8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):
March 8, 2005

OPTELECOM, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware
(State or Other Jurisdiction of Incorporation)

0-8828	52-1010850
(Commission File Number)	(IRS Employer Identification No.)

12920 Cloverleaf Center Drive,
Germantown, Maryland 20874
(Address of Principal Executive Offices) (Zip Code)

(301) 444-2200
(Registrant’s Telephone Number, Including Area Code)

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

          See discussion under Item 2.01 below.

Item 2.01 Completion of Acquisition or Disposition of Assets.

     On March 8, 2005, Optelecom, Inc. (the “Company”) completed the acquisition of NKF Electronics, B.V. a private company with limited liability, incorporated in the Netherlands (“NKF”), pursuant to the terms and conditions of the Share Purchase Agreement dated March 8, 2005 (the “Purchase Agreement”) by and among the Company, NKF, Draka Holding, N.V., a limited liability company, incorporated in the Netherlands (“Draka”), and NKF Vastgoed B.V., a private company with limited liability, incorporated in the Netherlands, a direct wholly-owned subsidiary of Draka (“Vastgoed” and together with Draka – the “Sellers”).

     Pursuant to the Purchase Agreement, the Company acquired from the Sellers and the Sellers sold, all of the outstanding stock of NKF for the following consideration (the “Acquisition Consideration”): (a) Six Million Nine Hundred Twelve Thousand Euro (€ 6,912,000) paid in cash; (b) Four Million Eighty Eight Thousand Euro (€4,088,000) paid in cash to retire NKF’s inter-company debt owed to Draka; and (c) a Subordinated Promissory Note in the principal amount of Nine Million Euro (€9,000,000) (the “Subordinated Note”). The Subordinated Note accrues interest at a rate of 6% per annum and is due and payable in full on March 8, 2010. The Acquisition Consideration is subject to post-closing adjustment in accordance with the terms and conditions of the Purchase Agreement. The amount of consideration was determined on the basis of arm’s length negotiations between the Company and Draka.

     To fund the Acquisition Consideration the Company and its subsidiaries entered into a Financing and Security Agreement (the “Loan Agreement”) and other ancillary agreements with Manufacturers and Traders Trust Company, a New York State bank (“M&T”), pursuant to which M&T extended to the Company and NKF certain credit facilities and term loans consisting of (i) a revolving credit facility in an amount not to exceed Five Million Dollars ($5,000,000) to be made available to the Company and NKF for the purpose of obtaining letters of credit and financing the Company’s and NKF’s working capital needs, (ii) a term loan in the principal amount of Nine Million One Hundred Fifty Two Thousand Eight Hundred Seventy Dollars and Forty Cents ($9,152,870.40) made to the Company for the purpose of partially financing the Company’s acquisition of the stock of NKF, and (iii) a term loan in the principal amount of Four Million Eighty Eight Thousand Euros (€4,088,000) made available to the NKF for the purpose of refinancing certain indebtedness owed to Draka. The loans granted to the Company and NKF under the Loan Agreement are secured by assets of the Company and its subsidiaries, including a pledge of sixty five percent (65%) of the shares of NKF.

     The descriptions contained in Item 2.01 of the transactions contemplated by the Purchase Agreement, the Subordinated Note and the Loan Agreement, respectively, are qualified in their entirety by reference to the full text of the Purchase Agreement, which is incorporated by reference as Exhibit 99.1 hereto, the full text of the Subordinated Note, which is incorporated by reference as Exhibit 99.2 hereto, and the full text of the Loan Agreement, which is incorporated by reference as Exhibit 99.3 hereto.

2

Item 9.01 Financial Statements and Exhibits.

          (a) Financial Statements of Business Acquired: In accordance with Item 9.01(a) of Form 8-K, the financial statements for NKF required pursuant to Regulation S-X will be filed by amendment to this Form 8-K on or before May 24, 2005.

          (b) Pro Forma Financial Information: In accordance with Item 9.01(b) of Form 8-K, the pro forma financial information required pursuant to Regulation S-X will be filed by amendment to this Form 8-K on or before May 24, 2005.

          (c) Exhibits:

99.1	Share Purchase Agreement dated March 8, 2005 by and among Optelecom, Inc., NKF Electronics B.V.Draka Holding, N.V., NKF Vastgoed B.V., and
99.2	Subordinated Promissory Note dated March 8, 2005.
99.3	Financing and Security Agreement dated March 8, 2005, by and among Optelecom, Europe Limited, NKF B.V., and Inc., Optelecom UK Electronics Iberica Manufacturers and Limited, Optelecom S.L., NKF Traders Trust Electronics, Company.

3

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: March 8, 2005

OPTELECOM, INC.

By:	/s/ James Armstrong
	James Armstrong Chief Financial Officer

4

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

OPTELECOM, INC.
EXHIBIT INDEX TO FORM 8-K

EXHIBIT NO.	ITEM
99.1	Share Purchase Agreement dated March 8, 2005 by and among Optelecom, Inc., Draka Holding, N.V., NKF Vastgoed B.V., and NKF Electronics B.V.
99.2	Subordinated Promissory Note dated March 8, 2005.
99.3	Financing and Security Agreement dated March 8, 2005, by and among Optelecom, Inc., Optelecom UK Limited, Optelecom Europe Limited, NKF Electronics Iberica S.L., NKF Electronics, B.V., and Manufacturers and Traders Trust Company.

5

EX-99.1

                                                                    EXHIBIT 99.1

                            SHARE PURCHASE AGREEMENT

                                  BY AND AMONG:

                                 OPTELECOM, INC.

                              NKF ELECTRONICS, B.V.

                                NKF VASTGOED B.V.

                               DRAKA HOLDING N.V.

                                  MARCH 8, 2005



                                TABLE OF CONTENTS



                                                                                        Page
                                                                                        ----
                                                                                     
SHARE PURCHASE AGREEMENT

ARTICLE 1   THE ACQUISITION.....................................................         2
        1.1     The Acquisition.................................................         2
        1.2     Closing.........................................................         2
        1.3     Acquisition Consideration.......................................         2
        1.4     Adjustment to Acquisition Consideration.........................         3

ARTICLE 2   REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY...............         5
        2.1     Organization and Qualification..................................         5
        2.2     Authority Relative to this Agreement............................         5
        2.3     Capitalization..................................................         6
        2.4     Subsidiaries....................................................         6
        2.5     Directors and Officers..........................................         7
        2.6     No Conflicts....................................................         7
        2.7     Company Financial Statements....................................         7
        2.8     Books and Records; Organizational Documents.....................         8
        2.9     Absence of Changes..............................................         8
        2.10    No Undisclosed Liabilities......................................        11
        2.11    Taxes...........................................................        11
        2.12    Legal Proceedings...............................................        14
        2.13    Compliance with Laws and Orders.................................        15
        2.14    Employee Benefits...............................................        15
        2.15    Real Property...................................................        16
        2.16    Tangible Personal Property......................................        17
        2.17    Intellectual Property...........................................        17
        2.18    Contracts.......................................................        20
        2.19    Insurance.......................................................        21
        2.20    Affiliate Transactions..........................................        21
        2.21    Employees; Labor Relations......................................        22
        2.22    Environmental Matters...........................................        23
        2.23    Substantial Customers and Suppliers.............................        24
        2.24    Accounts Receivable.............................................        24
        2.25    Inventory.......................................................        24
        2.26    Other Negotiations; Brokers; Third Party Expenses...............        24
        2.27    Banks and Brokerage Accounts....................................        24
        2.28    Warranty Obligations............................................        25
        2.29    Corrupt Practices...............................................        25
        2.30    Assignment and Transfer of Assets and Properties ...............        25
        2.31    Approvals.......................................................        25


                                        i



                                                                                                  
ARTICLE 2A  REPRESENTATIONS AND WARRANTIES CONCERNING SELLERS.................................       26
        2A.1    Ownership of Company Capital Shares...........................................       26
        2A.2    Organization and Qualification................................................       26
        2A.3    Authority Relative to this Agreement..........................................       26
        2A.4    No Conflicts..................................................................       26
        2A.5    Agreements....................................................................       27

ARTICLE 3   REPRESENTATIONS AND WARRANTIES CONCERNING PURCHASER...............................       28
        3.1     Organization and Qualification................................................       28
        3.2     Authority Relative to this Agreement..........................................       28
        3.3     Other Negotiations; Brokers; Third Party Expenses.............................       28
        3.4     SEC Compliance................................................................       29
        3.5     No Conflicts..................................................................       30
        3.6     No Undisclosed Liabilities....................................................       31
        3.7     Legal Proceedings.............................................................       31
        3.8     Compliance with Laws and Orders...............................................       31
        3.9     Approvals.....................................................................       31

ARTICLE 4   ADDITIONAL AGREEMENTS.............................................................       32
        4.1     Covenant Not to Compete.......................................................       32
        4.2     Confidentiality...............................................................       32
        4.3     Expenses......................................................................       34
        4.4     Public Disclosure.............................................................       34
        4.5     Additional Documents and Further Assurances; Cooperation......................       34
        4.6     Employee Matters..............................................................       35
        4.7     Financial Statements..........................................................       37
        4.8     Certain Tax Matters...........................................................       37
        4.9     Inter-Company Debt............................................................       38
        4.10    Divestment of Spanish Cable Business..........................................       38
        4.11    Ongoing Strategic Relationship................................................       39
        4.12    Spanish Cable Receivables ....................................................       39
        4.13    Service Level Arrangements....................................................       39
        4.14    Tax Step Up...................................................................       41

ARTICLE 5   CONDITIONS TO CLOSING.............................................................       43
        5.1     Conditions to Obligations of Each Party to Effect the Acquisition.............       43
        5.2     Additional Conditions to Obligations of Sellers...............................       43
        5.3     Additional Conditions to the Obligations of Purchaser.........................       44

ARTICLE 6 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS; INDEMNIFICATION..       46
        6.1     Survival of Representations, Warranties, Covenants and Agreements.............       46
        6.2     Indemnification...............................................................       46
        6.3     Indemnification Procedures....................................................       48
        6.4     Right of Offset...............................................................       49
        6.5     No Consequential Damages; Sole Remedy.........................................       49



                                       ii



                                                                                                  
ARTICLE 7   MISCELLANEOUS PROVISIONS..........................................................       50
        7.1     Notices.......................................................................       50
        7.2     Entire Agreement..............................................................       51
        7.3     Further Assurances; Post-Closing Cooperation..................................       51
        7.4     Waiver........................................................................       51
        7.5     Third Party Beneficiaries.....................................................       51
        7.6     No Assignment; Binding Effect.................................................       51
        7.7     Headings......................................................................       51
        7.8     Invalid Provisions............................................................       52
        7.9     Governing Law, Submission to Jurisdiction.....................................       52
        7.10    WAIVER OF TRIAL BY JURY.......................................................       52
        7.11    Construction..................................................................       52
        7.12    Counterparts..................................................................       53
        7.13    Specific Performance..........................................................       53

ARTICLE 8   DEFINITIONS.......................................................................       53
        8.1     Definitions...................................................................       53
        8.2     Construction..................................................................       61



EXHIBITS:

Exhibit A:      Notarial Deed
Exhibit B:      Subordinated Note
Exhibit C:      Pledge Agreement
Exhibit D:      Opinion of Karp, Frosh, Lapidus, Wigosky & Norwind, P.A.
Exhibit E:      Opinion of Allen Overy LLP
Exhibit F:      Trademark License

                                      iii



                            SHARE PURCHASE AGREEMENT

      This SHARE PURCHASE AGREEMENT, (this "Agreement") dated as of March 8,
2005, by and among (i) OPTELECOM, INC., a Delaware corporation ("Purchaser");
(II) DRAKA HOLDING, N.V., a limited liability company, incorporated in the
Netherlands, with corporate seat in Amsterdam, and address at Boorstraat 2, 1021
JZ, Amsterdam, the Netherlands ("Draka"); (III) NKF VASTGOED B.V., a private
company with limited liability, incorporated in the Netherlands, with corporate
seat in Delft, and address at Zuidelijk Halfrond 11, 2801 DD Gouda, the
Netherlands, a direct wholly-owned subsidiary of Draka ("Vastgoed" and together
with Draka, the "Sellers"); and (IV) NKF ELECTRONICS B.V., a private company
with limited liability, incorporated in the Netherlands, with corporate seat in
Amsterdam, and address at Zuidelijk Halfrond 11, 2801 DD, Gouda, the
Netherlands, a direct wholly-owned subsidiary of Vastgoed (the "Company").

      Capitalized terms used and not otherwise defined herein have the meanings
set forth in Article 8.

                                    RECITALS

      A. Vastgoed owns all of the issued and outstanding capital shares of the
Company.

      B. Purchaser desires to purchase and acquire from Sellers, and Sellers
desire to sell and transfer to Purchaser, all of the shares of "Company Capital
Shares" (as defined in Section 2.3(a)) which are issued and outstanding
immediately prior to the "Closing" (as defined in Section 1.2) for the
consideration, and upon the terms and subject to the conditions set forth in
this Agreement and the related documents to be executed and delivered in
connection herewith (the "Acquisition").

      C. The Company, Sellers and Purchaser desire to make certain
representations and warranties and to enter into certain covenants and
agreements in connection with the Acquisition.

      D. The Sellers and the Purchaser have complied with the provisions of
Chapter II of the Social and Economic Council Merger Regulation (SER- Besluit
Fusiegedragsregels 2000 ter bescherming van de belangen van werknemers) and the
works council of the Company has rendered positive advice regarding the sale of
the Company Capital Shares as defined below) to the Purchaser.

      NOW, THEREFORE, in consideration of the covenants, representations and
warranties set forth herein, intending to be legally bound hereby, the parties
agree as follows:



                                    ARTICLE 1
                                 THE ACQUISITION

      1.1 The Acquisition. Upon the terms and subject to the conditions set
forth in this Agreement and upon the representations and warranties made herein
by each of the parties to the other, on the Closing (as defined in Section 1.2),
Purchaser hereby purchases and acquires from Sellers, and Sellers hereby sell
and transfer to Purchaser, all shares of Company Capital Shares issued and
outstanding immediately prior to the Closing for and in exchange of the
"Acquisition Consideration" (as defined in Section 1.3). Transfer of the
aforesaid Company Capital Shares shall be effected by means of the execution of
a notarial deed of transfer of shares, materially in the form attached hereto as
Exhibit A (the "Notarial Deed") before one of the civil law notaries of De Brauw
Blackstone Westbroek (the "Notary"). Following the Closing, Purchaser shall own
all of the issued and outstanding equity and any other ownership interests of
the Company.

      1.2 Closing. The closing of the Acquisition (the "Closing"), which is
expected to take place on or about March 8, 2005, will take place upon
satisfaction or waiver of the conditions set forth in Article 5 of this
Agreement, at the offices of De Brauw Blackstone Westbroek, Burgerweeshuispad
301, 1070 AB Amsterdam, The Netherlands, unless another place or time is agreed
to by Purchaser and Draka.

      1.3 Acquisition Consideration. On the terms and subject to the conditions
set forth in this Agreement, Purchaser agrees to (i) pay the amounts set forth
in clauses (a) and (b) of this Section 1.3 to bank account(s) identified on
Schedule 1.3(a) attached hereto on the date scheduled for Closing, and,
immediately pursuant to the execution of the Notarial Deed (ii) procure the
execution and delivery of the Subordinated Note (as defined below) set forth in
clause (c) of this Section 1.3 (paragraphs (a) through (c) being collectively
referred to as the "Acquisition Consideration"). The Acquisition Consideration
shall be subject to post-closing adjustment in accordance with Section 1.4, and
shall be payable as follows:

            (a) Six Million Nine Hundred Twelve Thousand Euro ((euro) 6,912,000)
(the "Cash Payment") shall be deemed to have been paid to Sellers upon receipt
of a wire transfer of immediately available funds in such amount in accordance
with the instructions set forth on Schedule 1.3(a) attached hereto.

            (b) Four Million Eighty Eight Thousand Euro ((euro)4,088,000) shall
be deemed to have been paid to Sellers as payment and satisfaction in full of
all Inter-Company Debt (as defined in Section 4.9) owed to Sellers by the
Company, upon receipt of a wire transfer of immediately available funds in such
amount in accordance with the instructions set forth on Schedule 1.3(a) attached
hereto.

            (c) A Subordinated Promissory Note in the principal amount of Nine
Million Euro ((euro)9,000,000) (the "Subordinated Note"), a copy of which is
attached hereto as Exhibit B, shall be executed by Purchaser and delivered to
Draka immediately pursuant to the execution of the Notarial Deed.

                                       2



      1.4 Adjustment to Acquisition Consideration.

            (a) Within forty-five (45) days after the Closing Date, Purchaser
shall prepare and deliver to Draka a balance sheet of the Company as of the
Closing Date (the "Final Balance Sheet"). The Final Balance Sheet shall be
prepared in accordance with Dutch GAAP (except for the absence of notes and
normal year-end adjustments) and in a manner consistent with the Company's past
accounting practices and conventions and with the preparation of the balance
sheet of the Company as of September 30, 2004, prepared in accordance with Dutch
GAAP, a copy of which is attached as Schedule 1.4 hereto (the "September Balance
Sheet"), provided that the Final Balance Sheet shall reflect the repayment of
the Company's Inter-Company Debt immediately after the Closing. If within thirty
(30) days following delivery of the Final Balance Sheet, Draka does not give
Purchaser written notice of its objection to the Final Balance Sheet (such
notice must contain a statement of the basis of Draka's objection), then the
assets and liabilities reflected on the Final Balance Sheet shall be used in
computing any adjustment in the Acquisition Consideration pursuant to Sections
1.4(c) and (d). Purchaser shall provide Draka with reasonable access, subject to
the obligations of Sellers under Section 4.2(b) hereof, to all pertinent books
and records of the Company for a period of thirty (30) days following delivery
of the Final Balance Sheet solely for use in connection with Draka's review of
the Final Balance Sheet and shall cooperate, and shall use commercially
reasonable efforts to cause its independent public accountants to cooperate,
promptly with the reasonable requests of Draka in connection with such review.

            (b) If Draka gives Purchaser a timely written notice of objection to
the Final Balance Sheet, then Draka and Purchaser shall negotiate in good faith
to resolve the dispute and agree upon the Final Balance Sheet. If Draka and
Purchaser are not able to resolve such dispute within twenty (20) days after
Draka gives Purchaser written notice of its objection to the Final Balance
Sheet, the issue(s) in dispute will be submitted to an independent public
accounting firm of national standing in The Netherlands mutually agreed upon by
Purchaser and Draka (the "Auditor") for resolution. The determination of the
Auditor shall be set forth in a written notice delivered to Purchaser and Draka
by the Auditor and will be binding and conclusive on the parties. Purchaser and
Draka will each bear 50% of the fees and expenses of the Auditor for such
determination and shall each use all commercially reasonable efforts to cause
the Auditor to deliver its written notice of such determination not more than
thirty (30) days after submission of the matter to the Auditor. For purposes of
this Agreement, the term "Final Adjustment Date" shall mean either (i) the date
that is thirty (30) days after the delivery of the Final Balance Sheet if Draka
does not object to the Final Balance Sheet, or (ii) if Draka objects to the
Final Balance Sheet, the date that is ten (10) Business Days after the earlier
of (A) the date Purchaser and Draka mutually resolve such dispute, or (B) the
date the Auditor delivers written notice of its determination pursuant to this
Section 1.4(b).

            (c)For purposes of this Agreement, the term "Net Working Capital"
means the amount by which the current assets of the Company (excluding current
assets related to the Spanish Cable Business or the Solar Inverter Business and
excluding cash, current deferred tax assets and receivables over ninety (90)
days past invoice date) exceed the current liabilities of the Company (excluding
current liabilities related to the Spanish Cable Business or the Solar Inverter
Business and excluding the Company's Inter-Company Debt), all as shown on the
September Balance Sheet and the Final Balance Sheet, as applicable.
Notwithstanding the

                                       3



foregoing, any cash received by the Company on or after March 4, 2004 and prior
to Closing shall serve to reduce any adjustment in the Acquisition Consideration
in respect of any Negative Working Capital Amount (as defined in Section
1.4(c)(i)) and increase any adjustment in the Acquisition Consideration in
respect of any Positive Working Capital Amount (as defined in Section
1.4(c)(ii)).

                  (i) At such time as the Final Balance Sheet is finalized per
the foregoing provisions, if the Net Working Capital shown on the Final Balance
Sheet is less than the Net Working Capital shown on the September Balance Sheet
(such shortfall, if any, the "Negative Working Capital Amount"), the Acquisition
Consideration shall be decreased post-Closing by amending the Subordinated Note
to reduce the principal amount of the Subordinated Note in an amount equal to
the Negative Working Capital Amount.

                  (ii) At such time as the Final Balance Sheet is finalized per
the foregoing provisions, if the Net Working Capital shown on the Final Balance
Sheet is greater than the Net Working Capital shown on the September Balance
Sheet (such excess, if any, the "Positive Working Capital Amount"), the
Acquisition Consideration shall be increased post-Closing by amending the
Subordinated Note to increase the principal amount of the Subordinated Note in
an amount equal to the Positive Working Capital Amount.

            (d)For purposes of this Agreement, the term "Non-Current Assets"
means the amount by which the total assets of the Company (excluding assets
related to the Spanish Cable Business or the Solar Inverter Business and
excluding receivables over 90 days past invoice date) exceed the current assets
of the Company included in the calculation of Net Working Capital, all as shown
on the September Balance Sheet and the Final Balance Sheet, as applicable.

                  (i) At such time as the Final Balance Sheet is finalized per
the foregoing provisions, if the Non-Current Assets shown on the Final Balance
Sheet is less than the Non-Current Assets shown on the September Balance Sheet
(such shortfall, if any, the "Negative Non-Current Asset Amount"), the
Acquisition Consideration shall be decreased post-Closing by amending the
Subordinated Note to reduce the principal amount of the Subordinated Note in an
amount equal to the Negative Non-Current Asset Amount.

                  (ii) At such time as the Final Balance Sheet is finalized per
the foregoing provisions, if the Non-Current Assets shown on the Final Balance
Sheet is greater than the Non-Current Assets shown on the September Balance
Sheet (such excess, if any, the "Positive Non-Current Asset Amount"), the
Acquisition Consideration shall be increased post-Closing by amending the
Subordinated Note to increase the principal amount of the Subordinated Note in
an amount equal to the Positive Non-Current Asset Amount.

                                       4



                                    ARTICLE 2
              REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY

      Sellers, jointly and severally, hereby represent and warrant to Purchaser,
except as set forth in the disclosure schedule and schedule of exceptions (the
"Seller Disclosure Schedule") delivered herewith, as follows:

      2.1 Organization and Qualification. The Company is a private company with
limited liability duly organized, validly existing and in good standing under
the Laws of the Netherlands, and has requisite corporate power and authority to
conduct its business as now conducted and to own, use, license and lease its
Assets and Properties. Each of the Subsidiaries of the Company is a corporation
duly organized, validly existing and in good standing under the Laws of the
jurisdiction of its incorporation or formation, and has full corporate power and
authority to conduct its business as now conducted and to own, use, license and
lease its Assets and Properties. The Company and each of its Subsidiaries is
duly qualified, licensed or admitted to do business and is in good standing as a
foreign corporation in each jurisdiction in which the ownership, use, licensing
or leasing of its Assets and Properties, or the conduct or nature of its
business, makes such qualification, licensing or admission necessary. Section
2.1 of the Seller Disclosure Schedule sets forth each jurisdiction where the
Company and each of its Subsidiaries is so qualified, licensed or admitted to do
business and separately lists each other jurisdiction in which the Company or
any of its Subsidiaries owns, uses or leases from third parties substantial
tangible Assets and Properties, or has employees.

      2.2 Authority Relative to this Agreement. The Company has requisite
corporate power and authority to execute and deliver this Agreement and the
other agreements which are attached (or forms of which are attached) as exhibits
hereto (the "Ancillary Agreements") to which the Company is a party, to perform
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The Company's board of directors has approved
this Agreement. The execution and delivery by the Company of this Agreement and
the Ancillary Agreements to which the Company is or will become a party and the
consummation by the Company of the transactions contemplated hereby and thereby,
and the performance by the Company of its obligations hereunder and thereunder,
have been duly and validly authorized by all necessary action by the board of
directors of the Company, and no other action on the part of the board of
directors of the Company is required to authorize the execution, delivery and
performance of this Agreement and the Ancillary Agreements to which the Company
is or will become a party and the consummation by the Company of the
transactions contemplated hereby and thereby. This Agreement and the Ancillary
Agreements to which the Company is or will become a party have been or will be,
as applicable, duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery hereof (and, in the case
of the Ancillary Agreements to which Purchaser is a party, thereof) by, and
enforceability against, Purchaser, each constitutes or will constitute, as
applicable, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws relating to the
enforcement of creditors' rights generally and by general principles of equity.

                                       5



      2.3 Capitalization.

            (a) Shares; Equity Rights. Section 2.3(a) of the Seller Disclosure
Schedule sets forth, as of the date hereof, (i) the total number of authorized
shares (maatschappelijk kapitaal) of each class of shares of the Company (the
"Company Capital Shares"), (ii) the total number of issued and outstanding
shares (geplaatst kapitaal) of each class of Company Capital Shares, and (iii)
the names and addresses of all shareholders (aandeelhouders) of the Company,
together with the number of such issued and outstanding shares of Company
Capital Shares issued to and owned or controlled by each shareholder, whether
jointly, beneficially or otherwise. All of the issued and outstanding shares of
the Company Capital Shares (x) have been duly authorized and validly issued, and
are fully paid and non-assessable, (y) were issued or transferred in compliance
in all material respects with all applicable Laws, and (z) were issued in
compliance with any preemptive rights or rights of first refusal. There are no
outstanding share appreciations, phantom stock, profit participation or other
similar rights with respect to the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries is obligated to redeem or otherwise
acquire any of its outstanding shares of capital stock.

            (b) There are no outstanding or authorized rights, Options,
convertible securities, subscription rights, conversion rights, exchange rights
or other agreements or commitments of any kind that could require the Company or
the Sellers to issue or sell any shares of the Company Capital Shares (or
securities convertible into or exchangeable for shares of the Company Capital
Shares) and no such rights or commitments of any kind arise by virtue of or in
connection with the transactions contemplated hereby.

            (c) Except as required by Law there are no preemptive rights or
rights of first refusal agreements, arrangements or understandings with respect
to the Company Capital Shares created by the Governing Documents of the Company
or any agreement or other arrangement to which the Company is a party (written
or oral) or to which it is bound; and there are no agreements, arrangements or
understandings to which the Company is a party (written or oral) pursuant to
which the Company has the right to elect to satisfy any Liability by issuing
Company Capital Shares or Equity Equivalents, and no such rights arise by virtue
of or in connection with the transactions contemplated hereby.

            (d)Neither the Company nor any of its Subsidiaries is a party or
subject to any agreement or understanding, and there is no agreement,
arrangement or understanding between or among any Persons, which affects,
restricts or relates to voting, giving of written consents, dividend rights or
transferability of shares with respect to the Company Capital Shares or any
securities (however denominated) of any Subsidiary of the Company, including any
voting trust agreement or proxy. No debt securities of the Company or any of its
Subsidiaries are issued and outstanding.

      2.4 Subsidiaries. Except as disclosed in Section 2.4 of the Seller
Disclosure Schedule, the Company has no Subsidiaries and does not otherwise hold
any equity, membership, partnership, joint venture or other ownership interest
in any Person. The Company owns all of the outstanding capital stock of the
Subsidiaries set forth in Section 2.4 of the Seller Disclosure Schedule, free
and clear of any and all Liens and there are no outstanding Options to purchase
any of the capital stock or the securities of any such Subsidiary. For purposes
of this Agreement, each of the Company and its Subsidiaries listed in Section
2.4 of the Seller Disclosure Schedule

                                       6



shall be deemed to be a "Constituent Company" and collectively, shall be
referred to as the "Constituent Companies."

      2.5 Directors and Officers. The names of each director and officer of each
of the Constituent Companies on the date hereof, and his or her position with
such Constituent Company are listed in Section 2.5 of the Seller Disclosure
Schedule.

      2.6 No Conflicts. The execution and delivery by the Company of this
Agreement and the Ancillary Agreements to which the Company is a party does not,
and the performance by the Company of its obligations under this Agreement and
the Ancillary Agreements to which the Company is a party and the consummation of
the transactions contemplated hereby and thereby do not and will not:

            (a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the Governing Documents of any Constituent
Company;

            (b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Section 2.6(b) of the Seller
Disclosure Schedule, if any, conflict with or result in a violation or breach of
any Law or Order applicable to any Constituent Company or any of its Assets and
Properties;

            (c) except as disclosed in Section 2.6(c) of the Seller Disclosure
Schedule or as would not be material to the Constituent Companies, taken as a
whole, (i) conflict with or result in a violation or breach of, (ii) constitute
a default (or an event that, with or without notice or lapse of time or both,
would constitute a default) under, (iii) require any Constituent Company to
obtain any consent, approval or action of, make any filing with or give any
notice to any Person as a result or under the terms of (except such consents
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state or federal securities laws); (iv) result
in or give to any Person any right of termination, cancellation, acceleration or
modification in or with respect to, (v) result in or give to any Person any
additional rights or entitlement to increased, additional, accelerated or
guaranteed payments or performance under, (vi) result in the creation or
imposition of (or the obligation to create or impose) any Lien upon any
Constituent Company or any of its Assets and Properties under or (vii) result in
the loss of any benefit under, any of the terms, conditions or provisions of any
Contract or License to which any Constituent Company is a party or by which any
of the Assets and Properties of any Constituent Company is bound.

      2.7 Company Financial Statements. The Company Financials are included in
Section 2.7 of the Seller Disclosure Schedules. The Company Financials have been
prepared in accordance with Dutch GAAP and, with respect to the Audited
Financial Statements, have been audited by KPMG, LLP, the independent auditors
of the Company, and, to the knowledge of the Company have been prepared in
accordance with U.S. GAAS. The Company Financials present fairly the financial
condition and operating results of the Company as of the dates and during the
periods indicated therein.

                                       7



      2.8 Books and Records; Organizational Documents. Copies of the minute
books and share record books (aandeelhoudersregisters) of the Company and each
of the other Constituent Companies (a) have been provided or made available to
Purchaser or its counsel prior to the execution of this Agreement, and (b) are
complete and correct in all material respects. Such minute books contain a true
and complete record of all material actions taken at all meetings and by all
written consents in lieu of meetings of the directors, shareholders and
committees of the board of directors of each Constituent Company from the more
recent of (i) the applicable date of the incorporation or (ii) January 1, 1999
through the date hereof. The Company has prior to the execution of this
Agreement delivered to Purchaser or its counsel copies of the Governing
Documents of each Constituent Company, each as amended through the date hereof,
which copies are complete and correct. No Constituent Company is in violation in
any material respect of any provisions of its Governing Documents.

      2.9 Absence of Changes. Since the Financial Statement Date, except as set
forth in Section 2.9 of the Seller Disclosure Schedule or as reflected in the
Audited Financial Statements (including the notes to such Audited Financial
Statements), there has not been any occurrence or event which, individually or
in the aggregate, has had or is reasonably expected to have any material adverse
effect upon the Business or Condition of the Company. In addition, without
limiting the generality of the foregoing, except as expressly contemplated by
this Agreement or except as disclosed in Section 2.9 of the Seller Disclosure
Schedule, since the Financial Statement Date neither the Company nor any other
Constituent Company has:

            (a) entered into any Contract, commitment or transaction, other than
with Purchaser, or incurred any Liabilities outside of the ordinary course of
business consistent with past practice;

            (b) entered into any Contract, other than with Purchaser, as part of
a Business Combination;

            (c) altered or entered into any Contract or other commitment to
alter, its interest in any corporation, association, joint venture, partnership
or business entity or activity in which any Constituent Company directly or
indirectly holds any interest on the date hereof;

            (d) entered into any strategic alliance, joint development or joint
marketing Contract;

            (e) amended or modified (or agreed to do so) or violated in any
material respect any of the terms of, any of the Contracts set forth or
described in the Seller Disclosure Schedule;

            (f) entered into any material transaction, with any officer,
director, shareholder, Affiliate or Associate of any Constituent Company other
than pursuant to any Contracts disclosed to Purchaser pursuant to Sections 2.18
and 2.20 of the Seller Disclosure Schedule or other than pursuant to any
Contract of employment listed pursuant to Section 2.21 of the Seller Disclosure
Schedule; or made any other material change in employment terms of any of its
officers and employees outside the ordinary course of business and inconsistent
with past practice;

                                       8



            (g) entered into or amended in any material respect any Contract
pursuant to which any other Person is granted any material manufacturing,
marketing, distribution, licensing or similar rights with respect to any
products of any Constituent Company or any Company Intellectual Property, other
than as contemplated by the Contracts and Licenses disclosed in the Seller
Disclosure Schedule;

            (h) other than a dividend of the Company's distributable reserves in
an amount not in excess of Two Million Euro ((euro)2,000,000), declared or set
aside or paid any dividends on or made any other distributions (whether in cash,
shares or property) in respect of any Company Capital Shares, securities
(however denominated) of any Subsidiary of the Company, or Equity Equivalents,
or effected or approved any split, combination or reclassification of any
Company Capital Shares, securities (however denominated) of any Subsidiary of
the Company, or Equity Equivalents or issued or authorized the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
Company Capital Shares, securities (however denominated) of any Subsidiary of
the Company, or Equity Equivalents, or repurchased, redeemed or otherwise
acquired, directly or indirectly, any shares of Company Capital Shares,
securities (however denominated) of any Subsidiary of the Company, or Equity
Equivalents;

            (i) (I) issued, granted, delivered, sold or offered to issue, grant,
deliver or sell, or purchased or offered to purchase, any shares of Company
Capital Shares, securities (however denominated) of any Subsidiary of the
Company, or Equity Equivalents, (II) modified or amended the rights of any
holder of any outstanding shares of Company Capital Shares, securities (however
denominated) of any Subsidiary of the Company, or Equity Equivalents, or (III)
entered into any agreements, arrangements, plans or understandings obligating
any Constituent Company to make any such modification or amendment;

            (j) amended any Constituent Company's Governing Documents;

            (k) [Intentionally Omitted]

            (l) made or agreed to make any material disposition or sale of,
waiver of rights to, license or lease of, or incurrence of any Lien on any
Assets and Properties of any Constituent Company other than dispositions of
inventory, or nonexclusive licenses of Assets or Properties in the ordinary
course of business of such Constituent Company consistent with past practice;

            (m) made or agreed to make any purchase of any Assets and Properties
of any Person other than (i) acquisitions of inventory, or licenses of Assets or
Properties, in the ordinary course of business of the Constituent Company
consistent with past practice, and (ii) other acquisitions in an amount not
exceeding seventy-five thousand Euro ((euro)75,000) in the case of any
individual item or one hundred twenty thousand Euro ((euro)120,000) in the
aggregate;

            (n) made or agreed to make any capital expenditures or commitments
for additions to property, plant or equipment of any Constituent Company, in the
aggregate in an amount exceeding sixty-five thousand Euro ((euro)65,000);

                                       9



            (o) made or agreed to make any write-off or write-down, any
determination to write off or write-down, or revalue, any of the Assets and
Properties of any Constituent Company or change any reserves or Liabilities
associated therewith, in the aggregate in an amount exceeding forty thousand
Euro ((euro)40,000);

            (p) made or agreed to make payment, discharge or satisfaction, in an
amount in excess of thirty-five thousand Euro ((euro)35,000), in any one case,
or one hundred thousand Euro ((euro)100,000) in the aggregate, of any claim,
Liability or obligation (whether absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction in
the ordinary course of business of Liabilities reflected or reserved against in
the Audited Financial Statements and other than Liabilities incurred in the
ordinary course of business since the Financial Statement Date;

            (q) failed to pay or otherwise satisfy any material Liability
presently due and payable of any Constituent Company (other than delays in the
ordinary course of such Constituent Company's business consistent with past
practices that will not have a material adverse effect on the Business or
Condition of the Company), except any such Liability which is being contested in
good faith by appropriate means or procedures;

            (r) issued or sold any debt securities (other than securities
evidencing the Inter-Company Debt) of any Constituent Company or guaranteed any
debt securities of others;

            (s) granted any severance or termination pay to any director,
officer employee or consultant, except payments made pursuant to written
Contracts, copies of which have been delivered to Purchaser and which are
disclosed in Section 2.9(s) of the Seller Disclosure Schedule;

            (t) granted or approved any increase of greater than five percent
(5%) in salary, rate of commissions, rate of consulting fees or any other
compensation of any current or former officer, director, shareholder, employee,
independent contractor or consultant of any Constituent Company, or paid or
agreed or made any commitment to pay any discretionary or stay bonus;

            (u) paid or approved the payment of any consideration of any nature
whatsoever to any current or former officer, director, shareholder, employee,
independent contractor or consultant of any Constituent Company (other than
salary, commissions or consulting fees and customary benefits paid, in the
ordinary course of business consistent with past practice, to any current or
former officer, director, shareholder, employee, independent contractor or
consultant of any Constituent Company) in an amount in excess of twenty-five
thousand Euro ((euro)25,000) in any individual case or fifty thousand Euro
((euro)50,000) in the aggregate;

            (v) adopted, entered into, amended, modified or terminated
(partially or completely) any Plan;

                                       10



            (w) made any change in accounting policies, principles, methods,
practices or procedures (including for bad debts, contingent liabilities or
otherwise, respecting capitalization or expense of research and development
expenditures, depreciation or amortization rates or timing of recognition of
income and expense);

            (x) commenced or terminated, or made any material change in, any
line of business or products;

            (y) incurred any physical damage, destruction or other casualty loss
(whether or not covered by insurance) affecting any of the real or personal
property or equipment of any Constituent Company in the aggregate in an amount
exceeding ten thousand Euro ((euro)10,000); or

            (z) entered into or approved any contract, arrangement or
understanding or acquiesced in respect of any arrangement or understanding to
do, engage in, or cause or having the effect of any of the foregoing, including
with respect to any Business Combination not otherwise restricted by the
foregoing paragraphs.

      2.10 No Undisclosed Liabilities. Except as reflected or reserved against
in the Audited Financial Statements (including the notes thereto) there are no
material Liabilities of the Constituent Companies or material Liabilities or
Liens affecting any of their respective Assets and Properties (other than the
Inter-Company Debt and Liabilities incurred in the ordinary course of business
consistent with past practice).

      2.11 Taxes.

            (a) All Tax Returns required to have been filed by or with respect
to any Constituent Company have been duly and timely filed (including any
extensions), all notices have been given, all other information required to be
supplied has been supplied to all relevant Tax Authorities and all records
required to be maintained for Tax purposes have been maintained by the Company
and each other Constituent Company. Each Tax Return correctly and completely
reflects the Tax Liabilities in all material respects and all other information
required to be reported thereon. All such Tax Returns are true, complete and
correct in all material respects and so far as the Sellers are aware are not
likely to reveal any transactions which may be the subject of any dispute with,
or any enquiry raised by, any Tax Authority. All Taxes due and payable by any
Constituent Company, whether or not shown on any Tax Return, or claimed to be
due by any Tax Authority, for periods (or portions of periods) covered by the
Company Financials, have been paid or accrued on the balance sheet included in
the Audited Financial Statements.

            (b)Since the Financial Statement Date:

                  (i) no Constituent Company has incurred any material Liability
                  for Taxes other than Tax Liabilities incurred in the ordinary
                  course of such Constituent Company's business.

                                       11



                  (ii) no expense has been paid or accrued by any Constituent
                  Company which will not be deductible for the purpose of
                  Corporate Income Tax, either in computing the profits of such
                  Constituent Company or in computing the Corporate Income Tax
                  or corresponding Tax chargeable on it.

                  (iii) no disposal has taken place or other Event occurred
                  which has or may have the effect of causing the recognition of
                  a Tax Liability which, if such disposal or Event had been
                  planned or predicted at the Last Company Financials Date,
                  should have been reflected in the provision for deferred Tax
                  contained in the Last Company Financials.

                  (iv) No Event has occurred which has or may have the effect of
                  prejudicing any Relief taken into account in computing or
                  eliminating the provision for deferred Tax contained in the
                  Last Company Financials. The unpaid Taxes of the Constituent
                  Companies did not, as of the Last Company Financials Date,
                  exceed by any material amount the reserve for Liability for
                  Corporate Income Tax (other than the reserve for deferred
                  Taxes established to reflect timing differences between book
                  and tax income) or other Tax set forth in the balance sheet
                  included in the Last Company Financials.

            (c) None of the Constituent Companies is a party to any agreement
extending the time within which to file any Tax Return, other than standard
extensions of filing dates. No claim has ever been made by a Tax Authority of
any jurisdiction in which any Constituent Company does not file Tax Returns that
such Constituent Company is or may be subject to taxation by that jurisdiction.

            (d) All amounts payable to any Tax Authority in respect of any
employee (including executive directors (bestuurders) and non-executive
directors (commissarissen), and including any Tax deductible from any amounts
paid to a (deemed) employee, and any national insurance, social fund or similar
contributions required to be made in respect of employees) due and payable by
any Constituent Company up to the date hereof have been duly paid and the
Constituent Company has made all such deductions and retentions as should have
been made under applicable laws or regulations.

            (e) None of the Constituent Companies is involved in any current
dispute with any Tax Authority. So far as Sellers or the Company is aware, there
is no planned investigation, audit or visit by any Tax Authority and there are
no facts that might cause such an investigation, audit or visit to be
instituted. Section 2.11(e) of the Seller Disclosure Schedule indicates those
Tax Returns, if any, of any Constituent Company that have been audited or, to
Sellers' or the Company's knowledge, examined by Tax Authorities, and indicates
those Tax Returns of any Constituent Company that currently are the subject of
audit or examination. The Company has delivered to Purchaser complete and
correct copies of all Tax Returns filed by or with respect to, and all Tax
examination reports and statements of deficiencies assessed against or agreed to
by or with respect to, the Constituent Companies.

                                       12



            (f) There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Returns required to be
filed by, or which include or are treated as including, any Constituent Company
or with respect to any Tax assessment or deficiency affecting any Constituent
Company.

            (g) None of the Constituent Companies has received any special
arrangement (being an arrangement which is not directly based on relevant
legislation, even if based on published practice, including rulings and
agreements with the Tax Authorities) or entered into any agreement with, a Tax
Authority relating to Taxes.

            (h) None of the Constituent Companies is and none will become liable
to pay, or make reimbursement or indemnity in respect of, any Tax in consequence
of the failure by any other Person to discharge that Tax within any specified
period or otherwise, where such Tax relates to income, profits or gains, earned,
accrued or received, or to any Event, transaction or circumstance occurring or
arising or deemed to occur or arise (whether wholly or partly) prior to Closing.

            (i) None of the Constituent Companies is a party to or bound by any
obligations under any tax sharing, tax allocation, tax indemnity or similar
agreement or arrangement.

            (j) No Relief has been claimed by and/or given to any Constituent
Company, or taken into account in determining or eliminating any provision for
Tax or deferred Tax in the Last Company Financials, which could or might be
effectively withdrawn, postponed, restricted or otherwise lost as a result of
the sale and purchase hereunder or any other Event or circumstance occurring or
arising at any time after the Last Company Financials Date.

            (k) None of the Constituent Companies has been a party to any
transaction or series of transactions which is or forms part of a scheme for the
avoidance of Tax or which can reasonably be considered as such.

            (l) All losses, interest and other sums of an expense nature paid,
payable or accruable by any Constituent Company and all sums payable or
accruable under any obligation incurred by such Constituent Company prior to
Closing and which will continue to bind the Constituent Company after Closing,
have been and will continue to be deductible for the purposes of Corporate
Income Tax, either in computing the profits of the Constituent Company or in
computing the Corporate Income Tax chargeable on it.

            (m) No claim has been made by any of the Group Companies for the
depreciation and amortisation of any asset for Tax purposes, which is likely to
be disallowed.

            (n) All material transactions between any Constituent Company and a
related company as mentioned in article 8b Corporate Income Tax Act, have been
and are on fully arm's length terms. There are no circumstances that could cause
any Tax Authority to make any adjustment for Tax purposes, or require any such
adjustment to be made, to the terms on which any such transaction is treated as
taking place, and no such adjustment has been made or attempted in fact.

                                       13



            (o) Each of the Constituent Companies is registered for the purposes
of VAT, has been so registered at all times that it has been required to be
registered by VAT legislation, and such registration is not subject to any
conditions imposed by or agreed with the relevant Tax Authority. Each
Constituent Company obtains credit for all input Tax paid or suffered by it.
None of the Constituent Companies is or has been treated as a member of a group
for the purposes of VAT legislation, and none has applied for such treatment,
nor is it or has it been subject under VAT legislation to any penalty, fine or
surcharge, or any warning or notice which could (whether with or without other
Events) lead to the imposition of any penalty, fine or surcharge, and has not
been required to give any security as a condition of making supplies for the
purposes of VAT.

            (p) All duties, fees and penalties payable in respect of the capital
of each Constituent Company (including any premium over nominal value at which
any share was issued) have been duly accounted for and paid, and there are no
circumstances under which any Relief obtained against payment of any such amount
could be withdrawn, in particular but not limited to a Relief claimed under
Article 37 of the Legal Transfer Taxes Act except as would not be material in
amount.

            (q) Since its respective inception, no Constituent Company or any
director or officer of any Constituent Company (in his capacity as such) has
paid or become liable to pay, and there are no circumstances by reason of which
it or they may become liable to pay to any authority, any penalty, fine,
surcharge or interest in respect of Tax, including in respect of any failure to
make any return, give any notice or supply any information to any relevant Tax
Authority, or any failure to keep or preserve any records or to pay Tax on the
due date for payment and including circumstances where any such penalty, fine,
surcharge or interest in respect of Tax would have been due but for the reason
that (i) it concerned a first time event or (ii) the relevant Tax Authority
waived its right to impose the penalty, fine, surcharge or interest.

            (r) No transaction in respect of which any consent or clearance was
required or sought from any Tax Authority has been entered into or carried out
by any Constituent Company.

      2.12 Legal Proceedings. Except as set forth in Section 2.12 of the Seller
Disclosure Schedule:

            (a) there are no Actions or Proceedings pending or, to the knowledge
of Sellers or the Company, threatened, against or adversely affecting any
Constituent Company or any of its Assets and Properties;

            (b) Neither Sellers nor the Company has received written notice or
otherwise has knowledge of any Orders outstanding against any Constituent
Company;

            (c) Section 2.12(c) of the Seller Disclosure Schedule sets forth all
Actions or Proceedings pending against, or, to the knowledge of Sellers or the
Company, threatened against, any Constituent Company, or any of its Assets and
Properties during the three-year period prior to the date hereof.

                                       14



      2.13 Compliance with Laws and Orders. Except as disclosed in Section 2.13
of the Seller Disclosure Schedule, since the incorporation of the Company or
such other Constituent Company, neither the Company nor any of the other
Constituent Companies nor any of their respective directors, officers,
Affiliates, agents or employees has violated in any material respect or is
currently in default or violation in any material respect under, any Law or
Order applicable to any Constituent Company or any of its Assets and Properties,
and the Company has not received written notice of any claim of violation, or of
any actual violation, of any such Laws and Orders by any Constituent Company
since the incorporation or formation of such Constituent Company other than
matters resolved finally pursuant to appropriate legal proceedings. Except as
set forth in Section 2.13 of the Seller Disclosure Schedule, each Constituent
Company has obtained all Approvals from Governmental or Regulatory Authorities
necessary to conduct the business conducted by such Constituent Company in the
manner as it is currently being conducted and there has been no written notice
received by any Constituent Company of any material violation or non-compliance
with any such Approvals. All Approvals from Governmental or Regulatory
Authorities necessary to conduct the business conducted by each Constituent
Company as it is currently being conducted are set forth in Section 2.13 of the
Seller Disclosure Schedule.

      2.14 Employee Benefits.

            (a)The plans and arrangements listed in Section 2.14(a) of the
Seller Disclosure Schedule constitute all of the retirement benefit arrangements
applicable to the employees employed by the Constituent Companies (the "Company
Pension Plans").

            (b)All of the Plans of the Company and any other Constituent Company
are listed on Section 2.14(a) of the Seller Disclosure Schedule. Copies of all
such Plans have been provided to Purchaser. Each Plan has been maintained and
administered in compliance in all material respects with its terms and with the
requirements prescribed by any and all Laws applicable to such Plan, including,
without limitation, government taxation or funding requirements. No Action or
Proceeding (excluding claims for benefits incurred in the ordinary course of
Plan activities) has been brought, or to the knowledge of Sellers or the
Company, is threatened, against or with respect to any such Plan. All
contributions, reserves or premium payments required to be made or accrued as of
the date hereof to the Plans have been made or accrued. All material reports,
returns, forms and notices required to be filed with any Government or
Regulatory Authority or furnished to participants or beneficiaries with respect
to the Plans under any applicable Law have been so filed and furnished.

            (c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including without limitation severance, unemployment compensation,
bonus or otherwise) becoming due to any director, officer or employee of any
Constituent Company under any Plan or otherwise, (ii) result in a payment or
benefit becoming due to any director, officer or employee of any Constituent
Company under any Plan, (iii) materially increase any benefits otherwise payable
under any Plan, or (iv) result in the acceleration of the time of payment or
vesting of any such benefits.

