EMPLOYMENT AGREEMENT          This EMPLOYMENT AGREEMENT is made and entered into as of November 4, 2002, by and betweenOptelecom, Inc., a Delaware corporation (the “Company”), and Edmund Ludwig, an individual(“Employee”), Other capitalized terms shall have the respective meanings set forth in Section 15and elsewhere herein.RECITALS:          WHEREAS, the Company desires to employ Employee on terms that will encourage the attentionand dedication of Employee to the Company as one of its key employees; and          WHEREAS, Employee is willing to accept such employment by the Company on the terms andconditions set forth herein.          NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, theparties agree as follows:1. Employment. The Company hereby offers and Employee hereby accepts employment withthe Company, on the terms and conditions set forth in this Agreement, which terms and conditionsshall supersede all terms and conditions of any other oral or written employment agreement(s)entered into between the Company and Employee prior to the date hereof.2. Term of Agreement. The Employee’s employment is intended to be on an “at-will” basis andshall continue until terminated as provided in Section 14 hereof.3. Duties. Employee shall serve as the President and Chief Executive Officer of theCompany, reporting to the Chairman of the Board of the Company and to the Board of Directors, orsuch other person(s) as may be designated from time to time by the Company. Employee shall performthe duties required of a Chief Executive Officer to the best of Employee’s ability, experience andtalents, all to the reasonable satisfaction of the Company, including but not limited to alltechnical, financial, marketing/sales and operations aspects of the company.          Employee agrees to devote his entire working time, energy and skills to such employmentduring the Employment Period, and shall not during the Employment Period render any services of abusiness, commercial or professional nature to any person or organization other than the Companyor be engaged in any other business activity, except as permitted by Section 10 of this Agreement.Such duties shall be rendered at such place or places as the Company shall in good faith require;provided that Employee’s place of employment during the Employment Period shall not be more thanforty (40) miles from the Seller’s current location without Employee’s prior consent.          Employee represents and warrants that he is not a party to or bound by any agreement orcontract or subject to any restrictions, particularly, but without limitation, in connection withany previous employment, which prevent Employee from entering into and performing his obligationsunder this Agreement.
 

 
          4. Compensation. During the Employment Period, Employee shall be compensatedfor his services as follows:          (a) Base Salary. Employee shall be paid a basic salary in the annualized amountof not less than $190,000 payable in substantially equal bi-monthly or otherinstallments inaccordance with the general practice of the Company, subject to any and all customarypayroll deductions for the FICA, federal, state and local taxes, and fringe benefits.Employee’s base salary will be reviewed annually and subject to adjustment by theChairmanin consultation with the Compensation Committee of the Board of Directors, in theirsolediscretion.          (b) Bonus. Employee shall be eligible for an annual bonus based uponEmployee’s individual performance and specified sales, sales growth and profitabilitygoalsand objectives for the Company to be developed annually in good faith by the Chairmaninconsultation with the Compensation Committee of the Board of Directors, inconsultationwith Employee. His annual bonus for the year 2002 will be as stated in the annualbonusplan dated June 11, 2002 previously submitted by management and approved by the Boardof Directors, using his current salary level of $167,500, as a basis for calculationof the cashportion of the bonus.          (c) Stock Options. Employee shall be eligible for the award of stock options inthe Company as provided in the Employee Stock Option Plan then in effect.          (e) Other Benefits. Employee shall also be a participant, to the extent hemeets all eligibility requirements of general application, in any and all employee benefitplans in which the Company’s employees are entitled to participate, including, but notlimited to, a 401(k) plan, group hospitalization, medical and disability plans.Additionally, the Employee shall receive an automobile allowance of $500 per month oralternatively, the Company shall lease a vehicle for the use of Employee at a monthlypayment limited to not more than $500 per month.          5. Employee Expenses. During the Employment Period, Employee shall be entitled tobe reimbursed for reasonable or necessary expenditures incurred in the performance ofEmployee’sduties hereunder and approved by the Company, subject to the submission by Employee of thedocumentation necessary to support the deductibility of such expenses by the Company on itsfederal, state and local income tax returns.          6. Vacation. During the Employment Period, Employee shall be entitled to four (4)weeks paid vacation in accordance with the Company’s regular vacation policies in effect fromtimeto time.          7. No Competing Business. Employee hereby agrees to adhere to the non-competitionpolicy of the Company as acknowledged by the Employee.
