Draft of 10 June 2002SERVICE AGREEMENT     This SERVICE AGREEMENT is made and entered into as of June 10, 2002, by and between Optelecom,Inc., a Delaware corporation (the “Company”), and James Armstrong, an individual (“Employee”).Other capitalized terms shall have the respective meanings set forth in Section 15 and elsewhereherein.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 employs Employee, and Employee herebyaccepts employment with the Company, on the terms and conditions set forth in this Agreement,which terms and conditions shall supersede all terms and conditions of any other oral orwrittenemployment agreement(s) entered into between the Company and Employee prior to the datehereof.     2. Termof Agreement. The Employee’s employment is intended to be on an “at-will”basis and shall continue until terminated as provided in Section 14 hereof.     3. Duties. Employee shall serve as the Chief Financial Officer of the Company,reporting to Edmund Ludwig, Chief Executive Officer of the Company, or such other person(s) asmay be designated from time to time by the Company. Employee shall perform the duties requiredof Employee to the best of Employee’s ability, experience and talents, all to the reasonablesatisfaction of the Company. Employee agrees to devote his entire working time, energy andskills to such employment during the Employment Period, and shall not during the Employment Periodrender any services of a business, commercial or professional nature to any person ororganization other than the Company or be engaged in any other business activity, except as permitted bySection 10 of this Agreement. Such duties shall be rendered at such place or places as the Companyshall in good faith require; provided that Employee’s place of employment during the Employment Periodshall not be more than forty (40) miles from the Seller’s current location without Employee’sprior 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.
 

 
Draft of 10 June 2002     4. Compensation. During the Employment Period, Employee shall be compensated forhis services as follows:     (a) Base Salary. Employee shall be paid a basic salary in the annualized amountof not less than $117,500 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 theCompany,in its sole discretion.     (b) Bonus. Employee shall be eligible for an annual bonus based uponEmployee’s individual performance and specified sales, sales growth and profitabilitygoals and objectives for the Company to be developed annually in good faith by the Companyin consultation with Employee.     (c) Stock Options. Employee shall be eligible for the award if stock optionsin the 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.     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 three (3)weeks paid vacation in accordance with the Company’s regular vacation policies in effect fromtime to time.     7. No Competing Business. Employee hereby agrees to adhere to the non-competitionpolicy of the Company as acknowledged by the Employee.     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 the time
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Draft of 10 June 2002Employee 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 by theCompany.     12. Reductionof 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 aredeemed unreasonable 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 Companyand Affiliates 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 ofthe covenants set forth in this Agreement and agrees that in the event of any such material breachor threatened breach, Company may, in addition to the other remedies which may be available toit, to injunctive relief (without bond) and to enjoin Employee from the breach or threatened breachof such covenants.     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 any reason upon thirty (30)day’s prior written notice to Company. (b) The termination of the Employment Period as provided above shall not relieveEmployee 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.
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Draft of 10 June 2002 (d) If this Agreement is terminated by the Company pursuant to Section 14(a)(iii) orSection 14(a)(v) of this Agreement, Employee shall not be entitled to receive anyfurther pay or benefits following 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 and any bonus earned by Employee for aperiod of eight (8) months following termination. Employee shall also receive anyand all employee benefits accrued through the termination date, the amount, form andpayment of which shall be determined in accordance with the terms of such employeebenefit plans.     15. Survival following Change of Control. Notwithstanding any other provision within thisAgreement, this Agreement shall survive any Change in Control, as defined herein, that shalloccur within one(1) year from the effective date of this Agreement     16. Definitions. As used in this Agreement, terms defined in the preamble andrecitals ofthis Agreement shall have the meanings set forth therein and the following terms shall have themeanings set forth below:     “Cause” shall include, without limitation, (i) Employee’s gross negligence in theperformance or non-performance of any of Employee’s responsibilities to the Companyhereunder, (ii) Employee’s failure to follow the Company’s reasonable instructions withrespect to the performance of Employee’s duties hereunder, (iii) Employee’s inability,refusal or failure to continue to perform the duties required hereunder at any time, (iv)excessive absenteeism or flagrant neglect of work, (v) serious misconduct or conviction ofa felony or fraud, (vi) disclosure of any proprietary information of the Company withoutthe consent of the Company, (vii) aiding a competitor of the Company to the detriment ofthe Company, and/or (viii) the breach of any other covenants or agreements of Employeeunder this Agreement; provided Employee shall be given written notice by the Company andtwenty (20) days to cure any conduct which the Company in good faith determines qualifiesunder subclauses (i) through (iv) above.     “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 thesurvivingentity), in combination with the ownership of any trustee or other fiduciary holdingsecuritiesunder 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 immediately
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Draft of 10 June 2002after such merger or consolidation, or (y) a merger or consolidation effected toimplement a re-capitalization of the Employer (or similar transaction) in which no Personacquires more than 50% of the combined voting power of the Employer’s then outstandingsecurities; or (c) The liquidation or dissolution of the Employer or upon the closing of asale or disposition 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 asto render Employee unable to perform his duties hereunder (which determination shall bemade by the Company) for a total period of ninety (90) days, whether or not such days areconsecutive, during any 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 anofficer or employee of the Company, (iii) Employee’s equity investments in the equity shares or debt securities of publicly-traded companies provided that Employee is notinvolved in the management of such business and such activities do not interfere with theCompany’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 providedhereunder shall be in writing and shall be deemed to have been given and received when deliveredin person 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 notice tothe other parties:    If to Company: Clyde A. Heintzelman  9300 Gaithe Road  GAITHE’S BURG, MD 20877      If to Employee: Jim Armstrong  47425 RIVER FALLS DRIVE  POTOMAC FALLS, VA 20165
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Draft of 10 June 2002     17. Binding Effect; Assignment. This Agreement shall be binding upon and inure tothebenefit of and be enforceable by the parties’ successors and permitted assigns. This Agreement andthe rights and obligations of the parties hereunder may not otherwise be assigned or delegated 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 officer ofthe Company and Employee.     20. Severability. In the event that any provision or portion of this Agreement shallbe determined to be invalid or unenforceable for any reason, the remaining provisions andportions of this Agreement shall be unaffected thereby and shall remain in full force and effect to thefullest extent 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 waiver orrelinquishment of any right granted hereunder or of the future performance of any such term,covenant or condition.     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 andthe same 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, shallbe borne 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 State
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Draft of 10 June 2002of Maryland, excluding any choice of law rules which may direct the application of the lawsof another jurisdiction.     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and yearfirst above written.       OPTELECOM, Inc.       By: /s/ Clyde A. Heintzelman       Name: Clyde A. Heintzelman       Title: Chairman            EMPLOYEE            /s/James Armstrong          JamesArmstrong
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FIRST AMENDMENT TO SERVICE AGREEMENT     This FIRST AMENDMENT TO SERVICE AGREEMENT is made and entered into this 6 day of June, 2005by and between Optelecom-NKF, Inc., a Delaware corporation (the “Company”) and James Armstrong,and individual ( “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 asof June 10, 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 14 (a) (iv) of The Service Agreement shall be and hereby isdeleted in its entirety and replaced with the following:     “(iv) at any time by the Company for any reason other than for Cause upon thirty (30)days’ prior written notice to Employee, or”     2. Paragraph 14 (e) of The Service Agreement shall be and hereby is deletedin its entirety and replaced with the following:     “(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 the termination dateand to participate in all employee benefit plans for a period of twelve (12) monthsfollowing termination. Employee shall also receive any and all employee benefits accruedthrough the termination date, the amount, form and payment of which shall be determined inaccordance with the terms of such employee benefit plans then in place at the Company.Notwithstanding, should the employee be terminated pursuant to Paragraph 14(a)(iv) abovefollowing a Change of Control as defined herein, the employee shall be entitled to receivehis Base Salary, any bonus earned through the termination date and to participate in allemployee benefit plans for twenty-four (24) months following termination pursuant toParagraph 14(a)(iv) above.”     3. Paragraph 15 of the Service Agreement shall be and hereby is deleted inits entirety and replaced with the following:
 