                                       15



            (d) With respect to each Company Pension Plan: (i) the Company
Pension Plan complies in all material respects with the applicable Laws of The
Netherlands; (ii) all past service commitments and pension contributions have
been paid as of the date hereof; (iii) Section 2.14(d) of the Seller Disclosure
Schedule lists all of the Company employees who are participants in the Company
Pension Plans; (iv) no waivers have been signed by employees of the Company
indicating that they do not want to participate in the Company Pension Plan; (v)
there are no Actions or Proceedings concerning pensions pending and, to the
knowledge of Sellers or the Company, there are no such Actions or Proceedings
threatened; (vi) male and female employees at all times have been treated equal
under the Company Pension Plan; and (vii) the Company Pension Plan has not been
amended since its inception.

      2.15 Real Property.

            (a) Neither the Company nor any Constituent Company owns any real
property. Section 2.15(a) of the Seller Disclosure Schedule contains a true and
correct list of (i) each parcel of real property leased and/or operated by the
Company and any other Constituent Company (the "Company Real Property").

            (b) The Company or other pertinent Constituent Company has a valid
leasehold interest in each of the leased real properties. Each lease referred to
in Section 2.15(a) is a legal, valid and binding agreement, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar Laws relating to the enforcement of creditors' rights generally
and by general principles of equity, against the Company or other pertinent
Constituent Company, and, to the knowledge of the Company and Sellers, of each
other Person (other than any Constituent Company) that is a party thereto, and
there is no, and the Company has not received written notice of any, default (or
any condition or event which, after notice or lapse of time or both, would
constitute a default) thereunder.

            (c) All improvements on the Company Real Property (i) comply with
and are operated in accordance in all material respects with applicable Laws
(provided that this representation does not apply to Environmental Laws, which
matters are covered under Section 2.22 hereof) and all applicable Liens,
Approvals, Contracts, covenants and restrictions and (ii) are in good operating
condition and in a state of good maintenance and repair, ordinary wear and tear
excepted, and such improvements are adequate and suitable for the purposes for
which they are presently being used and there are no condemnation or
appropriation proceedings pending or, to the knowledge of Sellers or the
Company, threatened against any of such real property or the improvements
thereon.

            (d) Copies of the documents under which the Company Real Property is
leased, subleased (to or by any Constituent Company), utilized, and/or operated
(the "Real Property Documents") have been delivered to Purchaser and such copies
are complete and

                                       16



correct in all material respects. The Real Property Documents are unmodified and
in full force and effect against the Constituent Company a party thereto and, to
the Company's knowledge, against each other party thereto, and there are no
other Contracts between any Constituent Company or any other Affiliate of
Sellers and any third party(ies) claiming an interest in the Company Real
Property or otherwise relating to the use and occupancy of the Company Real
Property, other than as disclosed in Section 2.15(d) of the Seller Disclosure
Schedule.

      2.16 Tangible Personal Property. The Company is in possession of and has
valid title to, or has valid leasehold interests in or valid rights under
Contract to use, all tangible personal property used in the conduct of its
business, including all tangible personal property reflected on the Company
Financials and tangible personal property acquired since the date of the Company
Financials, other than property disposed of since such date in the ordinary
course of business consistent with past practice. Except for purchase money
liens on equipment purchases or product purchases in the ordinary course of the
Company's business for which the purchase price is not yet due and payable, all
such tangible personal property (including plant, property and equipment) is
free and clear of all Liens and is suitable in all material respects for the
conduct by each Constituent Company of its business as presently conducted, and
is in good working order and condition, ordinary wear and tear excepted, and its
use complies in all material respects with all applicable Laws.

      2.17 Intellectual Property.

            (a) Section 2.17(a) of the Seller Disclosure Schedule lists all
Company Registered Intellectual Property and lists any proceedings or actions
pending as of the date hereof before any Governmental or Regulatory Authority
related to any of the Company Registered Intellectual Property.

            (b) The Company has all requisite right, title and interest in or
valid and enforceable rights under Contracts or Licenses to use all Company
Intellectual Property. Each item of Company Intellectual Property of the
Company, including all Company Registered Intellectual Property listed in
Section 2.17(a) of the Seller Disclosure Schedule, is owned exclusively by the
Company (excluding Intellectual Property licensed to the Company under any
License) and is free and clear of any Liens. The Company (i) own exclusively or
has sufficient right to use all trademarks, service marks and trade names used
by the Company in connection with the operation or conduct of the business of
the Company as presently conducted, including the sale of any products or
technology or the provision of any services by the Company; provided, however,
that the Company may use trademarks, service marks and trade names of third
parties which are licensed to the Company or are in the public domain, and (ii)
own exclusively or has sufficient right to use each copyrighted work that is a
Company product and each other work of authorship that the Company otherwise
purports to own or to have the right to use.

            (c) To the extent that any Company Intellectual Property has been
developed or created by any Person other than the Company, the Company has a
written agreement with such Person with respect thereto and the Company has
either (i) obtained ownership of, and is the exclusive owner of, all such
Intellectual Property by operation of law or by valid assignment

                                       17



of any such rights or (ii) has obtained a License under or to such Intellectual
Property.

            (d) Since its inception, the Company has not transferred ownership
of or granted any License of or other right to use or authorized the retention
of any rights to use any Company Intellectual Property that is necessary to the
conduct of the business as presently conducted..

            (e) The Company Intellectual Property constitutes all the
Intellectual Property used in and/or necessary to the conduct of the Company's
business as currently conducted, including the design, development,
distribution, marketing, manufacture, use, import, license, and sale of the
products, technology and services of the Company.

            (f) Section 2.17(f) of the Seller Disclosure Schedule lists all
Contracts and Licenses (including all inbound Licenses) to which the Company or
any other Constituent Company is a party with respect to any Intellectual
Property. No Person other than the Company has ownership rights to improvements
made by the Company in Intellectual Property which has been licensed to the
Company or any other Constituent Company.

            (g) Section 2.17(g) of the Seller Disclosure Schedule lists all
Contracts, Licenses and agreements between any Constituent Company and any other
Person wherein or whereby the Constituent Company has agreed to, or assumed, any
obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or
otherwise assume or incur any obligation or Liability, or provide a right of
rescission, with respect to the infringement or misappropriation by the
Constituent Company or such other Person of the Intellectual Property of any
Person other than the Constituent Company.

            (h) The operation of the business of the Company and each other
Constituent Company as currently conducted, including the design, development,
use, import, manufacture and sale of the products, technology or services
(including products, technology or services currently under development) of the
Company and each other Constituent Company, does not (i) infringe or
misappropriate the Intellectual Property of any Person, (ii) violate any
material term or provision of any License or Contract concerning such
Intellectual Property, (iii) violate the rights of any Person (including rights
to privacy or publicity), or (iv) constitute unfair competition or an unfair
trade practice under any Law. The Company has not received written notice from
any Person claiming that such operation or any act, product, technology or
service (including products, technology or services currently under development)
of the Company or any other Constituent Company infringes or misappropriates the
Intellectual Property of any Person or constitutes unfair competition or trade
practices under any Law, including notice of infringement of third-party patent
or other Intellectual Property rights from a potential licensor of such rights.

            (i) To the Company's knowledge, each item of Company Registered
Intellectual Property which has been registered is valid and subsisting. All
necessary registration, maintenance, renewal fees, annuity fees and taxes in
connection with such Registered Intellectual Property have been paid and all
necessary documents and certificates in connection with such Registered
Intellectual Property have been filed with the relevant patent,

                                       18



copyright, trademark or other authorities in the United States, the Netherlands
or any other jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property. Section 2.17(i) of the Seller Disclosure
Schedule lists all actions that must be taken by the Company within ninety (90)
days from the date hereof, including the payment of any registration,
maintenance, renewal fees, annuity fees and taxes or the filing of any
documents, applications or certificates for the purposes of maintaining,
perfecting or preserving or renewing any Company Registered Intellectual
Property. Except as set forth in Section 2.17(i) of the Seller Disclosure
Schedule, the Company has registered the copyright with the relevant
Governmental or Regulatory Authority for each product or technology of any
Constituent Company that constitutes or includes a copyrightable work. In each
case in which a Constituent Company has acquired by written assignment ownership
of any Intellectual Property from any Person, the Constituent Company has
obtained an assignment sufficient to irrevocably transfer all rights in such
Intellectual Property to such Constituent Company in accordance with applicable
Laws, and the Constituent Company has recorded each such assignment of
Registered Intellectual Property with the relevant Governmental or Regulatory
Authority.

            (j) There are no Contracts or Licenses between any Constituent
Company and any other Person with respect to Company Intellectual Property under
which there is any dispute (or, to Sellers' or the Company's knowledge, facts
that may reasonably lead to a dispute) regarding the scope of such Contract or
License, or performance under such Contract or License, including with respect
to any payments to be made or received by the Constituent Company thereunder.

            (k) To the Company's knowledge, no Person is infringing or
misappropriating any Company Intellectual Property.

            (l) Each Constituent Company has taken commercially reasonable steps
to protect its rights in confidential information and trade secrets of such
Constituent Company or provided by any other Person to such Constituent Company
subject to a duty of confidentiality. Without limiting the generality of the
foregoing, each Constituent Company has, and enforces, a policy requiring each
employee, consultant and independent contractor to execute proprietary
information, confidentiality and invention and copyright assignment agreements
substantially in the form set forth in Section 2.17(l) of the Seller Disclosure
Schedule, and all current and former employees, consultants and independent
contractors of such Constituent Company have executed such an agreement and
copies of all such agreements have been provided to Purchaser or made available
to Purchaser for review.

            (m) No Company Intellectual Property or product, technology or
service of the Company or any other Constituent Company is subject to any Order,
Action or Proceeding that restricts, or that is reasonably expected to restrict
in any manner, the use, transfer or licensing of any Company Intellectual
Property by the Company or such other Constituent Company or that may affect the
validity, use or enforceability of such Company Intellectual Property.

            (n) No (i) product, technology, service or publication of any
Constituent Company, (ii) material published or distributed by any Constituent
Company, or (iii) conduct or statement of any Constituent Company constitutes
obscene material, a defamatory statement or

                                       19



material, false advertising or otherwise violates any Law.

            (o) Neither this Agreement nor any transactions to be accomplished
pursuant to this Agreement will result in Purchaser's granting any rights or
licenses with respect to the Intellectual Property of Purchaser to any Person
pursuant to any Contract to which any Constituent Company is a party or by which
any of its Assets and Properties are bound.

            (p) Section 2.17(p) of the Seller Disclosure Schedule sets forth a
list of (i) all software which any Constituent Company has licensed from any
third party which is used by the Constituent Company in its products or
otherwise in its business (other than off-the-shelf software) and (ii) a list of
all "freeware" and "shareware" incorporated into any product now or heretofore
shipped by any Constituent Company. Such Constituent Company has all rights
necessary to the use of such software, "freeware" and "shareware".

            (q) The products of each Constituent Company comply with all
applicable standards and with the feature specifications and performance
standards set forth in the product data sheets of the Constituent Company. There
are no outstanding claims (or facts known to the Company that are likely to lead
to a claim) for breach of warranties by any Constituent Company in connection
with the foregoing. All material product performance comparisons heretofore
furnished by any Constituent Company to customers or Purchaser are accurate in
all material respects as of the dates so furnished (except that, in the case of
product performance comparisons made as of a specified earlier date, such
comparisons shall be accurate in all material respects as of such specified
earlier date, and, in the case of product performance comparisons superseded by
a subsequent product performance comparison furnished to the customer before the
customer's acquisition of a product or License on the product covered by the
superseded comparison, the superseding comparison shall be accurate in all
materials respects and the superseded comparison shall be disregarded).

            (r) Each Constituent Company has taken all commercially reasonable
steps to protect and preserve ownership of Company Intellectual Property. Each
Constituent Company has secured valid written assignments from all consultants
and employees who contributed to the creation or development of the Company
Intellectual Property. In the event that the consultant is concurrently employed
by any Constituent Company and a third party, the Constituent Company has taken
reasonable steps to ensure that any Company Intellectual Property developed by
such a consultant does not belong to the third party or conflict with the third
party's employment agreement.

      2.18 Contracts.

            (a) Section 2.18(a) of the Seller Disclosure Schedule contains a
true and complete list of each of the Contracts (true and complete copies or, if
none, reasonably complete and accurate written descriptions of which, together
with all amendments and supplements thereto and all waivers of any terms
thereof, have been made available to Purchaser prior to the execution of this
Agreement except as listed in Section 2.18(a) of the Seller Disclosure Schedule)
to which any Constituent Company is a party or by which any of its Assets and
Properties are bound and pursuant to which any such Constituent Company is
obligated to make

                                       20



payments or to deliver products or services having a fair market value in excess
of ten thousand Euro ((euro)10,000) (other than purchase orders received in the
ordinary course of business).

            (b) Each Contract disclosed in Section 2.18(a) of the Seller
Disclosure Schedule constitutes a legal, valid and binding agreement of the
pertinent Constituent Company and, to the knowledge of the Company and Sellers,
of each other Person (other than any Constituent Company) which is a party
thereto, enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar Laws relating to the enforcement of creditors'
rights generally and by general principles of equity. To the Company's
knowledge, each Contract in Section 2.18(a) of the Seller Disclosure Schedule is
in full force and effect. To the knowledge of Sellers or the Company no other
party to such Contract is in material violation or breach of or default under
any such Contract (or with notice or lapse of time or both, would be in material
violation or breach of or default under any such Contract).

            (c) None of the Constituent Companies is a party to or bound by any
Contract that (i) automatically terminates or allows termination by the other
party thereto upon consummation of the transactions contemplated by this
Agreement or (ii) contains any covenant or other provision which limits any
Constituent Company's ability to compete with any Person in any line of business
or in any area or territory.

      2.19 Insurance.

            (a) The Constituent Companies have been, and at all times prior to
the Closing Date will be, insured pursuant to policies that are in amounts and
which provide coverages that are reasonable and customary for Persons engaged in
similar businesses and operations and having similar Assets and Properties.

            (b) Since January 1, 2002, there have not been any claims made under
any insurance policies covering any Constituent Company.

      2.20 Affiliate Transactions. Except as disclosed in Section 2.9(f) or
Section 2.20(a) of the Seller Disclosure Schedule and other than inter-company
purchases and sales in the ordinary course of business conducted on arm's length
terms, (i) there are no Contracts or Liabilities between any Constituent
Company, on the one hand, and (A) any current or former officer, director,
shareholder, or any Affiliate or Associate of any Constituent Company or (B) any
Person who is an Associate of any such officer, director, shareholder or
Affiliate, on the other hand, (ii) no Constituent Company provides or causes to
be provided any Assets and Properties, services or facilities to any such
current or former officer, director, shareholder, Affiliate or Associate, (iii)
neither any Constituent Company, nor any such current or former officer,
director, shareholder, Affiliate or Associate provides or causes to be provided
any Assets and Properties, services or facilities to Constituent Company and
(iv) none of the Constituent Companies beneficially owns, directly or
indirectly, any Investment Assets of any such current or former officer,
director, shareholder, Affiliate or Associate.

                                       21



      2.21 Employees; Labor Relations.

            (a) There are no unfair labor practice, labor arbitration or court
proceedings pending with respect to any Constituent Company, or to the knowledge
of Sellers or the Company, threatened, against any Constituent Company with
respect to any material claim relating to any Constituent Company's labor
practices. To the knowledge of the Company, there are no organizational efforts
presently underway or threatened involving any employees of any Constituent
Company. There has been no work stoppage, strike or other concerted action by
employees of any Constituent Company nor has the Company received written notice
of any pending or threatened work stoppage, strike or other concerted action by
employees.

            (b) Section 2.21(b) of the Seller Disclosure Schedule sets forth a
list of the unions which represent employees of the Constituent Companies.
Section 2.21(b) of the Seller Disclosure Schedule sets forth, individually, the
date of birth of each officer and employee together with such person's date of
commencement of service. The completion of the transactions contemplated by this
Agreement will not result in any payment or increased payment becoming due from
any Constituent Company to any current or former officer, director, or employee
of such Constituent Company.

            (c) Since each Constituent Company's inception, there have been no
claims based on sex, sexual or other harassment, age, disability, race or other
discrimination or other employment claims, including claims of wrongful
termination, against such Constituent Company by any employees of such
Constituent Company. Each Constituent Company has complied in all material
respects with all Laws related to the employment of employees and, within the
last three (3) years, no Constituent Company has received any written notice
from a Governmental or Regulatory Authority of any claim that it has not
complied with any Laws relating to the employment of employees, including any
provisions thereof relating to wages, hours, collective bargaining, the payment
of social security and similar Taxes, equal employment opportunity, employment
discrimination, employee safety, or that it is liable for any arrearages of
wages or any Taxes or penalties for failure to comply with any of the foregoing.

            (d) Sellers have provided to Purchaser copies of all written
policies and/or employee handbooks or manuals of the Constituent Companies,
which copies are complete and correct in all material respects.

            (e) No officer or employee of any Constituent Company is obligated
under any Contract or other agreement or subject to any Order or Law that
interferes with the Constituent Company's business as currently conducted.
Neither the execution nor delivery of this Agreement, nor the carrying on of the
Company's business as presently conducted nor any activity of such officers,
employees or consultants in connection with the carrying on of the Company's
business as presently conducted, will conflict with or result in a breach of the
terms, conditions or provisions of, constitute a default under, or trigger a
condition precedent to any rights under any Contract or other agreement under
which any of such officers, employees or consultants is now bound.

                                       22



      2.22 Environmental Matters.

            (a) Each Constituent Company possesses any and all material
Environmental Permits necessary to or required for the operation of its
businesses.

            (b) Each Constituent Company is in compliance in all material
respects with (i) all terms, conditions and provisions of its Environmental
Permits; and (ii) all applicable Environmental Laws.

            (c) Since January 1, 2002, none of the Constituent Companies has
received any written notice of alleged, actual or potential responsibility for,
or any inquiry regarding, (i) any Release or threatened or suspected Release of
any Hazardous Material, or (ii) any violation of Environmental Law.

            (e) No releases of Hazardous Material(s) have occurred at, from, in,
to, on, or under any Site during the period in which a Constituent Company
leased or operated such Site which is reasonably likely to result in material
Liability to any Constituent Company for investigation or clean up.

            (f) None of the Constituent Companies has transported or arranged
for the treatment, storage, handling, disposal or transportation of any
Hazardous Material at or to any location, except in material compliance with
Environmental Law.

            (g) To the knowledge of the Company, there are no Liens under or
pursuant to any Environmental Law on any Company Real Property.

            (h) To the Company's knowledge, there is no (i) underground storage
tank, active or abandoned, (ii) polychlorinated biphenyl containing equipment,
(iii) asbestos-containing material, (iv) radon, (v) lead-based paint or (vi)
urea formaldehyde at any Site.

            (i) To the knowledge of the Company and Sellers, there have been no
environmental investigations, studies, audits, tests, reviews or other analyses
conducted with respect to any Site.

            (j) Except as disclosed in Section 2.22 of the Seller Disclosure
Schedule and for this Agreement, no Constituent Company is a party, whether as a
direct signatory or as successor, assign, third-party beneficiary, guarantor or
otherwise, to any lease or other contract under which any Constituent Company is
obligated by any representation, warranty, covenant, restriction,
indemnification or other undertaking respecting Hazardous Materials or under
which any other person is or has been released respecting Hazardous Materials.

            (k) The Constituent Companies have provided all material
notifications and warnings, made all reports, and kept and maintained all
records required pursuant to Environmental Laws except where the failure to do
so would not be reasonably expected to result, individually or in the aggregate,
in a material Liability to the Constituent Companies, taken as a whole.

                                       23



      2.23 Substantial Customers and Suppliers. Section 2.23 of the Seller
Disclosure Schedule lists the fifteen (15) largest customers of the Company and
each of the other Constituent Companies on the basis of revenues collected or
accrued for the Company Financials. Section 2.23 of the Seller Disclosure
Schedule lists the ten (10) largest suppliers of the Company and each of the
other Constituent Companies on the basis of cost of goods or services purchased
for the Company Financials. Except as disclosed in Section 2.23 of the Seller
Disclosure Schedule, no such customer or supplier has ceased or materially
reduced its purchases from or sales or provision of services to any Constituent
Company since September 30, 2004 or has threatened in writing to cease or
materially reduce such purchases or sales or provision of services after the
date hereof.

      2.24 Accounts Receivable. Except as set forth in Section 2.24 of the
Seller Disclosure Schedule, the accounts and notes receivable of the Constituent
Companies reflected on the Company Financials, and all accounts and notes
receivable arising subsequent to the Financial Statement Date, arose from bona
fide sales transactions in the ordinary course of business, consistent with past
practice and are payable on ordinary trade terms, all of such accounts
receivable existing as of the date hereof (less the reserve for bad debts
reflected on the balance sheet dated as of December 31, 2004 included in the
Audited Financial Statements) are valid and enforceable claims, are collectible
and are not subject to offset or counterclaim. Section 2.24 of the Seller
Disclosure Schedule lists the accounts receivables of any Constituent Company
that were over 90 days past invoice date as of the Financial Statement Date and
December 31, 2004.

      2.25 Inventory. Except to the extent reserved or provided for in the
Company Financials, all inventory of the Company reflected on the balance sheet
included in the Company Financials consisted, and all such inventory acquired
since the Financial Statement Date consists, of a quality and quantity usable
and saleble in the ordinary course of business. Except as disclosed in the notes
to the Company Financials, all items included in the inventory of the Company
are the property of the Company free and clear of any Lien.

      2.26 Other Negotiations; Brokers; Third-Party Expenses. Neither the
Company, any other Constituent Company, nor to the knowledge of the Company, any
of their respective officers, directors, employees, agents, shareholders or
Affiliates (nor any investment banker, financial advisor, attorney, accountant
or other Person retained by or acting for or on behalf of the Company, or any
such Affiliate) has entered into any Contract that conflicts with any of the
transactions contemplated by this Agreement. No broker, investment banker,
financial advisor or other Person is entitled to any broker's, finder's,
financial advisor's or similar fee or commission in connection with this
Agreement and the transactions contemplated hereby based on arrangements made by
or on behalf of any Constituent Company.

      2.27 Banks and Brokerage Accounts. Section 2.27 of the Seller Disclosure
Schedule sets forth (a) a true and complete list of the names and locations of
all banks, trust companies, securities brokers and other financial institutions
at which any Constituent Company has an account or safe deposit box or maintains
a banking, custodial, trading or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship,
indicating in each case the account number and the names of the respective
officers, employees, agents or other similar representatives of the Constituent
Company having signatory power with respect thereto and (c) a list of each
Investment Asset, the name of the record and

                                       24



beneficial owner thereof, the location of the certificates, if any, therefor,
and any share or bond powers or other authority for transfer granted with
respect thereto.

      2.28 Warranty Obligations.

            (a) Section 2.28(a) of the Seller Disclosure Schedule sets forth a
list of all forms of written warranties, guarantees and written warranty
policies of the Constituent Companies in respect of any of a Constituent
Company's products and services, which are currently in effect (the "Warranty
Obligations"). True and correct copies of the forms of Warranty Obligations have
been delivered to Purchaser prior to the execution of this Agreement.

            (b) There have not been any deviations from the Warranty
Obligations, and no salesperson, employee or agent of any Constituent Company
other than corporate officers is authorized to undertake warranty obligations to
any customer or other Person in excess of such Warranty Obligations or as has
not had and would not reasonably be expected to have a material adverse effect
on the Business or Condition of the Company. The balance sheet included in the
Company Financials reflects reasonable reserves for Warranty Obligations.

      2.29 Corrupt Practices. Neither the Company, any other Constituent
Company, nor to the knowledge of Sellers or the Company, any agent, employee or
other Person acting on behalf of any Constituent Company has, directly or
indirectly, used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds, or
made any bribe, rebate, payoff, influence payment, kickback or other similar
unlawful payment.

      2.30 Assignment and Transfer of Assets and Properties. Except as set forth
in Section 2.30 of the Seller Disclosure Schedule, there are no Intellectual
Property, Contracts or other Assets and Properties necessary to the business of
the Company or any other Constituent Company as currently conducted that are
owned or leased by any Seller or its Affiliates that have not been or will not
have been legally and validly assigned to Purchaser or the Company at or prior
to the Closing.

      2.31 Approvals. Section 2.31 of the Seller Disclosure Schedule contains a
list of all Approvals known to the Company which are required to be given to or
obtained by any Constituent Company from any and all third parties, including,
without limitation, Governmental or Regulatory Authorities, in connection with
the consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements.

                                       25



                                   ARTICLE 2A
                REPRESENTATIONS AND WARRANTIES CONCERNING SELLERS

      Sellers, jointly and severally, hereby represent and warrant to Purchaser
      as follows:

      2A.1 Ownership of Company Capital Shares and Vastgoed capital shares.

            (a) Vastgoed owns of record and beneficially all of the issued and
outstanding shares of Company Capital Shares. When delivered by Seller to
Purchaser pursuant to this Agreement, such shares will be free and clear of any
and all Liens, except as contemplated by this Agreement.

            (b) Draka owns of record and beneficially all of the issued and
outstanding shares of Vastgoed.

      2A.2 Organization and Qualification. Draka is a limited liability company
duly organized, validly existing and in good standing under the Laws of the
Netherlands and has requisite power and authority to conduct its business as now
conducted and to own, use, license and lease its Assets and Properties. Vastgoed
is a private company with limited liability duly organized, validly existing and
in good standing under the Laws of the Netherlands and has requisite power and
authority to conduct its business as now conducted and to own, use, license and
lease its Assets and Properties.

      2A.3 Authority Relative to this Agreement. Each Seller has requisite power
and authority to execute and deliver this Agreement and the Ancillary Agreements
to which such Seller is a party, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution and delivery by each Seller of this Agreement and the Ancillary
Agreements to which it is a party and the consummation by such Seller of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary company action of such Seller, and no other action
on the part of such Seller is required to authorize the execution, delivery and
performance of this Agreement and the Ancillary Agreements to which it is a
party and the consummation by such Seller of the transactions contemplated
hereby and thereby. This Agreement and the Ancillary Agreements to which a
Seller is or will become a party have been or will be, as applicable, duly and
validly executed and delivered by such Seller and, assuming the due
authorization, execution and delivery hereof (and, in the case of the Ancillary
Agreements to which Purchaser is a party, thereof) by, and enforceability
against, Purchaser, each constitutes or will constitute, as applicable, a legal,
valid and binding obligation of such Seller enforceable against it in accordance
with its respective terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar Laws relating to the enforcement of creditors' rights generally
and by general principles of equity.

      2A.4 No Conflicts. The execution and delivery by each Seller of this
Agreement and the Ancillary Agreements to which it is a party does not, and the
performance by such Seller of its obligations under this Agreement and the
Ancillary Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby do not and will not:

                                       26



            (a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the Governing Documents of such Seller;

            (b) conflict with or result in a violation or breach of any Law or
Order applicable to such Seller;

            (c) except as would not have a Material Adverse Change of the
Company, (i) conflict with or result in a violation or breach of, (ii)
constitute a default (or an event that, with or without notice or lapse of time
or both, would constitute a default) under, (iii) require such Seller to obtain
any consent, approval or action of, make any filing with or give any notice to
any Person as a result or under the terms of, (iv) result in or give to any
Person any right of termination, cancellation, acceleration or modification in
or with respect to, (v) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments or
performance under, (vi) result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of such Seller's Assets and
Properties under or (vii) result in the loss of any material benefit under, any
of the terms, conditions or provisions of any Contract to which such Seller is a
party or by which any of such Seller's Assets and Properties is bound.

      2A.5 Agreements. Except as set forth in Section 2A.5 of the Seller
Disclosure Schedule, neither Seller owns, directly or indirectly, on an
individual or joint basis, any material interest in, or serves as an officer or
director of, any customer, competitor or supplier of the Company, or any
organization which has a contract or arrangement with the Company other than
Affiliates of Seller.

                                       27



                                    ARTICLE 3
               REPRESENTATIONS AND WARRANTIES CONCERNING PURCHASER

      Purchaser represents and warrants to Sellers, subject to such exceptions
as are specifically disclosed in the disclosure schedule and schedule of
exceptions (the "Purchaser Disclosure Schedule") delivered herewith, as follows:

      3.1 Organization and Qualification. Purchaser is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware. Purchaser has full corporate power and authority to conduct its
business as now conducted and as currently proposed to be conducted and to own,
use and lease its Assets and Properties. Purchaser is duly qualified, licensed
or admitted to do business and is in good standing in each jurisdiction in which
the ownership, use, licensing or leasing of its Assets and Properties, or the
conduct or nature of its business, makes such qualification, licensing or
admission necessary.

      3.2 Authority Relative to this Agreement. Purchaser has full corporate
power and authority to execute and deliver this Agreement, the Subordinated Note
and each other Ancillary Agreements to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by Purchaser of this
Agreement, the Subordinated Note and each other Ancillary Agreements to which it
is a party and the consummation by Purchaser of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action of Purchaser and no other corporate action on the part of
Purchaser is required to authorize the execution, delivery and performance of
this Agreement, the Subordinated Note and each other Ancillary Agreements to
which it is a party and the consummation by it of the transactions contemplated
hereby and thereby. This Agreement, the Subordinated Note and each other
Ancillary Agreements to which Purchaser is or will become a party have been or
will be, as applicable, duly and validly executed and delivered by Purchaser
and, assuming the due authorization, execution and delivery hereof (and in the
case of Ancillary Agreements to which the Company and/or a Seller is a party,
thereof) by, and enforceability against, the Company and/or a Seller, each
constitutes or will constitute, as applicable, a legal, valid and binding
obligation of Purchaser, enforceable against it in accordance with its
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar Laws relating to the enforcement of creditors' rights generally
and by general principles of equity.

      3.3 Other Negotiations; Brokers; Third-Party Expenses. Neither Purchaser
nor any of its officers, directors, managers, employees, agents, shareholders,
members or Affiliates (nor any investment banker, financial advisor, attorney,
accountant or other Person retained by or acting for or on behalf of Purchaser
or any such Person) has entered into any Contract that conflicts with any of the
transactions contemplated by this Agreement. Except as set forth in Section 3.3
of the Purchaser Disclosure Schedule, no broker, investment banker, financial
advisor or other Person is entitled to any broker's, finder's, financial
advisor's or similar fee or commission in connection with this Agreement and the
transactions contemplated hereby based on arrangements made by or on behalf of
Purchaser.

                                       28



      3.4 SEC Compliance.

            (a) Purchaser has timely filed all reports, schedules, forms,
statements and other documents with the Securities and Exchange Commission (the
"SEC") required to be filed by it on or after January 1, 2000 (such reports,
schedules, forms, statements and other documents, collectively with all other
reports, schedules, forms, statements and other documents filed, or required to
be filed, by the Purchaser with the SEC, if any, being hereinafter referred to
as the "Purchaser SEC Documents").

            (b) As of their respective dates, the Purchaser SEC Documents
complied with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act")
and the rules and regulations of the SEC promulgated thereunder, to the extent
applicable to such Purchaser SEC Documents. No Subsidiary of the Purchaser is
required to file any forms, reports or other documents with the SEC pursuant to
Section 12 or 15 of the Exchange Act.

            (c) The consolidated financial statements of Purchaser included in
the Purchaser SEC Documents comply as to form with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, including all applicable requirements of the Sarbanes-Oxley Act, have
been prepared in accordance with U.S. GAAP (except, in the case of unaudited
quarterly statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may otherwise be
indicated in the notes thereto) and fairly present the financial position of
Purchaser as of the dates thereof and the results of its operations and cash
flows for the periods then ended (subject, in the case of unaudited quarterly
statements, to normal year-end audit adjustments).

            (d) Purchaser and each of its Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

            (e) Purchaser has established and maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15 and 15d-15 under the Exchange
Act) and such disclosure controls and procedures are designed to ensure that
material information relating to Purchaser, including its consolidated
subsidiaries, is made known to Purchaser's Chief Executive Officer and its Chief
Financial Officer by others within those entities, and such disclosure controls
and procedures are effective to perform the functions for which they were
established; Purchaser's auditors and the Audit Committee of the Board of
Directors of Purchaser have been advised by Purchaser's Chief Executive Officer
and Chief Financial Officer of (i) any significant deficiencies in the design or
operation of Purchaser's internal control over financial reporting which are
reasonably likely to adversely affect Purchaser's ability to record, process,
summarize, and report financial information and (ii) any fraud, whether or not
material,

                                       29



that involves management or other employees who have a significant role in
Purchaser's internal control over financial reporting; any material weaknesses
in Purchaser's internal control over financial reporting have been identified
for Purchaser's auditors; and since the date of the most recent evaluation of
such disclosure controls and procedures, there has been no change in Purchaser's
internal control over financial reporting or in other factors that has
materially affected, or is reasonably likely to materially affect, Purchaser's
internal control over financial reporting.

            (f) Since July 30, 2002, Purchaser has not, directly or indirectly,
including through any Subsidiary (i) extended credit, arranged to extend credit,
or renewed any extension of credit, in the form of a personal loan, to or for
any director or executive officer of Purchaser, or to or for any family member
or affiliate of any director or executive officer of Purchaser or (ii) made any
material modification, including any renewal thereof, to any term of any
personal loan to any director or executive officer of Purchaser, or any family
member or affiliate of any director or executive officer, which loan was
outstanding on July 30, 2002.

      3.5 No Conflicts. The execution and delivery by Purchaser of this
Agreement and the Ancillary Agreements to which Purchaser is a party does not,
and the performance by Purchaser of its obligations under this Agreement and the
Ancillary Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby do not and will not:

            (a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the Governing Documents of Purchaser;

            (b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Section 3.5(b) of the Purchaser
Disclosure Schedule, if any, conflict with or result in a violation or breach of
any Law or Order applicable to Purchaser or any of its Assets and Properties;

            (c) except as disclosed in Section 3.5(c) of the Purchaser
Disclosure Schedule, (i) conflict with or result in a violation or breach of,
(ii) constitute a default (or an event that, with or without notice or lapse of
time or both, would constitute a default) under, (iii) require Purchaser to
obtain any consent, approval or action of, make any filing with or give any
notice to any Person as a result or under the terms of; (except such consents
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state or federal securities laws); (iv) result
in or give to any Person any right of termination, cancellation, acceleration or
modification in or with respect to, (v) result in or give to any Person any
additional rights or entitlement to increased, additional, accelerated or
guaranteed payments or performance under, (vi) result in the creation or
imposition of (or the obligation to create or impose) any Lien upon Purchaser or
any of its Assets and Properties under or (vii) result in the loss of any
material benefit under, any of the terms, conditions or provisions of any
Contract or License to which Purchaser is a party or by which any of its Assets
and Properties are bound.

                                       30



      3.6 No Undisclosed Liabilities. Except as reflected or reserved against in
the financial statements contained in the Purchaser SEC Documents (including the
notes thereto) or as disclosed in Section 3.6 of the Purchaser Disclosure
Schedule, there are no material Liabilities of Purchaser or material Liabilities
or Liens affecting any of its Assets and Properties (other than Liabilities
incurred in the ordinary course of business consistent with past practice).

      3.7 Legal Proceedings. Except as set forth in Section 3.7 of the Purchaser
Disclosure Schedule:

            (a) there are no Actions or Proceedings pending or, to the knowledge
of Purchaser, threatened, against or adversely affecting Purchaser or any of its
Assets and Properties;

            (b) Purchaser has not received written notice or does not otherwise
have knowledge of any Orders outstanding against Purchaser;

            (d) Section 3.7(d) of the Purchaser Disclosure Schedule sets forth
all Actions or Proceedings against, or, to the knowledge of Purchaser,
threatened against, Purchaser or any of its Assets and Properties during the
three-year period prior to the date hereof.

      3.8 Compliance with Laws and Orders. Except as disclosed in Section 3.8 of
the Purchaser Disclosure Schedule, since January 1, 1999, neither Purchaser nor
any of its Subsidiaries nor any of their respective directors, officers,
Affiliates, agents or employees has violated in any material respect or is
currently in default or violation in any material respect under, any Law or
Order applicable to Purchaser or any such Subsidiary or any of its respective
Assets and Properties, and Purchaser is not aware of any claim of violation, or
of any actual violation, of any such Laws and Orders by Purchaser or any such
Subsidiary since the incorporation or formation of Purchaser or such Subsidiary
other than matters finally resolved pursuant to appropriate legal proceedings.
Except as set forth in Section 3.8 of the Purchaser Disclosure Schedule,
Purchaser and each of its Subsidiaries has obtained all Approvals from
Governmental or Regulatory Authorities necessary to conduct the business
conducted by Purchaser or such Subsidiary in the manner as it is currently being
conducted and there has been no written notice received by Purchaser or any such
Subsidiary of any material violation or non-compliance with any such Approvals.

      3.9 Approvals. Section 3.9 of the Purchaser Disclosure Schedule contains a
list of all Approvals known to Purchaser which are required to be given to or
obtained by Purchaser from any and all third parties, including, without
limitation, Governmental or Regulatory Authorities, in connection with the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements.

                                       31


                                    ARTICLE 4
                              ADDITIONAL AGREEMENTS

      4.1   Covenant Not to Compete.

            (a) For a period commencing with the Closing Date and ending on the
third (3rd) anniversary of the Closing Date, neither of the Sellers nor any of
their respective Subsidiaries shall directly or indirectly, (i) interfere with
the Company's or Purchaser's relationships with the customers and potential
customers of the Company with respect to the business of the Company or any
Constituent Company as conducted as of the date hereof, (ii) solicit for
employment, hire or employ, or cause any other Person to solicit, hire or employ
any employee or contractor then retained or employed by the Company or Purchaser
or retained or employed by the Company or Purchaser within the one-year period
immediately prior to such solicitation, hiring or employment, or (iii) engage or
participate, directly or indirectly, either as principal, agent, employee,
employer, consultant, shareholder, director, officer, partner or in any other
individual or representative capacity whatsoever, in the conduct or management
of, or own any stock or other proprietary interest in, any business or
enterprise that conducts business or operations which are the same as or
substantially similar to the business of the Company as of the date hereof
unless such Seller or any such Subsidiary shall have obtained the prior written
consent thereto of Purchaser; provided, however, that (x) notwithstanding clause
(ii) of this Section 4.1(a), nothing herein shall be deemed to limit such Seller
and its Subsidiaries from conducting general solicitations for applications for
employment or from hiring any respondent to any such general solicitation, and
(y) notwithstanding clause (iii) of this Section 4.1(a), each Seller and its
respective Subsidiaries shall be free without such consent to make reasonable
investments in any such company which is publicly-owned so long as its ownership
of securities of such company does not exceed one percent (1%) of the
outstanding amount of any class of any securities.

            (b) Each of the covenants in this Section 4.1 is severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of competent
jurisdiction shall determine that any specific covenant or the scope, time or
territorial restrictions thereof are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.

      4.2   Confidentiality.

            (a) Purchaser. Purchaser acknowledges and agrees that it has had in
the past, currently has, and in the future may possibly have, access to certain
information of Sellers that does not relate to the business of the Company, has
not been disclosed to the public and which constitutes confidential and
proprietary business information (the "Confidential Information of Seller"),
including but not limited to, in each case, client and customer lists, software,
data, formulae, processes, inventions, trade secrets, marketing information and
plans, business strategies and other information about products and services
offered or developed or planned to be offered or developed. Notwithstanding the
foregoing, Confidential Information of Seller does

                                       32


not include any information (A) that is or becomes publicly available, other
than as a result of a disclosure by Purchaser or any of its Affiliates in
violation of this Agreement, (B) which must be disclosed by Purchaser or any of
its Affiliates under applicable Laws or by Order of any Governmental or
Regulatory Authority, or (C) which Purchaser reasonably believes is required to
be disclosed in connection with the defense of a lawsuit against Purchaser or
any of its Affiliates. In the event Purchaser or any of its Affiliates is
requested or required (including but not limited to by oral questions,
interrogatories, requests for information or documents in a legal proceeding,
subpoena, civil investigative demand or other similar process) to disclose any
Confidential Information of Seller as described in subpart (B) or subpart (C) of
the immediately preceding sentence, Purchaser shall provide Draka with prompt
written notice of any such request or requirement so that Draka may seek a
protective order or other appropriate remedy, at Draka's sole expense, and/or
waive compliance with the provisions of this Agreement. If, in the absence of a
protective order or other remedy or the receipt of a waiver from Draka,
Purchaser or any of its Affiliates is nonetheless, in the written opinion of
counsel, legally compelled to disclose Confidential Information of Seller to any
tribunal or else stand liable for contempt or suffer other censure or penalty,
Purchaser or its Affiliate may, without liability hereunder, disclose to such
tribunal only that portion of the Confidential Information of Seller which such
counsel advises Purchaser is legally required to be disclosed, provided that
Purchaser exercises its best efforts to preserve the confidentiality of such
information, including without limitation by cooperating with Draka to obtain an
appropriate protective order, at Draka's sole expense, or other reliable
assurance that confidential treatment will be accorded such information by such
tribunal. Purchaser agrees, on behalf of itself and each of its Affiliates,
that, without the prior written consent of Draka, from and after the date
hereof, neither Purchaser nor its Affiliates shall in any manner directly or
indirectly disclose to any Person or use any Confidential Information of Seller
for any purpose or reason.

            (b) Sellers. Each Seller acknowledges and agrees that it has had in
the past, currently has, and in the future may possibly have, access to (i)
certain information of the business of the Company that has not been disclosed
to the public and which constitutes confidential and proprietary business
information (the "Confidential Information of the Company"), and (ii) certain
information of Purchaser that has not been disclosed to the public and which
constitutes confidential and proprietary business information (the "Confidential
Information of Purchaser"), including but not limited to, in each case, client
and customer lists, software, data, formulae, processes, inventions, trade
secrets, marketing information and plans, business strategies and other
information about products and services offered or developed or planned to be
offered or developed. Notwithstanding the foregoing, Confidential Information of
the Company and Confidential Information of Purchaser does not include any
information (A) that is or becomes publicly available, other than as a result of
a disclosure by a Seller or any of its Affiliates in violation of this
Agreement, (B) which must be disclosed by a Seller or any of its Affiliates
under applicable Laws or by Order of any Governmental or Regulatory Authority,
or (C) which a Seller reasonably believes is required to be disclosed in
connection with the defense of a lawsuit against a Seller or any of its
Affiliates. In the event a Seller or any of its Affiliates is requested or
required (including but not limited to by oral questions, interrogatories,
requests for information or documents in a legal proceeding, subpoena, civil
investigative demand or other similar process) to disclose any Confidential
Information of the Company or Confidential Information of Purchaser as described
in subpart (B) or subpart (C) of the immediately preceding

                                       33


sentence, Draka shall provide Purchaser with prompt written notice of any such
request or requirement so that Purchaser may seek a protective order or other
appropriate remedy, at Purchaser's sole expense, and/or waive compliance with
the provisions of this Agreement. If, in the absence of a protective order or
other remedy or the receipt of a waiver from Purchaser, a Seller or any of its
Affiliates is nonetheless, in the written opinion of counsel, legally compelled
to disclose Confidential Information of the Company or Confidential Information
of Purchaser to any tribunal or else stand liable for contempt or suffer other
censure or penalty, such Seller or such Affiliate may, without liability
hereunder, disclose to such tribunal only that portion of the Confidential
Information of the Company or Confidential Information of Purchaser, as the case
may be, which such counsel advises Seller is legally required to be disclosed,
provided that Seller exercises its best efforts to preserve the confidentiality
of such information, including without limitation by cooperating with Purchaser
to obtain an appropriate protective order, at Purchaser's sole expense, or other
reliable assurance that confidential treatment will be accorded such information
by such tribunal. Each Seller agrees that, on behalf of itself and each of its
Affiliates, without prior written consent of Purchaser, from and after the date
hereof, neither Seller nor any of its Affiliates shall in any manner directly or
indirectly disclose to any Person or use any Confidential Information of the
Company or Confidential Information of Purchaser for any purpose or reason.

      4.3 Expenses. All fees and expenses incurred by the Company and by Sellers
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, including all legal,
accounting (other than accounting fees and expenses related to services to
reconcile the Audited Financial Statements to US GAAP performed in connection
with auditing the financial records of the Company as set forth in Sections
4.7(a), which shall be paid by the Purchaser), financial advisory, consulting,
success and all other fees and expenses of third parties (the "Company
Expenses"), shall be the obligation of Sellers. All fees and expenses incurred
by Purchaser in connection with the negotiation and effectuation of the terms
and conditions of this Agreement and the transactions contemplated hereby,
including all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties, shall be the obligation of Purchaser.

      4.4 Public Disclosure. Purchaser and Draka shall issue a joint press
release relating to this Agreement to be prepared jointly by Purchaser and Draka
(the "Joint Press Release"). Thereafter, unless otherwise required by Law
(including federal and state securities Laws and the rules and regulations of
The Nasdaq Stock Market), no disclosure (whether or not in response to any
inquiry) of the existence of any subject matter of, or the terms and conditions
of, this Agreement shall be made by either party unless approved by the other
party prior to release; provided, however, that such approval shall not be
unreasonably withheld or delayed.

      4.5 Additional Documents and Further Assurances; Cooperation. Each party
hereto, at the request of the other party hereto and at the expense of the
requesting party, shall execute and deliver such other instruments and do and
perform such other acts and things (including all action reasonably necessary to
seek and obtain any and all Approvals of any Governmental or Regulatory
Authority or Person required in connection with the Acquisition; provided,
however, that neither party shall be obligated to consent to any divestitures or
operational limitations or activities in connection therewith and no party shall
be obligated to make a payment of money as

                                       34


a condition to obtaining any such Approval, other than customary filing fees) as
may be necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.

      4.6   Employee Matters.

      (a) The parties acknowledge and agree that Purchaser may cause the Company
to negotiate and enter into employment agreements with certain key employees of
the Company identified on Schedule 4.6(a) attached hereto (the "Key Employees")
on such terms as may be mutually agreed by Purchaser and such Key Employees;
provided that the effectiveness and enforceability of any such employment
agreements shall be contingent upon the consummation of the transactions
contemplated by this Agreement. Sellers shall not take any action, directly or
indirectly, to prevent or discourage any such Key Employee or any other employee
of the Company from being employed by the Company as of the Closing Date and
shall not solicit, invite or induce or entice any employees of the Company,
including, without limitation, the Key Employees, to remain in the employ of
either Seller or their respective Affiliates or otherwise attempt to retain the
services of any such employees, except with the prior written consent of
Purchaser.

      (b) As of the Closing, Draka Fileca-Foptica S.A. ("Draka France") employs
the individuals listed on Schedule 4.6(b) hereto (the "France Employees"), whose
primary responsibilities involve services rendered to or on behalf of the
Company. Draka agrees that Draka France shall continue to employ the France
Employees from the Closing until such time as requested by Purchaser, but in no
event later than the date that is ninety (90) days after the date of Closing
(the "Transitional Employment Period"). Draka France shall employ the France
Employees during the Transitional Employment Period on the same terms and
conditions as prior to the Closing, consistent with past practice, and shall be
responsible for payment of all salaries, taxes, benefits and other costs related
to the France Employees, including any and all regulatory compliance relating
their employment (the "France Employee Costs"). Draka shall issue an invoice to
the Company monthly listing, in reasonable detail, all France Employee Costs and
the Company shall reimburse Draka for all France Employee Costs not more than
fifteen (15) days after the delivery of such invoice. Not more than eighty (80)
days after the Closing, Purchaser shall, with respect to each France Employee,
either (i) notify Draka and the applicable France Employee that it does not
intend to offer employment to such France Employee, or (ii) offer employment, or
cause an Affiliate of Purchaser to offer employment, to such France Employee on
substantially the same terms and conditions, including (without limitation as to
compensation, benefits, and duties and responsibilities) as such France Employee
is employed by Draka France immediately prior to Closing. In the event of the
termination of employment of any France Employee (whether in connection with
Purchaser's failure to offer any such person employment as contemplated hereby
or as a result of any France Employee's election not to accept Purchaser's offer
of employment or otherwise), Seller shall deliver to Purchaser a statement
setting forth in reasonable detail all costs and expenses incurred by Seller in
connection with such termination, and Purchaser shall reimburse Seller for all
of such costs and expenses not more than fifteen (15) days after the delivery of
such statement.

                                       35


      (c) As of the Closing, Draka Comteq USA, Inc. ("Draka USA") employs the
individuals listed on Schedule 4.6(c) hereto (the "U.S. Employees"), whose
primary responsibilities involve services rendered to or on behalf of the
Company. Draka agrees that Draka USA shall continue to employ the U.S. Employees
during the Transitional Employment Period. Draka USA shall employ the U.S.
Employees during the Transitional Employment Period on the same terms and
conditions as prior to the Closing, consistent with past practice, and shall be
responsible for payment of all salaries, taxes, benefits and other costs related
to the U.S. Employees, including any and all regulatory compliance relating
their employment (the "U.S. Employee Costs"). Draka shall issue an invoice to
the Company monthly listing, in reasonable detail, all U.S. Employee Costs and
the Company shall reimburse Draka for all U.S. Employee Costs not more than
fifteen (15) days after the delivery of such invoice. Not more than eighty (80)
days after the Closing, Purchaser shall, with respect to each U.S. Employee,
either (i) notify Draka and the applicable U.S. Employee that it does not intend
to offer employment to such U.S. Employee, or (ii) offer employment, or cause an
Affiliate of Purchaser to offer employment, to such U.S. Employee on
substantially the same terms and conditions, including (without limitation as to
compensation, benefits, and duties and responsibilities) as such U.S. Employee
is employed by Draka USA immediately prior to Closing. In the event of the
termination of employment of any U.S. Employee (whether in connection with
Purchaser's failure to offer any such person employment as contemplated hereby
or as a result of any U.S. Employee's election not to accept Purchaser's offer
of employment or otherwise), Seller shall deliver to Purchaser a statement
setting forth in reasonable detail all costs and expenses incurred by Seller in
connection with such termination, and Purchaser shall reimburse Seller for all
of such costs and expenses not more than fifteen (15) days after the delivery of
such statement.