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          8. No Interference with the Business. Employee hereby agrees to adhere to the post-employment non-interference policy of the Company as acknowledged by the Employee.          9. No Disclosure of Confidential Information. Employee hereby agrees toadhere to theconfidentiality policy of the Company as acknowledged by the Employee.          10. Permitted Activities. The restrictions set forth in Sections 7, 8 and 9 of thisAgreement shall not apply to Permitted Activities or to actions taken by Employee during thetimeEmployee may be employed by the Company to the extent, but only to the extent, that suchactionsare (i) necessary in connection with such employment, or (ii) expressly approved in writing bytheCompany.          11. Inventions / Intellectual Property / Confidentiality. The Employee agrees toexecutethe Company’s standard employee agreements pertaining to inventions, intellectual propertydisclosure and confidentiality and to abide by said policies as then in effect.          12. Reduction of Restrictions by Court Action. If the length of time, type ofactivity,geographic area or other restrictions set forth in the restrictions of Sections 7, 8 or 9 aredeemedunreasonable in any court proceeding, the parties hereto agree that the court may reduce suchrestrictions to ones it deems reasonable to protect the substantial investment of the CompanyandAffiliates in their business and the goodwill attached thereto.          13. Remedies. Employee understands that the Company will not have an adequateremedy at law for the material breach or threatened breach by Employee of any one or more ofthecovenants set forth in this Agreement and agrees that in the event of any such material breachorthreatened breach, Company may, in addition to the other remedies which may be available toit, toinjunctive relief (without bond) and to enjoin Employee from the breach or threatened breachof suchcovenants.          14. Termination. (a) The Employment Period shall terminate upon the first to occurof: (i) the Employee’s death,  (ii) the Disability of Employee,  (iii) the termination of the Agreement by the Company for Cause,  (iv) at any time by the Company for any reason upon thirty (30)day’s prior written notice to Employee, or  (v) at any time by Employee for retirement or any reason uponone hundred twenty (120) day’s prior written notice to Company.
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 (b) The termination of the Employment Period as provided above shall not relieve Employee of his obligations under Sections 7, 8 and 9 of this Agreement.  (c) If this Agreement is terminated pursuant to Paragraph 14(a)(i) or 14(a)(ii)above,Employee or Employee’s estate will continue to receive his Base Salary for two (2)months following termination, notwithstanding the terms and conditions of any deathor disability payments due under applicable benefit plans of the Company then ineffect.  (d) If this Agreement is terminated by the Company pursuant to Section 14(a)(iii)of thisAgreement, Employee shall not be entitled to receive any further pay or benefitsfollowing the date on which employment ends.  (e) If this Agreement is terminated pursuant to Paragraph 14(a)(iv) above, Employeeshall be entitled to receive his Base Salary, any bonus earned through thetermination date and to participate in all employee benefit plans for a period oftwelve (12) months following termination. Employee shall also receive any andall employee benefits accrued through the termination date, the amount, form andpayment of which shall be determined in accordance with the terms of suchemployee benefit plans then in place at the Company. Notwithstanding, shouldthe employee be terminated pursuant to Paragraph 14(a)(iv) above following aChange of Control as defined herein, the employee shall be entitled to receive hisBase Salary, any bonus earned through the termination date and to participate inall employee benefit plans for twenty-four (24) months following terminationpursuant to Paragraph 14(a)(iv) above.  (f) If, and only if, the Employee properly terminates his employment by retirementwithnotice pursuant to Paragraph 14(a)(v) above, and has not otherwise violated thisAgreement, then Employer shall further pay to Employee an amount equivalent toone (1) week of the last annual base salary of Employee times the number of fullyears that Employee has been employed by the Company.  (g) If terminated for any reason other than Section 14 (a) (iii), all earned, butunvestedoptions will immediately vest upon the date of termination and be exercisable for aperiod of ninety (90) days from the date of termination. If terminated under Section14 (a) (iii), those options previously vested will be exercisable for a period of 30daysfollowing termination.          15.       Survival following Change of Control. Notwithstanding any other provision withinthis Agreement, this Agreement shall survive any Change in Control, as defined herein, thatshalloccur.          16.        Definitions. As used in this Agreement, terms defined in the preamble and recitalsofthis Agreement shall have the meanings set forth therein and the following terms shall havethemeanings set forth below:
