragon during the past
12 months (except inventories sold, cash disposed of, receivables collected,
prepaid expenses realized and assets replaced by equivalent or superior assets,
in each case in the ordinary course of business) and comprise all assets the use
of which is necessary for the continued conduct of the business of Paragon.
There has been no material adverse change in the business, assets, operations or
financial condition of Paragon since the date of the Balance Sheet.
(c) All the outstanding shares of Paragon are owned
as follows:
Name of Registered Name of Beneficial
Stockholder Owner Number of Shares
------------------ ------------------ ----------------
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.
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(d) No representation or warranty by Paragon or the
Paragon Stockholders, contained in this Agreement or any Related Agreement and
no writing, certificate, schedule, exhibit, list or other instrument furnished
or to be furnished to Optelecom pursuant hereto or thereto or in connection with
the transactions contemplated hereby or thereby contains any untrue statement of
a material fact, or omits to state a material fact necessary in order to make
the statements and information contained therein not misleading in light of the
circumstances in which they were made.
7.02 Optelecom. Optelecom hereby represents and warrants to
Paragon and the Paragon Stockholders as follows:
(a) Optelecom is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware;
Optelecom has all requisite corporate power and legal authority to execute,
deliver and carry out the terms of this Agreement and the Related Agreements and
all documents and agreements necessary to give effect to the provisions of this
Agreement and the Related Agreements; all actions and authorizations, corporate
and otherwise, prerequisite to the execution of this Agreement and the
consummation of the transactions contemplated hereby have been taken or obtained
by Optelecom; the execution, delivery and performance of this Agreement and the
Related Agreements by Optelecom and the consummation of the transactions
contemplated hereby and thereby do not violate the terms of, or require the
consent of any other person under, any agreement to which Optelecom is a party
or by which it is bound, any provision of any statute, rule, regulation or court
or administrative order to which Optelecom is subject, or any provision of
Optelecom's Certificate of Incorporation or By-laws; this is a valid and binding
Agreement of Optelecom enforceable against Optelecom in accordance with its
terms; Optelecom has not engaged any broker, finder or intermediary in
connection with the transactions contemplated by this Agreement, and to its
knowledge, no broker, finder or intermediary will assert any claim or make any
demand upon any of the parties based upon any dealings of such broker, finder or
intermediary with Optelecom in connection with such transactions.
(b) Optelecom has furnished to Paragon for delivery
to the Paragon Stockholders true and correct copies of Optelecom's Form 10-K
Annual Report for the year ended December 31, 1996, Form 10-Q Quarterly Reports
for the periods ended March 31, June 30 and September 30, 1997 and the
definitive proxy statement for its annual meeting held April 30, 1997 as filed
by Optelecom with the SEC (the "Optelecom SEC Filings"; the financial statements
contained in the Optelecom SEC Filings are collectively referred to hereinafter
as the "Optelecom Financial Statements"). Optelecom has filed all reports
required to be filed by it with the SEC, and no such report at the time it was
filed contained any untrue statement of material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
in such report, in light of the circumstances under which they were made, not
misleading. The Optelecom Financial Statements included in the Optelecom SEC
Filings were prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis throughout the periods
involved and present fairly the financial position, results of operations and
cash flows of Optelecom as of the dates and for the periods indicated therein,
subject in the case of unaudited interim statements to the omission of certain
footnotes and other information as permitted by SEC
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rules. There has been no material adverse change in the business, assets,
operations or financial condition of Optelecom since the date of the latest
balance sheet included in the Optelecom SEC Filings other than as disclosed in
or contemplated by the Optelecom SEC Filings.
(c) No representation or warranty by Optelecom
contained in this Agreement and any Related Agreement and no writing,
certificate, schedule, exhibit, list or other instrument furnished or to be
furnished to Paragon or the Paragon Stockholders pursuant hereto or thereto or
in connection with the transactions contemplated hereby or thereby contains any
untrue statement of a material fact, or omits to state a material fact necessary
in order to make the statements and information contained therein not misleading
in light of the circumstances in which they were made.
8. Indemnification.
8.01 Indemnification of Optelecom.
(a) The Browns, jointly and severally, agree to defend, indemnify, and
hold harmless Optelecom and Optelecom UK against and in respect of:
(i) Any and all loss, cost, damage, expense or
liability (including reasonable attorneys' fee) resulting from any
misrepresentation or breach of warranty or covenant on the part of Paragon or
the Paragon Stockholders under this Agreement or any of the Related Agreements
or in any certificate, list, schedule, exhibit or document delivered to
Optelecom or Optelecom UK under or in connection with this Agreement, the
Related Agreements or the transactions contemplated herein or therein; and
(ii) Any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs, and expenses (including reasonable
attorneys' fees) incident to any of the foregoing, provided, however, that if
any such action, suit or proceeding shall be commenced against, or any such
claim, demand, or assessment be asserted against, Optelecom or Optelecom UK in
respect of which Optelecom or Optelecom UK proposes to demand indemnification,
the Browns shall be notified to that effect with reasonable promptness and shall
have the right to assume control of the defense, compromise, or settlement
thereof, including the employment of counsel reasonably satisfactory to
Optelecom, and in connection therewith, each of Optelecom and Optelecom UK shall
cooperate fully and make available to the Browns all pertinent information under
its control, and shall have the right to participate therein at its expense with
counsel of its choice and to approve or reject any compromise or settlement that
could in any way , directly or indirectly, limit, restrict or impair the
operations of Optelecom.