      (d) Each of the parties hereto shall cooperate and take such mutually
agreed upon actions as are necessary to cause the portion of the insurance
contract for the non-contributory pension in the NKF Kabel Pension Fund
attributable to employees of the Company to be transferred to the Company, a new
pension fund established by the Company or a pension insurance company
designated by the Company.

      (e) Prior to Closing, employees of the Company have been insured under the
following Contracts of Vastgoed: (i) Collective Medical Insurance (contract
collectieve ziektekostenverzekering), dated 28 September 1999, by and between
NKF Kabel B.V. (as contractant) and Onerlinge GEOVE u.a. (as insurance company),
and (ii) Collective WAO Insurance Contract (Contract WAO (excedent)verzekering),
dated 13-04-2004, by and between NKF Kabel B.V. (as contractant) and Nationale
Nederlanden Verzekeringmaatschappij N.V. (as insurance company) (together, the
"Collective Policies"). Draka and Vastgoed agree that the Company employees
shall continue to be insured under the Collective Policies, upon the same terms
and conditions as immediately prior to the Closing, for a period of not more
than ninety (90) days after the Closing. Vastgoed shall issue an invoice to the
Company monthly listing, in reasonable detail, all costs and expenses incurred
by Vastgoed under the Collective Policies in connection with continuing to
insure the Company employees pursuant to this Section 4.6(e) and the Company
shall reimburse Vastgoed for all such costs and expenses not more than fifteen
(15) days after the delivery of such invoice.

                                       36


      4.7   Financial Statements.

            (a) Audited Financial Statements. Prior to the date hereof, Draka,
at its expense, shall have caused to be delivered to Purchaser the balance sheet
of the Company as of December 31, 2004 and 2003 and the related statement of
operations, statement of shareholders' equity and statement of cash flows of the
Company for the years ended December 31, 2004 and 2003, prepared in accordance
with Dutch GAAP and audited by KPMG in accordance with U.S. GAAS (the "Audited
Financial Statements"). Additionally, prior to the date hereof, Purchaser, at
Purchaser's expense, shall have caused the Audited Financial Statements to be
reconciled to U.S. GAAP.

            (b) Additional Assistance. Sellers will use commercially reasonable
efforts to cause its management and KPMG to (i) provide such information and
assistance as reasonably required by Purchaser in connection with the
preparation by Purchaser and its independent accountants of pro forma financial
statements required under applicable Laws, (ii) facilitate the review of any
Company audit or review work papers, including the examination of selected
interim financial statements and data, and (iii) deliver such representations as
may be reasonably requested by KPMG or Purchaser's independent accountants.
Purchaser shall reimburse Draka or KPMG for all costs and expenses (including
professional fees) incurred in connection with services or assistance provided
by Sellers or KPMG pursuant to this Section 4.7(b).

      4.8   Certain Tax Matters

            (a) Pre-Closing Tax Affairs. Draka shall prepare and file (or cause
the Company to file) all Tax Returns relating to the Company that relate solely
to periods ending on or before Closing, and with respect to Tax Returns which
have not been filed as of the date of the Closing, Seller shall provide to
Purchaser prior to the filing of such Tax Returns an abstract of information set
forth on such Tax Returns relating setting forth in reasonable detail material
information regarding the Company. For the avoidance of misunderstanding, the
Purchaser (i) shall have sole conduct of all Tax affairs of the Company for
periods that start on or after Closing, (ii) shall be entitled to deal with Tax
affairs relating to any period beginning on or after the date of the Closing in
any way in which it, in its absolute discretion, considers fit, and (iii) shall
be responsible for filing all Tax Returns other than those referred to in the
first sentence.

            (b)   Cooperation on Tax Matters.

                  (i) Purchaser, the Company and Sellers shall cooperate, as and
to the extent reasonably requested by the other party and at the expense of the
requesting party, in connection with the filing of Tax Returns for all periods
that begin before the Closing and any audit, litigation or other Action or
Proceeding with respect to Taxes. Such cooperation shall include the provision
of records and information which are reasonably relevant to any such Tax
Returns, audit, litigation or other Action or Proceeding and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. The Company and Sellers agree
(A) to retain all Books and Records with respect to Tax matters pertinent to the
Company relating to any taxable period beginning before the Closing until the
expiration of the statute of limitations (and, to the extent notified in writing
by Purchaser or Sellers, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with any
Tax Authority, and (B) to give the other

                                       37


party reasonable written notice prior to transferring, destroying or discarding
any such Books and Records and, if the other party so requests, the Company or
Sellers, as the case may be, shall allow the other party to take possession of
such Books and Records at the requesting party's expense.

                  (ii) Purchaser and Sellers further agree, upon request, to use
their commercially reasonable efforts to obtain any certificate or other
document from any Governmental or Regulatory Authority or any other Person as
may be necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including without limitation any Tax with respect to the transactions
contemplated hereby).

            (c) Tax Sharing Agreements. All Tax sharing agreements or similar
agreements with respect to or involving the Company and Sellers or any of their
respective Affiliates shall be terminated as of the Closing Date and, after the
Closing Date, the Company shall not be bound thereby or have any Liability
thereunder.

            (d) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by the party
legally responsible therefore when due, and such party will, at their or its own
expense, file all necessary Tax Returns and other documentation with respect to
all such transfer, documentary, sales, use, stamp, registration and other such
Taxes and fees, and, if required by applicable Law, each of Purchaser, the
Company and Sellers will, and will cause its Affiliates to, join in the
execution of any such Tax Returns and other documentation.

      4.9 Inter-Company Debt. The parties acknowledge and agree that as of the
Closing Date, the entire Indebtedness and Liabilities (other than obligations
incurred in the ordinary course of business as currently conducted) of the
Company to Draka and/or any of Draka's Affiliates shall consist of inter-company
Indebtedness in the amount of Four Million Eighty Eight Thousand Euro
((euro)4,088,000) (the "Inter-Company Debt"), as set forth in Schedule 4.9
attached hereto. The parties agree that upon or immediately following the
Closing, Purchaser and the Company shall cause the Inter-Company Debt to be paid
in full to Draka in accordance with Section 1.3(b). In the event the Company is
liable or otherwise obligated to Draka or any of Draka's Affiliates for any
Indebtedness or other Liabilities other than the Inter-Company Debt, Draka
agrees, on behalf of itself and its Affiliates, that neither the Company nor
Purchaser or any of Purchaser's Affiliates shall have any Liability for such
Indebtedness or other Liabilities other than obligations incurred in the
ordinary course of business as currently conducted.

      4.10 Customer Contact. The Seller consents to reasonable telephone contact
between the Purchaser and six (6) of the Company's customers identified on in
Section 2.23 of the Seller Disclosure Schedule; provided that (i) such contact
shall be solely for the purpose of Purchaser's due diligence regarding the
Company and (ii) Thomas Overwijn shall participate in all such telephone calls.

                                       38


      4.11 Solar Inverter Claim. With respect to that certain pending claim
described on Schedule 4.11 hereto relating to the Solar Inverter Business (the
"Solar Inverter Claim"), the Company shall provide all commercially reasonable
services, including, without limitation, providing reasonable access to the
Company's books and records and making appropriate personnel reasonably
available to the attorneys, accountants or other agents of the Sellers or an
Affiliate of the Sellers as may be reasonably requested in connection with the
defense of such Solar Inverter Claim. Sellers shall reimburse the Company for
all reasonable third party costs and expenses incurred by the Company with
Seller's prior consent (which shall not be unreasonably delayed or withheld) in
connection with services or assistance provided by the Company pursuant to this
Section 4.11.

      4.12 Spanish Cable Receivables. Schedule 4.12 attached hereto sets forth
the accounts receivable of Sellers' Spanish Cable Business as of January 31,
2005 (the "Spanish Cable Receivables"). Purchaser agrees that from and after the
Closing and until the first to occur of (i) the collection and remission to
Draka of the Spanish Cable Receivables and (ii) December 31, 2005, Purchaser
shall serve as collection agent for Sellers with respect to the Spanish Cable
Receivables outstanding as of Closing, shall hold all amounts received in
payment of the Spanish Cable Receivables in trust for Seller and shall pay, or
shall cause the Company to pay, an amount equal to the amounts actually received
by the Company or Purchaser, or any of their respective Affiliates, in payment
of the Spanish Cable Receivables. The Company shall use commercially reasonable
efforts consistent with its generally applicable collection practices to collect
the Spanish Cable Receivables, and neither Purchaser nor the Company shall agree
to discount, settle or otherwise compromise any Spanish Cable Receivable without
the prior written consent of Draka. As of December 31, 2005 (the "Assignment
Date"), Purchaser or the Company shall assign to Draka, without further
consideration, any Spanish Cable Receivables that have not been collected as of
such date. In the event that, after the Assignment Date, the Company receives
any amount in respect of any Spanish Cable Receivable, the Company shall remit
such amount to the Seller not more than fifteen (15) days after such receipt.

      4.13  Service Level Arrangements.

            (a) Singapore Office Space. Prior to Closing, Far East Pte. Ltd
("Draka Singapore") has provided the Company with certain office space located
at 20 Jurong Port Road, Jurong Town, Singapore (the "Singapore Office Space").
Draka agrees that Draka Singapore will continue to sublease the Singapore Office
Space to the Company for use and occupancy by the Company, upon the same terms
and conditions as have been provided to the Company prior to the Closing, from
the Closing until the earlier of (i) the date that is thirty (30) days after the
date the Company provides Draka with written notice that it intends to terminate
its sublease of the Singapore Office Space, or (ii) the date that is one (1)
year after the date of Closing. The parties agree that the fee for this sublease
of the Singapore Office Space is Singapore $1,940 per month.

            (b) France Office Space. Prior to Closing, Draka France has provided
the Company with certain office space located at Route Nationale n 1, 60730
Saint Genevieve, France (the "France Office Space"). Draka agrees that Draka
France will continue to sublease the France Office Space to the Company for use
and occupancy by the Company, upon the same terms and conditions as have been
provided to the Company prior to the Closing, from the Closing until the earlier
of (i) the date that is thirty (30) days after the date the Company

                                       39


provides Draka with written notice that it intends to terminate its sublease of
the Singapore Office Space, or (ii) the date that is one (1) year after the date
of Closing. The parties agree that the fee for this sublease of the France
Office Space is One Thousand Six Hundred Euro ((euro)1,600) per month.

            (c) U.S. Office Space. Prior to Closing, Draka USA has provided the
Company with certain office space located at 9 Forge Park, Franklin,
Massachusetts, U.S.A. (the "U.S. Office Space"). Draka agrees that Draka USA
will continue to sublease the U.S. Office Space to the Company for use and
occupancy by the Company, upon the same terms and conditions as have been
provided to the Company prior to the Closing, from the Closing until the earlier
of (i) the date that is thirty (30) days after the date the Company provides
Draka with written notice that it intends to terminate its sublease of the U.S.
Office Space, or (ii) the date that is one (1) year after the date of Closing.
The parties agree that the fee for this sublease of the U.S. Office Space is One
Thousand Three Hundred Thirty Seven Dollars ($1,337) per month.

            (d) Service Level Agreement Between the Company and Vastgoed. The
parties acknowledge and agree that the Company and Vastgoed are parties to that
certain Service Level Agreement with a commencement date of July 1, 2004 (the
"NKF Service Agreement"). The parties agree that the NKF Service Agreement shall
continue for a term of one (1) year after the date of Closing upon the same
terms and conditions, subject to the following amendment: Vastgoed shall
continue to provide the Company with the services relating to payroll and
personnel and organization for a period of three (3) months after the Closing
(and the annual fees for such services shall be prorated based on such 3-month
period).

            (e) Management Services Agreement Between the Company and Draka USA.
The parties acknowledge and agree that the Company and Draka USA are parties to
that certain Management Services Agreement dated April 24, 2003 (the "U.S.
Service Agreement"). The parties agree that the U.S. Service Agreement shall
continue for a term of ninety (90) days after the date of Closing upon the same
terms and conditions, subject to the following amendments:

                  (i) Section 2(a) of the U.S. Service Agreement shall be
terminated effective upon Closing and the employment of the U.S. Employees shall
be governed by Section 4.6(c) hereof.

                  (ii) Section 4 of the U.S. Service Agreement shall be amended
to provide that the U.S. Service Agreement shall terminate ninety (90) days
after the date of Closing.

            (f) Cost Sharing Service Agreement Between the Company and Draka.
The parties acknowledge and agree that the Company and Draka are parties to that
certain Cost Sharing Service Agreement dated December 16, 2004 (the "Draka
Service Agreement"). The parties agree that the Draka Service Agreement shall
terminate and have no further force and effect immediately upon Closing.

                                       40


      4.14  Tax Step Up.

            (a) Fiscal Revaluation. If at any time after the execution of this
Agreement, the Tax Authority in The Netherlands (the "Dutch Tax Authority")
finds that section 14(1) of the Corporate Income Tax Act 1969 is not applicable
to the spin-off by Vastgoed of part of its business activities to the Company in
2004 and, therefore, as a result the book value for Dutch corporate income tax
purposes of the assets of the Company are increased (such increase hereinafter
referred to as the "Fiscal Revaluation"), then subject to Sellers providing
Purchaser with a copy of the official notice of the Dutch Tax Authority, if any,
and/or such information as is necessary to independently validate the Fiscal
Revaluation, and subject to the limitations set forth in Section 4.14(b) below,
the Purchase Price shall be increased by the resulting Cash Tax Benefit
(hereinafter defined) less any applicable withholding or Taxes. Notwithstanding
the foregoing, Sellers covenant and agree to continue to report that section
14(1) of the Corporate Income Tax Act 1969 is applicable to the spin-off by
Vastgoed of part of its business activities to the Company in 2004 and that in
the event such position is challenged by the Dutch Tax Authority, they will use
commercially efforts to defend against such challenge.

            (b) Use of Tax Benefit and Payment. With respect to any taxable year
ending after the date hereof until December 31, 2012, Grant Thornton LLP or any
successor thereto approved by Purchaser's senior secured creditor will provide
an independent validation of the Fiscal Revaluation and increased cash tax
benefit by calculating (i) Purchaser's worldwide corporate income tax liability
that would be payable with respect to such taxable year (A) without giving
effect to the Fiscal Revaluation, and (B) after giving effect to the Fiscal
Revaluation, and (ii) the Company's stand alone Dutch Tax liability or, if the
Company is included in a fiscal unity for Dutch corporate income Tax purposes,
the Dutch Tax liability of such fiscal unity, that would be payable with respect
to such taxable year (A) without giving effect to the Fiscal Revaluation, and
(B) after giving effect to the Fiscal Revaluation. For the avoidance of doubt,
Purchaser's worldwide corporate income tax liability means the sum of the
corporate income tax liability of Purchaser in the United States with respect to
such taxable year plus the corporate income tax liability of its Associates
(including the Company) in their respective countries of residence for such
taxable year. To the extent that Purchaser's worldwide corporate income Tax
liability actually paid to the applicable Tax Authorities with respect to such
taxable year is reduced by an amount (but not below zero) by giving effect to
the Fiscal Revaluation less the expenses incurred in connection with the
calculation referred to in this Section 4.14(b) (such amount being a "Worldwide
Cash Tax Benefit") and/or the Company's Dutch corporate income Tax liability or,
if the Company is included in a fiscal unity for Dutch corporate income Tax
purposes, the Dutch Tax liability of such fiscal unity, actually paid to the
Dutch Tax Authority with respect to such taxable year is reduced by an amount
(but not below zero) by giving effect to the Fiscal Revaluation less the
expenses incurred in connection with the calculation referred to in this Section
4.14(b) (such amount being a "Dutch Cash Tax Benefit"), then Purchaser agrees to
pay to Sellers an amount in Euros equal to the lesser of (I) the Worldwide Cash
Tax Benefit divided by the spot foreign exchange rate at the time of payment, or
(II) the Dutch Cash Tax Benefit (such lesser amount, the "Cash Tax Benefit"),
provided that to the extent that such payment is subject to any withholding or
other Taxes, the payment to be made by Purchaser shall be reduced by such
withholding or Taxes. In the event that any taxable year begins prior to the
date hereof, but ends after the date hereof (a "Straddle Year") the Cash Tax
Benefit shall be payable only with respect to that portion of any Cash Tax
Benefit attributable to that portion of the Straddle Year beginning on the date
hereof. Sellers and Purchaser agree that the aggregate amount Purchaser may be
required to pay with respect to the

                                       41


Cash Tax Benefit shall not exceed the lesser of (x) the aggregate Cash Tax
Benefit actually realized by Purchaser, or (y) Three Million Six Hundred
Thousand Euros ((euro)3,600,000). Seller's sole remedy for Purchaser's failure
to pay amount due in connect with the Cash Tax Benefit shall be a cause of
action for breach of this Agreement.

            (c) Payment. The due date for any Cash Tax Benefit for any taxable
year shall be five (5) Business Days after the sooner of (i) the last date on
which the corporate income Tax assessment relating to the taxable year as
referred to in Section 4.14(b) has been finally and irrevocably determined by
any applicable Tax Authority, or (ii) the expiration of any applicable statute
of limitations.

            (d) Obligation Ceases on Sale. Any obligation hereunder shall cease
on sale of the Company, provided the purchaser in such sale is not an entity or
person that is an Affiliate or Associate of Purchaser.

                                       42


                                    ARTICLE 5
                              CONDITIONS TO CLOSING

      5.1 Conditions to Obligations of Each Party to Effect the Acquisition. The
respective obligations of each party to this Agreement to effect the Acquisition
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:

            (a) Governmental and Regulatory Approvals. Approvals from any
Governmental or Regulatory Authority (if any) necessary for consummation of the
transactions contemplated hereby shall have been obtained.

            (b) No Injunctions or Regulatory Restraints; Illegality. No
temporary restraining order, preliminary or permanent injunction or other Order
issued by any court of competent jurisdiction or other Governmental or
Regulatory Authority or other legal or regulatory restraint or prohibition
preventing the consummation of the Acquisition shall be in effect; nor shall
there be any Law or Order applicable to the Acquisition or the other
transactions contemplated by the terms of this Agreement that would prohibit the
consummation of the Acquisition or require Purchaser to hold separate the assets
of the Company.

      5.2 Additional Conditions to Obligations of Sellers. The obligations of
Sellers to consummate the Acquisition and the other transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by Draka:

            (a) Representations and Warranties. The representations and
warranties of Purchaser contained in this Agreement shall be accurate in all
material respects (except for those representations and warranties that are by
their terms qualified by a standard of materiality, which representations and
warranties shall be true and correct in all respects) as of the date of this
Agreement and as of the Closing as if made on and as of the Closing (other than
any such representations and warranties which by their express terms are made
solely as of a specified earlier date, which shall be accurate as of such
specified earlier date).

            (b) Performance. Purchaser shall have delivered the Cash Payment as
specified in Section 1.3(a), paid and satisfied in full the Inter-Company Debt
as specified in Section 1.3(b), caused the Subordinated Note to be executed and
delivered as specified in Section 1.3(c), and otherwise performed and complied
in all material respects with each agreement, covenant and obligation required
by this Agreement to be so performed or complied with by Purchaser at or before
the Closing.

            (c) Closing Certificate. Purchaser shall have delivered to Sellers a
certificate, dated the date of the Closing and executed by a duly authorized
officer, to the effect that each of the conditions specified in Sections 5.2(a)
and (b) above is satisfied in all respects.

                                       43


      (d)   Ancillary Agreements.

                  (i) Purchaser shall have executed a notarial deed of pledge in
the form attached hereto as Exhibit C, granting Draka a first priority lien in
35% of the Company Capital Shares to secure the obligations of Purchaser under
the Subordinated Note ( the "Pledge Agreement").

                  (ii) Purchaser shall have executed and delivered to Draka the
Subordinated Note.

            (e) Legal Opinion. Draka shall have received a legal opinion from
Karp, Frosh, Lapidus, Wigosky & Norwind, P.A., counsel to Purchaser, in the form
set forth in Exhibit D attached hereto.

            (f) Material Adverse Change.  There shall have not have occurred any
Material Adverse Change of Purchaser since the date of the financial  statements
included  in its most  recent  quarterly  report  on Form  10-Q  filed  with the
Securities and Exchange Commission.

      5.3 Additional Conditions to the Obligations of Purchaser. The obligations
of Purchaser to consummate the Acquisition and the other transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by Purchaser:

            (a) Representations and Warranties. The representations and
warranties of Sellers contained in this Agreement shall be accurate in all
material respects (except for those representations and warranties that are by
their terms qualified by a standard of materiality, which representations and
warranties shall be true and correct in all respects) as of the date of this
Agreement and as of the Closing as if made on and as of the Closing (other than
representations and warranties which by their express terms are made as of a
specified earlier date, which shall be accurate as of such specified earlier
date).

            (b) Performance. The Company and Sellers shall have performed and
complied with in all material respects each agreement, covenant or obligation
required by this Agreement to be so performed or complied with by the Company or
either Seller, as the case may be, at or before the Closing.

            (c) Closing Certificate. Each Seller shall have delivered to
Purchaser a certificate, dated the date of the Closing, to the effect that each
of the conditions specified in Sections 5.3(a) and (b) above is satisfied in all
respects.

            (d) Subordinated Note. Draka shall have executed and delivered to
Purchaser the Subordinated Note.

            (e) Company Financials. Draka shall have delivered or caused to be
delivered to Purchaser the Audited Financial Statements.

            (f) Notarial Deed. Sellers shall have executed the Notarial Deed
before the Notary.

                                       44


            (g) Legal Opinion. Purchaser shall have received a legal opinion
from Allen & Overy LLP, in the form set forth in Exhibit E attached hereto.

            (h) Fairness Opinion. Purchaser shall have received from Ferris
Baker Watts an opinion that the transactions contemplated by this Agreement are
fair, from a financial point of view, to the stockholders of Purchaser.

            (i) Approvals. (i) Approvals, if any, from any Person other than a
Governmental or Regulatory Authority necessary for consummation of the
transactions contemplated hereby shall have been obtained, including any
Approvals required to be disclosed in Section 2.6(c) of the Seller Disclosure
Schedule (other than the assignment to the Company of the Contracts identified
on Schedule 2.6(c)); and (ii) at and after the Closing, the Company shall have
and be entitled to exercise all of its rights under the Contracts listed on
Section 2.18(a) of the Seller Disclosure Schedule, including, without
limitation, the lease for the Company Real Property located in Gouda, The
Netherlands, without the payment of any additional amounts or consideration
other than ongoing fees, royalties or payments that the Company would otherwise
be required to pay had the transactions contemplated by this Agreement not
occurred.

            (j) Delivery of Share Ledger and Minute Book of the Company. Draka
shall have delivered the Company's share ledgers and minute books to Purchaser.

            (k) Resignations of Directors of the Company. Draka shall have
delivered or caused to be delivered to Purchaser resignations of the directors
of each Constituent Company.

            (l) Material Adverse Change. There shall have not have occurred any
Material Adverse Change of the Company since the Financial Statement Date.

            (m) [Intentionally Omitted].

            (n) Completion of Due Diligence. Except as provided in Section
5.3(o) below, Purchaser shall have completed, to its satisfaction, its due
diligence review of the Company on or before January 31, 2005.

            (o) Customer Diligence. Purchaser shall have completed, to its
reasonable satisfaction, (i) its diligence review of information provided by
Sellers on customers of the Company, and (ii) due diligence calls with six (6)
of the Company's customers identified on Section 2.23 of the Seller Disclosure
Schedule.

            (p) Trademark License. Purchaser and Sellers shall have executed and
delivered a Trademark License regarding the use by Purchaser of the trademark
"NKF" in the form attached hereto as Exhibit F.

                                       45


                                    ARTICLE 6
             SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
                          AGREEMENTS; INDEMNIFICATION

      6.1 Survival of Representations, Warranties, Covenants and Agreements.
Notwithstanding the provisions of any representation, warranty, covenant or
agreement contained herein, in the event that prior to Closing either (i)
Sellers have actual knowledge of one or more breach of any representation,
warranty, covenant or agreement by Purchaser, or (ii) Purchaser has actual
knowledge of any breach of a representation, warranty, covenant or agreement by
the Company or Sellers, and notwithstanding such actual knowledge such party
proceeds to Closing, the party having such actual knowledge shall be deemed to
have waived such party's right to make any claim hereunder with respect to such
breach and shall be forever estopped from making any claim with respect thereto.
Except for the representations and warranties set forth in Section 2.3(b) and
2A.1(a) (Ownership of Company Capital Shares) (which shall survive the Closing
and continue until the applicable statute of limitations has expired), and
Section 2.11 (Taxes) (which shall survive the Closing and continue for a period
of five (5) years), all of the representations and warranties contained in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Closing and continue until the date which is eighteen (18) months
after the date of Closing. For the avoidance of doubt, each provision of Article
1 and Article 6 and all Schedules shall survive until the satisfaction of all
obligations described therein, and each provision of Article 7 and Article 8
shall survive so long as it is relevant to any other surviving provision. No
Action or Proceeding may be instituted to enforce, or seek damages or other
remedies with respect to the breach of any representation or warranty after the
expiration of the period of survival for such representation or warranty as
described above.

      6.2   Indemnification.

            (a) After the Closing and subject to the limitations set forth
herein, Purchaser and its Affiliates (including, after the Closing, the Company)
officers, directors, employees, agents, successors and assigns (each, a
"Purchaser Indemnified Party") shall be indemnified and held harmless by
Sellers, jointly and severally, for any and all Liabilities, losses, damages of
any kind, claims, costs, expenses, fines, fees, deficiencies, interest, awards,
judgments, amounts paid in settlement and penalties (including, without
limitation, attorneys', consultants' and experts' fees and expenses and other
costs of defending, investigating or settling claims) actually suffered or
incurred by them (including, without limitation, in connection with any action
brought or otherwise initiated by any of them) , (hereinafter, "Loss(es)")
arising out of or resulting from:

                  (i) any inaccuracy in or breach (or any claim by any third
party alleging or constituting an inaccuracy or breach) of any representation or
warranty of Sellers, as of the date of this Agreement, contained in this
Agreement or in the Ancillary Agreements or any other instrument delivered
pursuant to this Agreement;

                  (ii) any breach of any covenant or agreement made by a Seller
in this Agreement or in the Ancillary Agreements or any other instrument
delivered pursuant to this Agreement;

                  (iii) any Company Expenses required to be paid by Sellers
pursuant to Section 4.3; or

                                       46


                  (iv) the Spanish Cable Business or the Solar Inverter
Business, including, with limitation, the Solar Inverter Claim.

            (b) Notwithstanding any provision hereof to the contrary, the
determination of any Purchaser Indemnified Party's Losses shall take into
account any and all present or future Tax benefits or detriments (based on such
Purchaser Indemnified Party's actual tax rate (on a consolidated basis, if
applicable) in the applicable year relating to the Loss), and after offsetting
any related recoveries or proceeds received by such Purchaser Indemnified Party
from applicable insurance policies or similar arrangements, or from third
parties, in connection with such Loss.

            (c) The Purchaser will not be entitled to assert a claim for
indemnification under this Agreement until such time as the aggregate Losses
incurred by it for which indemnification may be available hereunder exceed One
Hundred Thousand Euro ((euro)100,000) (the "Threshold"), in which event the
Purchaser will be entitled to recover indemnifiable Losses only to the extent
that such Losses exceed the Threshold; provided however, that any Losses (i)
based on fraud, (ii) arising from any inaccuracy in or breach (or any claim by
any third party alleging or constituting an inaccuracy or breach) of any
representation or warranty of Sellers contained in Section 2.3(b) or 2A.1(a)
hereof, (iii) indemnifed under Section 6.2(a)(ii) hereof, or (iv) indemnified
under Section 6.2(a)(iv) hereof shall not be subject to the Threshold and shall
be indemnifiable from the first dollar of Loss.

            (d) The aggregate amount of the Seller's indemnification obligation
hereunder shall not exceed Five Million Five Hundred Thousand Euro
((euro)5,500,000) (the "Indemnification Cap"); provided, however, any Losses (i)
based on fraud, (ii) arising from any inaccuracy in or breach (or any claim by
any third party alleging or constituting an inaccuracy or breach) of any
representation or warranty of Sellers contained in Section 2.3(b) or 2A.1(a)
hereof, (iii) indemnifed under Section 6.2(a)(ii) hereof, or (iv) indemnified
under Section 6.2(a)(iv) hereof shall not be subject to the Indemnification Cap
and shall be indemnifiable to the full extent of such indemnifiable Loss.

            (e) After the Closing, Seller and its Affiliates, officers,
directors, employees, agents, successors and assigns (each, a "Seller
Indemnified Party") shall be indemnified and held harmless by Purchaser for any
and all Losses arising out of or resulting from:

                  (i) any inaccuracy in or breach (or any claim by any third
party alleging or constituting an inaccuracy or breach) of any representation or
warranty of Purchaser, as of the date of this Agreement, contained in this
Agreement or in the Ancillary Agreements or any other instrument delivered
pursuant to this Agreement;

                  (ii) any breach of any covenant or agreement made by Purchaser
in this Agreement or in the Ancillary Agreements to which Seller is a party or
any other instrument delivered pursuant to this Agreement; or

                  (iii) the operation of the Company's business after Closing.

                                       47


            (f) Notwithstanding any provision hereof to the contrary, the
determination of any Seller Indemnified Party's Losses shall take into account
any and all present and future Tax benefits or detriments (based on such Seller
Indemnified Party's actual tax rate (on a consolidated basis, if applicable) in
the applicable year relating to the Loss), and after offsetting any related
recoveries or proceeds received by such Seller Indemnified Party from applicable
insurance policies or similar arrangements, or from third parties, in connection
with such Loss.

            (g) The Sellers will not be entitled to assert a claim for
indemnification under this Agreement until such time as the aggregate Losses
incurred by them for which indemnification may be available hereunder exceed the
Threshold, in which event the Sellers will be entitled to recover indemnifiable
Losses only to the extent that such Losses exceed the Threshold; provided
however, that any Losses (i) based on fraud, (ii) indemnifed under Section
6.2(e)(ii) hereof, or (iii) indemnified under Section 6.2(e)(iii) hereof shall
not be subject to the Threshold and shall be indemnifiable from the first dollar
of Loss.

            (h) The aggregate amount of Purchaser's indemnification obligation
hereunder shall not exceed the Indemnification Cap; provided, however, any
Losses (i) based on fraud, (ii) indemnifed under Section 6.2(e)(ii) hereof, or
(iii) indemnified under Section 6.2(e)(iii) hereof shall not be subject to the
Indemnification Cap and shall be indemnifiable to the full extent of such
indemnifiable Loss.

      6.3   Indemnification Procedures.

            (a) The obligations and Liabilities of an Indemnifying Party under
this Article 6 with respect to Losses arising from claims of any third party
which are subject to the indemnification provided for in this Article 6 ("Third
Party Claims") shall be governed by and contingent upon the terms and conditions
set forth in this Section 6.3. If any Person entitled to indemnification
pursuant to Section 6.2(a) or 6.2(b) (an "Indemnified Party") shall receive
notice of any Third Party Claim, the Indemnified Party shall give the
Indemnifying Party notice of such Third Party Claim within ten (10) days of the
receipt by the Indemnified Party of such notice; provided, however, that the
failure to provide such notice shall not release the Indemnifying Party from any
of its respective obligations under this Article 6 except to the extent that the
Indemnifying Party is materially prejudiced by such failure. The notice of claim
shall describe in reasonable detail the facts known to the Indemnified Party
giving rise to such indemnification claim, and the amount or good faith estimate
of the amount arising therefrom.

            (b) The Indemnifying Party shall be entitled to assume and control
the defense of a Third Party Claim at its expense and through counsel of its
choice (such counsel to be reasonably acceptable to the Indemnified Party) if it
gives notice of its intention to do so to the Indemnified Party within fifteen
(15) days after the receipt of such notice from the Indemnified Party; provided,
however, if there exists or is reasonably likely to exist a conflict of interest
that would make it inappropriate for the same counsel to represent both the
Indemnified Party and the Indemnifying Party, then the Indemnified Party shall
be entitled to retain its own counsel, in each jurisdiction for which counsel is
required, at the expense of the Indemnifying Party. In the event that the
Indemnifying Party exercises the right to undertake any such defense against any

                                       48


such Third Party Claim as provided above, the Indemnifying Party shall conduct
the defense of the Third Party Claim actively and diligently and the Indemnified
Party shall cooperate with the Indemnifying Party in such defense and make
available to the Indemnifying Party at the Indemnifying Party's expense, all
witnesses, pertinent records, materials and information in the Indemnified
Party's possession or under the Indemnified Party's control relating thereto as
is reasonably required by the Indemnifying Party. Similarly, in the event the
Indemnified Party is, directly or indirectly, conducting the defense against any
such Third Party Claim, the Indemnifying Party shall cooperate with the
Indemnified Party in such defense and make available to the Indemnified Party,
at the Indemnifying Party's expense, all such witnesses, records, materials and
information in the Indemnifying Party's possession or under the Indemnifying
Party's control relating thereto as is reasonably required by the Indemnified
Party. No such Third Party Claim may be settled by any party conducting the
defense against such claim without the prior written consent of the other party,
which consent shall not be unreasonably delayed or withheld.

      6.4 Right of Offset. In the event any amounts have been finally determined
to be payable and are due and payable by Sellers pursuant to this Article 6,
subject to the Indemnification Cap, Purchaser may offset such amounts from the
principal and interest due under the Subordinated Note. No limitation on such
right of offset shall otherwise affect any Indemnified Party's rights hereunder
or otherwise. The remedy of offset shall be in addition to and not in limitation
of any injunctive relief or other rights or remedies to which any Indemnified
Party is or may be entitled, at law or in equity.

      6.5 No Consequential Damages; Sole Remedy. Notwithstanding anything
contained in this Agreement to the contrary, no indemnified party hereunder
shall be entitled to Losses in the nature of incidental or consequential
damages. Further, the provisions of this Article 6 shall be the sole recourse of
the indemnified parties hereunder, except with respect to any equitable remedy
to which any such party may be entitled, except for the exercise by Draka of its
rights under the Subordinated Note, and except as provided in Section 7.13.

                                       49


                                    ARTICLE 7
                            MISCELLANEOUS PROVISIONS

      7.1 Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission against facsimile confirmation or mailed
by a nationally recognized overnight courier prepaid, to the parties at the
following addresses or facsimile numbers:

      If to Purchaser or the Company (after Closing) to:

            Optelecom, Inc.
            12920 Cloverleaf Center Drive
            Germantown, Maryland  20874
            Facsimile No.: (301) 528-8190
            Attn:  President

      with a copy (which shall not constitute notice) to:

            Venable LLP
            8010 Towers Crescent Drive, Suite 300
            Vienna, Virginia  22182
            Facsimile No.:  (703) 821-8949
            Attn:  Elizabeth R. Hughes

      If to Sellers or the Company (prior to closing):

            Draka Holding NV
            Boorstraat 2
            1021 JZ Amsterdam
            P.O. Box 246
            1000 AE Amsterdam
            The Netherlands
            Facsimile No.:  31-20-568-98-95
            Attn:  General Counsel

      with a copy (which shall not constitute notice) to:

            Sullivan & Worcester LLP
            One Post Office Square
            Boston, Massachusetts  02109
            Facsimile No.:  (617) 338-2880
            Attn:  Harry E. Ekblom, Jr.

All such notices, requests and other communications will (a) if delivered
personally to the address as provided in this Section 7.1, be deemed given upon
delivery, (b) if delivered by

                                       50


facsimile transmission to the facsimile number as provided for in this Section
7.1, be deemed given upon facsimile confirmation, and (c) if delivered by
overnight courier to the address as provided in this Section 7.1, be deemed
given on the earlier of the first Business Day following the date sent by such
overnight courier or upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice is to be delivered pursuant to this Section 7.1). Any party
from time to time may change its address, facsimile number or other information
for the purpose of notices to that party by giving notice specifying such change
to the other party hereto.

      7.2 Entire Agreement. This Agreement and the Exhibits and Schedules
hereto, including the Seller Disclosure Schedule, constitute the entire
Agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof (including specifically,
without limitation, the Letter of Intent dated December 28, 2004, as amended, by
and among Draka and Purchaser).

      7.3   [Intentionally Omitted].

      7.4 Waiver. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any party of
any term or condition of this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or condition
of this Agreement on any future occasion. All remedies, either under this
Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.

      7.5 Third-Party Beneficiaries. Except as expressly provided herein, the
terms and provisions of this Agreement are intended solely for the benefit of
each party hereto and their respective successors or permitted assigns, and it
is not the intention of the parties to confer third-party beneficiary rights,
and this Agreement does not confer any such rights, upon any other Person other
than any Person entitled to indemnity under Article 6.

      7.6 No Assignment; Binding Effect. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned (by operation of law or
otherwise) by any party without the prior written consent of the other party and
any attempt to do so will be void, except that the collateral assignment of
Purchaser's rights under this Agreement to Manufacturers and Traders Trust
Company (the "Bank") pursuant to that certain Financing and Security Agreement
by and among Purchaser, the Company and the Bank shall be permitted without the
consent of any party hereto. Subject to the preceding sentence, this Agreement
is binding upon, inures to the benefit of and is enforceable by the parties
hereto and their respective successors and assigns.

      7.7 Headings. The headings and table of contents used in this Agreement
have been inserted for convenience of reference only and do not define or limit
the provisions hereof.

                                       51


      7.8 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.

      7.9 Governing Law, Submission to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the state of Delaware
as applied to contracts entered into by Delaware residents and performed
entirely in Delaware, without giving effect to its principles or rules regarding
conflicts of laws, other than such principles directing application of the laws
of Delaware. Each party hereto irrevocably agrees that any legal action or
proceeding with respect to this Agreement or for recognition and enforcement of
any judgment in respect hereof brought by another party hereto or its successors
or assigns shall be brought and determined by either (i) a state court or
federal court sitting in the state of Delaware or (ii) an appropriate court
sitting in Amsterdam, The Netherlands and each party hereto hereby irrevocably
submits with regard to any such action or proceeding for itself and in respect
to its property, generally and unconditionally, to the exclusive jurisdiction of
the aforesaid courts. Each party hereto hereby irrevocably waives, and agrees
not to assert, by way of motion, as a defense, counter claim or otherwise, in
any action or proceeding with respect to this Agreement, (a) any claim that it
is not personally subject to the jurisdiction of the above-named courts for any
reason other than the failure to serve process in accordance with this Section
7.9, (b) that it or its property is exempt or immune from jurisdiction of any
such court or from any legal process commenced in such courts (whether through
service of notice, attachment prior to judgment, attachment in aid of execution
of judgment, execution of judgment or otherwise), and (c) to the fullest extent
permitted by applicable Law, that (i) the suit, action or proceeding in any such
court is brought in an inconvenient forum, (ii) the venue of such suit, action
or proceeding is improper and (iii) this Agreement, or the subject matter
hereof, may not be enforced in or by such courts.

      7.10 WAIVER OF TRIAL BY JURY. IN ANY ACTION OR PROCEEDING ARISING
HEREFROM, THE PARTIES HERETO CONSENT TO TRIAL WITHOUT A JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER OR
THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION OR PROCEEDING.

      7.11 Construction. The parties hereto agree that this Agreement is the
product of negotiation between sophisticated parties and individuals, all of
whom were represented by counsel, and each of whom had an opportunity to
participate in and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto, but rather shall be given a
fair and reasonable construction without regard to the rule of contra
proferentem.

                                       52


      7.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.

      7.13 Specific Performance. Each party shall have the right to seek an
injunction or injunctions to prevent breaches of Sections 4.1 and 4.2 of this
Agreement and to enforce specifically the terms and provisions thereof.
Notwithstanding Section 7.9, it is agreed that the parties shall be entitled to
an injunction or injunctions under this section 7.13 in any court having
jurisdiction. Nothing in Article 6 shall be construed or interpreted to limit
this Section 7.13.

                                    ARTICLE 8
                                   DEFINITIONS

      8.1 Definitions. As used in this Agreement, the following defined terms
shall have the meanings indicated below:

            "Actions or Proceedings" means any action, suit, complaint,
subpoena, petition, investigation, proceeding, arbitration, mediation,
litigation or Governmental or Regulatory Authority investigation, audit,
document request or other proceeding, whether civil or criminal, in law or in
equity, or before any arbitrator or Governmental or Regulatory Authority.

            "Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with,
that Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "controlled by", and "under
common control with") as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through ownership of voting securities or
by contract or otherwise.

            "Agreement" means this Share Purchase Agreement, including (unless
the context otherwise requires) the Exhibits, the Schedules (including the
Seller Disclosure Schedule and the Purchaser Disclosure Schedule) and the
certificates and instruments delivered in connection herewith, or incorporated
by reference, as the same may be amended or supplemented from time to time in
accordance with the terms hereof.

            "Approval" means any approval, authorization, consent, novation,
permit, qualification or registration, or any waiver of any of the foregoing,
required to be obtained from or made with, or any notice, statement or other
communication required to be filed with or delivered to, any Governmental or
Regulatory Authority or any other Person.

            "Assets and Properties" of any Person means all assets and
properties of every kind, nature, character and description (whether real,
personal or mixed, whether tangible or intangible, whether absolute, accrued,
contingent, fixed or otherwise and wherever situated), including the goodwill
related thereto, operated, owned, licensed or leased by such Person, including
cash, cash equivalents, Investment Assets, accounts and notes receivable,
chattel

                                       53


paper, documents, instruments, general intangibles, real estate, equipment,
inventory, goods and Intellectual Property.

            "Associate" means, with respect to any Person, any corporation or
other business organization of which such Person is an officer or partner or is
the beneficial owner, directly or indirectly, of ten percent (10%) or more of
any class of equity securities, any trust or estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar capacity and any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person.

            "Books and Records" means all files, documents, instruments, papers,
books and records relating to the Business or Condition of any Constituent
Company, including financial statements, internal reports, Tax Returns and
related work papers and letters from accountants, budgets, pricing guidelines,
ledgers, journals, deeds, title policies, minute books, share certificates and
books, share transfer ledgers, Contracts, Licenses, customer lists, computer
files and programs (including data processing files and records), retrieval
programs, operating data and plans and environmental studies and plans,
excluding, however, in all cases any materials that contain any confidential
information of any third party (other than the Company or Purchaser) that is
restricted by agreement or applicable Law from being disclosed to Purchaser
and/or any other Persons.

            "Business Combination" means, with respect to any Person, (a) any
merger, consolidation, share exchange, reorganization or other business
combination transaction to which such Person is a party, (b) any sale, or other
disposition of all or substantially all of the capital shares or other equity
interests of such Person (except for issuances of capital shares upon conversion
of preferred shares outstanding on the date hereof or the exercise of options or
warrants outstanding on the date hereof or issued in accordance with this
Agreement), (c) any tender offer (including a self tender), exchange offer,
recapitalization, restructuring, liquidation, dissolution or similar or
extraordinary transaction, (d) any sale, dividend or other disposition of all or
a substantial portion of the Assets and Properties of such Person (including by
way of exclusive license or joint venture formation) other than sales of
inventory and the granting of licenses in the ordinary course of such Person's
business and consistent with past practice, or (e) the entering into of any
agreement or understanding, the granting of any rights or options, or the
acquiescence of such Person, to do any of the foregoing.

            "Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of Delaware or in the country of The
Netherlands are authorized or obligated to close.

            "Business or Condition of the Company" means the business, condition
(financial or otherwise), results of operations, or Assets and Properties of the
Company and each other Constituent Company, taken as a whole.

            "Business or Condition of Purchaser" means the business, condition
(financial or otherwise), results of operations or Assets and Properties of
Purchaser and its subsidiaries, taken as a whole.

                                       54


            "Company Financials" means the Audited Financial Statements and the
September Balance Sheet.

            "Company Intellectual Property" shall mean any Intellectual Property
that (a) is owned by the Company and any other Constituent Company; (b) is
licensed to Company or any other Constituent Company; or (c) is used in or
necessary for the conduct of the business of the Company or any other
Constituent Company as presently conducted.

            "Company Options" means any Option to purchase or otherwise acquire
Company Capital Shares.

            "Company Registered Intellectual Property" means all Registered
Intellectual Property owned by the Company or any other Constituent Company.

            "Contract" means any note, bond, mortgage, contract, license, lease,
sublease, covenant, commitment, power of attorney, proxy, indenture, or other
agreement or arrangement, oral or written, including any Government Contract.

            "Corporate Income Tax" means vennootschapsbelasting as imposed under
the Corporate Income Tax Act or any other corporate income taxes imposed by
other jurisdictions.

            "Corporate Income Tax Act" means Wet op de vennootschapsbelasting
1969.

            "Dutch GAAP" means generally accepted accounting principles in the
Netherlands, as in effect from time to time.

            "Environmental Law" means any federal, state, local or foreign
environmental or other Law relating to Hazardous Materials.

            "Environmental Permit" means any permit, license, approval, consent
or authorization required under or in connection with any Environmental Law and
includes any and all orders, consent orders or binding agreements issued by or
entered into with a Governmental or Regulatory Authority.

            "Equity Equivalents" means securities (including Options to purchase
any shares of Company Capital Shares) which, by their terms, are or may be
exercisable, convertible or exchangeable for or into common stock, preferred
stock or other securities at the election of the holder thereof.

            "Event" means any transaction, event, act or omission and any
transaction, event, act or omission deemed to have occurred for tax purposes.

            "Financial Statement Date" means September 30, 2004.

                                       55


            "Governing Documents" means the certificate or articles of
incorporation or association, the bylaws, and any similar corporate,
organizational or governing documents of any Person.

            "Government Contract" means any Contract to which any Constituent
Company is a party with any Governmental or Regulatory Authority or any Contract
to which any Constituent Company is a party that is a subcontract (at any tier)
with another Person that holds either a prime contract with any Governmental or
Regulatory Authority or a subcontract (at any tier) under such a prime contract.

            "Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, bureau, board, commission, department, official
or other instrumentality of the United States, the Netherlands, any other
foreign country or domestic or foreign state, county, city or other political
subdivision, and shall include any stock exchange, quotation service and the
National Association of Securities Dealers.

            "Hazardous Material" means (a) any petroleum or petroleum products,
or (b) any chemicals, materials, substances or wastes which are now defined as
or included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants" or words of similar import under
any Environmental Law.

            "Income Tax Act" means the Wet inkomstenbelasting 2001.

            "Income Tax Act 1964" means the Wet inkomstenbelasting 1964.

            "Indebtedness" of any Person means all obligations of such Person
(a) for borrowed money, (b) evidenced by notes, bonds, debentures or similar
instruments, (c) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(d) under capital leases classified as such under U.S. GAAP and (e) in the
nature of guarantees of the obligations described in clauses (a) through (d)
above of any other Person.

            "Intellectual Property" means all trademarks and trademark rights
(whether or not registered), trade names and trade name rights, service marks
and service mark rights (whether or not registered), service names and service
name rights, patents and patent rights, utility models and utility model rights,
copyrights (statutory or registered), mask work rights, moral rights, brand
names, trade dress, product designs, product packaging, business and product
names, logos, slogans, rights of publicity, trade secrets, inventions (whether
patentable or not), invention disclosures, improvements, processes, formulae,
industrial models, processes, designs, specifications, technology,
methodologies, techniques, computer software (including all source code and
object code), firmware, development tools, flow charts, annotations, all Web
addresses, sites and domain names, all data bases and data collections and all
rights therein, any right to enforce confidential treatment of information,
whether or not subject to statutory registration, and all related technical
information, manufacturing, engineering and technical drawings, know-how and all
pending applications for, registrations of any of the foregoing, and the sole
and

                                       56


exclusive right to file for and apply for patents, utility models, trademarks,
service marks, domain names, and copyrights, and the sole and exclusive right to
sue for past infringement, if any, in connection with any of the foregoing, and
all documents, disks, records, files and other media on which any of the
foregoing is stored.

            "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.

            "Investment Assets" means all debentures, notes and other evidences
of Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets.

            "Last Company Financials" means the Company Financials as of
December 31, 2004.

            "Last Company Financials Date" means December 31, 2004.

            "Legal Transfer Taxes Act" means the Wet op belastingen van
rechtsverkeer.

            "Law" or "Laws" means any law, statute, order, decree, consent
decree, judgment, rule, regulation or ordinance whether in the United States,
the Netherlands, any other foreign country, or any other domestic or foreign
state, county, city or other political subdivision or of any Governmental or
Regulatory Authority.

            "Liability" or "Liabilities" means all Indebtedness, obligations and
other liabilities of a Person, whether absolute, accrued, contingent (or based
upon any contingency), known or unknown, fixed or otherwise, or whether due or
to become due.