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          “Cause” shall include, without limitation, (i) Employee’s gross negligence in the performanceor non-performance of any of Employee’s responsibilities to the Company hereunder, (ii) Employee’sfailure to follow the Company’s reasonable instructions with respect to the performance ofEmployee’s duties hereunder, (iii) Employee’s inability, refusal or failure to continue to performthe duties required hereunder at any time, (iv) excessive absenteeism or flagrant neglect of work,(v) serious misconduct or conviction of a felony or fraud, (vi) disclosure of any proprietaryinformation of the Company without the consent of the Company, (vii) aiding a competitor of theCompany to the detriment of the Company, and/or (viii) the breach of any other covenants oragreements of Employee under this Agreement; provided Employee shall be given written notice by theCompany and twenty (20) days to cure any conduct which the Company in good faith determinesqualifies as “Cause” notification.     “Change of Control” shall mean:(a) Any Person (as defined conventionally in the context of corporate ownership)becomes the beneficial owner directly or indirectly (within the meaning of Rule 13(d)(3) ofthe Securities Exchange Act of 1934, as amended (the “Exchange Act”) of more than 50% ofthe Employer’s then outstanding voting securities (measured on the basis of voting power);(b) The closing of an agreement of merger or consolidation with any other corporation orbusiness entity, other than (x) a merger or consolidation which would result in the votingsecurities of the Employer outstanding immediately prior thereto continuing to represent(either by remaining outstanding or by being converted into voting securities of the survivingentity), in combination with the ownership of any trustee or other fiduciary holding securitiesunder an employee benefit plan of the Employer, at least 50% of the combined voting powerof the voting securities of the Employer or such surviving entity outstanding immediatelyafter such merger or consolidation, or (y) a merger or consolidation effected to implement are-capitalization of the Employer (or similar transaction) in which no Person acquires morethan 50% of the combined voting power of the Employer’s then outstanding securities; or(c) The liquidation or dissolution of the Employer or upon the closing of a sale ordisposition by the Employer of all or substantially all of the Employer’s assets.          “Disability” shall mean any illness, disability or incapacity of such a character as torender Employee unable to perform his duties hereunder (which determination shall be made by theCompany) for a total period of ninety (90) days, whether or not such days are consecutive, duringany consecutive twelve (12) month period.          “Employment Period” shall mean the period between the date of execution of thisagreement and the termination of employment pursuant to Paragraph 14 of this Agreement.          “Permitted Activities” shall mean (i) owning Company common stock, (ii) serving as an officeror employee of the Company, (iii) Employee’s equity investments in the equity shares or debtsecurities of publicly-traded companies provided that Employee is not involved in the managementof such business and such activities do not interfere with the