 
     “15. Survival following Change of Control. Notwithstanding any other provisionwithin this Agreement, this Agreement shall survive any Change in Control, as definedherein, that shall occur within two (2) years from the effective date of this Agreement.”     3. All other terms and conditions of the Service Agreement shall remain unchanged.     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-NKF, INC.       By:      /s/ Edmund Ludwig              Edmund Ludwig, President       EMPLOYEE            /s/James Armstrong          JamesArmstrong2 
 

 
SECOND AMENDMENT TO SERVICE AGREEMENT          This SECOND AMENDMENT TO SERVICE AGREEMENT is made and entered into this 28th day ofNovember, 2005 by and between Optelecom-NKF, Inc., a Delaware corporation (the “Company”) andJames Armstrong, and individual (“Employee”). All capitalized terms used and not defined hereinshall have the respective meanings set forth in the Service Agreement between the Company andEmployee dated as of June 10, 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 3 of The Service Agreement shall be and hereby is deleted in its entirety andreplaced with the following:          “3. Duties. Employee shall serve as the Executive Vice President and Chief OperatingOfficer, North American Operations of the Company, reporting to Edmund Ludwig, President and ChiefExecutive Officer of the Company, or such other person(s) as may be designated from time to time bythe Company. Employee shall perform the duties required of Employee to the best of Employee’sability, experience and talents, all to the reasonable satisfaction of the Company. Employee agreesto devote his entire working time, energy and skills to such employment during the EmploymentPeriod, and shall not during the Employment Period render any services of a business, commercial orprofessional nature to any person or organization other than the Company or be engaged in any otherbusiness activity, except as permitted by Section 10 of this Agreement. Such duties shall berendered at such place or places as the Company shall in good faith require; provided thatEmployee’s place of employment during the Employment Period shall not be more than forty (40) milesfrom 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.”
 

 
          2. Paragraph 4 (a) of The Service Agreement shall be and hereby is deletedin its entirety and replaced with the following:          “(a) Base Salary. Employee shall be paid a basic salary in the annualizedamount of not less than $190,000 payable in substantially equal bimonthly or otherinstallments in accordance with the general practice of the Company, subject to any and allcustomary payroll deductions for the FICA, federal, state and local taxes, and fringebenefits. Employee’s base salary will be reviewed annually and subject to adjustment by theCompany, in its sole discretion.”          3. Paragraph 6 of the Service Agreement shall be and hereby is deleted in itsentirety and replaced with the following:          “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 from timeto time.”          4. All other terms and conditions of the Service Agreement and itsAmendments shall remain unchanged.          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-NKF, INC.           By:      /s/ Edmund Ludwig                  Edmund Ludwig, President and CEO           EMPLOYEE           /s/ James Armstrong                James Armstrong  
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