            "License" means any Contract that grants a Person the right to use
or otherwise enjoy the benefits of any Intellectual Property (including any
covenants not to sue with respect to any Intellectual Property).

            "Liens" means any mortgage, pledge, assessment, security interest,
lease, lien, easement, license, covenant, condition, restriction, levy, charge,
option, equity, adverse claim or restriction or other encumbrance of any kind,
or any conditional sale Contract, title retention Contract or other Contract to
give any of the foregoing, except for any restrictions on transfer generally
arising under any applicable federal or state securities Law.

            "Material Adverse Change of the Company" means any event, fact,
circumstance or condition that, individually or in the aggregate with any other
such events, facts, circumstances or conditions, has had or would be reasonably
expected to have, a material adverse effect on the Business or Condition of the
Company, other than any event, change, fact, circumstance or condition arising
out of or resulting from (i) any adverse change to the economy of The
Netherlands in general or the economy of any foreign country in general in which
the Constituent Companies operate (provided that such change does not affect the
business, results

                                       57


of operations, or financial condition of any Constituent Company in a materially
disproportionate manner), (ii) any adverse change in general to the industries
in which the Constituent Companies operate (provided that such change does not
affect the operations or financial condition of any Constituent Company in a
materially disproportionate manner), (iii) any adverse change to financial,
banking or securities markets generally (including any disruption thereof and
any decline in the price of any security or any market index), (iv) the
announcement of the Agreement and/or the announcement of any of the transactions
contemplated hereunder, the fulfillment of the parties' obligations hereunder or
the consummation of the transactions contemplated by this Agreement, or (v) any
outbreak or escalation of hostilities or act of terrorism involving The
Netherlands or any declaration of war by The Netherlands.

                  "Material Adverse Change of Purchaser" means any event, fact,
circumstance or condition that, individually or in the aggregate with any other
such events, facts, circumstances or conditions, has had or would be reasonably
expected to have, a material adverse effect on the Business or Condition of
Purchaser, other than any event, change, fact, circumstance or condition arising
out of or resulting from (i) any adverse change to the United States economy in
general or the economy of any foreign country in general in which Purchaser
operates (provided that such change does not affect the business, results

of operations, or financial condition of Purchaser in a materially
disproportionate manner), (ii) any adverse change in general to the industries
in which Purchaser operates (provided that such change does not affect the
operations or financial condition of Purchaser in a materially disproportionate
manner), (iii) any change in the market price or trading volume of Purchaser's
stock after the date hereof or any adverse change to financial, banking or
securities markets generally (including any disruption thereof and any decline
in the price of any security or any market index), (iv) the announcement of the
Agreement and/or the announcement of any of the transactions contemplated
hereunder, the fulfillment of the parties' obligations hereunder or the
consummation of the transactions contemplated by this Agreement, or (v) any
outbreak or escalation of hostilities or act of terrorism involving the United
States or any declaration of war by the United States.

            "Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (a) purchase or otherwise receive or be issued any shares of
capital stock or other equity interests of such Person or any security of any
kind convertible into or exchangeable or exercisable for any shares of capital
stock or other equity interests of such Person or (b) receive any benefits or
rights similar to any rights enjoyed by or accruing to the holder of shares of
capital stock or other equity interests of such Person, including any rights to
participate in the equity, income or election of directors of such Person.

            "Order" means any writ, judgment, decree, injunction or similar
order of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).

            "Person" means any natural person, corporation, general partnership,
limited partnership, limited liability company or partnership, proprietorship,
other business organization, trust, union, association or Governmental or
Regulatory Authority.

                                       58


            "Plan" means (a) each of the Company Pension Plans, and (b) any
other employment, severance or other arrangement or policy of any Constituent
Company providing for health, life, vision or dental insurance coverage
(including self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits or retirement
benefits, fringe benefits, or for profit sharing, deferred compensation,
bonuses, stock options, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits.

            "Purchaser Disclosure Schedule" means the schedules delivered to
Sellers by or on behalf of Purchaser, containing all lists, descriptions,
exceptions and other information and materials as are required to be included
therein in connection with the representations and warranties made by Purchaser
in Article 3 or otherwise.

            "Purchaser's Group" means the Purchaser and any other company or
companies which either are or will be after Closing treated as members of the
same group as, or otherwise connected or associated in any way with, the
Purchaser for any tax purpose.

            "Purchaser's Relief " means (a) any Relief arising to any
Constituent Company to the extent that it either arises in respect of an Event
occurring or period after Closing, or was included in the Company Financials as
an asset; or (b) any Relief arising to any member of the Purchaser's Group
(other than any Constituent Company).

            "Registered Intellectual Property" shall mean all United States,
international and foreign: (a) patents and patent applications (including
provisional applications); (b) registered trademarks and service marks,
applications to register trademarks and servicemarks, intent-to-use
applications, or other registrations or applications to trademarks or
servicemarks; (c) registered copyrights and applications for copyright
registration; (d) any mask work registrations and applications to register mask
works; (e) registered domain names and applications to register domain names,
and (f) any other Intellectual Property that is the subject of an application,
certificate, filing, registration or other document issued by, filed with, or
recorded by, any Governmental or Regulatory Authority.

            "Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing of a
Hazardous Material into the environment.

            "Relief" includes, unless the context otherwise requires, any
allowance (including amortisation or depreciation), credit, deduction, exemption
or set-off in respect of any tax or relevant to the computation of any income,
profits or gains for the purposes of any tax, or any right to repayment of or
saving of tax and any reference to the use or set off of Relief shall be
construed accordingly.

            "Seller Disclosure Schedule" means the schedules delivered to
Purchaser by or on behalf of Sellers, containing all lists, descriptions,
exceptions and other information and materials as are required to be included
therein in connection with the representations and warranties made by Seller in
Article 2 and Article 2A or otherwise.

                                       59


            "Site" means any of the real properties currently or previously
owned, leased or operated by any Constituent Company, including all soil,
subsoil, surface waters and groundwater located thereon.

            "Solar Inverter Business" means the discontinued business of the
Company, conducted when the Company was a business unit of Vastgoed, in which it
developed, manufactured and sold solar energy inverters, electronic devices
which transform electrical currents.

            "Spanish Cable Business" means the business previously conducted by
NKF Electronics Iberica S.L., a Subsidiary of the Company, relating to the
marketing and distribution to third party purchasers of cable and cable
accessories manufactured by entities owned by Draka.

            "Subsidiary" means any Person in which the Company or Purchaser, as
the context requires, directly or indirectly through Subsidiaries or otherwise,
beneficially owns at least fifty percent (50%) of either the equity interest in,
or the voting control of, such Person, whether or not existing on the date
hereof.

            "Tax" or "Taxes" means all forms of taxation whether direct or
indirect and whether levied by reference to income, profits, gains, net wealth,
net worth, equity, asset values, turnover, gross receipts, added value or other
reference, and statutory, governmental, state, provincial, local governmental or
municipal impositions, duties, contributions, rates and levies (including sales
and use taxes, social security contributions and any other payroll taxes),
whenever and wherever imposed (whether imposed by way of a withholding or
deduction for or on account of tax or otherwise) and in respect of any person,
and all penalties, charges, costs and interest relating thereto.

            "Tax Authority" means any taxing or other authority (whether within
or outside the Netherlands) competent to impose any Tax Liability.

            "Tax Liability" or "Tax Liabilities" means (a) a liability of any
Constituent Company to make or suffer an actual or increased payment of or in
respect of Tax; and (b) the use or set off of any Purchaser's Relief in
circumstances where, but for such use or set off, a Constituent Company would
have had an actual tax liability in respect of which the Purchaser would have
been able to make a claim against Sellers under this Agreement (the amount of
the tax liability for these purposes being deemed to be equal to the amount of
the actual liability to Tax that is saved by the use of set off of the
Purchaser's Relief); provided that for the purposes of this Agreement it shall
be assumed that Reliefs other than any Purchaser's Relief are, to the extent
allowed by law, used in priority to any Purchaser's Relief, and if it cannot be
determined whether a Purchaser's Relief or another Relief is so used, it shall
be assumed that another Relief is used in priority to any Purchaser's Relief.

                                       60


            "Tax Returns" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.

            "U.S. GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time.

            "U.S. GAAS" means generally accepted auditing standards in the
United States, as in effect from time to time.

            "VAT" means within the European Union such Tax as may be levied in
accordance with (but subject to derogations from) the Directive 77/338/EEC and
outside the European Union any Tax levied by reference to added value, sales
and/or consumption.

      8.2   Construction.

            (a) Unless the context of this Agreement otherwise requires, (i)
words of any gender include each other gender and the neuter, (ii) words using
the singular or plural number also include the plural or singular number,
respectively, (iii) the terms "hereof," "herein," "hereby" and derivative or
similar words refer to this entire Agreement as a whole and not to any
particular Article, Section or other subdivision, (iv) the terms "Article" or
"Section" or other subdivision refer to the specified Article, Section or other
subdivision of the body of this Agreement, (v) the phrases "ordinary course of
business" and "ordinary course of business consistent with past practice" refer
to the business and practice of the Company, (vi) the words "include,"
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation," and (vii) when a reference is made in this Agreement to Exhibits,
such reference shall be to an Exhibit to this Agreement unless otherwise
indicated. All accounting terms used herein and not expressly defined herein
shall have the meanings given to them under GAAP. When used herein, the terms
"party" or "parties" refer to Purchaser, on the one hand, and the Company (prior
to the Closing) and Sellers, on the other, and the terms "third party" or "third
parties" refers to Persons other than Purchaser, the Company or Sellers.

            (b) When used herein, the phrase "to the knowledge of the Company"
(or words of similar import) and the phrase "to the knowledge of Sellers" (or
words of similar import) means to the actual knowledge of Thomas Overwijn, Coen
Hooghiesmstra, Roland Hooghiemstra and/or Mark V.D. Hoome. When used herein, the
phrase "to the knowledge of the Purchaser" (or words of similar import) mean to
the actual knowledge of Edmund Ludwig and/or James Armstrong.

                                       61


                            [SIGNATURE PAGES FOLLOW]

                                       62


            IN WITNESS WHEREOF, Purchaser, the Company and Sellers, have caused
this Agreement to be signed by their duly authorized representatives, all as of
the date first written above.

                                OPTELECOM, INC.

                                By:      /s/ Edmund Ludwig
                                         ------------------------------------
                                         Name:  Edmund Ludwig
                                         Title:   President and CEO

                                DRAKA HOLDING, N.V.

                                By:      /s/ Joyce L.H. Winnubst
                                         ------------------------------------
                                         Name: Joyce L.H. Winnubst
                                         Title: Holder of a power of attorney

                                NKF VASTGOED B.V.

                                By:      /s/ Joyce L.H. Winnubst
                                         ------------------------------------
                                         Name: Joyce L.H. Winnubst
                                         Title: Holder of a power of attorney

                                NKF ELECTRONICS, B.V.

                                By:      /s/ Joyce L.H. Winnubst
                                         ------------------------------------
                                         Name: Joyce L.H. Winnubst
                                         Title: Holder of a power of attorney

EX-99.2

                                                                    EXHIBIT 99.2

                          SUBORDINATED PROMISSORY NOTE

(euro)9,000,000                                                   March 8, 2005
                                                            Germantown, Maryland

      FOR VALUE RECEIVED, the undersigned, OPTELECOM, INC., a Delaware
corporation ("Optelecom") hereby unconditionally promises to pay to DRAKA
HOLDING, N.V., a limited liability company organized under the laws of The
Netherlands, or its permitted assigns (the "Holder"), in cash, the principal
amount of NINE MILLION Euro ((euro)9,000,000), with interest on the unpaid
principal balance at the rate and on the terms provided herein.

      1. Agreement. This Subordinated Promissory Note (this "Note") is issued in
connection with the Share Purchase Agreement (the "Agreement"), dated as of
March 8, 2005, by and among Optelecom, the Holder, NKF Vastgoed B.V., a private
company with limited liability organized in the Netherlands, and NKF
Electronics, B.V., a private company with limited liability organized in the
Netherlands ("NKF Electronics"), and shall be deemed to be the Subordinated Note
to which reference is made in the Agreement. The Holder is entitled to the
benefits of (and subject to the obligations expressly contained in) this Note
and may exercise the remedies provided for hereby and thereby or otherwise
available in respect hereto and thereto. Reference is made to the Agreement for
various rights, obligations and duties of the parties thereto, including certain
setoff rights in favor of Optelecom. The principal amount of this Note is
subject to adjustment pursuant to Section 1.4(c) of the Agreement. Capitalized
terms used herein without definition shall have the meaning ascribed to such
terms in the Agreement.

      2. Interest Rate; Payment. The outstanding principal amount of this Note
shall bear interest at a rate of SIX PERCENT (6%) per annum from the date hereof
until the entire principal amount of, and any interest on, this Note shall be
paid in full. Interest shall be calculated based on a 360-day year for the
number of days elapsed. The Taxable Portion Installment (as defined in Section 3
hereof) shall be due and payable on each anniversary of this Note as provided in
Section 3. The principal amount outstanding under this Note, together with all
accrued and unpaid interest thereon (the "Maturity Payment"), shall be due and
payable in full on March 8, 2010 (the "Maturity Date"). The Maturity Payment
shall be paid by wire transfer of immediately available funds to the Holder's
account listed on Schedule 1.3(a) to the Agreement (the "Bank Account") or at
such other bank as may be specified in writing from time to time not later than
two (2) business days prior thereto by the Holder to Optelecom. Optelecom shall
have the right, without premium or penalty, to prepay this Note in whole or in
part at any time before the Maturity Date, together with accrued and unpaid
interest. Without limiting the foregoing, after the later to occur of (i) 3
years after the date hereof, or (ii) the payment in full of the Acquisition Debt
(as defined in Section 6), Optelecom, in its discretion, may (without limiting
the provisions of Section 3 hereof) pay some portion of the interest in cash.
Partial prepayments shall be applied first to accrued and unpaid interest
through the date of such prepayment and then to reduce the principal balance of
this Note.



      3.    Taxable Portion Installments.

            (a) For purposes of this Note, the term "Taxable Portion
Installment" means (i) ONE HUNDRED SIXTY TWO THOUSAND Euro ((euro)162,000)
(subject to adjustment in the event of an adjustment in the principal amount of
this Note pursuant to Section 1.4(c) of the Agreement) on the first anniversary
of this Note, (ii) ONE HUNDRED SIXTY EIGHT THOUSAND EIGHT HUNDRED FOUR Euro
((euro)168,804) (subject to adjustment in the event of an adjustment in the
principal amount of this Note pursuant to Section 1.4(c) of the Agreement) on
the second anniversary of this Note, (iii) ONE HUNDRED SEVENTY FIVE THOUSAND
EIGHT HUNDRED NINETY FOUR Euro ((euro)175,894) (subject to adjustment in the
event of an adjustment in the principal amount of this Note pursuant to Section
1.4(c) of the Agreement) on the third anniversary of this Note, and (iv) ONE
HUNDRED EIGHTY THREE THOUSAND TWO HUNDRED EIGHTY ONE Euro ((euro)183,281)
(subject to adjustment in the event of an adjustment in the principal amount of
this Note pursuant to Section 1.4(c) of the Agreement) on the fourth anniversary
of this Note. Optelecom shall pay to the Holder the applicable Taxable Portion
Installment either, at the sole discretion of Optelecom, by (i) the issuance of
shares of common stock of Optelecom ("Optelecom Common Stock") in accordance
with Section 3(b), or (ii) the payment of cash (a "Cash Payment Amount") to the
Holder's Bank Account on or before each anniversary of this Note. If Optelecom
has issued Optelecom Common Stock to the Holder for any Taxable Portion
Installment in accordance with Section 3(b) on or before the date that is one
year prior to the date such Taxable Portion Installment is due, Optelecom will
be deemed to have irrevocably elected not to pay the Holder such Taxable Portion
Installment in cash; if, on the other hand, Optelecom has not so issued
Optelecom Common Stock to the Holder for such Taxable Portion Installment on or
before the date that is one year prior to the date such Taxable Portion
Installment is due, Optelecom will be deemed to have irrevocably elected to pay
the Holder such Taxable Portion Installment in cash on the date such Taxable
Portion Installment is due.

            (b) Optelecom may effect the payment of each Taxable Portion
Installment by the issuance (which shall be irrevocable and non-refundable) of
shares of Optelecom Common Stock, as follows:

                  (i) With respect to the Taxable Portion Installment to be paid
on the first anniversary of this Note, if Optelecom does not elect to make a
Cash Payment Amount in satisfaction of such Taxable Portion Installment, then on
the date of this Note, Optelecom shall issue to the Holder that number of shares
of Optelecom Common Stock (the "First Installment Shares") equal to the quotient
(rounded to the nearest whole number) determined by dividing (A) ONE HUNDRED
SIXTY TWO THOUSAND EURO ((euro)162,000) (subject to adjustment in the event of
an adjustment in the principal amount of this Note pursuant to Section 1.4(c) of
the Agreement) by (B) the Adjusted Per Share Amount (as defined herein) as of
the date of this Note.

                  (ii) With respect to the Taxable Portion Installment to be
paid on the second anniversary of this Note, if Optelecom does not elect to make
a Cash Payment Amount in satisfaction of such Taxable Portion Installment, then
on the first anniversary of this Note, Optelecom shall issue to the Holder that
number of shares of Optelecom Common Stock (the "Second Installment Shares")
equal to the quotient (rounded to the nearest whole number)

                                  Page 2 of 14


determined by dividing (A) ONE HUNDRED SIXTY EIGHT THOUSAND EIGHT HUNDRED FOUR
EURO ((euro)168,804) (subject to adjustment in the event of an adjustment in the
principal amount of this Note pursuant to Section 1.4(c) of the Agreement) by
(B) the Adjusted Per Share Amount as of the first anniversary of this Note.

                  (iii) With respect to the Taxable Portion Installment to be
paid on the third anniversary of this Note, if Optelecom does not elect to make
a Cash Payment Amount in satisfaction of such Taxable Portion Installment, then
on the second anniversary of this Note, Optelecom shall issue to the Holder that
number of additional shares of Optelecom Common Stock (the "Third Installment
Shares") equal to the quotient (rounded to the nearest whole number) determined
by dividing (A) ONE HUNDRED SEVENTY FIVE THOUSAND EIGHT HUNDRED NINETY FOUR EURO
((euro)175,894) (subject to adjustment in the event of an adjustment in the
principal amount of this Note pursuant to Section 1.4(c) of the Agreement) by
(B) the Adjusted Per Share Amount as of the second anniversary of this Note.

                  (iv) With respect to the Taxable Portion Installment to be
paid on the fourth anniversary of this Note, if Optelecom does not elect to make
a Cash Payment Amount in satisfaction of such Taxable Portion Installment, then
on the third anniversary of this Note, Optelecom shall issue to the Holder that
number of additional shares of Optelecom Common Stock (the "Fourth Installment
Shares") equal to the quotient (rounded to the nearest whole number) determined
by dividing (A) ONE HUNDRED EIGHTY THREE THOUSAND TWO HUNDRED EIGHTY ONE Euro
((euro)183,281) (subject to adjustment in the event of an adjustment in the
principal amount of this Note pursuant to Section 1.4(c) of the Agreement) by
(B) the Adjusted Per Share Amount as of the third anniversary of this Note.

                  (v) For purposes of this Note, the term "Adjusted Per Share
Amount" shall mean the quotient determined by dividing (A) 80% of the Average
Per Share Amount (as defined herein), (B) by the Euro Currency Equivalent (as
defined herein). For purposes of this Note, the term "Average Per Share Amount"
means, on any date of determination, the average of the per share closing prices
of Optelecom Common Stock for the 15 consecutive trading days ending on the date
that is two (2) Business Days prior to such date of determination. For purposes
of this Note, the term "Euro Currency Equivalent" means, on the date that is two
(2) Business Days prior to any date of determination, the amount of Euros which
results from the sale of a given amount in Dollars, determined at the rate of
exchange quoted generally by the Bank (as defined in Section 6) to its customers
as the market rate of foreign exchange for the sale of Dollars for Euros.

            (c) The Holder shall not sell, exchange, deliver or assign, dispose
of, bequeath or gift, pledge, mortgage, hypothecate or otherwise encumber,
transfer or permit to be transferred, whether voluntarily, involuntarily or by
operation of law, all or any part of the shares of Optelecom Common Stock issued
pursuant to this Section 3 except in compliance with the Securities Act of 1933,
as amended (the "Securities Act") and applicable state securities laws.

            (d) Each certificate of Optelecom Common Stock issued pursuant to
this Section 3 shall be stamped or otherwise imprinted with a legend
substantially similar to the following:

                                  Page 3 of 14



                  THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
                  "SECURITIES ACT"), OR ANY STATE SECURITIES ACT, AND MAY NOT BE
                  SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS A
                  REGISTRATION STATEMENT COVERING SUCH SHARES IS EFFECTIVE UNDER
                  THE SECURITIES ACT AND ANY APPLICABLE STATE ACT OR THE
                  TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES
                  ACT AND ANY APPLICABLE STATE ACT.

            (f) In the event (i) any Cash Payment Amount is due and payable
under Section 3(a), and (ii) at the time such Cash Payment Amount is due and
payable, or immediately after the payment of such Cash Payment Amount, there
shall be any Senior Indebtedness Default (as defined in Section 6(b)(ii)), then
the Holder agrees that such Cash Payment Amount shall not be made by Optelecom,
and the Holder shall not be entitled to receive such Cash Payment Amount until
the date on which such Senior Indebtedness Default shall have been cured or
waived.

      4. Events of Default. Any of the following shall constitute an "Event of
Default" under this Note:

            (a) default in the payment of any Taxable Portion Installment or the
Maturity Payment when due and payable for a period of fifteen (15) days
following written notice to Optelecom and the Bank (as defined in Section 6) of
such default; provided, however, and by its acceptance of this Note, the Holder
agrees that (i) Optelecom's failure to pay any amount due under this Note by
reason of any valid claim of setoff in accordance with Article 6 of the
Agreement and the outstanding principal amount hereunder shall correspondingly
be reduced by the amount of any such setoff, and (ii) Optelecom's payment of any
amount due under this Note into escrow in accordance with Article 6 of the
Agreement pending resolution of a claim under Article 6 of the Agreement that is
pending at the time such payment is due shall not be deemed an Event of Default
hereunder;

            (b) any default in the observance or performance by Optelecom of any
Covenant set forth in Section 8.1(a) or Section 8.2, which default is not cured
within fifteen (15) days following written notice to Optelecom and the Bank of
such default;

            (c) default in the observance or performance by Optelecom of any
Covenant (other than as described in Section 4(b)), which default is not cured
within thirty (30) days following written notice to Optelecom and the Bank of
such default;

            (d) any petition in bankruptcy being filed by or against Optelecom
or NKF Electronics or any proceedings in bankruptcy, insolvency or under any
other laws relating to the relief of debtors being commenced by or against
Optelecom or NKF Electronics, either through reorganization, composition,
extension or otherwise and which, in the case of any involuntary proceedings
shall be acquiesced to by Optelecom or NKF Electronics or shall continue for a
period of ninety (90) days undismissed or unstayed; or

                                  Page 4 of 14


            (e)   acceleration of the Senior Indebtedness (as defined in Section
                  6(a)).

      5.    Acceleration; Change in Control.

            (a) Acceleration upon an Event of Default. Subject to Section 6 of
this Note, upon an Event of Default, the Holder may, at its option, by notice in
writing to Optelecom and the Bank, declare this Note to be, and the Note shall
thereupon be, forthwith due and payable, together with accrued and unpaid
interest thereon, provided, that upon the occurrence of an Event of Default
under Section 4(d), this Note shall automatically be deemed to be due and
payable, together with accrued and unpaid interest thereon, without any further
action by the Holder and, subject to Section 6, all amounts payable under this
Note shall be immediately due and payable.

            (b) Acceleration upon a Change in Control. Subject to Section 6 of
this Note, upon a Change in Control (as defined herein) of Optelecom or NKF
Electronics (each, an "Optelecom Entity"), Holder may, at its option, by notice
in writing to Optelecom and the Bank, declare this Note to be, and the Note
shall thereupon be, forthwith due and payable, together with accrued and unpaid
interest thereon. For purposes of this Note, the term "Change in Control" means,
with respect to any Optelecom Entity:

                                            (i) A transaction or series of
                                            transactions in which any Person or
                                            group (within the meaning of
                                            Sections 13(d) and 14(d) of the
                                            Securities Exchange Act of 1934, as
                                            amended (the "Exchange Act")), other
                                            than an Optelecom Entity or a
                                            trustee or other fiduciary holding
                                            securities under an employee benefit
                                            plan of an Optelecom Entity or a
                                            corporation owned directly or
                                            indirectly by the stockholders of an
                                            Optelecom Entity in substantially
                                            the same proportions as their
                                            ownership of stock of such Optelecom
                                            Entity, becomes the beneficial owner
                                            (within the meaning of Rule 13(d)(3)
                                            under the Exchange Act), directly or
                                            indirectly, of securities
                                            representing 50% or more of the
                                            combined voting power of such
                                            Optelecom Entity's then-outstanding
                                            securities entitled generally to
                                            vote for the election of directors;

                                            (ii) Such Optelecom Entity's
                                            stockholders approve an agreement to
                                            merge or consolidate with another
                                            corporation (other than a
                                            majority-controlled subsidiary of
                                            such Optelecom Entity) unless such
                                            Optelecom Entity's stockholders
                                            immediately before the merger or
                                            consolidation are to own more than
                                            50% of the combined voting power of
                                            the resulting entity's voting
                                            securities entitled generally to
                                            vote for the election of directors;
                                            or

                                            (iii) Such Optelecom Entity's
                                            stockholders approve an agreement
                                            (including, without limitation, an
                                            agreement of

                                  Page 5 of 14


                        liquidation) to sell or otherwise dispose of all or
                        substantially all of the Assets and Properties of such
                        Optelecom Entity.

      6.    Senior Indebtedness.

            (a)   In this Note, the term "Senior Indebtedness" means:

                  (i) a term loan made by Manufacturers and Traders Trust
Company (together with its successors and assigns, including any successor by
virtue of any refinancing constituting Acquisition Debt (as hereinafter
defined), the "Bank") to Optelecom in the amount of Nine Million One Hundred
Fifty Two Thousand Eight Hundred Seventy Dollars and 40/100 Cents
($9,152,870.40) and any refinancing or other modification of such term loan
(provided that, except as permitted under Section 6(a)(v), any such refinancing
or other modification of such term loan shall not increase the aggregate
outstanding principal amount thereof and shall not extend the term of such term
loan beyond the Maturity Date), and any debentures, notes or other evidence of
indebtedness issued in exchange for such term loan, in all cases whether direct
or indirect, absolute or contingent, liquidated or unliquidated, due or to
become due, joint or several, and including without limitation all interest,
late fees, and collection costs associated with such term loan (the "Optelecom
Term Loan");

                  (ii) a term loan made by the Bank to NKF Electronics in the
amount of Four Million Eighty Eight Thousand Euro ((euro)4,088,000) and any
refinancing or other modification of such term loan (provided that, except as
permitted under Section 6(a)(v), any such refinancing or other modification of
such term loan shall not increase the aggregate outstanding principal amount
thereof and shall not extend the term of such term loan beyond the Maturity
Date), and any debentures, notes or other evidence of indebtedness issued in
exchange for such term loan, in all cases whether direct or indirect, absolute
or contingent, liquidated or unliquidated, due or to become due, joint or
several, and including without limitation all interest, late fees, and
collection costs associated with such term loan (the "NKF Term Loan" and
together with the Optelecom Term Loan, the "Acquisition Debt");

                  (iii) a revolving credit facility or facilities provided by
the Bank to Optelecom and NKF Electronics in an amount not to exceed FIVE
MILLION Dollars ($5,000,000) (or the Euro currency equivalent of FIVE MILLION
Dollars ($5,000,000)) and any debentures, notes or other evidence of
indebtedness issued in exchange for such revolving credit facility or
facilities, in all cases whether direct or indirect, absolute or contingent,
liquidated or unliquidated, due or to become due, joint or several, and
including without limitation all interest, late fees, and collection costs
associated with such revolving credit facility or facilities (the "Optelecom
Revolver");

                  (iv) additional indebtedness (including, without limitation,
the Revolvers, other revolving credit facilities, purchase money indebtedness,
capitalized lease facilities, or other indebtedness) up to an amount that
together with the amount of the Optelecom Revolver does not exceed EIGHT MILLION
Dollars ($8,000,000) in the aggregate at any time or from time to time; and

                                  Page 6 of 14


                  (v)   additional indebtedness equal to the sum of the
                        following amounts:

                                            (A) the amount determined by
                                            multiplying (I) the aggregate amount
                                            of Acquisition Debt repaid on or
                                            before March 8, 2006, by (II) 0.8,

                                            (B) the amount determined by
                                            multiplying (I) the aggregate amount
                                            of Acquisition Debt repaid after
                                            March 8, 2006 and on or before March
                                            8, 2007, by (II) 0.7,

                                            (C) the amount determined by
                                            multiplying (I) the aggregate amount
                                            of Acquisition Debt repaid after
                                            March 8, 2007 and on or before March
                                            8, 2008, by (II) 0.6, and

                                            (D) the amount determined by
                                            multiplying (I) the aggregate amount
                                            of Acquisition Debt repaid after
                                            March 8, 2008, by (II) 0.5.

            (b) By its acceptance of this Note, the Holder agrees that all
amounts payable to the Holder hereunder shall be junior in right of payment and
priority of security, if any, to the Senior Indebtedness to the extent and in
the manner set forth in herein.

                  (i) Without limiting the foregoing, the Holder agrees that no
payment of principal or interest hereunder, other than the Taxable Portion
Installments, shall be made by Optelecom, and the Holder shall not be entitled
to receive any such payment, until such time as the Acquisition Debt has been
paid and satisfied in full (provided that, for purposes of clarification, no
refinancing or other modification of the Acquisition Debt that increases the
aggregate outstanding principal amount thereof or extends the term thereof
beyond the Maturity Date shall constitute Acquisition Debt for purposes of this
Section 6(b)).

                  (ii) Additionally, without limiting the foregoing, the Holder
agrees that no payment of principal or interest hereunder, other than the
Taxable Portion Installments, shall be made by Optelecom, and the Holder shall
not be entitled to receive any such payment, if at the time of any such payment,
or if immediately after such a payment, (A) Optelecom shall be in default in the
payment of any principal of, premium, if any, or interest on, or any other
amounts due with respect to, any Senior Indebtedness owed to the Bank or any
other creditor, and all applicable grace or cure periods shall have expired (a
"Senior Payment Default"), or (B) there shall have occurred and be continuing
any other default with respect to any Senior Indebtedness of Optelecom owed to
the Bank (but not to any other creditor) or any document relating to such Senior
Indebtedness (a "Senior Indebtedness Document") and all applicable grace or cure
periods shall have expired (a "Senior Covenant Default" and any such Senior
Payment Default or Senior Covenant Default, a "Senior Indebtedness Default"),
which Senior Indebtedness Default would entitle the holder of such Senior
Indebtedness, or any trustee therefor, to declare the principal of such Senior
Indebtedness, if not already due and payable, to be due and payable, unless and
until such Senior Indebtedness Default shall have been cured or waived or shall
cease to exist.

                                  Page 7 of 14


            (c) Anything herein to the contrary notwithstanding, in the event
that a Senior Covenant Default shall have occurred and be continuing and, as a
result, an Event of Default has occurred under Section 4(a) hereof due to the
restrictions set forth in Section 6(b)(ii), the restrictions set forth in
Section 6(b)(ii) shall, unless all of the Senior Indebtedness in respect of
which such Senior Covenant Default relates (which Senior Indebtedness shall
constitute all Senior Indebtedness outstanding under any Senior Indebtedness
Document in respect of which such Senior Covenant Default relates) shall have
been declared due and payable under any acceleration provision applicable
thereto and such declaration shall not have been waived, rescinded or annulled,
cease to apply upon the earliest of (i) 180 days after the date of such Event of
Default under Section 4(a), (ii) the date on which such Senior Covenant Default
under such Senior Indebtedness shall have been cured or waived or, (iii) the
181st day during any period of 365 consecutive days on which payments that are
due and payable under this Note are prohibited under Section 6(b)(ii) hereof by
virtue of one or more Senior Covenant Defaults.

            (d) In the event of any bankruptcy proceeding, insolvency
proceeding, receivership, liquidation, reorganization, dissolution or assignment
for the benefit of creditors of Optelecom (each, a "Proceeding"), the Bank shall
be entitled to receive payment in full in cash of all of the Senior Indebtedness
of Optelecom before the Holder is entitled to receive any payment or other
distribution on account of this Note. In connection with any Proceeding, no
payment to the Bank shall be deemed to have been made until the Bank actually
has received the payment. Without limiting the generality of the preceding
sentence, the Bank shall not be deemed to have received payment by virtue solely
of the approval or implementation of a reorganization plan in bankruptcy or in
any other Proceeding.

            (e) If the Holder receives any payment or distribution on account of
this Note before all of the Senior Indebtedness is paid in cash in full, and if
such payment or distribution is not expressly permitted under this Note, then
such payment or distribution shall be received and held in trust by the Holder
for the ratable benefit of the Bank and shall promptly be paid over, ratably, to
the Bank (to the extent of any outstanding Senior Indebtedness).

            (f) Upon the occurrence of an Event of Default or a Change in
Control hereunder, the Holder may exercise all the rights and remedies available
to it under Section 5(a) and 5(b) (as applicable), and may exercise all other
rights and remedies available to it under applicable law or under this Note for
collection or enforcement of this Note, the Agreement or the Pledge Agreement
(as defined in Section 7 hereof); provided that, except as set forth in the
immediately succeeding sentence, the Holder shall not commence or continue any
action, suit or proceeding against Optelecom or its assets, or exercise any
other remedies available to it at law or under this Note, the Agreement or the
Pledge Agreement, for collection or enforcement of this Note for a period of One
Hundred Eighty (180) days after (i) the date of an Event of Default under
Section 4(a), 4(b), or 4(c) hereof; (ii) the date all or any portion of the
Senior Indebtedness of Optelecom or NKF Electronics is accelerated; or (iii) the
Maturity Date if on the Maturity Date there exists any Senior Indebtedness
Default or any condition which, with notice or lapse of time, or both, would
constitute a Senior Indebtedness Default. Notwithstanding the foregoing proviso,
during such 180-day period, the Holder may take such actions as are necessary to
preserve the Holder's claims against Optelecom in respect of any amounts due
under this Note (including, without limitation, filing a proof of claim,
furnishing notices of default, filing and

                                  Page 8 of 14


prosecuting lawsuits with respect to non-payment obligations, filing but not
otherwise prosecuting a law suit for the enforcement of payment obligations and
other similar actions) if an Event of Default under this Note has occurred and
is continuing and the Holder has provided written notice to the Bank of such
Event of Default.

            (g) Without the prior written consent of the Bank, the Holder and
Optelecom shall not amend, restate, modify, replace, or otherwise in any manner
alter this Note (each, a "Note Modification") if any such Note Modification has
the effect of increasing the outstanding principal amount hereof or of modifying
the provisions of this Section 6 in a manner that adversely affects the Bank.

            (h) By the Holder's acceptance of this Note, the Holder agrees that
(i) the provisions of this Section 6, and other provisions of this Note that
relate to the Senior Indebtedness and the Holder's subordination of all amounts
payable hereunder to the payment of the Senior Indebtedness, are for the benefit
of the Bank and holders from time to time of the Senior Indebtedness, and, so
long as any Senior Indebtedness remains unpaid, may not be rescinded or canceled
in whole or in part without the prior written consent thereto of the Senior
Lender; (ii) the Bank may rely on this Section 6 and the other provisions of
this Note that relate to the Senior Indebtedness and the Holder's subordination
of all amounts payable hereunder to the payment of the Senior Indebtedness; and
(iii) the Bank shall be a third party beneficiary hereof and as such shall be
entitled to enforce this Section 6.

      7. Security. This Note is secured by that certain Deed of Pledge of Shares
in NKF Electronics dated the date hereof by and among Optelecom, the Holder and
NKF Electronics (the "Pledge Agreement") under which certain capital shares of
NKF Electronics are being pledged to the Holder to secure Optelecom's
obligations hereunder, as more particularly described therein. The Holder hereby
acknowledges and consents that any security interest granted to it under the
Pledge Agreement is subject and subordinated to the rights granted to the Bank
under this Note, and that in case of an Event of Default, the following
limitations shall apply to the Holder's rights under the Pledge Agreement
(collectively the "Senior Debt Rights"):

            (a) The Holder shall not exercise any remedies available to it under
the Pledge Agreement, (i) at any time prior to the payment and satisfaction in
full of the Acquisition Debt, and (ii) for a period of One Hundred Eighty (180)
days after any of the events set forth in clauses (i), (ii) or (iii) of Section
6(f) hereof.

            (b) The Holder hereby acknowledges and agrees that in order to
secure Optelecom's obligations to the Bank under the Acquisition Debt and the
Optelecom Revolver, Optelecom has pledged sixty five percent (65%) of the issued
share capital of NKF Electronics (the "NKF Capital Stock") to the Bank to secure
Optelecom's obligations to the Bank (such pledge being hereinafter called the
"Bank Stock Pledge"). If at any time the Bank exercises its rights under the
Bank Stock Pledge and desires in connection with the exercise of such rights to
sell, exchange, convey, or otherwise transfer, in a commercially reasonable
manner, in one or a series of related transactions to one or more independent
third parties (each, a "Purchaser"), all of the NKF Capital Stock (a "NKF Stock
Sale"), then the Bank may require the Holder to participate in such NKF Stock
Sale by delivering written notice of the NKF Stock Sale to the Holder, and the
Holder agrees that upon receipt of such written notice it shall (A) consent
to such

                                  Page 9 of 14


NKF Stock Sale and take such actions as are reasonably necessary to evidence its
consent to such NKF Stock Sale and to evidence that each Purchaser is acquiring
the NKF Capital Stock free and clear of any liens created under the Pledge
Agreement; (B) to the extent it has possession of the NKF Capital Stock, deliver
the NKF Capital Stock to the Bank; (C) to the extent the NKF Capital Stock is
registered in the name of the Holder, deliver to the Bank stock powers or other
authorization that will induce the transfer agent or other registrar of the NKF
Capital Stock to change the registration to that of the Bank, or the Purchaser
of the NKF Capital Stock as the Bank deems to be reasonably necessary to affect
the sale of the NKF Stock Sale; (D) to the extent deemed reasonably necessary by
the Bank to affect the sale of the NKF Capital Stock, join the sale to effect
the transfer by entering into any purchase and sale agreement or other agreement
under the terms of which such sale is consummated, and (E) do all things that
the bank deems to be reasonably necessary to affect the sale of the NKF Capital
Stock. The Holder further agrees that upon consummation of any NKF Stock Sale,
its only right with respect to the NKF Capital Stock shall solely be to receive
that portion, if any, of the aggregate proceeds received from the Purchaser(s)
in the NKF Stock Sale (the "Sale Proceeds") equal to the lesser of (x) thirty
five percent (35%) of the Sale Proceeds, or (y) the amount of Sale Proceeds
remaining after the Acquisition Debt has been paid and satisfied in full, and
any and all other rights of the Holder under the Pledge Agreement or otherwise
with respect to the NKF Capital Stock shall terminate and have no further force
and effect.

            (c) By the Holder's acceptance of this Note, the Holder agrees that
(i) the provisions of this Section 7, and other provisions of this Note and the
Pledge Agreement that relate to the Senior Debt Rights and the Holder's
subordination of all amounts payable hereunder to the payment of the Acquisition
Debt and the Optelecom Revolver, are for the benefit of the Bank and holders
from time to time of the Acquisition Debt and the Optelecom Revolver, and, so
long as any of the Acquisition Debt or the Optelecom Revolver remain unpaid, may
not be rescinded or canceled in whole or in part without the prior written
consent thereto of the Bank; (ii) the Bank may rely on this Section 7 and the
other provisions of this Note that relate to the Senior Debt Rights and the
Holder's subordination of all amounts payable hereunder to the payment of the
Acquisition Debt and the Optelecom Revolver; and (iii) the Bank shall be a third
party beneficiary hereof and as such shall be entitled to enforce this Section
7.


      8.    Covenants of Optelecom.

            8.1 Affirmative Covenants. Until this Note is paid in full,
Optelecom agrees and covenants as follows (the "Affirmative Covenants"):

                  (a) Notice of Defaults. Optelecom shall promptly notify the
Holder of (i) any default or any condition which, with notice or lapse of time,
or both, would constitute an Event of Default, and (ii) any acceleration of all
or any portion of the Senior Indebtedness.

                  (b) SEC Filings. For so long as Optelecom is registered under
the Exchange Act, Optelecom shall provide the Holder with copies of all
statements, reports, schedules, forms, exhibits and other documents filed by
Optelecom with the Securities and Exchange Commission (the "SEC") or otherwise
furnished to the stockholders of Optelecom after the date hereof (the "SEC
Documents") under the Securities Act of 1933, as amended (the

                                 Page 10 of 14


"Securities Act"), the Exchange Act and/or the rules and regulations promulgated
thereunder within twenty (20) days after such SEC Documents are filed with the
SEC or furnished to stockholders, as the case may be.

                  (c) Financial Statements and Notices. If Optelecom is no
longer registered with the SEC under the Exchange Act, Optelecom shall provide
the Holder with copies of the following materials:

                        (i) its unaudited quarterly and year-to-date financial
statements (including a quarterly, year-to-date, and trailing twelve (12)-month
(when applicable) balance sheet, profit and loss statement and cash flow
statement) within forty-five (45) days from the end of each fiscal quarter;

                        (ii) its audited year-end balance sheet, profit and loss
statement and cash flow statement within one hundred twenty (120) days of such
accounting year-end, which shall be audited by an independent accounting firm in
accordance with U.S. GAAP;

                        (iii) any notices furnished to stockholders of
Optelecom; and

                        (vi) notice of an Material Adverse Change of Purchaser.

            8.2 Negative Covenants. Until this Note is paid in full, Optelecom
covenants and agrees with the Holder not to do any of the following without the
prior written consent of the Holder (the "Negative Covenants" and collectively
with the Affirmative Covenants, the "Covenants"):

                  (a) Additional Indebtedness. Neither Optelecom nor any of its
Subsidiaries shall incur any indebtedness for borrowed money, or guarantee the
indebtedness or other obligations of any other person, other than the incurrence
or guaranty of Permitted Debt (as defined herein). For purposes of this Note,
the term "Permitted Debt" shall mean:

                        (i) the Senior Indebtedness;

                        (ii) any payables incurred in the ordinary course of
business;

                        (iii) any indebtedness that is junior in right of
payment and priority of security, if any, to the obligations under this Note on
terms no less favorable than those set forth on Exhibit A hereto; and

                        (iv) after such time as the Acquisition Debt has been
repaid in full, any indebtedness equal to the amount of any prepayment of
principal and/or interest under this Note.

                  (b) Distributions. Optelecom shall not make or cause to be
made any distribution of cash or other property of Optelecom to any of its
stockholders, whether such distribution would be characterized as a dividend or
otherwise, or otherwise repurchase any shares of capital stock of Optelecom,
other than repurchases of capital stock from employees pursuant to agreements
providing for such repurchase as a result of termination of employment.

                                 Page 11 of 14


                  (c) Affiliate Transactions. Neither Optelecom nor its
Subsidiaries shall purchase or sell any property or services, borrow or lend
money or property from or to, or co-invest in any transaction with any of their
respective Affiliates, except for inter-company loans between Optelecom and its
Subsidiaries and except for reasonable and customary employment compensation
arrangements and except for transactions entered into or incurred on an
arm's-length basis on commercially reasonable terms.

            8.3 Tax Covenants. Optelecom agrees that it will (i) calculate,
accrue and report for all United States federal income tax purposes all interest
and original issue discount income (to the Holder) and expense (to Optelecom)
with respect to this Note, taking into account the Taxable Portion Installments
paid in Optelecom Common Stock in accordance with Section 3(b) hereof as if paid
on date such shares are issued; (ii) not treat the Holder as the owner of any
Optelecom Common Stock issued to the Holder in accordance with Section 3 hereof
for any United States federal income tax purpose unless and until the date such
shares are issued; (iii) treat any interest under this Note (whether paid in
cash or Optelecom Common Stock) as interest that is "portfolio interest" for
purposes of Sections 871(h) and 881(c) of the Internal Revenue Code of 1986 as
amended; (iv) treat any interest payable hereunder as eligible for exemption
from United States federal income tax pursuant to Article 12 of the Convention
Between the United States of America and the Kingdom of the Netherlands for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect
to Taxes on Income; and (v) will perform any applicable reporting on United
States Internal Revenue Service Forms 1042 and 1042-S with respect to payments
hereunder, consistent with the foregoing.

      9.    Miscellaneous.

            (a) All payments of cash under this Note shall be made to the Holder
by wire transfer to the Holder's Bank Account as the Holder may from time to
time direct. No extension of time for payment of any amount owing hereunder
shall otherwise affect the liability of Optelecom for payment of the
indebtedness evidenced hereby. No delay by the Holder in exercising any power or
right hereunder shall operate as a waiver of any power or right hereunder.

            (b) A delay by the Holder in exercising a right or remedy with
respect to this Note shall not constitute a waiver thereof; a waiver of a
default, right or remedy shall not constitute a waiver of a subsequent default,
right or remedy; and a single or partial exercise of a right or remedy shall not
preclude another or further exercise thereof or the exercise of another right or
remedy.

            (c) Optelecom waives demand, presentment, protest and, except as
expressly set forth herein, all other demands and notices of any kind, and no
partial payment shall discharge Optelecom from liability hereon in whole or in
part (except to the extent of such partial payments).

            (d) Optelecom may not assign its obligations under this Note.

            (e) Except as provided for herein, no waiver or modification of the
terms of this Note shall be valid unless in writing signed by Optelecom and the
Holder.

                                 Page 12 of 14


            (f) This Note shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to principles or rules
regarding conflicts of laws, other than such principles directing application of
the laws of the State of Delaware.

            (g) In case any provision contained herein (or part thereof) shall
for any reason be held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or other unenforceability shall not affect any
other provision (or the remaining part of the affected provision) hereof, but
this Note shall be construed as if such invalid, illegal or unenforceable
provision (or part thereof) had never been contained herein, but only to the
extent that such provision is invalid, illegal, or unenforceable. No provision
of this Note shall be construed or shall operate to require Optelecom to pay
interest in an amount or at a rate greater than the maximum rate allowed from
time to time under applicable law.

            (h) Any legal action or proceeding with respect to this Note or for
recognition and enforcement of any judgment in respect hereof brought by the
Holder or its successors or assigns shall be brought and determined by either
(i) a state court or federal court sitting in the State of Delaware, or (ii) an
appropriate court sitting in Amsterdam, The Netherlands, and the Holder and
Optelecom hereby irrevocably submits with regard to any such action or
proceeding for itself and in respect to its property, generally and
unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of
the Holder and Optelecom hereby irrevocably waives, and agrees not to assert, by
way of motion, as a defense, counter claim or otherwise, in any action or
proceeding with respect to this Note, (A) any claim that it is not personally
subject to the jurisdiction of the above-named courts for any reason other than
the failure to serve process, (B) that it or its property is exempt or immune
from jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise),
and (C) to the fullest extent permitted by applicable law, that (I) the suit,
action or proceeding in any such court is brought in an inconvenient forum, (II)
the venue of such suit, action or proceeding is improper and (III) this Note, or
the subject matter hereof, may not be enforced in or by such courts.

                  (i) IN ANY ACTION OR PROCEEDING ARISING HEREFROM, THE PARTIES
HERETO CONSENT TO TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF
ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS NOTE, REGARDLESS OF THE
FORM OF ACTION OR PROCEEDING.

            (j) Any notice or other communication required or permitted
hereunder shall be in writing and shall be sent to such addresses and in such
manner as is described in the Agreement.

            (k) No right, power or remedy conferred hereby shall be exclusive of
any other right, power or remedy referred to herein or therein or now or
hereafter available at law, in equity, by statute or otherwise.

                                 Page 13 of 14


            (l) Upon receipt of evidence reasonably satisfactory to Optelecom of
the loss, theft, destruction or mutilation of this Note and, in the case of
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to Optelecom from the Holder or, in the case of mutilation, upon
surrender of the mutilated Note, Optelecom shall make and deliver a new Note of
like tenor in lieu of this Note.

      IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed and delivered by its authorized officer as of the date first written
above.

                               OPTELECOM, INC.

                               By    /s/  Edmund Ludwig
                                     ------------------------------
                                    Name: Edmund Ludwig
                                    Title: President and CEO

                               AGREED AND ACKNOWLEDGED:

                               DRAKA HOLDING, N.V.

                                     /s/ Joyce L.H. Winnubst
                               ------------------------------------
                               Name: Joyce L.H. Winnubst
                               Title: Holder of a power of attorney

                                 Page 14 of 14

EX-99.3

                                                                    Exhibit 99.3

                        FINANCING AND SECURITY AGREEMENT
                                  by and among

                                OPTELECOM, INC.,
                              OPTELECOM UK LIMITED,
                            OPTELECOM EUROPE LIMITED,
                                       and
                              NKF ELECTRONICS, B.V.