(b) The aggregate liability of the Paragon Stockholders in respect of
all claims under this Agreement, the Asset Agreement and the Stock Agreement
("Claims") shall not exceed $4.125 million; provided that such limitation shall
not apply to any liability arising from or in connection with any criminally
fraudulent breach of warranties.
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(i) The Paragon Stockholders shall not be liable in
respect of any Claim unless the amount for which they would be liable (but for
this paragraph) in respect of such Claim would exceed $500 in which case the
Paragon Stockholders shall be liable for the full amount of that Claim.
(ii) Notwithstanding the immediately proceeding
clause, if there is a series of claims arising out of an incident or out of
connected incidents where the aggregate loss exceeds $500, the Paragon
Stockholders shall be liable even where the Claims individually do not exceed
$500.
(iii) The Paragon Stockholders shall not be liable in
respect of any Claim or Claims unless the aggregate amount for which they would
be liable in respect of all such Claims would exceed $10,000 in which case the
Paragon Stockholders shall be liable for the full amount of the Claim or Claims
and not just the excess.
8.02 Waiver of Right to Contribution. Each of the Paragon
Stockholders hereby waives any right such Stockholder may have by statute or
otherwise for contribution from Paragon in connection with any misrepresentation
or breach of warranty or covenant on the part of Paragon or the Paragon
Stockholders under this Agreement or any of the Related Agreements or in any
certificate, list, schedule, exhibit or document delivered to Optelecom or
Optelecom UK under or in connection with this Agreement, the Related Agreements
or the transactions contemplated herein or therein.
8.03 Indemnification of the Paragon Stockholders. Optelecom
agrees to defend, indemnify, and hold harmless the Paragon Stockholders against
and in respect of:
(a) Any and all loss, cost, damage, expense or
liability (including reasonable attorneys' fee) resulting from any
misrepresentation or breach of warranty or covenant on the part of Optelecom or
Optelecom UK under this Agreement or any of the Related Agreements or in any
certificate, list, schedule, exhibit or document delivered to the Paragon
Stockholders under or in connection with this Agreement, the Related Agreements
or the transactions contemplated herein or therein; and
(b) Any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs, and expenses (including reasonable
attorneys' fees) incident to any of the foregoing, provided, however, that if
any such action, suit or proceeding shall be commenced against, or any such
claim, demand, or assessment be asserted against, the Paragon Stockholders in
respect of which the Paragon Stockholders propose to demand indemnification,
Optelecom shall be notified to that effect with reasonable promptness and shall
have the right to assume control of the defense, compromise, or settlement
thereof, including the employment of counsel reasonably satisfactory to the
Paragon Stockholders, and in connection therewith, the Paragon Stockholders
shall cooperate fully and make available to Optelecom all pertinent information
under their control, and shall have the right to participate therein at their
expense with counsel of their choice and to approve or reject any compromise or
settlement that does not result in a full release of the Browns
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with respect to such claim, demand or assessment.
9. Miscellaneous.
9.01 Expenses. Each party to this Agreement will pay all its
or his own expenses, including the fees and expenses of its or his legal
counsel, accountants and other advisors, which it or he may incur in connection
with this Agreement and the Related Agreements and the transactions contemplated
hereby or thereby.
9.02 Best Efforts and Further Assurances. Subject to the
respective rights and obligations of the parties under this Agreement and the
Related Agreements, each of the parties will use its or his reasonable best
efforts to effectuate the transactions contemplated herein and therein. Each
party hereto, at the reasonable request of another party hereto, will execute
and deliver such other instruments and do and perform such other acts and things
as may be necessary or desirable for effecting completely the consummation of
the transactions contemplated by this Agreement and the Related Agreements.
9.03 Survival of Representations and Warranties. All
representations and warranties made by Optelecom, Paragon and the Paragon
Stockholders under this Agreement or the Related Agreements or in any
certificate, list, schedule, exhibit or other instrument delivered pursuant
hereto or thereto shall survive the Closing of the transactions contemplated
hereby, but shall expire 30 months after the Closing Date, except for
representations and warranties concerning capitalization which shall not expire
and representations and warranties regarding taxes which shall not expire until
applicable statutes of limitations with respect to such taxes have expired.
9.04 Notices. Any notices or other communications required or
permitted under the Agreement or Related Agreements shall be in writing and may
be personally delivered, deposited in the mail, first class postage prepaid,
return receipt requested, transmitted by telecopy or telex, or sent by a private
messenger or carrier which issues delivery receipts, to the parties at the
following addresses:
If to Optelecom: Optelecom, Inc.
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
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Xxxxxxxxxx, X.X. 00000
Telephone: 000-000-0000
Fax: 000-000-0000
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.
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9.09 Applicable Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Maryland, without reference
to the principles of conflict or choice law thereof. Each of Optelecom, Paragon
and the Paragon Stockholders hereby agrees to submit to the exclusive
jurisdiction of the federal and state courts within the State of Maryland in any
action or proceeding arising out of or related to this Agreement or any of the
Related Agreements, agrees that process may be served upon it or him in any
manner authorized for those courts and covenants not to assert or plead any
objection which it or he might otherwise have to such jurisdiction and such
process.
9.10 Invalid Provisions. If any term, provision or condition
of this Agreement, or the application thereof to any person or circumstance,
shall be held by a court of competent jurisdiction to be invalid, unenforceable,
or void, the remainder of this Agreement and such term, provision or condition
as applied to other persons or circumstances shall remain in full force and
effect.
9.11 Counterparts. This Agreement my be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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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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