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Company’s business or Employee’s duties and responsibilities under this Agreement, or(iv) any other activities approved in writing by the Company.          16. Notices. All notices, demands or other communications required or provided hereundershall be in writing and shall be deemed to have been given and received when delivered inperson or transmitted by facsimile transmission (telecopy) to the respective parties, or five(5) days after dispatch by certified mail, postage prepaid, addressed to the parties at theaddresses set forth below or at such other addresses as such parties may designate by noticeto the other parties:         If to Company: Mr. Clyde Heintzelman      Chairman, Optelecom, Inc.      12920 Cloverleaf Center Drive      Germantown, Maryland 20874      Telephone 301-840-2121      Telephone 301-444-2200           If to Employee: Edmund D. Ludwig      17725 Mill Creek Drive      Derwood, Maryland 20855      Telephone: 301-926-1186            17. Binding Effect; Assignment. This Agreement shall be binding upon andinure to thebenefit of and be enforceable by the parties’ successors and permitted assigns. ThisAgreement andthe rights and obligations of the parties hereunder may not otherwise be assigned ordelegated byeither party without the prior written consent of the other party hereto.          18. Entire Agreement. This Agreement constitutes the entire agreement between theparties concerning the subject matter hereof and supercedes any and all prior andcontemporaneousagreements, written or oral, between the parties relating to the subject matter hereof.          19. Amendment. No amendment or modification of the terms of this Agreement shall bebinding upon either party unless reduced to writing and signed by a duly appointed officerof theCompany and Employee.          20. Severability. In the event that any provision or portion of this Agreementshall bedetermined to be invalid or unenforceable for any reason, the remaining provisions andportions ofthis Agreement shall be unaffected thereby and shall remain in full force and effect to thefullestextent permitted by law.          21. Waiver. The failure of either party to insist, in any one or more instances,uponperformance of the terms or conditions of this Agreement shall not be construed as a waiverorrelinquishment of any right granted hereunder or of the future performance of any suchterm,covenant or condition.
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          22. Counterparts. This Agreement may be executed in two or more counterparts,each ofwhich shall be deemed the original without, but all of which together shall constitute one andthesame instrument.          23. Headings. Headings of the sections and subsections of this Agreement are insertedfor convenience of reference only and shall not constitute a part hereof.          24. Litigation Expenses. All litigation expenses of the Company or Employee inenforcing any of the provisions of this Agreement, including reasonable attorneys’ fees, shallbeborne by the party who may be found in default or noncompliance with the provisions of thisAgreement.          25. Governing Law. This Agreement and the rights and obligations of the partieshereunder shall be governed, construed and enforced in accordance with the internal laws ofthe Stateof Maryland, excluding any choice of law rules which may direct the application of the laws ofanother jurisdiction.          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and yearfirst above written.         OPTELECOM, Inc.           By:       /s/ Clyde Heintzelman         Name:      Clyde Heintzelman    Title:       Chairman           EMPLOYEE                /s/ Edmund Ludwig         Edmund Ludwig  
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FIRST AMENDMENT TO SERVICE AGREEMENT          This FIRST AMENDMENT TO SERVICE AGREEMENT is made and entered into this 2nd day of May, 2004by and between Optelecom, Inc., a Delaware corporation (the “Company”) and Edmund Ludwig, anindividual (“Employee”). All capitalized terms used and not defined herein shall have therespective meanings set forth in the Service Agreement between the Company and Employee dated as ofNovember 4, 2002 (the “Service Agreement”).          WHEREAS the Company and the Employee have entered into the Service Agreement setting forththe terms and conditions of Employee’s employment by the Company; and          WHEREAS the Company and Employee are desirous of amending the Service Agreement and suchAmendment has been reviewed and approved by the Compensation Committee of the Board of Directorsof the Company.          NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in theService Agreement and herein, the parties agree as follows:          1. Paragraph 4 (a) of The Service Agreement shall be and hereby is changed to increase thebase salary from $190, 000 to $220,000.          4. All other terms and conditions of the Service Agreement and its Amendments shall remainunchanged.          IN WITNESS WHEREOF, the parties, intending to be legally bound, have executed this FirstAmendment to the Service Agreement as of the date set forth above.       OPTELECOM, INC.       By:                David Lipinski, Chairman,