                                   as Obligors

                                       and

                 MANUFACTURERS AND TRADERS TRUST COMPANY, Lender

                              Dated: March 8, 2005



                                TABLE OF CONTENTS

                                                                            
ARTICLE I DEFINITIONS                                                           2
Section 1.1       Certain Defined Terms.                                        2
Section 1.2       Accounting Terms and Other Definitional Provisions.          26
Section 1.3       Dutch Terms                                                  26
ARTICLE II THE CREDIT FACILITIES                                               27
Section 2.1       The U.S. Revolving Credit Facility.                          27
    2.1.1    U.S. Revolving Credit Facility.                                   27
    2.1.2    Procedure for Making U.S. Revolving Loan Advances.                27
    2.1.3    U.S. Borrowing Base.                                              28
    2.1.4    U.S. Borrowing Base Report.                                       29
    2.1.5    Promise to Pay U.S. Revolving Loan.                               29
    2.1.6    Mandatory Prepayments of U.S. Revolving Loan.                     29
    2.1.7    Optional Prepayments of U.S. Revolving Loan.                      30
    2.1.8    U.S. Revolving Loan Account.                                      30
    2.1.9    Revolving Credit Unused Line Fee, Monitoring Fee.                 30
Section 2.2       The U.S. Term Loan.                                          31
    2.2.1    U.S. Term Loan Commitment.                                        31
    2.2.2    Promise to Pay U.S. Term Loan.                                    31
    2.2.3    U.S. Term Loan Installment Payments.                              31
    2.2.4    Mandatory Prepayments of U.S. Term Loan.                          31
    2.2.5    Optional Prepayments of U.S. Term Loan.                           32
Section 2.3       The Dutch Revolving Credit Facility.                         32
    2.3.1    Dutch Revolving Credit Facility.                                  32
    2.3.2    Procedure for Making Dutch Revolving Loan Advances.               32
    2.3.3    Dutch Borrowing Base.                                             33
    2.3.4    Dutch Borrowing Base Report.                                      34
    2.3.5    Promise to Pay Dutch Revolving Loan.                              34
    2.3.6    Mandatory Prepayments of Dutch Revolving Loan.                    34
    2.3.7    Optional Prepayments of Dutch Revolving Loan.                     35
    2.3.8    Dutch Revolving Loan Account.                                     35
Section 2.4       The Dutch Term Loan.                                         35
    2.4.1    Dutch Term Loan Commitment.                                       35
    2.4.2    Promise to Pay Dutch Term Loan.                                   36
    2.4.3    Dutch Term Loan Installment Payments.                             36
    2.4.4    Mandatory Prepayments of Dutch Term Loan.                         36
    2.4.5    Optional Prepayments of Dutch Term Loan.                          36
Section 2.5       Letter of Credit.                                            37
    2.5.1    Obtaining Letters of Credit.                                      37
    2.5.2    Letter of Credit Fees.                                            37
    2.5.3    Terms of Letters of Credit; Post-Expiration
              Date Letters of Credit.                                          37
    2.5.4    Procedures for Letters of Credit.                                 38
    2.5.5    Payments of Letters of Credit.                                    39
    2.5.6    Change in Law; Increased Cost.                                    40
    2.5.7    General Letter of Credit Provisions.                              40
Section 2.6       Interest.                                                    42
    2.6.1    Applicable Interest Rates.                                        42
    2.6.2    Selection of Interest Rates.                                      43
    2.6.3    Inability to Determine Dollar LIBOR Rate or Euro LIBOR Rate.      45
    2.6.4    Indemnity.                                                        45
    2.6.5    Payment of Interest.                                              45
  Section 2.7     General Financing Provisions.                                46
    2.7.1    Consideration; Obligors' Representative.                          46



                                       i



                                                                            
    2.7.2    Origination Fees.                                                 47
    2.7.3    Field Examination Fees.                                           47
    2.7.4    Computation of Interest and Fees.                                 48
    2.7.5    Payments.                                                         48
    2.7.6    Liens; Setoff.                                                    48
    2.7.7    Requirements of Law.                                              49
Section 2.8       Guaranty.                                                    49
Section 2.9       Limitations on Joint and Several Liability
                   for Obligations.                                            52
ARTICLE III THE COLLATERAL                                                     52
Section 3.1       Debt and Obligations Secured.                                52
Section 3.2       Grant of Liens.                                              53
Section 3.3       Collateral Lists.                                            53
Section 3.4       Personal Property.                                           54
    3.4.1    Securities, Chattel Paper, Promissory Notes, etc.                 54
    3.4.2    Patents, Copyrights and Other Property Requiring
             Additional Steps to Perfect.                                      54
Section 3.5       Record Searches.                                             54
Section 3.6       Costs.                                                       55
Section 3.7       Release.                                                     55
Section 3.8       Inconsistent Provisions.                                     55
Section 3.9       Ranking of Lien Priorities.                                  56
Section 3.10      Authorization to File Financing Statements.                  56
ARTICLE IV REPRESENTATIONS AND WARRANTIES                                      56
Section 4.1       Representations and Warranties.                              56
    4.1.1    Subsidiaries.                                                     56
    4.1.2    Good Standing.                                                    56
    4.1.3    Power and Authority.                                              57
    4.1.4    Binding Agreements.                                               57
    4.1.5    No Conflicts.                                                     57
    4.1.6    No Defaults, Violations.                                          57
    4.1.7    Compliance with Laws.                                             58
    4.1.8    Margin Stock.                                                     58
    4.1.9    Investment Company Act; Margin Securities.                        58
    4.1.10   Litigation.                                                       58
    4.1.11   Financial Condition.                                              58
    4.1.12   Proforma Financial Statements.                                    59
    4.1.13   Full Disclosure.                                                  59
    4.1.14   Indebtedness for Borrowed Money.                                  59
    4.1.15   Taxes.                                                            60
    4.1.16   ERISA.                                                            60
    4.1.17   Title to Properties.                                              60
    4.1.18   Patents, Trademarks, Etc.                                         60
    4.1.19   Employee Relations.                                               61
    4.1.20   Presence of Hazardous Materials or Hazardous
              Materials Contamination.                                         61
    4.1.21   Perfection and Priority of Collateral.                            61
    4.1.22   Places of Business and Location of Collateral.                    62
    4.1.23   Business Names and Addresses.                                     62
    4.1.24   Equipment.                                                        62
    4.1.25   Inventory.                                                        62
    4.1.26   Accounts.                                                         62
    4.1.27   Compliance with Eligibility Standards.                            63
    4.1.28   Stock.                                                            63
    4.1.29   Purchase Agreement Transaction.                                   63
    4.1.30   Centre of Main Interest.                                          63
Section 4.2       Survival; Updates of Representations and Warranties.         64



                                       ii



                                                                            
ARTICLE V CONDITIONS PRECEDENT                                                 64
Section 5.1       Conditions to the Initial Advance.                           64
    5.1.1    Organizational Documents - Obligors.                              64
    5.1.2    Approval of Dutch Borrower's Works Council.                       65
    5.1.3    Opinions of Obligors' Counsel in U.S., U.K.
              and The Netherlands.                                             65
    5.1.4    Consents, Licenses, Approvals, Etc.                               65
    5.1.5    Financing Documents and Collateral.                               65
    5.1.6    Other Financing Documents.                                        65
    5.1.7    Other Documents, Etc.                                             66
    5.1.8    Payment of Fees and Reimbursements.                               66
    5.1.9    Collateral Lists.                                                 66
    5.1.10   Recordings and Filings.                                           66
    5.1.11   Receivables Insurance Policy.                                     66
    5.1.12   Evidence of Insurance.                                            66
    5.1.13   Landlord's  and Mortgagee's Waivers.                              66
    5.1.14   Bailee Acknowledgements.                                          67
    5.1.15   Field Examination.                                                67
    5.1.16   Equipment Appraisal.                                              67
    5.1.17   Proforma Balance Sheet and Projections.                           67
    5.1.18   Subordinated Obligations Documents.                               67
    5.1.19   Subordinated Obligations.                                         67
    5.1.20   Purchase Agreement Transaction.                                   67
Section 5.2       Conditions to all Extensions of Credit.                      68
    5.2.1    Borrowing Base.                                                   68
    5.2.2    Default.                                                          68
    5.2.3    Representations and Warranties.                                   68
    5.2.4    Legal Matters.                                                    69
ARTICLE VI COVENANTS OF THE OBLIGORS                                           69
Section 6.1       Affirmative Covenants.                                       69
    6.1.1    Financial Statements.                                             69
    6.1.2    Reports to SEC and to Stockholders.                               70
    6.1.3    Recordkeeping, Rights of Inspection, Field Examination, Etc.      70
    6.1.4    Corporate Existence.                                              71
    6.1.5    Compliance with Laws.                                             71
    6.1.6    Preservation of Properties.                                       71
    6.1.7    Line of Business.                                                 71
    6.1.8    Insurance.                                                        71
    6.1.9    Taxes.                                                            72
    6.1.10   ERISA.                                                            72
    6.1.11   Notification of Events of Default and Adverse Developments.       72
    6.1.12   Hazardous Materials; Contamination.                               73
    6.1.13   Disclosure of Significant Transactions.                           74
    6.1.14   Financial Covenants.                                              74
    6.1.15   Collection of Receivables.                                        74
    6.1.16   Assignments of Receivables.                                       75
    6.1.17   Government Accounts.                                              75
    6.1.18   Notice of Returned Goods, etc.                                    75
    6.1.19   Inventory.                                                        75
    6.1.20   Insurance With Respect to Equipment and Inventory.                76
    6.1.21   Maintenance of the Collateral.                                    76
    6.1.22   Equipment.                                                        76
    6.1.23   Defense of Title and Further Assurances.                          77
    6.1.24   Business Names; Locations.                                        77
    6.1.25   Subsequent Opinion of Counsel as to Recording Requirements.       77
    6.1.26   Use of Premises and Equipment.                                    78
    6.1.27   Protection of Collateral.                                         78
Section 6.2       Negative Covenants.                                          78



                                      iii



                                                                            
    6.2.1    Merger, Acquisition or Sale of Assets.                            78
    6.2.2    Subsidiaries.                                                     78
    6.2.3    Purchase or Redemption of Securities, Dividend Restrictions.      79
    6.2.4    Indebtedness.                                                     79
    6.2.5    Investments, Loans and Other Transactions.                        80
    6.2.6    Stock of Subsidiaries.                                            80
    6.2.7    Subordinated Indebtedness.                                        81
    6.2.8    Liens.                                                            81
    6.2.9    Transactions with Affiliates.                                     81
    6.2.10   ERISA Compliance.                                                 81
    6.2.11   Prohibition on Hazardous Materials.                               81
    6.2.12   Method of Accounting; Fiscal Year.                                82
    6.2.13   Compensation.                                                     82
    6.2.14   Transfer of Collateral.                                           82
    6.2.15   Sale and Leaseback.                                               82
    6.2.16   Disposition of Collateral.                                        82
    6.2.17   Amendments or Modification to Charter Documents.                  83
ARTICLE VII DEFAULT AND RIGHTS AND REMEDIES                                    83
Section 7.1       Events of Default.                                           83
    7.1.1    Failure to Pay.                                                   83
    7.1.2    Breach of Representations and Warranties.                         83
    7.1.3    Failure to Comply with Certain Covenants.                         83
    7.1.4    Failure to Comply with Other Covenants.                           84
    7.1.5    Default Under Other Financing Documents.                          84
    7.1.6    Insolvency.                                                       84
    7.1.7    Bankruptcy.                                                       84
    7.1.8    Receivership.                                                     84
    7.1.9    Judgment.                                                         84
    7.1.10   Execution; Attachment.                                            85
    7.1.11   Default Under Other Borrowings.                                   85
    7.1.12   Unenforceable Liens.                                              85
    7.1.13   Challenge to Agreements.                                          85
    7.1.14   Material Adverse Effect.                                          85
    7.1.15   Change in Control.                                                85
    7.1.16   Liquidation, Termination, Dissolution.                            85
    7.1.17   Suit by Seller.                                                   86
Section 7.2       Remedies.                                                    86
    7.2.1    Acceleration, Termination.                                        86
    7.2.2    Uniform Commercial Code.                                          86
    7.2.3    Standard of Care.                                                 87
    7.2.4    Specific Rights With Regard to Collateral.                        88
    7.2.5    Application of Proceeds.                                          89
    7.2.6    Performance by Lender.                                            89
    7.2.7    Other Remedies.                                                   90
ARTICLE VIII MISCELLANEOUS                                                     90
Section 8.1       Notices.                                                     90
Section 8.2       Amendments; Waivers.                                         91
Section 8.3       Cumulative Remedies.                                         92
Section 8.4       Severability.                                                92
Section 8.5       Assignments and Participations by Lender.                    93
Section 8.6       Disclosure of Information by Lender.                         93
Section 8.7       Successors and Assigns.                                      93
Section 8.8       Continuing Agreements.                                       93
Section 8.9       Enforcement Costs.                                           94



                                       iv



                                                                            
Section 8.10      Applicable Law; Jurisdiction.                                94
    8.10.1   Applicable Law.                                                   94
    8.10.2   Submission to Jurisdiction.                                       94
    8.10.3   Appointment of Agent for Service of Process.                      95
    8.10.4   Service of Process.                                               95
Section 8.11      Duplicate Originals and Counterparts;
                    Counterpart Facsimile Execution.                           95
Section 8.12      Headings.                                                    95
Section 8.13      No Agency.                                                   96
Section 8.14      Date of Payment.                                             96
Section 8.15      Entire Agreement.                                            96
Section 8.16      Liability of the Lender.                                     96
Section 8.17      Patriot Act Notice.                                          97
Section 8.18      Waiver of Trial by Jury.                                     97



                                       v


                        FINANCING AND SECURITY AGREEMENT

      THIS FINANCING AND SECURITY AGREEMENT (this "Agreement") is made as of
March 8, 2005, by and among (a) OPTELECOM, INC., a corporation organized under
the laws of the State of Delaware (the "U.S. Borrower"), (b) OPTELECOM UK
LIMITED, a company organized and existing under the laws of England and Wales
and OPTELECOM EUROPE LIMITED, a company organized and existing under the laws of
England and Wales (each a "U.K. Subsidiary" and collectively, the "U.K.
Subsidiaries"), (c) NKF ELECTRONICS IBERICA S.L., formerly known as NKF IBERICA
S.L., a private company with limited liability organized and existing under the
laws of Spain (the "Spanish Subsidiary") and (d) NKF ELECTRONICS, B.V., a
corporation organized and existing under the laws of The Netherlands (the "Dutch
Borrower")(the U.S. Borrower and the Dutch Borrower each being sometimes called
a "Borrower" and both of them being collectively called the "Borrowers")(the
U.S. Borrower, the U.K. Subsidiaries, the Spanish Subsidiary, the Dutch Borrower
and each Additional Obligor (hereinafter defined) being each sometimes call an
"Obligor" and all of them collectively, the "Obligors"); and MANUFACTURERS AND
TRADERS TRUST COMPANY, a New York State bank (the "Lender").

                                    RECITALS

A.    The Obligors have requested the Lender to make credit facilities and term
loans to the Borrowers consisting of: (i) a revolving credit facility in the
maximum principal amount of Five Million Dollars ($5,000,000) to be made
available to the U.S. Borrower for the purpose of obtaining letters of credit
and financing the U.S. Borrower's working capital needs and certain Acquisition
Expenses (hereinafter defined), (ii) a term loan in the maximum principal amount
of Nine Million One Hundred Fifty Two Thousand Eight Hundred Seventy Dollars and
Forty Cents ($9,152,870.40) to be made to the U.S. Borrower for the purpose of
partially financing the U.S. Borrower's acquisition of the stock of the Dutch
Borrower, (iii) a revolving credit facility in the maximum principal amount of
the Euro Currency Equivalent (hereinafter defined) of Five Million Dollars
($5,000,000) to be made available to the Dutch Borrower in Euros for the purpose
of obtaining letters of credit and financing the Dutch Borrower's working
capital needs, and (iv) a term loan in the maximum principal amount of Four
Million Eighty Eight Thousand Euros ((euro)4,088,000) to be made available to
the Dutch Borrower for the purpose of refinancing certain indebtedness owed to
the Seller (hereinafter defined).

B.    The Lender is willing to make such credit facilities and term loans
available to the Borrowers upon the terms and subject to the conditions set
forth in this Agreement.

                                   AGREEMENTS

      NOW THEREFORE, in consideration of the premises, and for other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
agree as follows:

                                       1


                              ARTICLE I DEFINITIONS

Section 1.1 Certain Defined Terms.

      As used in this Agreement, the terms defined in the Preamble and Recitals
hereto shall have the respective meanings specified therein, and the following
terms shall have the following meanings:

      "Account" individually and "Accounts" collectively mean all presently
existing or hereafter acquired or created accounts (as defined in the Maryland
Uniform Commercial Code-Secured Transactions), accounts receivable, receivables
arising out of the use of a credit or charge card or information contained on or
for use with the card, contract rights, notes, drafts, instruments, acceptances,
chattel paper, leases and writings evidencing a monetary obligation or a
security interest in, or a lease of, goods, all rights to receive the payment of
money or other consideration under present or future contracts, or by virtue of
merchandise sold or leased, services rendered, loans and advances made or other
considerations given, by or set forth in or arising out of any present or future
chattel paper, note, draft, lease, acceptance, writing, bond, insurance policy,
instrument, document or general intangible, and all extensions and renewals of
any thereof, all rights under or arising out of present or future contracts,
agreements or general interest in goods which gave rise to any or all of the
foregoing, including all commercial tort claims (as defined in the Maryland
Uniform Commercial Code-Secured Transactions), other claims or causes of action
now existing or hereafter arising in connection with or under any agreement or
document or by operation of law or otherwise, all collateral security of any
kind, Supporting Obligations, letter-of-credit rights (as defined in the
Maryland Uniform Commercial Code-Secured Transactions) and letters of credit
given by any Person with respect to any of the foregoing, all books and records
in whatever media (paper, electronic or otherwise) recorded or stored, with
respect to any or all of the foregoing and all equipment and general intangibles
necessary or beneficial to retain, access and/or process the information
contained in those books and records, and all proceeds (cash and non-cash) of
the foregoing.

      "Account Debtor" means any Person who is obligated on a Receivable and
"Account Debtors" means collectively, all Persons who are obligated on the
Receivables.

      "Acquisition Expenses" means cost and expenses associated in connection
with the U.S. Borrower's acquisition of the stock of the Dutch Borrower.

      "Additional Obligor" means each Subsidiary of the Obligors which has
executed and delivered an Additional Obligor Joinder Supplement and has
otherwise complied with the provisions of Section 6.2.2 (Subsidiaries).

      "Additional Obligor Joinder Supplement" shall mean an Additional Obligor
Joinder Supplement in substantially the form attached hereto as EXHIBIT A, with
the blanks appropriately completed and executed and delivered by the Additional
Obligor and by the Lender.

      "Affiliate" means, with respect to any designated Person, any other
Person, (a) directly or indirectly controlling, directly or indirectly
controlled by, or under direct or indirect common control with the Person
designated, (b) directly or indirectly owning or holding five percent (5%) or
more of any equity interest in such designated Person, or (c) five percent (5%)
or more of

                                       2


whose stock or other equity interest is directly or indirectly owned or held by
such designated Person. For purposes of this definition, the term "control"
(including with correlative meanings, the terms "controlling", "controlled by"
and "under common control with") means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through ownership of voting securities or other equity
interests or by contract or otherwise.

      "Agreement" means this Financing and Security Agreement, as amended,
restated, supplemented or otherwise modified in writing in accordance with the
provisions of Section 8.2 (Amendments; Waivers).

      "Aggregate Revolving Loan Cap" means Five Million Dollars ($5,000,000).

      "Applicable Interest Rate" means (a) the LIBOR Rate, or (b) the Base Rate.

      "Applicable Margin" means the applicable percentage per annum added, as
set forth in Section 2.6.1 (Applicable Interest Rates), to the LIBOR Base Rate
or the Base Rate to then constitute the Applicable Interest Rate.

      "Assessments" has the meaning set forth in Section 2.7.5 (Payments).

      "Asset Coverage Ratio" means, as of any one time, the ratio of (a) the sum
of (i) the amount of the U.S. Borrowing Base, plus (ii) the amount of the Dutch
Borrowing Base, minus (iii) any Unused Availability, to (b) the total aggregate
outstanding amount of the Credit Facility.

      "Asset Disposition" means the disposition of any or all of the Assets of
any Obligor, whether by sale, lease, transfer or other disposition (including
any such disposition effected by way of merger or consolidation) other than (a)
transfers from one Obligor to another, (b) sales of Inventory, (c) licensing of
Patents, Trademarks and/or Copyrights, and (d) dispositions of worn, used,
surplus or obsolete Equipment made in the ordinary course of business, in each
case prior to the occurrence of a Default which is continuing.

      "Assets" means at any date all assets that, in accordance with GAAP
consistently applied, should be classified as assets on a consolidated and
consolidating balance sheet of the U.S. Borrower.

      "Bankruptcy Code" means with respect to the U.S. Borrower and any other
Obligor located with the United State of America, the United States Bankruptcy
Code, with respect to any Obligor located within the United Kingdom, any similar
Laws in effect in the United Kingdom, with respect to any Obligor located within
The Netherlands, any similar Laws in effect in The Netherlands, all as amended
from time to time, and any successor Laws.

      "Base Rate" means the sum of (a) the Prime Rate plus (b) the Applicable
Margin.

      "Base Rate Loan" means any Loan for which interest is to be computed with
reference to the Base Rate.

      "Borrower" means each Person defined as a Borrower in the preamble of this
Agreement and, "Borrowers" means the collective reference to both Persons
defined as "Borrower" in the preamble to this Agreement.

                                       3


      "Business Day" means for all purposes other than as covered by clauses (b)
and (c) below, (a) any day other than a Saturday, Sunday or other day on which
commercial banks in the State and in the State of New York are authorized or
required to close, (b) with respect to all notices and determinations in
connection with, and payments of principal and interest on, Dollar LIBOR Loans,
any day which is a Business Day described in clause (a) and which is also a day
for trading by and between banks in Dollar deposits are being carried on in the
London interbank market, or (c) if the applicable Business Day relates to a
Dutch Revolving Loan, any day in which trading by and between banks in Euro
deposits are being carried on in the London interbank market.

      "Calculation Date" has the meaning set forth in Section 2.2.4 (Mandatory
Prepayments of U.S. Term Loan).

      "Capital Expenditure" means an expenditure (whether payable in cash or
other property or accrued as a liability) for Fixed or Capital Assets,
including, without limitation, the entering into a Capital Lease.

      "Capital Lease" means with respect to any Person any lease of real or
personal property, for which the related Lease Obligations have been or should
be, in accordance with GAAP consistently applied, capitalized on the balance
sheet of that Person.

      "Cash Equivalents" means (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit with
maturities of one (1) year or less from the date of acquisition of, or money
market accounts maintained with, the Lender, any Affiliate of the Lender, or any
other domestic commercial bank having capital and surplus in excess of One
Hundred Million Dollars ($100,000,000.00) or such other domestic financial
institutions or domestic brokerage houses to the extent disclosed to, and
approved by, the Lender, (c) commercial paper of a domestic issuer rated at
least either A-2 by Standard & Poor's Corporation (or its successor) or P-2 by
Moody's Investors Service, Inc. (or its successor) with maturities of six (6)
months or less from the date of acquisition, and (d) repurchase obligations with
a term of not more than seven (7) days for underlying securities of the types
described in clause (a) or deposits of the type described in clause (b) above
entered into with a bank meeting the qualifications described in clause (b)
above. In addition, with respect to each Non-U.S. Obligor, Cash Equivalents
shall also mean (a) securities with maturities of one year or less from the date
of acquisition issued or fully guaranteed by the national government or any
agency thereof or any agency thereof in which jurisdiction such Non-U.S. Obligor
is organized and existing and (b) certificates of deposit with maturities of one
(1) year or less from the date of acquisition of, or money market accounts
maintained with a commercial bank or financial institution reasonably acceptable
to the Lender; provided that the Lender has a first priority lien on, and
security interest in, all of such Non-U.S. Obligor's rights, title and interest
in and to such Cash Equivalents. In addition, with respect to each Non-U.S.
Obligor, Cash Equivalents shall also mean (a) securities with maturities of one
year or less from the date of acquisition issued or fully guaranteed by the
national government or any agency thereof in which jurisdiction such Non-U.S.
Obligor is organized and existing and (b) certificates of deposit with
maturities of one (1) year or less from the date of acquisition of, or money
market accounts maintained with a commercial bank or financial institution in
which jurisdiction such Non-U.S. Obligor is organized and existing and which is
reasonably acceptable to the Lender.

                                       4


      "Chattel Paper" means chattel paper (as defined in the Maryland Uniform
Commercial Code-Secured Transactions), together with, writing or writings which
evidence both a monetary obligation and a security interest in or lease of
specific goods; any returned, rejected or repossessed goods covered by any such
writing or writings and all proceeds (in any form including, without limitation,
accounts, contract rights, documents, chattel paper, instruments and general
intangibles) of such returned, rejected or repossessed goods; and all proceeds
(cash and non-cash) of the foregoing.

      "Change of Control" shall be deemed to have occurred (a) with respect to
the U.S. Borrower if (i) the acquisition by any Person, or two or more Persons
acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Securities Exchange Act of
1934) of 51% or more of the outstanding shares of voting stock of the U.S.
Borrower, or (ii) if a majority of the members of the board of directors of the
U.S. Borrower are not Continuing Directors, or (b) with respect any other
Obligor, if the U.S. Borrower shall at any time not own directly or indirectly,
beneficially and of record, 100% (on a fully diluted basis) of the outstanding
Equity of such Obligor.

      "Closing Date" means the Business Day, in any event not later than March
8, 2005, on which the Lender shall be satisfied that the conditions precedent
set forth in Section 5.1 (Conditions to the Initial Advance) have been fulfilled
or otherwise waived by the Lender in accordance with this Agreement.

      "Collateral" means all property of each and every Obligor subject from
time to time to the Liens of this Agreement, any of the Security Documents
and/or any of the other Financing Documents, together with any and all cash and
non-cash proceeds and products thereof, including, without limitation, the U.S.
Collateral and the Dutch Collateral.

      "Collateral List" and "Collateral Lists" have the meanings described
respectively in Section 3.3 (Collateral Lists).

      "Commitment" means the U.S. Revolving Credit Commitment, the U.S. Term
Loan Commitment, the Dutch Revolving Credit Commitment and the Dutch Term Loan
Commitment, as the case may be, and "Commitments" means the collective reference
to the U.S. Revolving Credit Commitment, the U.S. Term Loan Commitment, the
Dutch Revolving Credit Commitment and the Dutch Term Loan Commitment.

      "Commonly Controlled Entity" means an entity, whether or not incorporated,
which is under common control with any Obligor within the meaning of Section
414(b) or (c) of the Internal Revenue Code.

      "Compliance Certificate" means a periodic Compliance Certificate described
in Section 6.1.1(b) (Financial Statements).

      "Continuing Directors" means, as of any date of determination, any member
of the board of directors of the U.S. Borrower who (a) was a member of such
board of directors on the Closing Date or (b) was nominated for election or
elected to such board of directors with the approval of a majority of the
Continuing Directors who were members of such board at the time of such
nomination or election.

                                       5


      "Copyrights" means and includes, in each case whether now existing or
hereafter arising, all of each Obligor's rights, title and interest in and to
(a) all copyrights, rights and interests in copyrights, works protectable by
copyright, copyright registrations, copyright applications, and all renewals of
any of the foregoing, (b) all income, royalties, damages and payments now or
hereafter due and/or payable under any of the foregoing, including, without
limitation, damages or payments for past, current or future infringements of any
of the foregoing, (c) the right to sue for past, present and future
infringements of any of the foregoing, and (d) all rights corresponding to any
of the foregoing throughout the world.

      "Credit Facility" means the U.S. Revolving Credit Facility, the U.S. Term
Loan, the Dutch Revolving Credit Facility and the Dutch Term Loan, which are
extended pursuant to this Agreement, and "Credit Facilities" means collectively
the U.S. Revolving Credit Facility, the U.S. Term Loan, the Dutch Revolving
Credit Facility and the Dutch Term Loan and any and all other credit facilities
now or hereafter extended under or secured by this Agreement.

      "Current Letter of Credit Obligations" has the meaning described in
Section 2.5.5 (Payments of Letters of Credit).

      "Default" has the meaning set forth in Section 7.1 (Events of Default).

      "Documents" means all documents of title, whether now existing or
hereafter acquired or created, and all proceeds (cash and non-cash) of the
foregoing.

      "Dollar", "Dollars" and "$" mean the lawful currency of the United States
of America.

      "Dollar Currency Equivalent" means, on any date of determination, the
amount of Dollars which results from the sale of a given amount in Euros,
determined at the rate of exchange quoted generally by the Lender to its
customers as the market rate of foreign exchange for the sale of Euros for
Dollars.

      "Dollar Interest Period" means as to any Dollar LIBOR Loan, the period
commencing on and including the date such Dollar LIBOR Loan is made (or on the
effective date of the U.S. Borrower's election to convert any Base Rate Loan to
a Dollar LIBOR Loan in accordance with the provisions of this Agreement) and
ending on and including the day which is 30, 60, 90 or 180 days thereafter, as
selected by the U.S. Borrower in accordance with the provisions of this
Agreement, and thereafter, each period commencing on the last day of the then
preceding Interest Period for such Dollar LIBOR Loan and ending on and including
the day which is 30, 60, 90 or 180 days thereafter, as selected by the U.S.
Borrower, in accordance with the provisions of this Agreement; provided, however
that:

      (a)   the first day of any Dollar Interest Period shall be a Business Day;

      (b)   if any Dollar Interest Period would end on a day that is not a
Business Day, such Dollar Interest Period shall be extended to the next
succeeding Business Day unless such next succeeding Business Day would fall in
the next calendar month, in which case, such Dollar Interest Period shall end on
the next preceding Business Day; and

      (c)   no Dollar Interest Period shall extend beyond the U.S. Revolving
Credit Termination Date.

                                       6


      "Dollar LIBOR Loan" means any Loan for which interest is to be computed
with reference to the Dollar LIBOR Rate.

      "Dollar LIBOR Rate" means for any Dollar Interest Period with respect to
any Dollar LIBOR Loan, the interest rate per annum (rounded up, if necessary, to
the nearest 1/16th of 1%) equal to the per annum rate of interest at which
deposits in Dollars are obtained by dividing (i) the rate fixed by the British
Bankers Association for Dollar deposits in the London Interbank Eurodollar
Market at approximately 11:00 a.m. (London time) (or as soon thereafter as
practicable), two Business Days before the first day of the applicable Dollar
Interest Period, in an amount equal to the aggregate principal amount
outstanding on the first day of the Dollar Interest Period, as determined by the
Lender from any broker, quoting service or commonly available source utilized by
the Lender, by (ii) a percentage equal to 100% minus the stated maximum rate of
all reserves required to be maintained against "Eurocurrency Liabilities" as
specified in Regulation D (or against any other category of liabilities which
includes deposits by reference to which the interest rate on Dollar LIBOR Loans
is determined or any category of extension of credit or other assets which
includes loans by a non-United States' office of a bank to United States
residents) to any member bank of the Federal Reserve System.

      "Dutch Borrower" means the Person defined as the Dutch Borrower in the
preamble of this Agreement.

      "Dutch Borrowing Base" has the meaning described in Section 2.3.3 (Dutch
Borrowing Base).

      "Dutch Borrowing Base Deficiency" has the meaning described in Section
2.3.3 (Dutch Borrowing Base).

      "Dutch Borrowing Base Report" has the meaning described in Section 2.3.4
(Dutch Borrowing Base Report).

      "Dutch Collateral" means the collective reference to all property of all
Non-U.S. Obligors from time to time subject to the Liens of this Agreement, the
Dutch Security Documents and the other Financing Documents, together with any
and all cash and non-cash proceeds and products thereof.

      "Dutch Obligations" means the principal of the Dutch Revolving Loan, the
Dutch Term Loan and any Letters of Credit issued for the account of the Dutch
Borrower and all of the obligations of the Non-U.S. Obligors hereunder and under
the Financing Documents, together with any interest thereon, Fees, Enforcement
Costs and indemnifications attributable thereto.

      "Dutch Origination Fee" has the meaning described in Section 2.7.2
(Origination Fees).

      "Dutch Revolving Credit Commitment" means the agreement of the Lender
relating to the making of the Dutch Revolving Loan Advance subject to and in
accordance with the provisions of this Agreement.

      "Dutch Revolving Credit Commitment Period" means the period of time from
the Closing Date to the Business Day preceding the Dutch Revolving Credit
Termination Date.

      "Dutch Revolving Credit Committed Amount" is at any one time the Euro
Currency Equivalent of Five Million Dollars ($5,000,000).

                                       7


      "Dutch Revolving Credit Expiration Date" means April 1, 2007.

      "Dutch Revolving Credit Facility" means the facility established by the
Lender pursuant to Section 2.3 (Dutch Revolving Credit Facility).

      "Dutch Revolving Credit Termination Date" means the earlier of (a) the
Dutch Revolving Credit Expiration Date, or (b) the date on which the Dutch
Revolving Credit Commitment is terminated pursuant to Section 7.2.1
(Acceleration, Termination) or otherwise.

      "Dutch Revolving Loan" means the aggregate of all the Dutch Revolving Loan
Advances.

      "Dutch Revolving Loan Account" has the meaning described in Section 2.3.8
(Dutch Revolving Loan Account).

      "Dutch Revolving Loan Advance" and "Dutch Revolving Loan Advances" have
the meanings described in Section 2.3.1 (Dutch Revolving Credit Facility).

      "Dutch Revolving Loan Mandatory Prepayment" and "Dutch Revolving Loan
Mandatory Prepayments" have the meanings described in Section 2.3.6 (Mandatory
Prepayments of Dutch Revolving Loan).

      "Dutch Revolving Loan Optional Prepayment" and "Dutch Revolving Loan
Optional Prepayments" have the meanings described in Section 2.3.7 (Optional
Prepayments of Dutch Revolving Loan).

      "Dutch Security Documents" means collectively any assignment, pledge
agreement, guaranty trust agreement, security agreement, mortgage, deed of
trust, deed to secure debt, indenture, debenture, charge, financing statement
and any similar instrument, document or agreement under or pursuant to which a
Lien is now or hereafter granted to, or for the benefit of, the Lender on any
property of the Dutch Borrower or the other Non-U.S. Obligors to secure all or
any portion of the Dutch Obligations, including, without limitation, Deed of
Pledge of Rights, Deed of Pledge of Moveable Assets, Deed of Pledge of Bank
Accounts, all as the same may from time to time be amended, restated,
supplemented or otherwise modified.

      "Dutch Term Loan" has the meanings described in Section 2.4.1 (Dutch Term
Loan Commitment).

      "Dutch Term Loan Commitment" means the agreement of the Lender to make the
Dutch Term Loan in accordance with the provisions of this Agreement.

      "`Dutch Term Loan Committed Amount" means Four Million Eighty Eight
Thousand Euros ((euro)4,088,000).

      "Dutch Term Loan Scheduled Payment" means the amount of the payment on the
Dutch Term Loan which the Dutch Borrower is required to make on each Dutch Term
Loan Scheduled Payment Date in accordance with Section 2.4.3 (Dutch Term Loan
Installment Payments) of this Agreement.

      "Dutch Term Loan Scheduled Payment Date" means the first day of each
month, commencing April, 2005.

                                       8


      "Dutch Term Loan Mandatory Prepayment" and "Dutch Term Loan Mandatory
Prepayments" have the meanings described in Section 2.4.4 (Mandatory Prepayments
of Dutch Term Loan).

      "Dutch Term Loan Maturity Date" means the earlier of April 1, 2009 or the
date the Dutch Term Loan is accelerated under Section 7.2.1 (Acceleration,
Termination).

      "Dutch Term Loan Optional Prepayment" and "Dutch Term Loan Optional
Prepayments" have the meanings described in Section 2.4.5 (Optional Prepayments
of Dutch Term Loan).

      "EBITDA" means as to the U.S. Borrower and its consolidated Subsidiaries
for any period of determination thereof, the sum of (a) net income, plus (b)
interest expense, plus (c) tax provisions, plus (d) depreciation plus (e)
amortization of assets for such period, in accordance with GAAP consistently
applied.

      "Eligible Dutch Receivable" means each Eligible Receivable of the Dutch
Borrower, "Eligible Dutch Receivables" means all Eligible Receivables of the
Dutch Borrower.

      "Eligible Inventory" means all Inventory of the U.S. Borrower held for
sale in the ordinary course of business, valued in Dollars at the lowest of the
net purchase cost or net manufacturing cost, any ceiling prices which may be
established by any Law of any Governmental Authority or prevailing market value,
excluding, however, any Inventory which consists of:

      (a)   any Inventory located outside of the United States;

      (b)   any Inventory of the U.S. Borrower in which the Lender has not
properly perfected the Liens of the Lender under this Agreement, free and clear
of all other Liens;

      (c)   any Inventory not owned by the U.S. Borrower, which is subject to
any retention of title in the seller or which is not in the actual possession of
the U.S. Borrower;

      (d)   unless expressly waived in writing by the Lender in each instance,
any Inventory in the possession of a bailee, warehouseman, consignee or similar
third party, except to the extent that such bailee, warehouseman, consignee or
similar third party has entered into an agreement with the Lender in which such
bailee, warehouseman, consignee or similar third party consents and agrees to
the Lender's Lien on such Inventory and to such other terms and conditions as
may be reasonably required by the Lender;

      (e)   any Inventory located on premises leased or rented to the U.S.
Borrower or otherwise not owned by the U.S. Borrower, unless the Lender has
received a waiver and consent from the lessor, landlord and/or owner in form and
substance reasonably satisfactory to the Lender and from any mortgagee of such
lessor, landlord or owner to the extent required by the Lender;

      (f)   any Inventory, the sale or other disposition of which has given rise
to a Receivable;

      (g)   any Inventory which fails to meet all standards and requirements
imposed by any Governmental Authority over such Inventory or its production,
storage, use or sale;

                                       9


      (h)   work-in-process, supplies, displays, packaging and promotional
materials;

      (i)   any Inventory as to which the Lender determines in the exercise of
its reasonable and good faith discretion at any time is not in good condition or
is defective, unmerchantable, post-seasonal, slow moving or obsolete; and

      (j)   any Inventory which the Lender in the reasonable and good faith
exercise of its discretion has deemed to be ineligible because the Lender
otherwise considers the collateral value to the Lender to be impaired or its
ability to realize such value to be insecure.

      "Eligible Receivable" and "Eligible Receivables" mean, at any time of
determination thereof, the unpaid portion of each Account valued in Dollars with
respect to the U.S. Borrower and valued in Euros with respect to the Non-U.S.
Obligors (net of any returns, discounts, claims, credits, charges, accrued
rebates or other allowances, offsets, deductions, counterclaims, disputes or
other defenses and reduced by the aggregate amount of all reserves, limits and
deductions provided for in this definition and elsewhere in this Agreement, but
including interest or time value of money fees payable to the extent such
amounts are insured under the Obligors' receivables insurance policy acceptable
to the Lender the proceeds of which have been assigned to the Lender pursuant to
an assignment acknowledged by the insurer); provided that each Account conforms
and continues to conform to the following criteria to the satisfaction of the
Lender:

      (a)   the Account arose in the ordinary course of the business of the
Obligor owed on such Account, from a bona fide outright sale of Inventory by
such Obligor, or from services performed by such Obligor;

      (b)   the Account is a valid, legally enforceable obligation of the
Account Debtor and requires no further act on the part of any Person under any
circumstances to make the Account payable by the Account Debtor;

      (c)   the Account is based upon an enforceable order or contract, written
or oral, for Inventory shipped or for services performed, and the same were
shipped or performed in accordance with such order or contract;

      (d)   if the Account arises from the sale of Inventory, the Inventory the
sale of which gave rise to the Account has been shipped or delivered to the
Account Debtor on an absolute sale basis and not on a bill and hold sale basis,
a consignment sale basis, a guaranteed sale basis, a sale or return basis, or on
the basis of any other similar understanding;

      (e)   if the Account arises from the performance of services, such
services have been fully rendered (or have been rendered to the extent necessary
to create a valid and binding unconditional obligation of the Account Debtor for
payment of the portion of the Account included in the computation of Eligible
Receivables) and do not relate to any warranty claim or obligation;

      (f)   the Account is evidenced by an invoice or other documentation in
form acceptable to the Lender, dated no later than the date of shipment in the
case of the sale of goods, or dated promptly (but in no event later than the
last day of the billing cycle during which the services were completed) after
completion of the performance of services, and containing only terms normally
offered by the Obligor owed on such Account;

                                       10


      (g)   the amount shown on the books of the Obligor owed on such Account
and on any invoice, certificate, schedule or statement delivered to the Lender
is owing to such Obligor, and no partial payment has been received unless
reflected with that delivery;

      (h)   the Account is either (i) not outstanding more than ninety (90) days
from the date of the invoice therefor or past due more than sixty (60) days
after its due date, which shall not be later than sixty (60) days after the
invoice date or (ii) is secured by a letter of credit, guaranty or banker's
acceptance having terms and from such issuer as are acceptable to the Lender in
its sole and absolute discretion (which letter of credit, guaranty or banker's
acceptance is subject to an irrevocable assignment of proceeds in favor of the
Lender, unless otherwise approved by the Lender) or (iii) is insured under a
receivables insurance policy acceptable to the Lender, the proceeds of which
have been assigned to the Lender pursuant to an assignment acknowledged by the
insurer;

      (i)   unless insured under the applicable Obligor's receivables insurance
policy acceptable to the Lender, the proceeds of which have been assigned to the
Lender pursuant to an assignment acknowledged by the insurer, the Account is not
owing by an Account Debtor or group of affiliated Account Debtors whose then
existing Accounts owing to the applicable Obligor exceed in the aggregate fifty
percent (50%) of the total Eligible Receivables of all the Obligors in the
aggregate;

      (j)   unless insured under the applicable Obligor's receivables insurance
policy acceptable to the Lender, the proceeds of which have been assigned to the
Lender pursuant to an assignment acknowledged by the insurer, the Account is not
owing by any Account Debtor for which the Lender has deemed fifty percent (50%)
or more of such Account Debtor's other Accounts due to such Obligor to be
non-Eligible Receivables;

      (k)   the Account Debtor has not returned, rejected or refused to retain,
or otherwise notified any Obligor of any dispute concerning, or claimed
nonconformity of, any of the Inventory or services from the sale or furnishing
of which the Account arose, provided, that if such Account otherwise meets the
conditions for inclusion among the Eligible Receivables, such Account, minus the
amount of the Account attributable to returned, rejected, refused, disputed or
claimed non-conforming Inventory, may be included among the Eligible
Receivables;

      (l)   the Account is not subject to any present or contingent (and no
facts exist which are the basis for any future) offset, claim, deduction or
counterclaim, dispute or defense in law or equity on the part of such Account
Debtor, or any claim for credits, allowances, or adjustments by the Account
Debtor because of returned, inferior, or damaged Inventory or unsatisfactory
services, or for any other reason including, without limitation, those arising
on account of a breach of any express or implied representation or warranty,
provided, if such Account otherwise meets the conditions for inclusion among the
Eligible Receivables, such Account, minus the amount of the claim, may be
included among the Eligible Receivables;

      (m)   the Account Debtor is not a Subsidiary or Affiliate of any Obligor
or an employee, officer, director or shareholder of any Obligor;

      (n)   unless insured under the applicable Obligor's receivables insurance
policy acceptable to the Lender, the proceeds of which have been assigned to the
Lender pursuant to an assignment acknowledged by the insurer, the Account Debtor
is not incorporated or primarily conducting business or otherwise located in any
jurisdiction outside of (i) the United States of

                                       11


America, Canada, or (ii) with respect to an Account Debtor of the Non-U.S.
Obligors only, any member state of the European Union;

      (o)   the Account Debtor with respect to such Account is not insolvent or
the subject of any bankruptcy or insolvency proceedings of any kind;

      (p)   unless the actions required by Section 6.1.17 (Government Accounts)
have been taken, the Account Debtor is not a Governmental Authority;

      (q)   none of the Obligors is indebted in any manner to the Account Debtor
(as creditor, lessor, supplier or otherwise), with the exception of customary
credits, warranty obligations, adjustments and/or discounts given to an Account
Debtor by any Obligor in the ordinary course of its business, provided, if such
Account otherwise meets the conditions for inclusion among the Eligible
Receivables, such Account, minus the amount of the indebtedness, may be included
among the Eligible Receivables;

      (r)   the Account does not arise from services under or related to any
warranty obligation of any Obligor or out of service charges, finance charges or
other fees for the time value of money;

      (s)   the Account is not evidenced by chattel paper or an instrument of
any kind, unless the original of such chattel paper or instrument has been
furnished to the Lender as collateral and security for the Obligations and is
not secured by any letter of credit or receivables insurance policy, the
proceeds of which have not been assigned to the Lender pursuant to an assignment
accepted and acknowledged by the issuer or insurer;

      (t)   the title of the applicable Obligor to the Account is absolute and
is not subject to any prior assignment, claim, Lien, or security interest,
except Permitted Liens;

      (u)   no bond or other undertaking by a guarantor or surety has been or is
required to be obtained, supporting the performance of any Obligor in respect of
any of such Obligor's agreements with the Account Debtor;

      (v)   no bond or other undertaking by a guarantor or surety has been or is
required to be obtained, supporting the Account and any of the Account Debtor's
obligations in respect of the Account;

      (w)   the applicable Obligor, has the full and unqualified right and power
to assign and grant a security interest in, and Lien on, the Account to the
Lender as security and collateral for the payment of the Obligations and/or the
Dutch Obligations, as appropriate;

      (x)   if included in the U.S. Borrowing Base, the Account is subject to a
Lien in favor of the Lender, which Lien is perfected as to the Account by the
filing of financing statements and which Lien upon such filing constitutes a
first priority security interest and Lien, or, if included in the Dutch
Borrowing Base, the Account is subject to a Lien in favor of the Lender which
Lien constitutes a first priority security interest and Lien;

      (y)   the Inventory giving rise to the Account was not, at the time of the
sale thereof, subject to any Lien, except those in favor of the Lender; and

                                       12


      (z)   the Lender in the reasonable and good faith exercise of its
discretion has not deemed the Account ineligible because of uncertainty as to
the creditworthiness of the Account Debtor or because the Lender otherwise
considers the collateral value of such Account to the Lender to be impaired or
its ability to realize such value to be insecure.

      "Eligible Spanish Receivable" means each Eligible Receivable of the
Spanish Subsidiary which has been sold by the Spanish Subsidiary to the Dutch
Borrower subject to and in accordance with that certain Receivables Purchase
Agreement, by and between the Spanish Subsidiary and the Dutch Borrower, and
"Eligible Spanish Receivables" means all Eligible Receivables of the Spanish
Subsidiary which have been sold by the Spanish Subsidiary to the Dutch Borrower
subject to and in accordance with that certain Receivables Purchase Agreement,
by and between the Spanish Subsidiary and the Dutch Borrower.

      "Eligible U.K. Receivable" means each Eligible Receivable of the U.K.
Subsidiaries, and "Eligible U.K. Receivables" means all Eligible Receivables of
the U.K. Subsidiaries.

      "Eligible U.S. Receivable" means each Eligible Receivable of the U.K.
Subsidiaries, and "Eligible U.S. Receivables" means all Eligible Receivables of
the U.S. Borrower.

      "Enforcement Costs" means all out-of-pocket expenses, charges, costs and
fees whatsoever (including, without limitation, reasonable outside attorney's
fees and expenses) of any nature whatsoever paid or incurred by or on behalf of
the Lender in connection with (a) the creation, collection and enforcement of
any or all of the Obligations, this Agreement and/or any of the other Financing
Documents, and (b) the creation, perfection, collection, maintenance,
preservation, defense, protection, realization upon, disposition, sale or
enforcement of all or any part of the Collateral, including, without limitation,
those costs and expenses more specifically enumerated in Section 3.6 (Costs)
and/or Section 8.9 (Enforcement Costs). The Lender understands and agrees that
Non-U.S. Obligors shall be liable only for payment of those Enforcement Costs
which relate solely to the Dutch Obligations.

      "Equipment" means all equipment, machinery, computers, chattels, tools,
parts, machine tools, furniture, furnishings, fixtures and supplies of every
nature, presently existing or hereafter acquired or created and wherever
located, whether or not the same shall be deemed to be affixed to real property,
together with all accessions, additions, fittings, accessories, special tools,
and improvements thereto and substitutions therefor and all parts and equipment
which may be attached to or which are necessary or beneficial for the operation,
use and/or disposition of such personal property, all licenses, warranties,
franchises and general intangibles related thereto or necessary or beneficial
for the operation, use and/or disposition of the same, together with all
Accounts, Chattel Paper, Instruments and other consideration received by any
Obligor on account of the sale, lease or other disposition of all or any part of
the foregoing, and together with all rights under or arising out of present or
future Documents and contracts relating to the foregoing and all proceeds (cash
and non-cash) of the foregoing.

      "Equity" means at any date as to the U.S. Borrower and its consolidated
Subsidiaries the total of capital stock (except treasury stock and net of any
note receivable received upon the issuance of any shares of capital stock) and
contributed capital, as determined on a consolidated basis in accordance with
GAAP consistently applied, after eliminating all inter-company items.

      "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.

                                       13


      "Euro," "Euros" and "(euro)" mean the lawful currency of the European
Monetary Union of which The Netherlands is a member.

      "Euro Currency Equivalent" means, on any date of determination, the amount
of Euros which results from the sale of a given amount in Dollars, determined at
the rate of exchange quoted generally by the Lender to its customers as the
market rate of foreign exchange for the sale of Dollars for Euros.

      "Euro Interest Period" means as to any Euro LIBOR Loan, the period
commencing on and including the date such Euro LIBOR Loan is made and ending on
and including the day which is one (1) month, two (2) months or three (3) months
thereafter, as selected by the Dutch Borrower in accordance with the provisions
of this Agreement, and thereafter, each period commencing on the last day of the
then preceding Euro Interest Period for such Euro LIBOR Loan and ending on and
including the day which is one (1) month, two (2) months or three (3) months
thereafter, as selected by the Dutch Borrower in accordance with the provisions
of this Agreement; provided, however, that:

      (a)   the first date of any Euro Interest Period shall be a Business Day;

      (b)   if any Euro Interest Period would end on a day that is not a
Business Day, such Euro Interest Period shall be extended to the next succeeding
Business Day unless such next succeeding Business Day would fall in the next
calendar month in which case, such Euro Interest Period shall end on the next
preceding Business Day; and

      (c)   no Euro Interest Period shall extend beyond the Dutch Revolving
Credit Termination Date.

      "Euro LIBOR" means for any Euro Interest Period with respect to any Euro
LIBOR Loan, the rate per annum (rounded upward, if necessary, to the nearest
next 1/100 of 1%) equal to the daily London Interbank Offered Rate for Euro
deposits for a term comparable to the applicable Euro Interest Period as
determined by the Lender (taking into account any reserves applicable to the
Lender for Euro LIBOR Loans) at or about 11:00 A.M. (London time) two Business
Days prior to the first Business Day of the Euro Interest Period.

      "Euro LIBOR Loan" means any Loan for which interest is to be computed with
reference to the Euro LIBOR Rate.

      "Euro LIBOR Rate" means for any Euro Interest Period with respect to any
Euro LIBOR Loan, (a) the Euro LIBOR, plus (b) the Applicable Margin.

      "Event of Default" has the meaning described in Section 7.1 (Events of
Default).

      "Excess Cash Flow" means for any fiscal year of the U.S. Borrower, an
amount equal to the U.S. Borrower's consolidated EBITDA less the U.S. Borrower's
total consolidated Fixed Charges as shown on the annual financial statements for
such period, furnished to the Lender in accordance with Section 6.1.1 (Financial
Statements).

      "Fees" means the collective reference to each fee payable to the Lender
under the terms of this Agreement or under the terms of any of the other
Financing Documents, including, without limitation, the Revolving Credit Unused
Line Fees, the Origination Fees, and any and all Letter of Credit Fees.

                                       14


      "Financing Documents" means at any time collectively this Agreement, the
Security Documents (including the Dutch Security Documents), any and all Letter
of Credit Documents and any other instrument, agreement or document previously,
simultaneously or hereafter executed and delivered by any Obligor, any guarantor
and/or any other Person, singly or jointly with another Person or Persons,
evidencing, securing, guarantying any of the foregoing or otherwise in
connection with this Agreement, any of the Security Documents (including any of
the Dutch Security Documents), any of the Credit Facilities, and/or any of the
Obligations.

      "Fixed Charges" means for any period of determination, the sum of (a) the
scheduled or required payments (including, without limitation, principal and
interest) on all Indebtedness for Borrowed Money of the U.S. Borrower and its
consolidated Subsidiaries; (b) all taxes paid in cash by the U.S. Borrower and
its consolidated Subsidiaries; and (c) all Capital Expenditures made by the U.S.
Borrower and its consolidated Subsidiaries.

      "Fixed Charge Coverage Ratio" means, as to the U.S. Borrower and its
consolidated Subsidiaries, for any period of determination, the ratio of EBITDA
to Fixed Charges.

      "Fixed or Capital Assets" of a Person at any date means all assets which
would, in accordance with GAAP consistently applied, be classified on the
balance sheet of such Person as property, plant or equipment at such date.

      "GAAP" means generally accepted accounting principles in the United States
of America in effect from time to time.

      "General Intangibles" means all general intangibles (as defined in the
Maryland Uniform Commercial Code-Secured Transactions) of every nature, whether
presently existing or hereafter acquired or created, and without implying any
limitation of the foregoing, further means all books and records, commercial
tort claims, other claims (including, without limitation, all claims for income
tax and other refunds), payment intangibles, Supporting Obligations, choses in
action, causes of action in tort or equity, contract rights, judgments, customer
lists, software, Patents, Trademarks, licensing agreements, rights in
intellectual property, goodwill (including goodwill of any Obligor's business
symbolized by and associated with any and all Trademarks, trademark licenses,
Copyrights and/or service marks), royalty payments, licenses, letter-of-credit
rights, letters of credit, contractual rights, the right to receive refunds of
unearned insurance premiums, rights as lessee under any lease of real or
personal property, literary rights, Copyrights, service names, service marks,
logos, trade secrets, amounts received as an award in or settlement of a suit in
damages, deposit accounts, interests in joint ventures, general or limited
partnerships, or limited liability companies or partnerships, rights in
applications for any of the foregoing, books and records in whatever media
(paper, electronic or otherwise) recorded or stored, with respect to any or all
of the foregoing, all Supporting Obligations with respect to any of the
foregoing, and all equipment and general intangibles necessary or beneficial to
retain, access and/or process the information contained in those books and
records, and all proceeds (cash and non-cash) of the foregoing.

      "Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any department, agency or instrumentality thereof.

                                       15


      "Hazardous Materials" means (a) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act of 1976, as amended from time to time,
and regulations promulgated there under; (b) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended from time to time, and regulations promulgated
thereunder; and (c) any substance the presence of which on any property now or
hereafter owned, acquired or operated by any of the Obligors is prohibited by
any Law similar to those set forth in this definition, including, without
limitation, any Law which requires special handling in the collection, storage,
treatment or disposal of a substance.

      "Hazardous Materials Contamination" means the contamination (whether
presently existing or occurring after the date of this Agreement) by Hazardous
Materials of any property owned, operated or controlled by any of the Obligors
or for which any of the Obligors has responsibility, including, without
limitation, improvements, facilities, soil, ground water, air or other elements
on, or of, any property now or hereafter owned, acquired or operated by any of
the Obligors, and any other contamination by Hazardous Materials for which any
of the Obligors is, or is claimed to be, responsible.

      "Indebtedness for Borrowed Money" of a Person means at any time the sum at
such time of (a) Liabilities of such Person for borrowed money or for the
deferred purchase price of property or services, (b) any obligations of such
Person in respect of letters of credit, banker's or other acceptances or similar
obligations issued or created for the account of such Person, (c) Lease
Obligations of such Person with respect to Capital Leases, (d) all liabilities
secured by any Lien on any property owned by such Person, to the extent attached
to such Person's interest in such property, even though such Person has not
assumed or become personally liable for the payment thereof, (e) Indebtedness
for Borrowed Money of third parties which is being guarantied by such Person or
which is secured by the property of such Person; and (f) the net exposure of
such Person under any obligations, liabilities or indebtedness, contingent or
otherwise, under or in connection with, any Interest Rate/Currency Protection
Agreement and other similar agreements and arrangements; but excluding current
trade and other accounts payable in the ordinary course of business in
accordance with customary trade terms and which are not overdue (as determined
in accordance with customary trade practices) or which are being disputed in
good faith by such Person and for which adequate reserves are being provided on
the books of such Person in accordance with GAAP., and (g) Subordinated
Indebtedness of a Person.

      "Instrument" means a negotiable instrument (as defined in the Maryland
Uniform Commercial Code-Negotiable Instruments), a "certificated security" (as
defined in the Maryland Uniform Commercial Code-Investment Securities), or any
other writing which evidences a right to payment of money and is not itself a
security agreement or lease and is of a type which is in the ordinary course of
business transferred by delivery with any necessary endorsement.

      "Insured Eligible Dutch Receivable" means an Eligible Dutch Receivable
which has been insured in a manner acceptable to the Lender in its reasonable
discretion, by an insurance company acceptable to the Lender in its reasonable
discretion, which insurance policy has been assigned to the Lender pursuant to
an assignment of insurance acceptable to the Lender in its reasonable
discretion.

      "Insured Eligible Spanish Receivables" means an Eligible Spanish
Receivable which has been insured under .an insurance policy of the Dutch
Borrower in a manner acceptable to the Lender in its reasonable discretion, by
an insurance company acceptable to the Lender in its

                                       16


reasonable discretion, which insurance policy has been assigned to the Lender
pursuant to an assignment of insurance acceptable to the Lender in its
reasonable discretion.

      "Insured Eligible U.K. Receivables" means an Eligible U.K. Receivable
which has been insured in a manner acceptable to the Lender in its reasonable
discretion, by an insurance company acceptable to the Lender in its reasonable
discretion, which insurance policy has been assigned to the Lender pursuant to
an assignment of insurance acceptable to the Lender in its reasonable
discretion.

      "Interest Payment Date" means the dates provided for the payment of
interest on the Loans in Section 2.6.5 (Payment of Interest).

      "Interest Period" means a Dollar Interest Period or a Euro Interest
Period.

      "Interest Rate Election Notice" has the meaning described in Section 2.6.2
(Selection of Interest Rates).

      "Interest Rate/Currency Protection Agreement" means, for any Person,
interest rate swap, cap, floor or collar agreements, currency agreements,
currency spot, foreign exchange and forward contracts or similar arrangement
between such Person and one or more financial institutions providing for the
transfer or mitigation of interest or currency risks either generally or under
specific contingencies.

      "Interest Rate/Currency Protection Reserve" means at any time of
determination, the aggregate of the obligations to the Lender of any or all of
the Obligors under all Interest Rate/Currency Protection Agreements to which any
Obligor is a party in the event of a termination of any such Interest
Rate/Currency Protection Agreements on an estimated "marked-to market" basis.

      "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the Income Tax Regulations issued and proposed to
be issued thereunder.

      "Inventory" means all inventory of each Obligor and all right, title and
interest of each Obligor in and to all of its now owned and hereafter acquired
goods, merchandise and other personal property furnished under any contract of
service or intended for sale or lease, including, without limitation, all raw
materials, work-in-progress, finished goods and materials and supplies of any
kind, nature or description which are used or consumed in any Obligor's business
or are or might be used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of such goods, merchandise and other licenses,
warranties, franchises, general intangibles, personal property and all documents
of title or documents relating to the same and all proceeds (cash and non-cash)
of the foregoing.

      "Investment Property" means investment property (as such term is defined
by the Maryland Uniform Commercial Code-Secured Transactions) together with each
Security, whether certificated or uncertificated, security entitlement,
securities account, commodity contract or commodity account, and all proceeds
(cash and non-cash) of, and Supporting Obligations with respect to, the
foregoing.

      "IP Pledges" means those certain pledges over Patents and Trademarks dated
the Closing Date from the U.S. Borrower or the Dutch Borrower for the benefit of
the Lender, as the same

                                       17


may from time to time be amended, restated, supplemented or otherwise modified.
The IP Pledges are part of the Security Documents and the Dutch Security
Documents, as applicable.

      "Item of Payment" means each check, draft, cash, money, instrument, item,
and other remittance in payment or on account of payment of the Receivables or
otherwise with respect to any Collateral, including, without limitation, cash
proceeds of any returned, rejected or repossessed goods, the sale or lease of
which gave rise to a Receivable, and other proceeds of Collateral; and "Items of
Payment" means the collective reference to all of the foregoing.

      "Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any Governmental Authority.

      "Lease Obligations" of a Person means for any period the rental
commitments of such Person for such period under leases for real and/or personal
property (net of rent from subleases thereof, but including taxes which such
Person, as the lessee, is obligated to pay under the terms of said leases,
except to the extent that such taxes are payable by sublessees).

      "Lender" means the Person defined as the Lender in the preamble of this
Agreement.

      "Letter of Credit" and "Letters of Credit" shall have the meanings
described in Section 2.5.1 (Letters of Credit).

      "Letter of Credit Agreement" means the collective reference to each letter
of credit application and agreement substantially in the form of the Lender's
then standard form of application for letter of credit or such other form as may
be approved by the Lender, executed and delivered by the U.S. Borrower or the
Dutch Borrower in connection with a request for the issuance of a Letter of
Credit, as the same may from time to time be amended, restated, supplemented or
modified; and "Letter of Credit Agreements" means all of the foregoing in effect
at any time and from time to time.

      "Letter of Credit Cash Collateral Account" has the meaning described in
Section 2.5.3 (Terms of Letters of Credit).

      "Letter of Credit Documents" means any and all drafts under or purporting
to be under a Letter of Credit, any Letter of Credit Agreement, and any other
instrument, document or agreement executed and/or delivered by the U.S. Borrower
or the Dutch Borrower or any other Person under, pursuant to or in connection
with a Letter of Credit or any Letter of Credit Agreement.

      "Letter of Credit Fee" and "Letter of Credit Fees" have the meanings
described in Section 2.5.2 (Letter of Credit Fees).

      "Letter of Credit Obligations" means the collective reference to all
Obligations of U.S. Borrower and the Dutch Borrower with respect to the Letters
of Credit and the Letter of Credit Agreements.

      "Liabilities" means at any date all liabilities that in accordance with
GAAP consistently applied should be classified as liabilities on a balance sheet
of the U.S. Borrower and its consolidated Subsidiaries.

      "LIBOR Base Rate" means the Dollar LIBOR Rate or the Euro LIBOR, as
applicable.

                                       18


      "LIBOR Loan" means a Dollar LIBOR Loan or a Euro LIBOR Loan, as
applicable.

      "LIBOR Rate" means the Dollar LIBOR Rate or the Euro LIBOR Rate, as
applicable.

      "Lien" means any mortgage, deed of trust, deed to secure debt, grant,
pledge, security interest, assignment, encumbrance, judgment, lien,
hypothecation, provision in any instrument or other document for confession of
judgment, cognovit or other similar right or remedy, claim or charge of any
kind, whether perfected or unperfected, avoidable or unavoidable, including,
without limitation, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code or equivalent Law of any
jurisdiction, excluding the precautionary filing of any financing statement by
any lessor in a true lease transaction, by any bailor in a true bailment
transaction or by any consignor in a true consignment transaction under the
Uniform Commercial Code or equivalent Law of any jurisdiction or the agreement
to give any financing statement by any lessee in a true lease transaction, by
any bailee in a true bailment transaction or by any consignee in a true
consignment transaction.

      "Loan" means each of the U.S. Revolving Loan, the U.S. Term Loan, the
Dutch Revolving Loan or the Dutch Term Loan, as the case may be, and "Loans"
means the collective reference to the U.S. Revolving Loan, the U.S. Term Loan,
the Dutch Revolving Loan, and the Dutch Term Loan.

      "Loan Notice" means an oral, e-mail or facsimile transmission notice
provided by the U.S. Borrower to the Lender of a requested U.S. Revolving Loan
Advance or an e-mail or facsimile transmission notice provided by the Dutch
Borrower to the Lender of a requested a Dutch Revolving Loan Advance, which in
either event shall be directed to the parties at the addresses provided in
Section 8.1 (Notices) but without providing copies to the other parties listed
in that Section.

      "Material Adverse Effect" means an effect, either in any case or in the
aggregate, which results in a material adverse change (a) in the business,
prospects, condition, properties, assets, affairs or operations of either
Borrower, (b) in the right or ability of either Borrower to carry on a
substantial portion of its operations as now conducted or proposed to be
conducted, or (c) to a material part of the value of, or the ability of the
Lender to realize upon, the Collateral, including, without limitation, the Dutch
Collateral.

      "Multi-employer Plan" means a Plan which is a Multi-employer plan as
defined in Sections 3(37) and 4001(a)(3) of ERISA.

      "Non-U.S. Obligor means each of the U.K. Subsidiaries, the Spanish
Subsidiary and the Dutch Borrower, the "Non-U.S. Obligors" means all of U.K.
Subsidiaries and the Dutch Borrower collectively;

      "Non-U.S. Stock Pledge Agreements" means, collectively, the Stock Pledge
Agreements executed by Non-U.S. Obligors.

      "Obligations" means all present and future indebtedness, duties,
obligations, and liabilities, whether now existing or contemplated or hereafter
arising, of any one or more of the Obligors to the Lender under, arising
pursuant to, in connection with and/or on account of the provisions of this
Agreement, each Security Document, and/or any of the other Financing

                                       19


Documents, the Loans, and/or any of the Credit Facilities including, without
limitation, the principal of, and interest on, late charges, the Fees,
Enforcement Costs, and prepayment fees (if any), letter of credit fees or fees
charged with respect to any guaranty of any letter of credit; also means all
other present and future indebtedness, liabilities and obligations, whether now
existing or contemplated or hereafter arising, of any one or more of the
Obligors to the Lender or its Affiliates with respect to the Interest
Rate/Currency Protection Agreements, deposit or other cash management or credit
services of any nature whatsoever regardless of whether such debts, obligations
and liabilities be direct, indirect, primary, secondary, joint, several, joint
and several, fixed or contingent; and also means any and all renewals,
extensions, substitutions, amendments, restatements and rearrangements of any
such debts, obligations and liabilities.

      "Obligor" means each Person defined as an Obligor in the preamble of this
Agreement and, and "Obligors" means the collective reference to all Persons
defined as "Obligors" in the preamble to this Agreement.

      "Origination Fees" has the meaning described in Section 2.7.2 (Origination
Fees).

      "Outstanding Letter of Credit Obligations" has the meaning described in
Section 2.5.3 (Terms of Letters of Credit).

      "Patents" means and includes, in each case whether now existing or
hereafter arising, all of each Obligor's rights, title and interest in and to
(a) any and all patents and patent applications, (b) any and all inventions and
improvements described and claimed in such patents and patent applications, (c)
reissues, divisions, continuations, renewals, extensions and
continuations-in-part of any patents and patent applications, (d) income,
royalties, damages, claims and payments now or hereafter due and/or payable
under and with respect to any patents or patent applications, including, without
limitation, damages and payments for past and future infringements, (e) rights
to sue for past, present and future infringements of patents, and (f) all rights
corresponding to any of the foregoing throughout the world.

      "Patriot Act means the USA Patriot Act (Title III of Pub. L. 107-56
(signed into law October 26, 2001)).

      "PBGC" means the Pension Benefit Guaranty Corporation.

      "Permitted Liens" means: (a) Liens for Taxes which are not delinquent or
which (i) are being diligently contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are maintained on the
books of an Obligor, and (ii) are not, and will not be with appropriate filing,
the giving of notice and/or the passage of time, entitled to priority over any
Lien of the Lender as to any pre-existing Obligation to the Lender(except the
Lien created under the Subordinated Obligations Documents); (b) deposits or
pledges to secure obligations under workers' compensation, social security or
similar laws, or under unemployment insurance in the ordinary course of
business; (c) Liens securing any or all of the Obligations; (d) judgment Liens
to the extent the entry of such judgment does not constitute a Default or an
Event of Default under the terms of this Agreement or result in the sale or levy
of, or execution on, any of the Collateral; (e) statutory liens of landlords,
carriers, warehousemen, mechanics, materialmen and other similar liens imposed
by law, which are incurred in the ordinary course of business for sums not more
than thirty (30) days delinquent or which are being contested in good faith; (f)
liens against cash deposits to secure the performance of tenders, statutory
obligations, surety, customs bonds, bids, government contracts, performance
bonds and other similar obligations

                                       20


(exclusive of obligations for the payment of borrowed money); (g) deposits made
in the ordinary course of business to secure liability to insurance carriers;
(h) Purchase Money Security Interests; provided that the aggregate outstanding
Liabilities secured by any such Liens does not exceed Five Hundred Thousand
Dollars ($500,000) per annum; and (i) any other Liens existing as of the Closing
Date which are set forth on Schedule 4.1.21 attached hereto and made a part
hereof.

      "Person" means and includes an individual, a corporation, a partnership, a
joint venture, a limited liability company or partnership, a trust, an
unincorporated association, a Governmental Authority, or any other organization
or entity.

      "Plan" means any pension plan that is covered by Title IV of ERISA and in
respect of which any Obligor or a Commonly Controlled Entity is an "employer" as
defined in Section 3 of ERISA.

      "Post-Default Rate" means when used with respect to Obligations, an per
annum interest rate equal to the Applicable Interest Rate plus 2% per annum."

      "Post-Expiration Date Letter of Credit" and "Post-Expiration Date Letters
of Credit" have the meanings described in Section 2.5.3 (Terms of Letters of
Credit).

      "Prepayment" means a U.S. Revolving Loan Mandatory Prepayment, a U.S.
Revolving Loan Optional Prepayment, a U.S. Term Loan Mandatory Prepayment, a
U.S. Term Loan Optional Prepayment, a Dutch Revolving Loan Mandatory Prepayment,
a Dutch Revolving Loan Optional Prepayment, a Dutch Term Loan Mandatory
Prepayment or a Dutch Term Loan Optional Prepayment, as the case may be, and
"Prepayments" mean collectively all U.S. Revolving Loan Mandatory Prepayments,
all U.S. Revolving Loan Optional Prepayments, all U.S. Term Loan Mandatory
Prepayments, all U.S. Term Loan Optional Prepayments, all Dutch Revolving Loan
Mandatory Prepayments, all Dutch Revolving Loan Optional Prepayments, all Dutch
Term Loan Mandatory Prepayments and all Dutch Term Loan Optional Prepayments.

      "Prime Rate" means the floating and fluctuating per annum rate of interest
announced by the Lender from time to time as its prime rate of interest. The
Prime Rate does not necessarily represent the lowest rate of interest charged by
the Lender to borrowers.

      "Proforma Balance Sheet" has the meaning described in Section 4.1.12
(Proforma Financial Statements).

      "Proforma Financial Projections" has the meaning described in Section
4.1.12 (Proforma Financial Statements).

      "Purchase Agreement" means that certain Share Purchaser Agreement dated
March 8, 2005 by and among the U.S. Borrower, the Dutch Borrower, NKF Vastgoed
B.V. and the Seller.

      "Purchase Agreement Documents" means collectively the Purchase Agreement
and any and all other agreements, documents or instruments (together with any
and all amendments, modifications, and supplements thereto, restatements
thereof, and substitutes therefore) previously, now or hereafter executed and
delivered by any or all of the Obligors, the Seller, or any other Person in
connection with the Purchase Agreement Transaction, including (without

                                       21


limitation) all agreements relating to the debt incurred in favor of the Seller
in consideration for a portion of the purchase price under the Purchase
Agreement.

      "Purchase Agreement Rights" means collectively, the U.S. Borrower's right,
title and interest in, to, and under, the Purchase Agreement and all of the
Purchase Agreement Documents.

      "Purchase Agreement Transaction" means the stock purchase transaction
contemplated by the provisions of the Purchase Agreement.

      "Purchase Money Security Interest" means a purchase money security
interest, attaching at the time of acquisition, in Equipment acquired after the
date of this Agreement; provided, however, that (a) the indebtedness secured by
any such security interest shall not exceed 100% of the cost of the Equipment
covered plus finance charges, fees, costs and expenses (including attorneys
fees) of documentation, perfection, collection and enforcement, (b) each such
security interest shall attach only to the Equipment so acquired for the
purchase money for that Equipment, and (c) the acquisition to which any such
security interest relates shall not result in a Default or Event of Default
under this Agreement.

      "Receivable" means each Obligor's now owned and hereafter owned, acquired
or created Accounts, Chattel Paper, General Intangibles and Instruments; and
"Receivables" means all of each Obligor's now or hereafter owned, acquired or
created Accounts, Chattel Paper, General Intangibles and Instruments, and all
cash and non-cash proceeds and products thereof.

      "Reportable Event" means any of the events set forth in Section 4043(c) of
ERISA or the regulations thereunder.

      "Responsible Officer" means for each Obligor, its chief executive officer
or president or any vice president or, with respect to financial matters, its
chief financial officer, treasurer or comptroller.

      "Revolving Credit Unused Line Fee" and "Revolving Credit Unused Line Fees"
have the meanings described in Section 2.1.9 (Revolving Credit Unused Line Fee).

      "Securities" means the collective reference to each and every certificated
or uncertificated security (as such term is defined by the Maryland Uniform
Commercial Code-Investment Securities), and all proceeds (cash and non-cash) of
the foregoing.

      "Security Documents" mean collectively any assignment, pledge agreement,
security agreement, mortgage, deed of trust, deed to secure debt, financing
statement and any similar instrument, document or agreement under or pursuant to
which a Lien is now or hereafter granted to, or for the benefit of the Lender on
any real or personal property of any Person to secure all or any portion of the
Obligations, all as the same may from time to time be amended, restated,
supplemented or otherwise modified, including, without limitation, this
Agreement, the IP Pledges, the Stock Pledge Agreements, the Dutch Security
Documents, and any assignment of any letter of credit, banker's acceptance or
receivables insurance policy securing Receivables.

      "Seller" means Draka Holding, N.V., the Seller under the Purchase
Agreement.

                                       22


      "Senior Debt Leverage Ratio" means, as to the U.S. Borrower and its
consolidated Subsidiaries, for any period of determination, the ratio of (a) the
outstanding Obligations to (b) EBITDA.

      "Spanish Subsidiary" means the Person defined as the Spanish Subsidiary in
the preamble of this Agreement.

      "State" means the State of Maryland.

      "Stock Pledge Agreements" means, collectively, those certain pledge,
assignment and security agreements dated the Closing Date hereof from the U.S.
Borrower over the shares in the U.K. Subsidiaries, the Spanish Subsidiary and
the Dutch Borrower, each for the benefit of the Lender, as the same may from
time to time be amended, restated, supplemented or otherwise modified.

      "Subordinated Note" means that certain Subordinated Promissory Note dated
March 8, 2005, made by the U.S. Borrower payable to the Seller in the principal
amount of Nine Million Euro ((euro)9,000,000), as the same maybe amended in
accordance with its terms.

      "Subordinated Obligations" means the debt obligations of the U.S. Borrower
under the Subordinated Note.

      "Subordinated Obligations Documents" means the Subordinated Note, and any
and all agreements, documents or instruments now or at any time evidencing,
securing, guarantying or otherwise executed and delivered in connection with the
Subordinated Obligations, as the same may from time to time be amended,
restated, supplemented or modified.

      "Subordinated Indebtedness" means all Indebtedness incurred at any time by
any Obligor which is in amounts, subject to repayment terms, and subordinated to
the Obligations, as set forth in one or more written agreements, all in form and
substance satisfactory to the Lender in its sole and absolute discretion.

      "Subsidiary" means with respect to any Obligor, any corporation,
partnership, joint venture, limited liability company or other business entity
of which more than 50% of the outstanding capital stock or other interests
having ordinary voting power to elect a majority of the board of directors or
other governing body of such entity (irrespective of whether at the time
securities or interests of any other class or classes of such entity shall or
might have voting power upon the occurrence of any contingency) is at the time,
directly or indirectly, beneficially owned by any Obligor, and "Subsidiaries"
means all such entities collectively.

      "Supporting Obligation" means a letter-of-credit right, secondary
obligation, or obligation of a secondary obligor, or secondary obligation that
supports the payment or performance of an account, chattel paper, a document, a
general intangible, an instrument, or investment property.

      "Taxes" means all taxes and assessments whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character
(including all penalties or interest thereon), which at any time may be
assessed, levied, confirmed or imposed by any Governmental Authority on any or
all of the Obligors or any of their properties or assets or any part thereof or
in respect of any of its or their franchises, businesses, income or profits.

                                       23


      "Trademarks" means and includes in each case whether now existing or
hereafter arising, all of each Obligor's right, title and interest in and to (a)
any and all trademarks (including service marks), trade names and trade styles,
and applications for registration thereof and the goodwill of the business
symbolized by any of the foregoing, (b) any and all licenses of trademarks,
service marks, trade names and/or trade styles, whether as licensor or licensee,
(c) any renewals of any and all trademarks, service marks, trade names, trade
styles and/or licenses of any of the foregoing, (d) income, royalties, damages
and payments now or hereafter due and/or payable with respect thereto,
including, without limitation, damages, claims, and payments for past, present
and future infringements thereof, (e) rights to sue for past, present and future
infringements of any of the foregoing, including the right to settle suits
involving claims and demands for royalties owing, and (f) all rights
corresponding to any of the foregoing throughout the world.

      "Unused Availability" means, at any one time, the amount of the U.S.
Borrowing Base in excess of the outstanding amount of the U.S. Revolving Loan
Advances.

      "U.K. Subsidiary" means each of the Persons defined as the U.K. Subsidiary
in the preamble of this Agreement, and "U.K. Subsidiaries" means the collective
reference to all Persons defined as "U.K. Subsidiaries" in the preamble to this
Agreement.

      "Uniform Commercial Code" means, unless otherwise provided in this
Agreement, the Maryland Uniform Commercial Code.

      "U.S. Borrower" means the Person defined as the U.S. Borrower in the
preamble of this Agreement.

      "U.S. Borrowing Base" has the meaning described in Section 2.1.3 (U.S.
Borrowing Base).

      "U.S. Borrowing Base Deficiency" has the meaning described in Section
2.1.3 (U.S. Borrowing Base).

      "U.S. Borrowing Base Report" has the meaning described in Section 2.1.4
(U.S. Borrowing Base Report).

      "U.S. Obligations" means the principal of the U.S. Revolving Loan, the
U.S. Term Loan and any Letters of Credit issued for the account of the U.S.
Borrower and any other obligations of the U.S. Borrower hereunder and under the
Financing Documents, together with any interest thereon, Fees, Enforcement Costs
and indemnifications attributable thereto.

      "U.S. Origination Fees" has the meaning described in Section 2.7.2
(Origination Fees).

      "U.S. Revolving Credit Commitment" means the agreement of the Lender
relating to the making of the U.S. Revolving Loan Advances subject to and in
accordance with the provisions of this Agreement.

      "U.S. Revolving Credit Commitment Period" means the period of time from
the Closing Date to the Business Day preceding the U.S. Revolving Credit
Termination Date.

         "U.S. Revolving Credit Committed Amount" means Five Million Dollars
  ($5,000,000).

                                       24


      "U.S. Revolving Credit Expiration Date" means April 1, 2007.

      "U.S. Revolving Credit Facility" means the facility established by the
Lender pursuant to Section 2.1 (U.S. Revolving Credit Facility).

      "U.S. Revolving Credit Termination Date" means the earlier of (a) the U.S.
Revolving Credit Expiration Date, or (b) the date on which the U.S. Revolving
Credit Commitment is terminated pursuant to Section 7.2.1 (Acceleration,
Termination) or otherwise.

      "U.S. Revolving Loan" means the aggregate of all the U.S. Revolving Loan
Advances.

      "U.S. Revolving Loan Account" has the meaning described in Section 2.1.8
(U.S. Revolving Loan Account).

      "U.S. Revolving Loan Advance" and "U.S. Revolving Loan Advances" have the
meanings described in Section 2.1.1 (U.S. Revolving Credit Facility).

      "U.S. Revolving Loan Mandatory Prepayment" and "U.S. Revolving Loan
Mandatory Prepayments" have the meanings described in Section 2.1.6 (Mandatory
Prepayments of U.S. Revolving Loan).

      "U.S. Revolving Loan Optional Prepayment" and "U.S. Revolving Loan
Optional Prepayments" have the meanings described in Section 2.1.7 (Optional
Prepayments of U.S. Revolving Loan).

      "U.S. Term Loan" has the meanings described in Section 2.2.1 (U.S. Term
Loan Commitment).

      "U.S. Term Loan Commitment" means the agreement of the Lender to make the
U.S. Term Loan to the U.S. Borrower in accordance with the provisions of this
Agreement.

      "U.S. Term Loan Committed Amount" means Nine Million One Hundred Fifty Two
Thousand Eight Hundred Seventy Dollars and Forty Cents ($9,152,870.40).

      "U.S. Term Loan Scheduled Payment" means the amount of the payment on the
U.S. Term Loan which the U.S. Borrower is required to make on each U.S. Term
Loan Scheduled Payment Date in accordance with Section 2.2.3 (U.S. Term Loan
Installment Payments).

      "U.S. Term Loan Scheduled Payment Date" means the first day of each month,
commencing April, 2005.

      "U.S. Term Loan Mandatory Prepayment" and "U.S. Term Loan Mandatory
Prepayments" have the meanings described in Section 2.2.4 (Mandatory Prepayments
of U.S. Term Loan).

      "U.S. Term Loan Maturity Date" means the earlier of April 1, 2009 or the
date that the U.S. Term Loan is accelerated under Section 7.2.1 (Acceleration,
Termination).

      "U.S. Term Loan Optional Prepayment" and "U.S. Term Loan Optional
Prepayments" have the meanings described in Section 2.3.7 (Optional Prepayments
of U.S. Term Loan).

                                       25


      "Wholly Owned Subsidiary" means any United States corporation all the
shares of stock of all classes of which (other than directors' qualifying
shares) at the time are owned directly or indirectly by an Obligor, and "Wholly
Owned Subsidiaries" means all such entities collectively.

Section 1.2 Accounting Terms and Other Definitional Provisions.

      Unless otherwise defined herein, as used in this Agreement and in any
certificate, report or other document made or delivered pursuant hereto,
accounting terms not otherwise defined herein, and accounting terms only partly
defined herein, to the extent not defined, shall have the respective meanings
given to them under GAAP, as consistently applied to the applicable Person.
Unless otherwise defined herein, all terms used herein which are defined by the
Uniform Commercial Code shall have the same meanings as assigned to them by the
Uniform Commercial Code unless and to the extent varied by this Agreement. The
words "hereof", "herein" and "hereunder" and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and article, section, subsection,
schedule and exhibit references are references to articles, sections or
subsections of, or schedules or exhibits to, as the case may be, this Agreement
unless otherwise specified. As used herein, the singular number shall include
the plural, the plural the singular and the use of the masculine, feminine or
neutral gender shall include all genders, as the context may require. Reference
to any one or more of the Financing Documents shall mean the same as the
foregoing may from time to time be amended, restated, substituted, extended,
renewed, supplemented or otherwise modified. Reference in this Agreement and the
other Financing Documents to the "Obligor", the "Obligors", "each Obligor" or
otherwise with respect to any one or more of the Obligors shall mean each and
every Obligor and any one or more of the Obligors and, subject to Section 2.9
(Limitations on Joint and Several Liability for Obligations) hereof, jointly and
severally subject to the limitations set forth herein, unless a specific Obligor
is expressly identified.

Section 1.3 Dutch Terms

      In this Agreement, where it relates to the Dutch Borrower, a reference to:

      a.    a Lien includes any mortgage (hypotheek), pledge (pandrecht),
retention of title arrangement (eigendomsvoorbehoud), privilege (voorrecht),
right of retention (recht van retentie), right to reclaim goods (recht van
reclame), and, in general, any right in rem (beperkt recht), created for the
purpose of granting security (goederenrechtelijk zekerheidsrecht);

      b.    the terms receiver, trustee or liquidator (and any of those terms)
include curator and bewindvoerder;

      c.    the terms bankruptcy, reorganization, insolvency, readjustment of
debt, dissolution or liquidation (and any of those terms) include faillissement,
failliet verklaard, ontbonden, surseance van betaling, sureance verleend; and

      d.    the term attachment includes beslag.

                                       26


                                   ARTICLE II
                              THE CREDIT FACILITIES

Section 2.1 The U.S. Revolving Credit Facility.

2.1.1 U.S. Revolving Credit Facility.

      (a)   Subject to and upon the provisions of this Agreement and relying
upon the representations and warranties herein set forth, the Lender agrees at
any time and from time to time to make advances (each a "U.S. Revolving Loan
Advance" and collectively, the "U.S. Revolving Loan Advances") to the U.S.
Borrower and to issue Letters of Credit for the account of the U.S. Borrower
from the date hereof until the U.S. Revolving Credit Termination Date in an
aggregate principal amount at any time outstanding not to exceed the lesser of
(i) the U.S. Revolving Credit Committed Amount or (ii) the U.S. Borrowing Base,
provided however that at no time may the sum of (i) the aggregate outstanding
amount of the U.S. Revolving Loan Advances and Letters of Credit issued for the
account of the U.S. Borrower, plus (ii) the aggregate outstanding amount of the
Euro Currency Equivalent of the Dutch Revolving Loan Advances and Letters of
Credit issued for the account of the Dutch Borrower exceed the Aggregate
Revolving Loan Cap; provided further, that the sum of the Outstanding Letter of
Credit Obligations shall not at any time exceed Five Hundred Thousand Dollars
($500,000.00).

      (b)   Each U.S. Revolving Loan Advance shall be made and repaid in
Dollars.

      (c)   Each U.S. Revolving Loan Advance, except as hereinafter provided,
may, at the option of the U.S. Borrower be incurred and maintained as and/or
converted into a Base Rate Loan or a LIBOR Loan, provided that all U.S.
Revolving Loan Advances made as part of the same borrowing shall, unless
otherwise specifically provided herein, consist of U.S. Revolving Loan Advances
of the same type.

2.1.2 Procedure for Making U.S. Revolving Loan Advances.

      The U.S. Borrower may borrow under the U.S. Revolving Credit Facility on
any Business Day. U.S. Revolving Loan Advance shall be deposited to a demand
deposit account of the U.S. Borrower with the Lender or shall be otherwise
applied as directed by the U.S. Borrower, which direction the Lender may require
to be in writing. Not later than 1:00 p.m. (prevailing U.S. Eastern Time) two
(2) Business Days prior to the date of the requested borrowing, the U.S.
Borrower shall give the Lender a Loan Notice of the amount and (if requested by
the Lender) the purpose of the requested borrowing. Each Loan Notice shall be
irrevocable.

      In addition, the U.S. Borrower hereby irrevocably authorizes the Lender at
any time without further request from or notice to the U.S. Borrower, to make
U.S. Revolving Loan Advances to cover debit balances in the U.S. Revolving Loan
Account, principal of, and/or interest (if not paid when due) on, any Loan, the
Obligations (including, without limitation, the Dutch Obligations), and/or
Enforcement Costs, prior to, on, or after the termination of other

                                       27


advances under this Agreement, regardless of whether the outstanding principal
amount of the U.S. Revolving Loan Advance which the Lender may advance hereunder
causes the U.S. Revolving Credit Committed Amount to be exceeded.

2.1.3 U.S. Borrowing Base.

      As used in this Agreement, the term "U.S. Borrowing Base" means at any
time, an amount equal to the aggregate of (a) the sum of eighty-five percent
(85%) of Eligible U.S. Receivables, plus (b) thirty percent (30%) of the amount
of Eligible Inventory, less (c) the Interest Rate/Currency Protection Reserve
for the U.S. Borrower, less (d) the amount of any Dutch Borrowing Base
Deficiency which has not been paid, less (e) the amount of any reserve which the
Lender in its reasonable and good faith discretion deems appropriate to cover
any potential U.S. Borrowing Base Deficiency which the Lender determines, in its
reasonable and good faith discretion based upon information previously provided
by the Borrowers or obtained from the Lender's auditors, may have occurred since
the most recent U.S. Borrowing Base Report was provided by the U.S. Borrower.

      The U.S. Borrowing Base shall be computed based on the U.S. Borrowing Base
Report most recently delivered to the Lender. In the event the U.S. Borrower
fails to furnish a U.S. Borrowing Base Report required by Section 2.1.4 (U.S.
Borrowing Base Report), or in the event the Lender reasonably determines that a
U.S. Borrowing Base Report is no longer accurate in any material respect, the
Lender may, in its sole and absolute discretion exercised from time to time and
without limiting other rights and remedies under this Agreement, suspend the
making of or limit making U.S. Revolving Loan Advances. The U.S. Borrowing Base
shall be subject to reduction by the amount of any Receivable or any Inventory
which was included in the U.S. Borrowing Base but which the Lender reasonably
determines fails to meet the respective criteria applicable from time to time
for Eligible U.S. Receivables or Eligible Inventory.

      If at any time the total of the aggregate principal amount of the U.S.
Revolving Loan and the Outstanding Letter of Credit Obligations of the U.S.
Borrower exceeds an amount equal to the U.S. Borrowing Base, a borrowing base
deficiency ("U.S. Borrowing Base Deficiency") shall exist. Each time a U.S.
Borrowing Base Deficiency exists, the U.S. Borrower shall provide a current U.S.
Borrowing Base Report demonstrating that a U.S. Borrower Base Deficiency does
not exist any longer, or at the sole and absolute discretion of the Lender
exercised from time to time shall pay the U.S. Borrowing Base Deficiency ON
DEMAND to the Lender from time to time.

      Without implying any limitation on the Lender's discretion with respect to
the U.S. Borrowing Base, the criteria for Eligible U.S. Receivables and for
Eligible Inventory contained in the respective definitions of Eligible U.S.
Receivables and of Eligible Inventory are in part based upon the business
operations of the U.S. Borrower existing on or about the Closing Date and upon
information and records furnished to the Lender by the U.S. Borrower. If at any
time or from time to time hereafter, the business operations of the U.S.
Borrower changes in any material respect or such information and records
furnished to the Lender is incorrect or misleading in any material respect, the
Lender in its reasonable and good faith discretion, may at any time and from
time to time during the duration of this Agreement change such criteria or add
new criteria. The Lender shall communicate such changed or additional criteria
to the U.S. Borrower from time to time either orally or in writing prior to the
application thereof.

                                       28


2.1.4 U.S. Borrowing Base Report.

      The U.S. Borrower shall furnish to the Lender no less frequently than once
per month, as of the twentieth calendar day after the end of the previous month,
and at such other times as may reasonably be requested by the Lender, a report
of the U.S. Borrowing Base (each a "U.S. Borrowing Base Report"; collectively,
the "U.S. Borrowing Base Reports") in the form required from time to time by the
Lender, appropriately completed and duly signed. The U.S. Borrowing Base Report
shall contain the amount and payments on the Receivables of the U.S. Borrower,
the value of Inventory owned by the U.S. Borrower, and the calculations of the
U.S. Borrowing Base, all in such detail, and accompanied by such supporting and
other information, as the Lender may from time to time reasonably request. Upon
the Lender's request and periodically upon the creation of any Receivables by
the U.S. Borrower, or at such intervals as the Lender may reasonably require,
the U.S. Borrower shall provide the Lender with such further schedules,
documents and/or information regarding its Receivables and Inventory as the
Lender may reasonably require. The items to be provided under this subsection
shall be in form satisfactory to the Lender, and certified as true and correct
by a Responsible Officer, and delivered to the Lender from time to time solely
for the Lender's convenience in maintaining records of the Collateral. The U.S.
Borrower's failure to deliver any of such items to the Lender shall not affect,
terminate, modify, or otherwise limit the Liens of the Lender in the Collateral.

2.1.5 Promise to Pay U.S. Revolving Loan.

      For value received, the U.S. Borrower promises to pay to the order of the
Lender, on the U.S. Revolving Credit Termination Date, the aggregate outstanding
amount of all U.S. Revolving Loan Advances. Additionally, the U.S. Borrower
promises to pay to the order of the Lender interest on the outstanding aggregate
principal amount (calculated on a daily basis) of all U.S. Revolving Loan
Advances in the manner, and at the times, as herein set forth. To the extent the
outstanding aggregate amount of U.S. Revolving Loan Advances plus the amount of
the Outstanding Letter of Credit Obligations of the U.S. Borrower exceeds the
U.S. Revolving Credit Committed Amount as limited by the U.S. Borrowing Base and
the Aggregate Revolving Loan Cap, the U.S. Borrower promises to pay such excess
on demand.

2.1.6 Mandatory Prepayments of U.S. Revolving Loan.

      Subject to the limitations and fees of Section 2.6.4 (Indemnity), the U.S.
Borrower shall make the mandatory prepayments (each a "U.S. Revolving Loan
Mandatory Prepayment" and collectively, the "U.S. Revolving Loan Mandatory
Prepayments") of the U.S. Revolving Loan at any time and from time to time in
such amounts requested by the Lender pursuant to Section 2.1.3 (U.S. Borrowing
Base) of this Agreement in order to cover (a) any U.S. Borrowing Base Deficiency
and (b) any excess in the total aggregate principal amounts of U.S. Revolving
Loan and Outstanding Letter of Credit Obligations of the U.S. Borrower over the
U.S. Revolving Credit Committed Amount as limited by the U.S. Borrowing Base and
the Aggregate Revolving Loan Cap.

                                       29


2.1.7 Optional Prepayments of U.S. Revolving Loan.

      Subject to the limitations and fees of Section 2.6.4 (Indemnity), the U.S.
Borrower shall have the option at any time and from time to time to prepay (each
a "U.S. Revolving Loan Optional Prepayment" and collectively the "U.S. Revolving
Loan Optional Prepayments") the U.S. Revolving Loan, in whole or in part without
premium or penalty.

2.1.8 U.S. Revolving Loan Account.

      The Lender will establish and maintain a loan account on its books (the
"U.S. Revolving Loan Account"). The Lender will (a) debit (i) the principal
amount of each U.S. Revolving Loan Advance made by the Lender hereunder as of
the date made, (ii) the amount of any interest accrued on the U.S. Revolving
Loan as and when due, and (iii) any other amounts due and payable by the U.S.
Borrower to the Lender from time to time under the provisions of this Agreement
in connection with the U.S. Revolving Loan, including, without limitation,
Enforcement Costs, Fees and late charges, and (b) credit all payments made by
the U.S. Borrower to the Lender on account of the U.S. Revolving Loan as of the
date made. All credit entries to the U.S. Revolving Loan Account are conditional
and shall be readjusted as of the date made if final and indefeasible payment is
not received by the Lender in cash or solvent credits.

      Any and all periodic or other statements or reconciliations, and the
information contained in those statements or reconciliations, of the U.S.
Revolving Loan Account shall constitute an account stated between the Lender and
the U.S. Borrower, absent manifest error, unless the Lender receives specific
written objection thereto from a U.S. Borrower within sixty (60) Business Days
after such statement or reconciliation shall have been sent by the Lender. Any
and all periodic or other statements or reconciliations, and the information
contained in those statements or reconciliations, of the U.S. Revolving Loan
Account shall be final, binding and conclusive upon the U.S. Borrower in all
respects, absent manifest error, unless the Lender receives specific written
objection thereto from the U.S. Borrower within thirty (30) Business Days after
such statement or reconciliation shall have been sent by the Lender.

2.1.9 Revolving Credit Unused Line Fee, Monitoring Fee.

      The U.S. Borrower shall pay to the Lender a monthly revolving credit
facility fee (collectively, the "Revolving Credit Unused Line Fees" and
individually, a "Revolving Credit Unused Line Fee") in an amount equal to
twenty-five one hundredths of one percent (0.25%) per annum of the average daily
unused and undisbursed portion of the U.S. Revolving Credit Committed Amount in
effect from time to time accruing during each calendar month minus the average
daily disbursed portion of the Dutch Revolving Credit Committed Amount. At any
time during which the Senior Debt Leverage Ratio is greater than 2:1, the
Revolving Credit Unused Line Fee shall be increased to an amount equal to
thirty-seven and one-half hundredths of one percent (0.375%) per annum of the
average daily unused and undisbursed portion of the U.S. Revolving Credit
Committed Amount minus the average daily disbursed portion of the Dutch
Revolving Credit Committed Amount. The accrued and unpaid portion of the
Revolving Credit Unused Line Fee shall be paid by the U.S. Borrower to the
Lender on the first day of each month, commencing on the first such date
following the date hereof, and on the U.S. Revolving Credit Termination Date.
The U.S. Borrower agrees to pay to the Lender a borrowing base monitoring fee in
the amount of $150 per month (covering both the Dutch Borrowing Base and the
U.S. Borrowing Base) payable in advance on the first day of each calendar month.

                                       30


Section 2.2 The U.S. Term Loan.

2.2.1 U.S. Term Loan Commitment.

      Subject to and upon the provisions of this Agreement, the Lender agrees to
make a loan (the "U.S. Term Loan") to the U.S. Borrower on the Closing Date in
the principal amount of the U.S. Term Loan Committed Amount.

2.2.2 Promise to Pay U.S. Term Loan.

      For value received, the U.S. Borrower promises to pay to the order of the
Lender the U.S. Term Loan Committed Amount or so much thereof as shall be
advanced by the Lender hereunder in the manner, and at the times, as herein set
forth. Additionally, the U.S. Borrower promises to pay to the order of the
Lender interest on the outstanding principal amount (calculated on a daily
basis) of the U.S. Term Loan in the manner, and at the times, as herein set
forth.

2.2.3 U.S. Term Loan Installment Payments.

      The U.S. Borrower shall pay to the Lender the principal amount of the U.S.
Term Loan in forty-eight (48) consecutive installments payable commencing on the
first U.S. Term Loan Scheduled Payment Date after the advance of the U.S. Term
Loan, and continuing on each U.S. Term Loan Scheduled Payment Date thereafter;
consisting of forty-seven (47) equal installments of principal in the amount of
One Hundred Twenty-Seven Thousand One Hundred Twenty Three Dollars and Twenty
Cents ($127,123.20) and ONE (1) FINAL INSTALLMENT on the U.S. Term Loan Maturity
Date in an amount equal to the outstanding principal amount of the U.S. Term
Loan at that time together with all other amounts outstanding hereunder
including, without limitation, accrued interest, costs and expenses.

2.2.4 Mandatory Prepayments of U.S. Term Loan.

      Subject to the limitations and fees of Section 2.6.4 (Indemnity), in
addition to the payment of principal of the U.S. Term Loan described above, the
U.S. Borrower shall make mandatory prepayments (each a "U.S. Term Loan Mandatory
Prepayment" and collectively the "U.S. Term Loan Mandatory Prepayments") of the
U.S. Term Loan annually. Each U.S. Term Loan Mandatory Prepayment shall be in
the amount of twenty-five (25%) percent of the Excess Cash Flow for the then
preceding fiscal year and shall be payable on the date (the "Calculation Date")
the U.S. Borrower furnishes to the Lender the annual financial statements
referred to in Section 6.1.1 (Financial Statements). The U.S. Borrower shall pay
to the Lender on the date of each U.S. Term Loan Mandatory Prepayment accrued
interest to such date on the amount prepaid. Each U.S. Term Loan Mandatory
Prepayment shall be applied to the balloon payment due on the U.S. Term Loan
Maturity Date and then to principal against the principal installments in the
inverse order of their maturity. Notwithstanding the foregoing, if (a) during
the fiscal year prior to the Calculation Date, the U.S. Borrower's Asset
Coverage Ratio was equal to or greater than one to one (1 to 1) as of the end of
any four consecutive months, (b) as of the end of the U.S. Borrower's fiscal
year prior to the Calculation Date, the U.S. Borrower's Asset Coverage Ratio was
equal to or greater than one to one (1 to 1) , and (c) as of the end of the
month of January immediately prior to the date of such annual calculation of the
U.S. Term Loan Mandatory Prepayment, the U.S. Borrower's Asset Coverage Ratio
was equal to or greater than

                                       31


one to one (1 to 1), then the U.S. Borrower shall need not pay to the Lender any
U.S. Term Loan Mandatory Prepayment that would otherwise be due.

2.2.5 Optional Prepayments of U.S. Term Loan.

      Subject to the limitations and fees of Section 2.6.4 (Indemnity), the U.S.
Borrower may, at its option, at any time and from time to time, prepay (each a
"U.S. Term Loan Optional Prepayment" and collectively the "U.S. Term Loan
Optional Prepayments") the U.S. Term Loan, in whole or in part, upon five (5)
Business Days prior written notice, specifying the date and amount of
prepayment. The amount to be so prepaid, together with interest accrued thereon
to date of prepayment, shall be paid by the U.S. Borrower to the Lender on the
date specified for such prepayment. Partial U.S. Term Loan Optional Prepayments
shall be in an amount not less than $50,000 and shall be applied first to all
accrued and unpaid interest on the principal of the U.S. Term Loan, then to the
balloon payments due at maturity and then to principal against the principal
installments in the inverse order of their maturity.

Section 2.3 The Dutch Revolving Credit Facility.

2.3.1 Dutch Revolving Credit Facility.

      (a)   Subject to and upon the provisions of this Agreement and relying
upon the representations and warranties herein set forth, the Lender agrees at
any time and from time to time to make advances (each a "Dutch Revolving Loan
Advance" and collectively, the "Dutch Revolving Loan Advances") to the Dutch
Borrower and to issue Letters of Credit for the account of the Dutch Borrower
from the date hereof until the Dutch Revolving Credit Termination Date in an
aggregate principal amount at any time outstanding not to exceed the lesser of
(i) the Dutch Revolving Credit Committed Amount or (ii) the Dutch Borrowing
Base, provided however that at no time may the sum of (i) the aggregate
outstanding amount of the Euro Currency Equivalent of the Dutch Revolving Loan
Advances and Letters of Credit issued for the account of the Dutch Borrower,
plus (ii) the aggregate outstanding amount of the U.S. Revolving Loan Advances
and Letters of Credit issued for the account of the U.S. Borrower exceed the
Aggregate Revolving Loan Cap; provided further, that the sum of the Outstanding
Letter of Credit Obligations shall not at any time exceed Five Hundred Thousand
Dollars ($500,000.00).

      (b)   Each Dutch Revolving Loan Advance, except as hereinafter provided,
shall be made and repaid in Euros.

      (c)   Each Dutch Revolving Loan Advance, except as hereinafter provided,
shall be incurred and maintained as a LIBOR Loan.

2.3.2 Procedure for Making Dutch Revolving Loan Advances.

      The Dutch Borrower may borrow under the Dutch Revolving Credit Facility on
any Business Day. The Dutch Revolving Loan Advances shall be deposited to a
demand deposit account of the Dutch Borrower with the Lender or shall be
otherwise applied as directed by the Dutch Borrower, which direction the Lender
may require to be in writing. Not later than 1:00 p.m. (prevailing U.S. Eastern
Time) three (3) Business Days prior to the date of the requested

                                       32


borrowing, the Dutch Borrower shall give the Lender a Loan Notice of the amount
and (if requested by the Lender) the purpose of the requested borrowing. Each
Loan Notice shall be irrevocable.

      In addition, the Dutch Borrower hereby irrevocably authorizes the Lender
at any time without further request from or notice to the Dutch Borrower, to
make Dutch Revolving Loan Advances to cover debit balances in the Dutch
Revolving Loan Account, principal of, and/or interest on (if not paid when due),
any of the Dutch Obligations and/or Enforcement Costs, prior to, on, or after
the termination of other advances under this Agreement, regardless of whether
the outstanding principal amount of the Dutch Revolving Loan which the Lender
may advance hereunder exceeds the Dutch Revolving Credit Committed Amount.

2.3.3 Dutch Borrowing Base.

      As used in this Agreement, the term "Dutch Borrowing Base" means at any
time, an amount equal to sixty percent (60%) of Eligible Dutch Receivables
(other than Insured Eligible Dutch Receivables), plus seventy percent (70%) of
Insured Eligible Dutch Receivables, plus seventy percent (70%) of Insured
Eligible U.K. Receivables, plus seventy percent (70%) of Insured Eligible
Spanish Receivables, plus any Unused Availability, less (a) the Interest
Rate/Currency Protection Reserve for the Dutch Borrower, less (b) the amount of
any U.S. Borrowing Base Deficiency which has not been paid, less (c) the amount
of any reserve which the Lender in its reasonable and good faith discretion
deems appropriate to cover any potential Dutch Borrowing Base Deficiency which
the Lender determines, in its reasonable and good faith discretion based upon
information previously provided by the Borrowers or obtained from the Lender's
auditors, may have occurred since the most recent Dutch Borrowing Base Report
was provided by the Dutch Borrower.

      The Dutch Borrowing Base shall be computed based on the Dutch Borrowing
Base Report most recently delivered to the Lender. In the event the Dutch
Borrower fails to furnish a Dutch Borrowing Base Report required by Section
2.3.4 (Dutch Borrowing Base Report), or in the event the Lender reasonably
determines that a Dutch Borrowing Base Report is no longer accurate in any
material respect, the Lender may, in its sole and absolute discretion exercised
from time to time and without limiting other rights and remedies under this
Agreement, suspend the making of or limit Dutch Revolving Loan Advances. The
Dutch Borrowing Base shall be subject to reduction by the amount of any
Receivable which was included in the Dutch Borrowing Base but which the Lender
reasonably determines fails to meet the respective criteria applicable from time
to time for Eligible Dutch Receivables.

      If at any time the total of the aggregate principal amount of the Dutch
Revolving Loan and the Outstanding Letter of Credit Obligations of the Dutch
Borrower exceeds an amount equal to the Dutch Borrowing Base, a borrowing base
deficiency ("Dutch Borrowing Base Deficiency") shall exist. Each time a Dutch
Borrowing Base Deficiency exists, the Dutch Borrower shall provide a current
Dutch Borrowing Base Report demonstrating that a Dutch Borrower Base Deficiency
does not exist any longer, or at the sole and absolute discretion of the Lender
exercised from time to time shall pay the Dutch Borrowing Base Deficiency ON
DEMAND to the Lender from time to time.

      Without implying any limitation on the Lender's discretion with respect to
the Dutch Borrowing Base, the criteria for Eligible Dutch Receivables contained
in the respective

                                       33


definitions of Eligible Dutch Receivables are in part based upon the business
operations of the Dutch Borrower existing on or about the Closing Date and upon
information and records furnished to the Lender by the Dutch Borrower. If at any
time or from time to time hereafter, the business operations of the Dutch
Borrower changes in any material respect or such information and records
furnished to the Lender are incorrect or misleading in any material respect, the
Lender in its reasonable and good faith discretion, may at any time and from
time to time during the duration of this Agreement change such criteria or add
new criteria. The Lender shall communicate such changed or additional criteria
to the Dutch Borrower from time to time either orally or in writing prior to the
application thereof.

2.3.4 Dutch Borrowing Base Report.

      The Dutch Borrower shall furnish to the Lender no less frequently than
once per month, as of the twentieth calendar day after the end of the previous
month, and at such other times as may reasonably be requested by the Lender, a
report of the Dutch Borrowing Base (each a "Dutch Borrowing Base Report";
collectively, the "Dutch Borrowing Base Reports") in the form required from time
to time by the Lender, appropriately completed and duly signed. The Dutch
Borrowing Base Report shall contain the amount and payments on the Receivables
of the Dutch Borrower and the calculations of the Dutch Borrowing Base, all in
such detail, and accompanied by such supporting and other information, as the
Lender may from time to time reasonably request. Upon the Lender's request and
periodically upon the creation of any Receivables by the Dutch Borrower, or at
such intervals as the Lender may reasonably require, the Dutch Borrower shall
provide the Lender with such further schedules, documents and/or information
regarding its Receivables as the Lender may reasonably require. The items to be
provided under this subsection shall be in form satisfactory to the Lender, and
certified as true and correct by a Responsible Officer, and delivered to the
Lender from time to time solely for the Lender's convenience in maintaining
records of the Collateral. The Dutch Borrower's failure to deliver any of such
items to the Lender shall not affect, terminate, modify, or otherwise limit the
Liens of the Lender in the Collateral.

2.3.5 Promise to Pay Dutch Revolving Loan.

      For value received, the Dutch Borrower promises to pay to the order of the
Lender, on the Dutch Revolving Credit Termination Date, the aggregate
outstanding amount of all Dutch Revolving Loan Advances. Additionally, the Dutch
Borrower promises to pay to the order of the Lender interest on the outstanding
aggregate principal amount (calculated on a daily basis) of all Dutch Revolving
Loan Advances in the manner, and at the times, as herein set forth. To the
extent the outstanding aggregate amount of Dutch Revolving Loan Advances plus
the amount of the Outstanding Letter of Credit Obligations of the Dutch Borrower
exceeds the Dutch Revolving Credit Committed Amount as limited by the Dutch
Borrowing Base and the Aggregate Revolving Loan Cap, the Dutch Borrower promises
to pay such excess on demand.

2.3.6 Mandatory Prepayments of Dutch Revolving Loan.

      Subject to the limitations and fees of Section 2.6.4 (Indemnity), the
Dutch Borrower shall make the mandatory prepayments (each a "Dutch Revolving
Loan Mandatory Prepayment" and collectively, the "Dutch Revolving Loan Mandatory
Prepayments") of the Dutch Revolving Loan at any time and from time to time in
such amounts requested by the

                                      34


Lender pursuant to Section 2.3.3 (Dutch Borrowing Base) of this Agreement in
order to cover (a) any Dutch Borrowing Base Deficiency and (b) any excess in the
total aggregate principal amount of the Dutch Revolving Loan and the Outstanding
Letter of Credit Obligations of the Dutch Borrower over the Dutch Revolving
Credit Committed Amount as limited by the Dutch Borrowing Base and the Aggregate
Revolving Loan Cap.

2.3.7 Optional Prepayments of Dutch Revolving Loan.

      Subject to the limitations and fees of Section 2.6.4 (Indemnity), the
Dutch Borrower shall have the option at any time and from time to time to prepay
(each a "Dutch Revolving Loan Optional Prepayment" and collectively the "Dutch
Revolving Loan Optional Prepayments") the Dutch Revolving Loan, in whole or in
part without premium or penalty.

2.3.8 Dutch Revolving Loan Account.

      The Lender will establish and maintain a loan account on its books (the
"Dutch Revolving Loan Account"). The Lender will (a) debit (i) the principal
amount of each Dutch Revolving Loan Advance made by the Lender hereunder as of
the date made, (ii) the amount of any interest accrued on the Dutch Revolving
Loan as and when due, and (iii) any other amounts due and payable by the Dutch
Borrower to the Lender from time to time under the provisions of this Agreement
in connection with the Dutch Revolving Loan, including, without limitation,
Enforcement Costs, Fees and late charges, and (b) credit all payments made by
the Dutch Borrower to the Lender on account of the Dutch Revolving Loan as of
the date made. All credit entries to the Dutch Revolving Loan Account are
conditional and shall be readjusted as of the date made if final and
indefeasible payment is not received by the Lender in cash or solvent credits.

      Any and all periodic or other statements or reconciliations, and the
information contained in those statements or reconciliations, of the Dutch
Revolving Loan Account shall constitute an account stated between the Lender and
the Dutch Borrower, absent manifest error, unless the Lender receives specific
written objection thereto from a Dutch Borrower within sixty (60) Business Days
after such statement or reconciliation shall have been sent by the Lender. Any
and all periodic or other statements or reconciliations, and the information
contained in those statements or reconciliations, of the Dutch Revolving Loan
Account shall be final, binding and conclusive upon the Dutch Borrower in all
respects, absent manifest error, unless the Lender receives specific written
objection thereto from the Dutch Borrower within thirty (30) Business Days after
such statement or reconciliation shall have been sent by the Lender.

Section 2.4 The Dutch Term Loan.

2.4.1 Dutch Term Loan Commitment.

      Subject to and upon the provisions of this Agreement, the Lender agrees to
make a loan (the "Dutch Term Loan") to the Dutch Borrower on the Closing Date in
the principal amount of the Dutch Term Loan Committed Amount.

                                      35


2.4.2 Promise to Pay Dutch Term Loan.

      For value received, the Dutch Borrower promises to pay to the order of the
Lender the Dutch Term Loan Committed Amount or so much thereof as shall be
advanced by the Lender hereunder in the manner, and at the times, as herein set
forth. Additionally, the Dutch Borrower promises to pay to the order of the
Lender interest on the outstanding principal amount (calculated on a daily
basis) of the Dutch Term Loan in the manner, and at the times, as herein set
forth.

2.4.3 Dutch Term Loan Installment Payments.

      The Dutch Borrower shall pay to the Lender the principal amount of the
Dutch Term Loan in forty-eight (48) consecutive installments payable commencing
on the first Dutch Term Loan Scheduled Payment Date after the advance of the
Dutch Term Loan, and continuing on each Dutch Term Loan Scheduled Payment Date
thereafter; consisting of forty-seven (47) equal installments of principal in
the amount of Fifty Six Thousand Seven Hundred Seventy Seven Euros and Seventy
Eight Cents ((euro)56,777.78) and ONE (1) FINAL INSTALLMENT on the Dutch Term
Loan Maturity Date in an amount equal to the outstanding principal amount of the
Dutch Term Loan at that time together with all other amounts outstanding
hereunder including, without limitation, accrued interest, costs and expenses.

2.4.4 Mandatory Prepayments of Dutch Term Loan.

      Subject to the limitations and fees of Section 2.6.4 (Indemnity), in
addition to the payment of principal of the Dutch Term Loan described above, the
Dutch Borrower shall make mandatory prepayments (each a "Dutch Term Loan
Mandatory Prepayment" and collectively the "Dutch Term Loan Mandatory
Prepayments") of the Dutch Term Loan annually. Each Dutch Term Loan Mandatory
Prepayment shall be in the amount of twenty-five (25%) percent of the Excess
Cash Flow for the then preceding fiscal year and shall be payable on the
Calculation Date. The Dutch Borrower shall pay to the Lender on the date of each
Dutch Term Loan Mandatory Prepayment accrued interest to such date on the amount
prepaid. Each Dutch Term Loan Mandatory Prepayment shall be applied to the
balloon payment due at Dutch Term Loan Maturity Date and then to principal
against the principal installments in the inverse order of their maturity.
Notwithstanding the foregoing, if (a) during the fiscal year prior to the
Calculation Date, the U.S. Borrower's Asset Coverage Ratio was equal to or
greater than one to one (1 to 1) as of the end of any four consecutive months,
(b) as of the end of the U.S. Borrower's fiscal year prior to the Calculation
Date, the U.S. Borrower's Asset Coverage Ratio was equal to or greater than one
to one (1 to 1) , and (c) as of the end of the month of January immediately
prior to the Calculation Date, the U.S. Borrower's Asset Coverage Ratio was
equal to or greater than one to one (1 to 1), then the Dutch Borrower shall need
not pay to the Lender any Dutch Term Loan Mandatory Prepayment that would
otherwise be due.

2.4.5 Optional Prepayments of Dutch Term Loan.

      Subject to the limitations and fees of Section 2.6.4 (Indemnity), the
Dutch Borrower may, at its option, at any time and from time to time, prepay
(each a "Dutch Term Loan Optional Prepayment" and collectively the "Dutch Term
Loan Optional Prepayments") the Dutch Term Loan, in whole or in part, upon five
(5) Business Days prior written notice, specifying the date

                                      36


and amount of prepayment. The amount to be so prepaid, together with interest
accrued thereon to date of prepayment, shall be paid by the Dutch Borrower to
the Lender on the date specified for such prepayment. Partial Dutch Term Loan
Optional Prepayments shall be in an amount not less than $50,000 and shall be
applied first to all accrued and unpaid interest on the principal of the Dutch
Term Loan, then to the balloon payments due at maturity and then to principal
against the principal installments in the inverse order of their maturity.

Section 2.5 Letter of Credit.

2.5.1 Obtaining Letters of Credit.

      Subject to and upon the provisions of this Agreement, and as a part of
each of the U.S. Revolving Credit Commitment and the Dutch Revolving Credit
Commitment, each of the U.S. Borrower and the Dutch Borrower may obtain standby
and commercial letters of credit (as the same may from time to time be amended,
supplemented or otherwise modified, each a "Letter of Credit" and collectively
the "Letters of Credit") from the Lender from time to time from the Closing Date
until the Business Day preceding the U.S. Revolving Credit Termination Date and
the Dutch Revolving Credit Termination Date (as applicable) for the permitted
uses for the U.S. Revolving Loan and the Dutch Revolving Loan (as applicable).
The U.S. Borrower or the Dutch Borrower (as applicable) will not be entitled to
obtain a Letter of Credit unless (a) the U.S. Borrower or the Dutch Borrower (as
applicable) would then be able to obtain a U.S. Revolving Loan or a Dutch
Revolving Loan (as applicable) from the Lender in an amount not less than the
proposed face amount of the Letter of Credit requested, and (b) the sum of the
then Outstanding Letter of Credit Obligations (including the amount of the
requested Letter of Credit) does not exceed in the aggregate Five Hundred
Thousand Dollars ($500,000).

2.5.2 Letter of Credit Fees.

      In connection with each Letter of Credit, the U.S. Borrower or the Dutch
Borrower (as applicable) shall pay to the Lender a letter of credit fee (each a
"Letter of Credit Fee" and collectively the "Letter of Credit Fees") in an
amount equal to the Applicable Margin (determined at the time the Letter of
Credit is issued) for LIBOR Loans under the U.S. Revolving Credit Facility or
the Dutch Revolving Credit Facility (as applicable), calculated on a per annum
basis and on the basis of actual number of days elapsed in a year of 360 days,
of the stated amount of each such Letter of Credit without regard for provisions
contained in the Letter of Credit that may give rise to a reduction in the
stated amount thereof unless such reduction has actually occurred. The Letter of
Credit Fees shall be paid upon the opening of each Letter of Credit and upon
each anniversary thereof, if any.

2.5.3 Terms of Letters of Credit; Post-Expiration Date Letters of Credit.

      Each Letter of Credit shall (a) be opened pursuant to a Letter of Credit
Agreement and (b) expire on a date not later than the Business Day preceding the
U.S. Revolving Credit Expiration Date or the Dutch Revolving Credit Expiration
Date (as applicable); provided, however, if any Letter of Credit does have an
expiration date later than the Business Day preceding the U.S. Revolving Credit
Expiration Date or the Dutch Revolving Credit Expiration Date (as applicable)
(each a "Post-Expiration Date Letter of Credit" and collectively, the
"Post-Expiration Date

                                      37


Letters of Credit"), effective as of the Business Day preceding the U.S.
Revolving Credit Expiration Date or the Dutch Revolving Credit Expiration Date
(as applicable) and without prior notice to or the consent of the U.S. Borrower
or the Dutch Borrower (as applicable), the Lender shall make a U.S. Revolving
Loan Advance or a Dutch Revolving Loan Advance (as applicable) for the account
of the U.S. Borrower or the Dutch Borrower (as applicable) in the aggregate face
amount of all such Letters of Credit. The Lender shall deposit the proceeds of
such advances into one or more non-interest bearing accounts with and in the
name of the Lender and over which the Lender alone shall have exclusive power of
access and withdrawal (collectively, the "Letter of Credit Cash Collateral
Account"). The Letter of Credit Cash Collateral Account is to be held by the
Lender, as additional collateral and security for any Letter of Credit
Obligations relating to the Post-Expiration Date Letters of Credit. The U.S.
Borrower and the Dutch Borrower hereby assign, pledge, grant and set over to the
Lender a first priority security interest in, and Lien on, all of the funds on
deposit in the Letter of Credit Cash Collateral Account, together with any and
all proceeds (cash and non-cash) and products thereof as additional collateral
and security for the Letter of Credit Obligations relating to the
Post-Expiration Date Letters of Credit. The U.S. Borrower and the Dutch Borrower
acknowledge and agree that the Lender shall be entitled to fund any draw or
draft on any Post-Expiration Date Letter of Credit from the monies on deposit in
the Letter of Credit Cash Collateral Account without notice to or consent of the
U.S. Borrower or the Dutch Borrower. The U.S. Borrower and the Dutch Borrower
further acknowledge and agree that the Lender's election to fund any draw or
draft on any Post-Expiration Date Letter of Credit from the Letter of Credit
Cash Collateral shall in no way limit, impair, lessen, reduce, release or
otherwise adversely affect the Letter of Credit Obligations under or relating to
the Post-Expiration Date Letters of Credit. At such time as all Post-Expiration
Date Letters of Credit have expired and all Letter of Credit Obligations
relating to the Post-Expiration Date Letters of Credit have been paid in full,
the Lender agrees to apply the amount of any remaining funds on deposit in the
Letter of Credit Cash Collateral Account to the then unpaid balance of the
Obligations under the U.S. Revolving Credit Facility and/or the Dutch Revolving
Credit Facility in such order and manner as the Lender shall determine in its
sole and absolute discretion in accordance with the provisions of this
Agreement.

      Each Letter of Credit shall be issued in a stated amount at least equal to
One Hundred Thousand Dollars ($100,000) or the Euro Currency Equivalent thereof.
The aggregate face amount of all Letters of Credit at any one time outstanding
and issued by the Lender pursuant to the provisions of this Agreement,
including, without limitation, any and all Post-Expiration Date Letters of
Credit, plus the amount of any unpaid Letter of Credit Fees and unpaid letter of
credit fronting fees accrued or scheduled to accrue thereon, and less the
aggregate amount of all drafts issued under or purporting to have been issued
under such Letters of Credit that have been paid by the Lender and for which the
Lender has been reimbursed by the U.S. Borrower or the Dutch Borrower (as
applicable) in full in accordance with Section 2.5.5 (Payments of Letters of
Credit) below and the Letter of Credit Agreements, and for which the Lender has
no further obligation or commitment to restore all or any portion of the amounts
drawn and reimbursed, is herein called the "Outstanding Letter of Credit
Obligations".

2.5.4 Procedures for Letters of Credit.

      The U.S. Borrower or the Dutch Borrower (as applicable) shall give the
Lender written notice at least five (5) Business Days prior to the date on which
the U.S. Borrower or the Dutch Borrower (as applicable) desires the Lender to
issue a Letter of Credit. Such notice shall be accompanied by a duly executed
Letter of Credit Agreement specifying, among other things: (a) or other document
proving to be forged, fraudulent or invalid, or the legality, validity,
regularity or enforceability of such Letter of Credit, any draft

                                      38



the name and address of the intended beneficiary of the Letter of Credit, (b)
the requested face amount of the Letter of Credit, (c) whether the Letter of
Credit is to be revocable or irrevocable, (d) the Business Day on which the
Letter of Credit is to be opened and the date on which the Letter of Credit is
to expire, (e) the terms of payment of any draft or drafts that may be drawn
under the Letter of Credit, and (f) any other terms or provisions the U.S.
Borrower or the Dutch Borrower desire to be contained in the Letter of Credit.
Such notice shall also be accompanied by such other information, certificates,
confirmations, and other items as the Lender may require to assure that the
Letter of Credit is to be issued in accordance with the provisions of this
Agreement and a Letter of Credit Agreement. In the event of any conflict between
the provisions of this Agreement and the provisions of a Letter of Credit
Agreement, the provisions of this Agreement shall prevail and control unless
otherwise expressly provided in the Letter of Credit Agreement. Upon (x) receipt
of such notice, (y) payment of all Letter of Credit Fees and all other Fees
payable in connection with the issuance of such Letter of Credit, and (z)
receipt of a duly executed Letter of Credit Agreement, the Lender shall process
such notice and Letter of Credit Agreement in accordance with its customary
procedures and open such Letter of Credit on the Business Day specified in such
notice.

2.5.5 Payments of Letters of Credit.

      The U.S. Borrower and the Dutch Borrower (as applicable) hereby promise to
pay to the Lender, ON DEMAND and in Dollars or the Euro Currency Equivalent
thereof (as applicable), the following that are herein collectively referred to
as the "Current Letter of Credit Obligations":

      (a) the amount that the Lender has paid or will be required to pay under
each draft or draw on a Letter of Credit (upon presentment of such draft or draw
by the beneficiary of such Letter of Credit), whether such demand be in advance
of the Lender's payment or for reimbursement for such payment;

      (b) any and all charges and expenses that the Lender has paid or incurred
relative to the Letter of Credit and/or such draws or drafts; and

      (c) interest on the amounts described in (a) and (b) not paid by the U.S.
Borrower or the Dutch Borrower (as applicable) as and when due and payable under
the provisions of (a) and (b) above from the day the same are due and payable
until paid in full at a rate per annum equal to the then current highest rate of
interest on the U.S. Revolving Loan or the Dutch Revolving Loan (as applicable).

      In addition, the U.S. Borrower or the Dutch Borrower (as applicable)
hereby promise to pay any and all other Letter of Credit Obligations as and when
due and payable in accordance with the provisions of this Agreement and the
Letter of Credit Agreements. The obligation of the U.S. Borrower or the Dutch
Borrower (as applicable) to pay Current Letter of Credit Obligations and all
other Letter of Credit Obligations shall be absolute and unconditional under any
and all circumstances and irrespective of any setoff, counterclaim or defense to
payment that the U.S. Borrower or the Dutch Borrower (as applicable) or any
other account party may have or have had against the beneficiary of such Letter
of Credit, the Lender or any other Person, including, without limitation, any
defense based on the failure of any draft or draw to conform to the terms of
such Letter of Credit, any draft or other document proving to be forged,
fraudulent or invalid, or the legality validity, regularity or enforceability of
such Letter of Credit, any draft

                                      39



or other documents presented with any draft, any Letter of Credit Agreement,
this Agreement, or any of the other Financing Documents, all whether or not the
Lender had actual or constructive knowledge of the same, and irrespective of any
Collateral, security or guarantee therefor or right of offset with respect
thereto and irrespective of any other circumstances whatsoever that constitutes,
or might be construed to constitute, an equitable or legal discharge of the U.S.
Borrower and the Dutch Borrower (as applicable) for any Letter of Credit
Obligations, in bankruptcy or otherwise; provided, however, that the U.S.
Borrower and the Dutch Borrower (as applicable) shall not be obligated to
reimburse the Lender for any wrongful payment under such Letter of Credit made
as a result of the Lender's gross negligence or willful misconduct as determined
by a final non-appealable order by a court of competent jurisdiction. The
obligation of the U.S. Borrower or the Dutch Borrower (as applicable) to pay the
Letter of Credit Obligations shall not be conditioned or contingent upon the
pursuit by the Lender or any other Person at any time of any right or remedy
against any Person which may be or become liable in respect of all or any part
of such obligation or against any Collateral, security or guarantee therefor or
right of offset with respect thereto.

      The Letter of Credit Obligations shall continue to be effective, or be
reinstated, as the case may be, if at any time payment of all or any portion of
the Letter of Credit Obligations is rescinded or must otherwise be restored or
returned by the Lender upon the insolvency, bankruptcy, dissolution, liquidation
or reorganization of any Person, or upon or as a result of the appointment of a
receiver, intervenor, or conservator of, or trustee or similar officer for, any
Person, or any substantial part of such Person's property, all as though such
payments had not been made.

2.5.6 Change in Law; Increased Cost.

      If any change in any law or regulation or in the interpretation thereof by
any court or other Governmental Authority charged with the administration
thereof shall either (a) impose, modify or deem applicable any reserve, special
deposit or similar requirement against Letters of Credit issued by the Lender,
or (b) impose on the Lender any other condition regarding this Agreement or any
Letter of Credit, and the result of any event referred to in clauses (a) or (b)
above shall be to increase the cost to the Lender of issuing, maintaining or
extending the Letter of Credit or the cost to the Lender of funding any
obligation under or in connection with the Letter of Credit (which increase in
cost shall be the result of the Lender's appropriate allocation of the aggregate
of such cost increases resulting from such events), then, upon demand by the
Lender, the U.S. Borrower and the Dutch Borrower (as applicable) shall
immediately pay to the Lender from time to time as specified by the Lender,
additional amounts which shall be sufficient to compensate the Lender for its
allocable portion of such increased cost, together with interest on each such
amount from the date demanded until payment in full thereof at a rate per annum
equal to the then highest current rate of interest on the U.S. Revolving Loan or
the Dutch Revolving Loan (as applicable). A certificate as to such increased
cost incurred by the Lender, submitted by the Lender to the U.S. Borrower and/or
the Dutch Borrower (as applicable) shall be conclusive, absent manifest error.

2.5.7 General Letter of Credit Provisions.

      The U.S. Borrower and the Dutch Borrower (as applicable) hereby instruct
the Lender to pay any draft complying with the terms of any Letter of Credit
irrespective of any instructions of the U.S. Borrower or the Dutch Borrower or
any other Person to the contrary. The U.S.

                                      40


Borrower and the Dutch Borrower (as applicable) assume all risks of the acts and
omissions of the beneficiary and other users of any Letter of Credit. The Lender
and its branches, Affiliates and/or correspondents shall not be responsible for,
and the U.S. Borrower and the Dutch Borrower (as applicable) hereby indemnify
and hold the Lender and its branches, Affiliates and/or correspondents harmless
from and against, all liability, loss and expense (including attorney's fees and
costs) incurred by the Lender and/or its branches, Affiliates and/or
correspondents relative to and/or as a consequence of (a) any failure by the
U.S. Borrower or the Dutch Borrower (as applicable) to perform the agreements
hereunder and under any Letter of Credit Agreement, (b) any Letter of Credit
Agreement, this Agreement, any Letter of Credit and any draft, draw and/or
acceptance under or purported to be under any Letter of Credit, (c) any action
taken or omitted by the Lender and/or any of its branches, Affiliates and/or
correspondents at the request of the U.S. Borrower or the Dutch Borrower (as
applicable), (d) any failure or inability to perform in accordance with the
terms of any Letter of Credit by reason of any control or restriction rightfully
or wrongfully exercised by any de facto or de jure Governmental Authority, group
or individual asserting or exercising governmental or paramount powers, and/or
(e) any consequences arising from causes beyond the control of the Lender and/or
any of its branches, Affiliates and/or correspondents.

      The Lender and its branches, Affiliates and/or correspondents, shall not
be liable or responsible in any respect for any (a) error, omission,
interruption or delay in transmission, dispatch or delivery of any one or more
messages or advices in connection with any Letter of Credit, whether transmitted
by cable, telegraph, mail or otherwise and despite any cipher or code that may
be employed, and/or (b) action, inaction or omission which may be taken or
suffered by it or them in good faith or through inadvertence in identifying or
failing to identify any beneficiary or otherwise in connection with any Letter
of Credit, provided, however, that the foregoing shall not apply in connection
with the Lender's gross negligence or willful misconduct as determined by a
final non-appealable order by a court of competent jurisdiction.

      Any Letter of Credit may be amended, modified or revoked only upon the
receipt by the Lender from the U.S. Borrower or the Dutch Borrower (as
applicable) and the beneficiary (including any transferee and/or assignee of the
original beneficiary) of a written consent and request therefor.

      If any Laws, order of court and/or ruling or regulation of any
Governmental Authority of the United States (or any state thereof) and/or any
country other than the United States permits a beneficiary under a Letter of
Credit to require the Lender and/or any of its branches, Affiliates and/or
correspondents to pay drafts under or purporting to be under a Letter of Credit
after the expiration date of the Letter of Credit, the U.S. Borrower or the
Dutch Borrower (as appropriate) shall reimburse the Lender for any such payment
pursuant to provisions of Section 2.5.6 (Change in Law; Increased Cost).

      Except as may otherwise be specifically provided in a Letter of Credit or
Letter of Credit Agreement, the laws of the State of Maryland and the Uniform
Customs and Practice for Documentary Credits, 1993 Revision, International
Chamber of Commerce Publication No. 500 or the International Standby Practices,
International Chamber of Commerce Publication No. 590, as applicable, shall
govern the Letters of Credit. The Laws, rules, provisions and regulations of the
Uniform Customs and Practice for Documentary Credits and the International
Standby Practices, as applicable, are hereby incorporated by reference. In the
event of a conflict between the Uniform Customs and Practice for Documentary
Credits or the International Standby

                                      41


Practices and the laws of the State of Maryland, the Uniform Customs and
Practice for Documentary Credits or the International Standby Practices, as
applicable, shall prevail.

Section 2.6 Interest.

2.6.1 Applicable Interest Rates.

      (a) Each Loan shall bear interest as follows:

            (i) each of the U.S. Revolving Loan and the U.S. Term Loan shall
bear interest until maturity (whether by acceleration, declaration, extension or
otherwise) at the Base Rate or the LIBOR Rate, as selected and specified by the
U.S. Borrower in an Interest Rate Election Notice furnished to the Lender in
accordance with the provisions of Section 2.6.2 (Selection of Interest Rates),
plus the Applicable Margin.

            (ii) each of the Dutch Revolving Loan and the Dutch Term Loan shall
bear interest until maturity (whether by acceleration, declaration extension or
otherwise) at the LIBOR Rate plus the Applicable Margin.

      (b) The Applicable Margin for each of the Credit Facilities shall be as
follows:

            (i) U.S. Revolving Loan



                                    Applicable Margin         Applicable Margin
Senior Debt Leverage Ratio          For LIBOR Loans           For Base Rate Loans
- --------------------------          ---------------           -------------------
                                                        
<1:1                                   1.75%                        0%
< or = 1.5:1 and > 1:1                  2.0%                        0%
< or = 2:1 and  > 1.5:1                2.25%                     0.25%
> 2:1                                  2.75%                      0.5%


            (ii) U.S. Term Loan



                                                  Applicable Margin           Applicable Margin
Senior Debt Leverage Ratio                        For LIBOR Loans             For Base Rate Loans
- --------------------------                        ---------------             -------------------
                                                                        
<1:1                                                  2.25%                           0%
< or = 1.5:1 and > 1:1                                 2.5%                        0.25%
< or = 2:1 and > 1.5:1                                2.75%                         0.5%
> 2:1                                                 3.25%                        0.75%


            (iii) Dutch Revolving Loan



                                                  Applicable Margin
Senior Debt Leverage Ratio                        For LIBOR Loans
- --------------------------                        ---------------
                                               
<1:1                                                   1.75%
< or = 1.5:1 and > 1:1                                  2.0%
< or = 2:1 and > 1.5:1                                 2.25%
> 2:1                                                  2.75%


            (iv) Dutch Term Loan

                                      42




                                                  Applicable Margin
Senior Debt Leverage Ratio                        For LIBOR Loans
- --------------------------                        ---------------
                                               
<1:1                                                    2.25%
< or = 1.5:1 and > 1:1                                   2.5%
< or = 2:1 and > 1.5:1                                  2.75%
> 2:1                                                   3.25%


      (c) Notwithstanding the foregoing, following the occurrence and during the
continuance of a Default, at the option of the Lender and upon written notice to
the Obligors, all Loans and all other Obligations shall bear interest at the
Post-Default Rate.

2.6.2 Selection of Interest Rates.

      (a) The U.S. Borrower may select the initial Applicable Interest Rate or
Applicable Interest Rates and Dollar Interest Periods applicable to the U.S.
Revolving Loan and the U.S. Term Loan and the Dutch Borrower may select the
initial Euro Interest Periods applicable to the Dutch Revolving Loan and the
Dutch Term Loan.

      (b) From time to time after the date of this Agreement as provided in this
Section, by delivery of a proper and timely Interest Rate Election Notice
furnished to the Lender in accordance with the provisions of subsection (e), the
U.S. Borrower may select the Applicable Interest Rate or Applicable Interest
Rates and Dollar Interest Periods for any U.S. Revolving Loan and the U.S. Term
Loan, and the Dutch Borrower may select the Euro Interest Periods for any Dutch
Revolving Loan and the Dutch Term Loan.

      (c) The selection of an Applicable Interest Rate and/or an Interest
Period, the election to convert an Applicable Interest Rate and/or an Interest
Period to another Applicable Interest Rate or Interest Period, and any other
adjustments in an interest rate are subject to the following limitations:

            (i) the U.S. Borrower shall not at any time select or change to an
            Interest Period that extends beyond the U.S. Revolving Credit
            Expiration Date for the U.S. Revolving Loan Advances and the U.S.
            Term Loan Maturity Date for the U.S. Term Loan, and the Dutch
            Borrower shall not at any time select or change to an Interest
            Period that extends beyond the Dutch Revolving Credit Expiration
            Date for the Dutch Revolving Loan Advances and the Dutch Term Loan
            Maturity Date for the Dutch Term Loan;

            (ii) except as otherwise provided in Section 2.6.4 (Indemnity), no
            change from the LIBOR Rate to the Base Rate shall become effective
            on a day other than a Business Day and on a day which is the last
            day of the then current Interest Period, no change of an Interest
            Period shall become effective on a day other than the last day of
            the then current Interest Period, and no change from the Base Rate
            to the LIBOR Rate shall become effective on a day other than a day
            which is a Business Day;

            (iii) any Applicable Interest Rate change for any Loan to be
            effective on a date on which any principal payment on account of
            such Loan is scheduled to be paid shall be made only after such
            payment shall have been made;

                                      43


            (iv) no more than five (5) different LIBOR Rates may be outstanding
            at any time and from time to time with respect to each of the U.S.
            Revolving Loan and the U.S. Term Loan and no more than five (5)
            different LIBOR Rates may be outstanding at any time and from time
            to time with respect to each of the Dutch Revolving Loan and the
            Dutch Term Loan;

            (v) the first date of each Interest Period shall be a Business Day;

            (vi) as of the effective date of a selection, if a Default exists,
            the Lender may determine not to accept selection, election or
            adjustment; and

            (vii) the minimum principal amount of a Dollar LIBOR Loan shall be
            One Hundred Thousand Dollars ($100,000) and the minimum principal
            amount of a Euro LIBOR Loan shall be the Euro Currency Equivalent of
            One Hundred Thousand Dollars ($100,000).

      (d) If a request for a U.S. Revolving Loan Advance is not accompanied by
an Interest Rate Election Notice or does not otherwise include a selection of an
Applicable Interest Rate and, if applicable, an Interest Period, or if, after
having made a selection of an Applicable Interest Rate and, if applicable, an
Interest Period, the U.S. Borrower or the Dutch Borrower, as applicable, fail or
are not otherwise entitled under the provisions of this Agreement to continue
such Applicable Interest Rate or Interest Period, the U.S. Borrower shall be
deemed to have selected the Base Rate and the Dutch Borrower shall be deemed to
have elected a one (1) month Euro Interest Period, until such time as the U.S.
Borrower or the Dutch Borrower, as appropriate, have selected a different
Applicable Interest Rate and specified an Interest Period in accordance with,
and subject to, the provisions of this Section.

      (e) The Lender will not be obligated to make Loans, to convert the
Applicable Interest Rate on Loans to another Applicable Interest Rate, or to
change Interest Periods, unless the Lender shall have received an irrevocable
written or telephonic notice (an "Interest Rate Election Notice") from the U.S.
Borrower or the Dutch Borrower, as appropriate, specifying the following
information:

                        (i) the amount to be borrowed or converted;

                        (ii) a selection of the Base Rate or the LIBOR Rate as
            to any U.S. Revolving Loans and as to the U.S. Term Loan;

                        (iii) the length of the Interest Period if the
            Applicable Interest Rate selected is the LIBOR Rate; and

                        (vi) the requested date on which such election is to be
            effective.

      Any telephonic notice must be confirmed by written notice or e-mail within
three (3) Business Days. Each Interest Rate Election Notice under the U.S.
Revolving Credit Facility or the U.S. Term Loan must be received by the Lender
not later than 1:00 p.m. (prevailing U.S. Eastern Time) on the Business Day of
any requested borrowing or conversion in the case of selection of the Base Rate
and not later than 1:00 p.m. (prevailing U.S. Eastern Time) on the third
Business Day before the effective date of any requested borrowing or
conversation in the case of a selection of the LIBOR Rate. Each Interest Rate
Election Notice under the Dutch

                                      44


Revolving Credit Facility or the Dutch Term Loan must be received by the Lender
by 1:00 p.m. (prevailing U.S. Eastern Time) not later than three (3) Business
Day prior to the proposed date of funding or converting the applicable Euro
LIBOR Loan.

2.6.3 Inability to Determine Dollar LIBOR Rate or Euro LIBOR Rate.

      In the event that (a) the Lender shall have determined that, by reason of
circumstances affecting the London inter-bank market, adequate and reasonable
means do not exist for ascertaining the Dollar LIBOR Rate or Euro LIBOR Rate for
any Interest Period with respect to a Loan which is to be made as a LIBOR Loan
or (b) the Lender shall determine that the Dollar LIBOR Rate or Euro LIBOR Rate
for any Interest Period with respect to a Loan to be made as a LIBOR Loan does
not adequately and fairly reflect the cost to the Lender of funding or
converting such Loan, the Lender shall give telephonic or written notice of such
determination to the appropriate Borrower at least one (1) day prior to the
proposed date for funding of such Loan. If such notice is given, any Dollar
LIBOR Loan shall accrue interest at the Base Rate plus the Applicable Margin and
any Euro LIBOR Loan shall accrue interest at the rate certified by the Lender to
be the rate at which it currently offers loans in Euros to its best customers.

2.6.4 Indemnity.

      The Obligors agree to indemnify and reimburse the Lender and to hold the
Lender harmless from any loss, cost (including administrative costs) or expense
(including, without limitation, any such loss or expense arising from the
reemployment of funds obtained by the Lender to maintain any LIBOR Loan or from
fees payable to terminate the deposits from which such funds were obtained)
which the Lender has sustained or incurred as a consequence of (a) a default by
either of the Borrowers in payment when due of the principal amount of or
interest on any LIBOR Loan, including any mandatory prepayments, (b) the failure
of either of the Borrowers to make, or convert the Applicable Interest Rate of,
a Loan after either of the Borrowers has given a Loan Notice or an Interest Rate
Election Notice, (c) the failure of either of the Borrowers to make any
prepayment of a LIBOR Loan after the Borrowers have given notice of such
intention to make such a prepayment, and/or (d) the making by either of the
Borrowers of a prepayment of a LIBOR Loan on a day which is not the last day of
the Interest Period for such LIBOR Loan. The Lender agrees to provide the
applicable Borrower with a written certification as to any amounts payable to
the Lender under this Section including the manner and method of calculating
such amounts.

2.6.5 Payment of Interest.

      (a) Unpaid and accrued interest on any advance of the Loans shall be paid
(i) at the end of each Interest Period for any LIBOR Rate Loan, (ii) monthly, in
arrears, on the first day of each calendar month, commencing on the first such
date after the date of this Agreement, and on the first day of each calendar
month thereafter, for any Base Rate Loan and (iii) at maturity (whether by
acceleration, declaration, extension or otherwise) (each an "Interest Payment
Date").

      (b) Notwithstanding the foregoing, any and all unpaid and accrued interest
on any Base Rate Loan converted to a LIBOR Loan or prepaid shall be paid
immediately upon such conversion and/or prepayment, as appropriate.

                                      45


Section 2.7 General Financing Provisions.

2.7.1 Consideration; Obligors' Representative.

      Each of the Obligors hereby represents and warrants to the Lender that
each of them will derive benefits, directly and indirectly, from each Loan and
each Letter of Credit, both in their separate capacity and as a member of the
integrated group to which each of the Obligors belongs and because the
successful operation of the integrated group is dependent upon the continued
successful performance of the functions of the integrated group as a whole,
because (a) this financing is enabling the consummation by the U.S. Borrower and
the Seller of the Purchase Agreement Transaction, (b) the terms of the
consolidated financing provided under this Agreement are more favorable than
would otherwise would be obtainable by the Obligors individually, and (c) the
Obligors' additional administrative and other costs and reduced flexibility
associated with individual financing arrangements which would otherwise be
required if obtainable would substantially reduce the value to the Obligors of
the financing. The Obligors in the discretion of their respective managements
are to agree among themselves as to the allocation of the proceeds of Loans and
the benefits of the Letters of Credit, except that all Loans made to the Dutch
Borrower are to be made to and retained by the Dutch Borrower.

      For administrative convenience, each Obligor hereby irrevocably appoints
the U.S. Borrower as such Obligor's attorney-in-fact, with power of substitution
(with the prior written consent of the Lender in the exercise of its sole and
absolute discretion), in the name of the U.S. Borrower or in the name of the
respective Obligor or otherwise to take any and all actions with respect to this
Agreement, the other Financing Documents, the Obligations and/or the Collateral
(including, without limitation, the proceeds thereof) as the U.S. Borrower may
so elect from time to time, including, without limitation, actions to (i)
request advances under the Loans, apply for and direct the benefits of Letters
of Credits, and direct the Lender to disburse or credit the proceeds of any Loan
directly to an account of the U.S. Borrower or the Dutch Borrower (as
appropriate), any one or more of the Obligors or otherwise, which direction
shall evidence the making of such Loan and shall constitute the acknowledgement
by each of the Obligors of the receipt of the proceeds of such Loan or the
benefit of such Letter of Credit, (ii) enter into, execute, deliver, amend,
modify, restate, substitute, extend and/or renew this Agreement, any Additional
Obligors Joinder Supplement, any other Financing Documents, security agreements,
mortgages, deposit account agreements, instruments, certificates, waivers,
letter of credit applications, releases, documents and agreements from time to
time, and (iii) endorse any check or other item of payment in the name of such
Obligor. The foregoing appointment is coupled with an interest, cannot be
revoked without the prior written consent of the Lender, and may be exercised
from time to time through the U.S. Borrower's duly authorized officer, officers
or other Person or Persons designated by the U.S. Borrower to act from time to
time on behalf of the U.S. Borrower.

      Each of the Obligors hereby irrevocably authorizes the Lender to make
Loans to either or both of the Borrowers, and hereby irrevocably authorizes the
Lender to issue or cause to be issued Letters of Credit for the account of the
U.S. Borrower or the Dutch Borrower (as appropriate), pursuant to the provisions
of this Agreement upon the written, oral or telephone request of any one or more
of the Persons who is from time to time a Responsible Officer of the U.S.
Borrower under the provisions of the most recent certificate of corporate
resolutions and/or incumbency on file with the Lender and also upon the written,
oral or telephone request of any one of the Persons who is from time to time a
Responsible Officer of the U.S. Borrower under

                                      46


the provisions of the most recent certificate of corporate resolutions and/or
incumbency on file with the Lender.

      In the absence of the Lender's gross negligence or willful misconduct, the
Lender assumes no responsibility or liability for any errors, mistakes, and/or
discrepancies in the oral, telephonic, written or other transmissions of any
instructions, orders, requests and confirmations between the Lender and the
Obligors in connection with the Credit Facilities, any Loan, any Letter of
Credit, or any other transaction in connection with the provisions of this
Agreement. Without implying any limitation on the joint and several nature of
the Obligations, the Lender agrees that, notwithstanding any other provision of
this Agreement, the Obligors may create reasonable inter-company indebtedness
between or among the Obligors with respect to the allocation of the benefits and
proceeds of the advances and Credit Facilities under this Agreement, except that
the Dutch Revolving Loan and the Dutch Term Loan shall be made to and retained
by the Dutch Borrower and shall not be allocated or reallocated to any other
Obligor. The Obligors agree among themselves, and the Lender consents to that
agreement, that each Obligor shall have rights of contribution from all of the
other Obligor to the extent such Obligor incurs Obligations in excess of the
proceeds of the Loans received by, or allocated to purposes for the direct
benefit of, such Obligors. All such indebtedness and rights shall be, and are
hereby agreed by the Obligors to be, subordinate in priority and payment to the
indefeasible repayment in full in cash of the Obligations, and, unless the
Lender agrees in writing otherwise, shall not be exercised or repaid in whole or
in part until all of the Obligations have been indefeasibly paid in full. The
Obligors agree that all of such inter-company indebtedness and rights of
contribution are part of the Collateral and secure the Obligations. Each Obligor
hereby waives all rights of counterclaim, recoupment and offset between or among
themselves arising on account of that indebtedness and otherwise. Each Obligor
shall not evidence the inter-company indebtedness or rights of contribution by
note or other instrument, and shall not secure such indebtedness or rights of
contribution with any Lien or security.

2.7.2 Origination Fees.

      The U.S. Borrower shall pay to the Lender on or before the Closing Date a
loan origination fee in the amount of one percent (1%) of the U.S. Revolving
Credit Committed Amount and one percent (1%) of the U.S. Term Loan Committed
Amount (collectively, the "U.S. Origination Fees"), which shall be deemed to be
fully earned and are non-refundable. The Dutch Borrower shall pay to the Lender
on or before the Closing Date a loan origination fee in the amount of one
percent (1%) of the Dollar Currency Equivalent of the Dutch Term Loan Committed
Amount (the "Dutch Origination Fee"), which shall be fully deemed to be earned
and is non-refundable. The U.S. Origination Fees and the Dutch Origination Fee
are collectively referred to as the "Origination Fees."

2.7.3 Field Examination Fees.

      The Lender reserves the right to charge the Obligors for any and all out-
of-pocket expenses reasonably incurred in connection with the performance of
field examinations.

                                      47


2.7.4 Computation of Interest and Fees.

      All applicable Fees and interest shall be calculated on the basis of a
year of 360 days for the actual number of days elapsed. Any change in the
interest rate on any of the Obligations resulting from a change in the Base Rate
shall become effective as of the opening of business on the day on which such
change in the Base Rate is announced.

2.7.5 Payments.

      All payments to be made by the U.S. Borrower to the Lender under this
Agreement or any of the other Financing Documents shall be made in Dollars and
all payments to be made by the Dutch Borrower to the Lender under this Agreement
or any of the other Financing Documents shall be made in Euros (unless otherwise
agreed to or required by any Lender), without set-off or counterclaim and free
and clear of, and without deduction for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions, withholdings or restrictions or conditions of any nature whatsoever
now or hereafter imposed, levied, collected, withheld or assessed against any of
the Obligors, other than income and franchise taxes imposed on the Lender (such
non-excluded items, the "Assessments"). If any Assessments are imposed and
required to be withheld from any such payment, the Obligors shall (a) increase
the amount of such payment so that the Lender will receive a net amount (after
giving effect to the payment of such additional amount and to the deduction of
all Assessments) equal to the amount due hereunder, and (b) pay such Assessments
to the appropriate taxing authority for the account of the Lender and, as
promptly as possible thereafter, send the Lender, an original receipt (or a copy
thereof that has been stamped by the appropriate taxing authority to certify
payment) showing payment thereof, together with such additional documentary
evidence as the Lender may from time to time reasonably require. If any of the
Obligors fails to perform its obligations to the Lender under parts (a) or (b)
of the preceding sentence, the Obligors (subject to the limitations of Section
2.9 (Limitations on Joint and Several Liability for Obligations)) shall
indemnify the Lender for any such Assessments that are paid by the Lender, plus
all incremental Assessments, interest or penalties that may become payable as a
consequence of such failure.

2.7.6 Liens; Setoff.

      The U.S. Borrower hereby grants to the Lender a continuing Lien in order
to secure all of the Obligations upon any and all monies, securities, and other
property of the U.S. Borrower and the proceeds thereof, now or hereafter held or
received by or in transit to, the Lender, and/or any Affiliate of the Lender,
from or for the U.S. Borrower, and also upon any and all deposit accounts
(general or special) and credits of the U.S. Borrower, if any, with the Lender
or any Affiliate of the Lender, at any time existing, excluding any deposit
accounts held by the U.S. Borrower in its capacity as trustee for Persons who
are Affiliates of the U.S. Borrower. The Dutch Borrower hereby grants to the
Lender a continuing Lien in order to secure all of the Dutch Obligations upon
any and all monies, securities, and other property of the Dutch Borrower and the
proceeds thereof, now or hereafter held or received by or in transit to, the
Lender and/or any Affiliate of the Lender, from or for the Dutch Borrower, and
also upon any and all deposit accounts (general or special) and credits of the
Dutch Borrower, if any, with the Lender or any Affiliate of the Lender, at any
time existing, excluding any deposit accounts held by the Dutch Borrower in its
capacity as trustee for Persons who are Affiliates of the Dutch Borrower.
Without implying any limitation on any other rights the Lender may have under
the Financing

                                      48


Documents or applicable Laws, during the continuance of a Default, the Lender,
as appropriate and subject to the provisions of this Section, is hereby
authorized by the Obligors at any time and from time to time, without notice to
the Obligors, to set off, appropriate and apply any or all items hereinabove
referred to against all Obligations then outstanding (whether or not then due),
all in such order and manner as shall be determined by the Lender in its sole
and absolute discretion.

2.7.7 Requirements of Law.

      In the event that the Lender shall have determined reasonably and in good
faith that (a) the adoption of any Laws regarding capital adequacy, or (b) any
change therein or in the interpretation or application thereof or (c) compliance
by the Lender or any corporation controlling the Lender with any request or
directive regarding capital adequacy (whether or not having the force of law)
from any central bank or Governmental Authority, does or shall have the effect
of reducing the rate of return on the capital of the Lender or any corporation
controlling the Lender, as a consequence of the obligations of the Lender
hereunder to a level below that which the Lender or any corporation controlling
the Lender would have achieved but for such adoption, change or compliance
(taking into consideration the policies of the Lender and the corporation
controlling the Lender, with respect to capital adequacy) by an amount deemed by
the Lender to be material, then from time to time, after submission by the
Lender to the Borrowers of a written request therefor and a statement of the
basis for such determination, the Borrowers shall pay to the Lender such
additional amount or amounts in order to compensate for such reduction, except
that the Dutch Borrower shall only be required to pay such amounts if and to the
extent they affect the Lender as a result of the Dutch Obligations.
Notwithstanding any provision contained herein to the contrary, the Lender
agrees that it shall not apply the provisions of this Section to either of the
Borrowers if it shall not at the time be the general policy or practice of the
Lender to apply provisions similar to those of this Section to other borrowers
in substantially similar circumstances under substantially comparable provisions
of other credit agreements.

Section 2.8 Guaranty.

      (a) Subject to the limitations on liability of the Non-U.S. Obligors as
set forth in Section 2.9 (Limitations on Joint and Several Liability for
Obligations) with respect to all other Obligations, each Obligor hereby
unconditionally and irrevocably, guarantees to the Lender:

            (i) the due and punctual payment in full (and not merely the
      collectibility) by the other Obligors of the Obligations, including unpaid
      and accrued interest thereon, in each case when due and payable, all
      according to the terms of this Agreement and the other Financing
      Documents;

            (ii) the due and punctual payment in full (and not merely the
      collectibility) by the other Obligors of all other sums and charges which
      may at any time be due and payable in accordance with this Agreement or
      any of the other Financing Documents;

            (iii) the due and punctual performance by the other Obligors of all
      of the other terms, covenants and conditions contained in the Financing
      Documents; and

                                      49


            (iv) all the other Obligations of the other Obligors; provided,
      however, that the guaranty of the Non-U.S. Obligors shall apply only to
      the Dutch Obligations and not to the U.S. Obligations.

      (b) The obligations and liabilities of each Obligor as a guarantor under
this Section shall be absolute and unconditional and joint and several (subject
to the limitations of Section 2.9 (Limitations on Joint and Several Liability
for Obligations), irrespective of the genuineness, validity, priority,
regularity or enforceability of this Agreement or any of the Financing Documents
or any other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or guarantor. Each Obligor in its capacity as a guarantor
expressly agrees that the Lender may, in its sole and absolute discretion,
without notice to or further assent of any of the Obligors and without in any
way releasing, affecting or in any way impairing the joint and several
obligations and liabilities of such Obligors as guarantors hereunder:

            (i) waive compliance with, or any defaults under, or grant any other
      indulgences under or with respect to any of the Financing Documents;

            (ii) modify, amend, change or terminate any provisions of any of the
      Financing Documents;

            (iii) grant extensions or renewals of or with respect to the Credit
      Facilities or any of the other Financing Documents;

            (iv) effect any release, subordination, compromise or settlement in
      connection with this Agreement or any of the other Financing Documents;

            (v) agree to the substitution, exchange, release or other
      disposition of the Collateral or any part thereof, or any other collateral
      for the Loan or to the subordination of any lien or security interest
      therein;

            (vi) make advances for the purpose of performing any term, provision
      or covenant contained in this Agreement or any of the other Financing
      Documents with respect to which any Obligor shall then be in default;

            (vii) make future advances pursuant to this Agreement or any of the
      other Financing Documents;

            (viii) assign, pledge, hypothecate or otherwise transfer the
      Commitments, the Obligations, this Agreement or any of the other Financing
      Documents or any interest therein, all as and to the extent permitted by
      the provisions of this Agreement;

            (ix) deal in all respects with the other Obligors as if this Section
      were not in effect;

            (x) effect any release, compromise or settlement with any of the
      other Obligors, whether in their capacity as a Obligor or as a guarantor
      under this Section, or any other guarantor; and

            (xi) provide debtor-in-possession financing or allow use of cash
      collateral in proceedings under the Bankruptcy Code, it being expressly
      agreed by all Obligors that any such financing and/or use would be part of
      the Obligations.

                                      50


      (c) The obligations and liabilities of each Obligor as guarantor under
this Section shall be joint and several (subject to the limitations of Section
2.9 (Limitations on Joint and Several Liability for Obligations)), primary,
direct and immediate, shall not be subject to any counterclaim, recoupment, set
off, reduction or defense based upon any claim that a Obligor may have against
any one or more of the other Obligors, the Lender and/or any other guarantor and
shall not be conditional or contingent upon pursuit or enforcement by the Lender
of any remedies it may have against the Obligors with respect to this Agreement
or any of the other Financing Documents, whether pursuant to the terms thereof
or by operation of law. Without limiting the generality of the foregoing, the
Lender shall not be required to make any demand upon any of the Obligors, or to
sell the Collateral or otherwise pursue, enforce or exhaust its or their
remedies against the Obligors or the Collateral either before, concurrently with
or after pursuing or enforcing its rights and remedies hereunder. Any one or
more successive or concurrent actions or proceedings may be brought against each
Obligor under this Section either in the same action, if any, brought against
any one or more of the Obligors or in separate actions or proceedings, as often
as the Lender may deem expedient or advisable. Without limiting the foregoing,
it is specifically understood that any modification, limitation or discharge of
any of the liabilities or obligations of any one or more of the Obligors, any
other guarantor or any obligor under any of the Financing Documents, arising out
of, or by virtue of, any bankruptcy, arrangement, reorganization or similar
proceeding for relief of debtors under federal or state law initiated by or
against any one or more of the Obligors, in their respective capacities as
borrowers and guarantors under this Section, or under any of the Financing
Documents shall not modify, limit, lessen, reduce, impair, discharge, or
otherwise affect the liability of the U.S. Borrower or each Non-U.S. Obligor
under this Section in any manner whatsoever, and this Section shall remain and
continue in full force and effect. It is the intent and purpose of this Section
that each Obligor shall and does hereby waive all rights and benefits which
might accrue to any other guarantor by reason of any such proceeding, and the
Obligors agree that they shall be liable for the full amount of the obligations
and liabilities under this Section, regardless of, and irrespective to, any
modification, limitation or discharge of the liability of any one or more of the
Obligors, any other guarantor or any obligor under any of the Financing
Documents, that may result from any such proceedings.

      Without limiting the foregoing, each Obligor, as guarantor under this
Section, hereby unconditionally, jointly and severally, irrevocably and
expressly waives:

            (i) presentment and demand for payment of the Obligations and
      protest of non-payment;

            (ii) notice of acceptance of this Section and of presentment, demand
      and protest thereof;

            (iii) notice of any default hereunder or any of the other Financing
      Documents and notice of all indulgences;

            (iv) notice of any increase in the amount of any portion of or all
      of the indebtedness guaranteed by this Section;

            (v) demand for observance, performance or enforcement of any of the
      terms or provisions of this Agreement or any of the other Financing
      Documents;

                                      51


            (vi) all errors and omissions in connection with the Lender's
      administration of all indebtedness guaranteed by this Section, except
      errors and omissions resulting from acts of gross negligence or willful
      misconduct;

            (vii) any right or claim of right to cause a marshalling of the
      assets of any one or more of the other Obligors;

            (viii) any act or omission of the Lender which changes the scope of
      the risk as guarantor hereunder; and

            (ix) all other notices and demands otherwise required by law which
      the Obligors may lawfully waive.

      (d) Within ten (10) days following any request of the Lender so to do,
each Obligor will furnish the Lender and such other Persons as the Lender may
direct with a written certificate, duly acknowledged stating in detail whether
or not any credits, offsets or defenses exist with respect to this Section.

Section 2.9 Limitations on Joint and Several Liability for Obligations.

      Notwithstanding anything herein or in any of the other Financing Documents
to the contrary, the obligations and liabilities of one or more of the Obligors
shall be limited as and to the extent provided in this Section, as follows:

            (a) the Dutch Borrower and the other Non-U.S. Obligors, as
            guarantors, shall be liable for payment of only the Dutch
            Obligations; and

            (b) the U.S. Borrower shall be liable for all of the Obligations,
            including, without limitation, the Dutch Obligations.

                                  ARTICLE III
                                 THE COLLATERAL

Section 3.1 Debt and Obligations Secured.

      Subject to the limitations set forth in Section 2.9 (Limitations on Joint
and Several Liability for Obligations), all property and Liens assigned, pledged
or otherwise granted under or in connection with this Agreement (including,
without limitation, those under Section 3.2 (Grant of Liens) below) or any of
the Financing Documents shall secure (a) the payment of all of the Obligations,
including, without limitation, any and all outstanding Dutch Obligations and
Letter of Credit Obligations and (b) the performance, compliance with and
observance by the Obligors of the provisions of this Agreement and all of the
other Financing Documents or otherwise under the Obligations. The Lender and the
Obligors agree that the granting clauses of this ARTICLE III are intended to
grant Liens on the assets of the U.S. Borrower only and not assets of the
Non-U.S. Obligors. The Dutch Security Documents and the Stock Pledge Agreements
are intended to grant Liens on the assets of the Non-U.S. Obligors to the
Lender. Any and all references to Collateral included elsewhere in this
Agreement (other than in Section 3.2 (Grant of Liens)) are

                                      52


intended to include and govern the Collateral of all of the Obligors, whether
the Liens on such Collateral arise under the provisions of this Agreement or
under any of the other Security Documents (including the Dutch Security
Documents).

Section 3.2 Grant of Liens.

      For the purpose of securing the obligations, the U.S. Borrower hereby
assigns, pledges and grants to the Lender and agrees that the Lender shall have
a perfected and continuing security interest in, and Lien on, (a) all of the
U.S. Borrower's Accounts, Inventory, Chattel Paper, Documents, Instruments,
Equipment, Securities, and General Intangibles, Purchase Agreement Rights,
whether now owned or existing or hereafter acquired or arising, (b) all
returned, rejected or repossessed goods, the sale or lease of which shall have
given or shall give rise to an Account or Chattel Paper, (c) all insurance
policies relating to the foregoing, (d) all books and records in whatever media
(paper, electronic or otherwise) recorded or stored, with respect to the
foregoing and all equipment and general intangibles necessary or beneficial to
retain, access and/or process the information contained in those books and
records, (e) all of the U.S. Borrower's other personal property of any kind or
nature whatsoever, and (f) all cash and non-cash proceeds and products of the
foregoing. The U.S. Borrower further agrees that the Lender shall have in
respect thereof all of the rights and remedies of a secured party under the
Uniform Commercial Code as well as those provided in this Agreement, under each
of the other Financing Documents and under applicable Laws. The Obligors hereby
agree to indemnify the Lender and hold the Lender harmless from any and all
claims, actions, suits, losses, damages, costs, expenses, fees, obligations and
liabilities that may be incurred by or imposed upon the Lender by virtue of the
assignment of and Lien on each of the Obligor's rights, title and interest in,
to, and under the Purchase Agreement and the Purchase Agreement Documents. The
Obligors agree that neither the assignment to the Lender nor any other provision
contained in this Agreement or any of the other Financing Documents shall impose
on the Lender any obligation or liability of any of the Obligors under the
Purchase Agreement and/or under any of the Purchase Agreement Documents.

Section 3.3 Collateral Lists.

      On or prior to the Closing Date, each of the Obligors shall deliver to the
Lender a certified list (each a "Collateral List" and, collectively the
"Collateral List") which shall contain such information with respect to each
Obligor's business and real and personal property as the Lender may require and
shall be certified by a Responsible Officer of each Obligor all in the form
provided to the Obligors by the Lender. Without implying any limitation on any
other provision of this Agreement, each Obligor, as appropriate, shall furnish
to the Lender an update of the information contained in each respective
Collateral List at any time and from time to time as may be necessary to make
the information contained in such Collateral List complete and correct in all
material respects and at other times as may reasonably be requested by the
Lender. Such updates shall be deemed to be included in the definition of
"Collateral List."

                                      53


Section 3.4 Personal Property.

      The Obligors acknowledge and agree that it is the intention of the parties
to this Agreement that the Lender shall have a first priority, perfected Lien
(or its Dutch equivalent), in form and substance satisfactory to the Lender and
its counsel, on all of each Obligor's personal property of any kind and nature
whatsoever, whether now owned or hereafter acquired, subject only to the
Permitted Liens, if any. In furtherance of the foregoing:

3.4.1 Securities, Chattel Paper, Promissory Notes, etc.

      (a) On the Closing Date and without implying any limitation on the scope
of Section 3.2 (Grant of Liens), each Obligor shall deliver to the Lender all
originals of all of each Obligor's Letters of Credit, Securities, Chattel Paper,
Documents and Instruments and, if the Lender so requires, shall execute and
deliver and use reasonable efforts to cause the issuer of any letters of credit
or other Supporting Obligations to execute and deliver, a separate pledge,
assignment and security agreement in form and content acceptable to the Lender,
which pledge, assignment and security agreement shall assign, pledge and grant a
Lien to the Lender on all of each Obligor's letters of credit, Securities,
Chattel Paper, Documents and Instruments, subject to the limitations set forth
in Section 2.9 (Limitations on Joint and Several Liability for Obligations) and
subject to the limitations on the pledge of the capital stock set forth in the
Stock Pledge Agreements.

      (b) In the event that any of the Obligors shall acquire after the Closing
Date any Letters of Credit, Securities, Chattel Paper, Documents or Instruments,
each such Obligor shall promptly so notify the Lender and deliver the originals
of all of the foregoing to the Lender promptly and in any event within ten (10)
days of each acquisition.

      (c) All Letters of Credit, Securities, Chattel Paper, Documents and
Instruments shall be delivered to the Lender endorsed and/or assigned as
required by the pledge, assignment and security agreement and/or as the Lender
may require and, if applicable, shall be accompanied by blank irrevocable and
unconditional stock or bond powers.

3.4.2 Patents, Copyrights and Other Property Requiring Additional Steps to
Perfect.

      On the Closing Date and without implying any limitation on the scope of
Section 3.2 (Grant of Liens), the Obligors shall take all actions requested by
the Lender in order to perfect a first priority assignment of all United States
and Dutch Patents, Copyrights, Trademarks, customer lists or any other type or
kind of intellectual property acquired by any of the Obligors after the Closing
Date, subject to the limitations set forth in Section 2.9 (Limitations on Joint
and Several Liability for Obligations).

Section 3.5 Record Searches.

      As of the Closing Date and thereafter at the time any Financing Document
is executed and delivered by the Obligors pursuant to this Section, the Lender
shall have received, in form and substance satisfactory to the Lender, such Lien
or record searches with respect to all of the Obligors and/or any other Person,
as appropriate, and the property covered by such Financing

                                      54


Document showing that the Lien of such Financing Document will be a perfected
first priority Lien on the property covered by such Financing Document subject
only to Permitted Liens or to such other matters as the Lender may approve.

Section 3.6 Costs.

      Subject to the limitations set forth in Section 2.9 (Limitations on Joint
and Several Liability for Obligations), the Obligors agree to pay, as part of
the Enforcement Costs and to the fullest extent permitted by applicable Laws, on
demand all costs, fees and expenses incurred by the Lender in connection with
the taking, perfection, preservation, protection and/or release of a Lien on the
Collateral, including, without limitation:

      (a) fees and expenses of counsel incurred by the Lender in preparing,
reviewing, negotiating and finalizing the Financing Documents in connection with
their execution (including, without limitation, attorneys' fees incurred in
connection with preparing, reviewing, negotiating, and finalizing any amendments
and supplements thereto);

      (b) all filing and/or recording taxes or fees;

      (c) all costs of Lien and record searches;

      (d) attorneys' fees in connection with all legal opinions required;

      (e) appraisal and/or survey costs; and

      (f) all related closing or Enforcement Costs, fees and expenses.

Section 3.7 Release.

      Upon the payment and performance of all Obligations of the Obligors and
all obligations and liabilities of any other Person under this Agreement and all
other Financing Documents, the termination and/or expiration of all of the
Commitments, all Letters of Credit and all Outstanding Letter of Credit
Obligations, upon the Obligors' request and at the Obligor' sole cost and
expense, the Lender shall release and/or terminate any Financing Document but
only if and provided that there is no commitment or obligation (whether or not
conditional) of the Lender to re-advance amounts which would be secured thereby
and/or no commitment or obligation of the Lender to issue any Letter of Credit
or return or restore any payment of any Current Letter of Credit Obligations.

Section 3.8 Inconsistent Provisions.

      In the event that the provisions of any Financing Document directly
conflict with any provision of this Agreement, the provisions of this Agreement
govern.

                                      55


Section 3.9 Ranking of Lien Priorities.

      Notwithstanding anything herein or in any of the other Financing Documents
to the contrary, the Lender agrees that the Dutch Collateral shall secure only
the Dutch Obligations and shall not secure any of the other Obligations. The
Collateral, other than the Dutch Collateral, shall secure first payment and
performance of all Obligations under and relating to the U.S. Revolving Credit
Facility and the U.S. Term Loan and then shall secure payment and performance of
the Dutch Obligations.

Section 3.10 Authorization to File Financing Statements.

      The security interest created by this Agreement shall be perfected by the
filing of financing statements which fully comply with the Uniform Commercial
Code-Secured Transactions, as adopted in the state of Delaware. For purposes of
the Uniform Commercial Code-Secured Transactions, the U.S. Borrower hereby
authorize the Lender to file all financing statements covering the Collateral in
any appropriate jurisdiction, and to amend any financing statements previously
filed to more consistently identify the Collateral pledged by the U.S, Borrower.

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

Section 4.1 Representations and Warranties.

      The Obligors for themselves and for each other represent and warrant to
the Lender as follows:

4.1.1 Subsidiaries.

      As of the Closing Date, Optelecom UK Limited and the Dutch Borrower are
the Wholly Owned Subsidiaries of the U.S. Borrower. Optelecom Europe Limited is
owned ninety-nine and eighty-nine one hundredths percent (99.89%) by the U.S.
Borrower and eleven one hundredths percent (.11%) by Optelecom Europe Limited.
As of the Closing Date, the Spanish Subsidiary is the Wholly Owned Subsidiary of
the Dutch Borrower. The Obligors have no Subsidiaries other than as disclosed in
this Section. At all times after the Closing Date, the Obligors have only those
Subsidiaries permitted by the terms of this Agreement.

4.1.2 Good Standing.

      Each Obligor and its Subsidiaries, if any (a) is a corporation duly
organized, existing and in good standing under the laws of the jurisdiction of
its incorporation, (b) has the corporate power to own its property and to carry
on its business as now being conducted, and (c) is duly qualified to do business
and is in good standing in each jurisdiction in which the character of the
properties owned by it therein or in which the transaction of its business makes
such

                                      56


qualification necessary, except where such failure to qualify would not cause a
Material Adverse Effect.

4.1.3 Power and Authority.

      Each Obligor has full power and authority to execute and deliver this
Agreement, and the other Financing Documents to which it is a party, to make the
borrowings under this Agreement, and to incur and perform the Obligations
whether under this Agreement, the other Financing Documents or otherwise, all of
which have been duly authorized by all proper and necessary corporate action. No
consent or approval of shareholders or any creditors of any Obligor, and no
consent, approval, filing or registration with or notice to any Governmental
Authority on the part of any Obligor, is required as a condition to the
execution, delivery, validity or enforceability of this Agreement, of the other
Financing Documents, or the performance by any Obligor of the Obligations,
except for consents, approvals, filings, registrations and notices that shall be
received, given or accomplished on or before the Closing Date and except for
filings necessary for perfection of Liens in favor of the Lender.

4.1.4 Binding Agreements.

      This Agreement and the other Financing Documents executed and delivered by
the Obligors have been properly executed and delivered and constitute the valid
and legally binding obligations of the Obligors and are fully enforceable
against each of the Obligors in accordance with their respective terms, subject
to bankruptcy, insolvency, reorganization, moratorium and other laws of general
applications affecting the rights and remedies of creditors and secured parties,
and general principles of equity regardless of whether applied in a proceeding
in equity or at law.

4.1.5 No Conflicts.

      Neither the execution, delivery and performance of the terms of this
Agreement or of any of the other Financing Documents executed and delivered by
any Obligor nor the consummation of the transactions contemplated by this
Agreement will conflict with, violate or be prevented by (a) any Obligor's
charter or bylaws or other organizational and operational documents, (b) any
existing mortgage, indenture, contract or agreement binding on any Obligor or
affecting its property, or (c) any Laws, except where such conflict would not
cause a Material Adverse Effect.

4.1.6 No Defaults, Violations.

      (a) No Default or Event of Default has occurred and is continuing.

      (b) None of the Obligors nor any of their Subsidiaries is in default under
or with respect to any obligation under any existing mortgage, indenture,
contract or agreement binding on it or affecting its property in any respect
which default would cause a Material Adverse Effect.

                                      57


4.1.7 Compliance with Laws.

      Except as set forth in Schedule 4.1.7, to the knowledge of each Obligor,
neither such Obligor nor any of its Subsidiaries is in violation of any
applicable Laws (including, without limitation, any Laws relating to employment
practices, to environmental, occupational and health standards and controls, the
foreign assets control regulations of the United States Treasury Department or
order, writ, injunction, decree or demand of any court, arbitrator, or any
Governmental Authority affecting such Obligor; any Subsidiary or any of their
respective properties, the violation of which, considered in the aggregate,
would cause a Material Adverse Effect.

4.1.8 Margin Stock.

      None of the proceeds of the Loans will be used, directly or indirectly, by
any Obligor for the purpose of purchasing or carrying, or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry, any "margin security" within the meaning of Regulation G (12 CFR Part
207), or "margin stock" within the meaning of Regulation U (12 CFR Part 221), of
the Board of Governors of the Federal Reserve System or for any other purpose
which might make the transactions contemplated in this Agreement a "purpose
credit" within the meaning of said Regulation G or Regulation U, or cause this
Agreement to violate any other regulation of the Board of Governors of the
Federal Reserve System or the Securities Exchange Act of 1934 or the Small
Business Investment Act of 1958, as amended, or any rules or regulations
promulgated under any of such statutes.

4.1.9 Investment Company Act; Margin Securities.

      No Obligor is an investment company within the meaning of the Investment
Company Act of 1940, as amended, nor is it, directly or indirectly, controlled
by or acting on behalf of any Person which is an investment company within the
meaning of said Act. None of the Obligors is engaged principally, or as one of
its important activities, in the business of extending credit for the purpose of
purchasing or carrying "margin security" within the meaning of Regulation G (12
CFR Part 207), or "margin stock" within the meaning of Regulation U (12 CFR Part
221), of the Board of Governors of the Federal Reserve System.

4.1.10 Litigation.

      Except as otherwise disclosed on Schedule 4.1.10 attached to and made a
part of this Agreement, there are no proceedings, actions or investigations
pending or, so far as any Obligor knows, threatened before or by any court,
arbitrator or any Governmental Authority which, in any one case or in the
aggregate, if determined adversely to the interests of any Obligor, would have a
Material Adverse Effect.

4.1.11 Financial Condition.

      The financial statements of the U.S. Borrower and its Subsidiaries (other
than the Dutch Borrower) for the period ended December 31, 2004, are complete
and correct and fairly present the financial position of the U.S. Borrower and
its Subsidiaries (other than the Dutch Borrower) and the results of their
operations and transactions in their surplus accounts as of the date and for

                                      58


the period referred to and have been prepared in accordance with GAAP applied on
a consistent basis throughout the period involved. Except as has been disclosed
on Schedule 4.1.11, there are no material liabilities, direct or indirect, fixed
or contingent, of the U.S. Borrower or its Subsidiaries (other than the Dutch
Borrower) as of the date hereof which are not reflected in such financial
statements or in the notes thereto. There has been no adverse change in any
material respect in the financial condition or operations of the U.S. Borrower
or its Subsidiaries(other than the Dutch Borrower) since the date of such
financial statements and to the Obligors' knowledge no such adverse change is
pending or threatened. To the Obligors' knowledge, no Obligor has guaranteed the
obligations of, or made any investment in or advances to, any Person, except as
disclosed in such financial statements. The representations and warranties
contained in this Section shall also cover financial statements of the Obligors
furnished from time to time to the to the Lender pursuant to Section 6.1.1
(Financial Statements) (subject to normal year-end adjustments in the case of
interim statements and the absence of footnotes in the case of interim
statements).

4.1.12 Proforma Financial Statements.

      The Obligors have furnished to the Lender a Proforma consolidated balance
sheet (the "Proforma Balance Sheet") of the U.S. Borrower and its Subsidiaries
as of immediately after consummation of the Purchase Agreement Transaction
together with Proforma financial projections for the three (3) year period
subsequent to the Purchase Agreement Transaction (the "Proforma Financial
Projections"). A copy of the Proforma Balance Sheet and the Proforma Financial
Projections are attached hereto as EXHIBIT B-1 and EXHIBIT B-2, respectively. No
Obligor makes any representation or warranty regarding the accuracy of the
Proforma Balance Sheet and the Proforma Financial Projections or as to whether
they will be achieved, except that (a) the Proforma Balance Sheet and the
Proforma Financial Projections were (i) prepared in good faith and in a
reasonable manner, and (ii) based on assumptions that the Obligors on the date
hereof still believe to be reasonable and conservative, and (b) no Obligor has
any information as of the date of this Agreement that when taken into account
would make the Proforma Balance Sheet and the Proforma Financial Projections
materially inaccurate.

4.1.13 Full Disclosure.

      The financial statements referred to in Section 4.1.11 (Financial
Condition), the representations and warranties of the Obligors in the Financing
Documents (including, without limitation, this Agreement), and the statements,
reports or certificates furnished by any Obligor in connection with the
Financing Documents (a) do not contain any untrue statement of a material fact
and (b) when taken in their entirety, do not omit any material fact necessary to
make the statements contained therein not misleading. As of the Closing Date,
there is no fact known to any Obligor which such Obligor has not disclosed to
the Lender in writing prior to the date of this Agreement with respect to the
transactions contemplated by the Financing Documents which would have a Material
Adverse Effect.

4.1.14 Indebtedness for Borrowed Money.

      Except for the Obligations and as set forth in Schedule 4.1.14, and as
otherwise expressly permitted by this Agreement, none of the Obligors has
Indebtedness for Borrowed Money. The Lender has received photocopies of all
promissory notes evidencing any Indebtedness for

                                      59


Borrowed Money set forth in Schedule 4.1.14, together with any and all
subordination agreements, other agreements, documents, or instruments securing,
evidencing, guarantying or otherwise executed and delivered in connection
therewith.

4.1.15 Taxes.

      Except as disclosed on Schedule 4.1.15, each of the Obligors and their
Subsidiaries have filed all returns, reports and forms for Taxes which, to the
knowledge of the Obligors, are required to be filed, and has paid all Taxes as
shown on such returns or on any assessment received by it, to the extent that
such Taxes have become due, unless and to the extent only that such Taxes,
assessments and governmental charges are currently contested in good faith and
by appropriate proceedings by a Obligor, such Taxes are not the subject of any
Liens other than Permitted Liens, and adequate reserves therefor have been
established as required under GAAP. All tax liabilities of the Obligors were as
of the date of audited financial statements referred to in Section 4.1.11
(Financial Condition), and are now, adequately provided for on the books of the
Obligors and their Subsidiaries, as appropriate.

4.1.16 ERISA.

      With respect to any "pension plan" as defined in Section 3(2) of ERISA,
which plan is now or previously has been maintained or contributed to by any one
or more of the Obligors and/or to any Obligor's knowledge by any Commonly
Controlled Entity: (a) no "accumulated funding deficiency" as defined in Code
Section 412 or ERISA Section 302 has occurred, whether or not that accumulated
funding deficiency has been waived; (b) no Reportable Event has occurred which
would have a Material Adverse Effect; (c) no termination of any plan subject to
Title IV of ERISA has occurred which would have a Material Adverse Effect; (d)
no Obligor, nor to any Obligor's knowledge any commonly controlled entity (as
defined under ERISA), has incurred a "complete withdrawal" within the meaning of
ERISA Section 4203 from any Multi-employer Plan; (e) no Obligor, nor to any
Obligor's knowledge any commonly controlled entity, has incurred a "partial
withdrawal" within the meaning of ERISA Section 4205 with respect to any
Multi-employer Plan; and (f) no Multi-employer Plan to which any Obligor or to
any Obligor's knowledge any Commonly Controlled Entity has an obligation to
contribute is in "reorganization" within the meaning of ERISA Section 4241 nor
has notice been received by any Obligor or any commonly controlled entity that
such a Multi-employer Plan will be placed in "reorganization".

4.1.17 Title to Properties.

      Except for leased property, each of the Obligors has good title to all of
its respective properties, including, without limitation, the Collateral and, as
of the date of the balance sheets, the properties and assets reflected in the
balance sheets described in Section 4.1.11 (Financial Condition) subject to the
Permitted Liens. Except for leased property, each Obligor has legal, enforceable
and uncontested rights to use freely such property and assets subject to the
Permitted Liens.

4.1.18 Patents, Trademarks, Etc.

      Each of the Obligors owns, possesses, or has the right to use all
necessary Patents, licenses, Trademarks, Copyrights, permits and franchises to
own its properties and to conduct its

                                      60


business as now conducted, without known conflict with the rights of any other
Person. Any and all obligations to pay royalties or other charges with respect
to such properties and assets are properly reflected on the financial statements
furnished from time to time and described in Section 4.1.11 (Financial
Condition).

4.1.19 Employee Relations.

      Except as disclosed on Schedule 4.1.19 attached hereto and made a part
hereof, as of the Closing Date, (a) no Obligor nor any of the Obligor's
employees is subject to any collective bargaining agreement, (b) no petition for
certification or union election is pending with respect to the employees of any
Obligor and no union or collective bargaining unit has sought such certification
or recognition with respect to the employees of any Obligor, (c) there are no
strikes, slowdowns, work stoppages or controversies pending or, to the best
knowledge of the Obligors after due inquiry, threatened between any Obligor and
its employees, and (d) except as set forth on Schedule 4.1.19, no Obligor
thereof is subject to an employment contract, severance agreement, commission
contract, consulting agreement or bonus agreement which provides for anything
other than reasonable compensation for services rendered. Hours worked and
payments made to the employees of any one or more of the Obligors have not been
in violation of the Fair Labor Standards Act, if applicable, in any material
respect or, to the extent the violation of which would result in a Material
Adverse Effect, any other applicable Law dealing with such matters. All material
payments due from any one or more of the Obligors or for which any claim may be
made against any Obligor, on account of wages and employee and retiree health
and welfare insurance and other benefits have been paid or accrued as a
liability on its books in accordance with applicable Laws. The consummation of
the transactions contemplated by this Agreement or any of the other Financing
Documents will not give rise to a right of termination or right of renegotiation
on the part of any union under any collective bargaining agreement to which any
Obligor is a party or by which it is bound.

4.1.20 Presence of Hazardous Materials or Hazardous Materials Contamination.

      Except as disclosed to the Lender in writing prior to the Closing Date or
as disclosed in Schedule 4.1.20, to the best of each Obligor's knowledge, (a) no
Hazardous Materials are located on any real property owned, controlled or
operated by any Obligor or for which any Obligor is, or is claimed to be,
responsible, except for reasonable quantities of necessary supplies for use by a
Obligor in the ordinary course of its business and stored, used, managed after
use and disposed of in compliance in all material respects with applicable Laws
or in an amount and manner which would not have a Material Adverse Effect; and
(b) no property owned, controlled or operated by any Obligor or for which any
Obligor has, or is claimed to have, responsibility, to the knowledge of the
Obligors, has ever been used as a manufacturing or dump site for Hazardous
Materials nor is affected by Hazardous Materials Contamination at any other
property in either case, in any manner which would cause a Material Adverse
Effect.

4.1.21 Perfection and Priority of Collateral.

      Subject to the limitations set forth in Section 2.9 (Limitations on Joint
and Several Liability for Obligations), the Lender has, or upon execution and
recording of this Agreement and the Security Documents will have, and will
continue to have as security for the Obligations, a valid and perfected Lien (or
its Dutch equivalent) on and security interest in all Collateral, free

                                      61


of all other Liens, claims and rights of third parties whatsoever except
Permitted Liens, including, without limitation, those described on Schedule
4.1.21.

4.1.22 Places of Business and Location of Collateral.

      The information contained in each Collateral List is complete and correct
except to the extent that such information is amended or supplemented by the
applicable Obligor. Each Collateral List completely and accurately identify the
address of (a) the place of incorporation and the chief executive office of each
Obligor, (b) any and each other place of business of each Obligor, (c) the
location of all books and records pertaining to the Collateral, (d)
organizational identification numbers, and (e) each location, other than the
foregoing, where any of the Collateral is located. The U.S. Borrower is only
incorporated in the State of Delaware.

4.1.23 Business Names and Addresses.

      Except as disclosed in Schedule 4.1.23, in the twelve (12) years preceding
the date hereof, no Obligor has changed its name, identity or corporate
structure, has conducted business under any name other than its current name,
and has not conducted its business in any jurisdiction other than those
disclosed within the Collateral Lists.

4.1.24 Equipment.

      All Equipment of each Obligor is personalty and is not and will not be
affixed to real estate in such manner as to become part of such real estate. No
equipment is held by any Obligor on a sale on approval basis.

4.1.25 Inventory.

      Except as disclosed in Schedule 4.1.25, as of the Closing Date and except
to the extent from time to time disclosed in U.S. Borrowing Base Reports and
Dutch Borrowing Base Reports provided to the Lender, the Inventory of the
Obligors is (a) of good and merchantable quality, free from defects, (b) not
stored with a bailee, warehouseman, carrier, or similar party, (c) except as
permitted by Section 6.2.8 (Liens), not on consignment, sale on approval, or
sale or return, and (d) located at the places of business set forth on the
Collateral Lists. No goods offered for sale by any Obligor are consigned to or
held on sale or return terms by that Obligor.

4.1.26 Accounts.

      Except as disclosed in Schedule 4.1.26 or as disclosed in the U.S.
Borrowing Base Report or Dutch Borrowing Base Report, with respect to all
Accounts and to the best of the Obligors' knowledge (a) they are genuine, and in
all respects what they purport to be, and are not evidenced by a judgment, an
Instrument, or Chattel Paper (unless such judgment has been assigned and such
Instrument or Chattel Paper has been endorsed and delivered to the Lender; (b)
they represent bona fide transactions completed in accordance with the terms and
provisions contained in the invoices, purchase orders and other contracts
relating thereto, and the underlying transaction therefor is in accordance with
all applicable Laws; (c) the amounts shown on the respective Obligor's books and
records, with respect thereto are actually and absolutely owing to that Obligor
and are not contingent or subject to reduction for any reason other than regular

                                      62


discounts, credits or adjustments allowed by that Obligor in the ordinary course
of its business; (d) no payments have been or shall be made thereon except
payments turned over to the Lender by the Obligors; (e) all Account Debtors
thereon have the capacity to contract; and (f) the goods sold, leased or
transferred or the services furnished giving rise thereto are not subject to any
Liens except the security interest granted to the Lender by this Agreement
and/or any of the Security Documents, and Permitted Liens.

4.1.27 Compliance with Eligibility Standards.

      Except as disclosed in Schedule 4.1.27, to the best of the Obligors'
knowledge in the exercise of diligence, each Account and all Inventory included
in the calculation of the Borrowing Base or the Dutch Borrowing Base does, as of
the time of the most recent Borrowing Base Report and Dutch Borrowing Base
Report, as appropriate, meet and comply with all of the standards for Eligible
U.S. Receivables, Eligible Inventory, Insured Eligible Spanish Receivables,
Insured Eligible U.K. Receivables, Eligible Dutch Receivables and Insured
Eligible Dutch Receivables, as appropriate. With respect to those Accounts which
the Lender has deemed Eligible U.S. Receivables, Insured Eligible Spanish
Receivables, Insured Eligible U.K. Receivables, Eligible Dutch Receivables or
Insured Eligible Dutch Receivables (a) there are no facts, events or occurrences
known to any Obligor which in any way impair the validity, collectibility or
enforce ability thereof or tend to reduce the amount payable thereunder; and (b)
there are no proceedings or actions known to any Obligor which are threatened or
pending against any Account Debtor which might result in any material adverse
change in the U.S. Borrowing Base or in the Dutch Borrowing Base.

4.1.28 Stock.

      No Obligor has issued any option or similar type of beneficial ownership
interest, warrant, convertible or non-convertible bonds or any other right which
may entitle the holder thereof to any shares of such Obligor.

4.1.29 Purchase Agreement Transaction.

      The Lender has received true and correct photocopies of the Purchase
Agreement and each of the other Purchase Agreement Documents, executed,
delivered and/or furnished on or before the Closing Date in connection with the
Purchase Agreement Transaction. Neither the Purchase Agreement nor any of the
other Purchase Agreement Documents have been modified, changed, supplemented,
canceled, amended or otherwise altered or affected, except as otherwise
disclosed to the Agent in writing on or before the Closing Date. The Purchase
Agreement Transaction has been effected, closed and consummated pursuant to, and
in accordance with, the terms and conditions of the Purchase Agreement and with
all applicable Laws.

4.1.30 Centre of Main Interest.

      The Dutch Borrower has its centre of main interest, within the meaning of
Council Regulation (EC) No. 1346/2000 of 29 May 2000 on Insolvency Procedures,
in the Netherlands and that it has not been subjected to any one or more of the
insolvency and winding-up proceedings listed in Annex A or Annex B to the
Regulation in any EU Member State other than in the Netherlands.

                                      63


Section 4.2 Survival; Updates of Representations and Warranties.

      All representations and warranties contained in or made under or in
connection with this Agreement and the other Financing Documents shall survive
the Closing Date, the making of any advance under the Loans, the issuance of any
Letter of Credit and extension of credit made hereunder, and the incurring of
any other Obligations and shall be deemed to have been made at the time of each
request for, and again at the time the making of, each advance under the Loans
and/or the issuance of each Letter of Credit, except that the representations
and warranties which relate to financial statements which are referred to in
Section 4.1.11 (Financial Condition), shall also be deemed to cover financial
statements furnished from time to time to the Lender pursuant to Section 6.1.1
(Financial Statements).

                                   ARTICLE V
                              CONDITIONS PRECEDENT

Section 5.1 Conditions to the Initial Advance.

      The making of the initial advance under the Loans are subject to the
fulfillment on or before the Closing Date of the following conditions precedent
in a manner satisfactory in form and substance to the Lender:

5.1.1 Organizational Documents - Obligors.

      The Lender shall have received for each Obligor:

      (a) for the U.S. Borrower only, a certificate of good standing certified
by the Secretary of State, or other appropriate Governmental Authority, of the
State of Delaware;

      (b) for the U.S. Borrower only, a certificate of qualification to do
business for the U.S. Borrower certified by the Secretary of State or other
Governmental Authority of each state in which the U. S. Borrower's business
requires such qualification, except for those states where the failure to so
qualify would not cause a Material Adverse Effect;

      (c) a certificate dated as of the Closing Date by the Secretary, Managing
Director or Manager (as applicable) of each Obligor covering:

            (i) true and complete copies of such Obligor's corporate charter,
      bylaws, other organizational and operational documents, and all amendments
      thereto;

            (ii) true and complete copies of the resolutions of its Board of
      Directors and, in the case of the Non-U.S. Obligors, their shareholders,
      authorizing as appropriate (A) the execution, delivery and performance of
      the Financing Documents and the Purchase Agreement Documents, (B) the
      borrowings hereunder, (C) the granting of the Liens contemplated by this
      Agreement and the Financing Documents to which such Obligor is a party,
      and (D) the Purchase Agreement Transaction;

                                      64


            (iii) the incumbency, authority and signatures of the officers of
      such Obligor authorized to sign this Agreement and the other Financing
      Documents to which such Obligor is a party;

            (iv) the identity of such Obligor's current directors or managers,
      as the case may be, common stockholders and other equity holders for each
      Obligor other than the U.S. Borrower whose shares are publicly traded, as
      well as their respective percentage ownership interests; and

            (v) in the case of the Dutch Borrower, (a) the corporate purpose of
      the transactions described in the Financing Documents and the Purchase
      Agreement Documents, and (b) the use of proceeds of the Credit Facilities
      in compliance with Dutch Financial Assistance Law.

5.1.2 Approval of Dutch Borrower's Works Council.

      The Lender shall have received evidence of the approval by the Dutch
Borrower's Works Council of the transactions described in the Financing
Documents and the Purchase Agreement Documents or evidence that such approval is
not required.

5.1.3 Opinions of Obligors' Counsel in U.S., U.K. and The Netherlands.

      The Lender shall have received the favorable opinions of U.S., U.K. and
Dutch counsel for the Obligors addressed to the Lender in form satisfactory to
the Lender.

5.1.4 Consents, Licenses, Approvals, Etc.

      The Lender shall have received copies of all consents, licenses and
approvals, required in connection with the execution, delivery, performance,
validity and enforceability of the Financing Documents and the Purchase
Agreement Documents and such consents, licenses and approvals shall be in full
force and effect.

5.1.5 Financing Documents and Collateral.

      Each Obligor shall have executed and delivered the Financing Documents to
be executed by it, and shall have delivered original Chattel Paper, Instruments,
Securities, and related Collateral and all opinions, and other documents
contemplated by ARTICLE III (The Collateral).

5.1.6 Other Financing Documents.

      In addition to the Financing Documents to be delivered by the Obligors,
the Lender shall have received the Financing Documents duly executed and
delivered by Persons other than the Obligors, including (without limitation) an
assignment to the Lender of all existing receivables insurance policies
acknowledged by the insurer.

                                      65


5.1.7 Other Documents, Etc.

      The Lender shall have received such other certificates, opinions,
documents and instruments confirmatory of or otherwise relating to the
transactions contemplated hereby as may have been reasonably requested by the
Lender.

5.1.8 Payment of Fees and Reimbursements.

      The Lender shall have received payment of any Fees due on or before the
Closing Date, and the lender shall have received reimbursement for all
out-of-pocket expenses related to the closing of the Credit Facilities,
including, without limitation, reasonable attorneys' fees.

5.1.9 Collateral Lists.

      Each of the Obligors shall have delivered the Collateral Lists required
under the provisions of Section 3.3 (Collateral Lists) duly executed by a
Responsible Officer of each such Obligor.

5.1.10 Recordings and Filings.

      Each Obligor shall have: (a) executed and delivered all Financing
Documents in form and in sufficient number for filing, registration, and
recording in each office in each jurisdiction in which such filings,
registrations and recordations are required, and (b) delivered such evidence as
the Lender may deem satisfactory that all necessary filing fees and all
recording and other similar fees, and all Taxes and other expenses related to
such filings, registrations and recordings will be or have been paid in full.

5.1.11 Receivables Insurance Policy.

      The Obligors have provided to the Lender a copy of all existing
receivables insurance policies.

5.1.12 Evidence of Insurance.


      The Lender shall have received evidence of insurance coverage of the
Obligors satisfying the requirements of Section 6.1.8 (Insurance) and Section
6.1.20 (Insurance With Respect to Equipment and Inventory).

5.1.13 Landlord's and Mortgagee's Waivers.

      The Lender shall have received a Landlord's and Mortgagee's waiver from
each Landlord and Mortgagee of each and every business premise leased by the
U.S. Obligor or the Dutch Borrower, if any, and on which any of the Collateral
is or may hereafter be located, which waivers must be reasonably acceptable to
the Lender and its counsel in their sole and absolute discretion.

                                       66


5.1.14 Bailee Acknowledgements.

      The Lender shall have received an agreement acknowledging the Liens of the
Lender from each bailee, warehouseman, consignee or similar third party, if any,
which has possession of any of the Collateral, which agreements must be
reasonably acceptable to the Lender and its counsel in their sole and absolute
discretion.

5.1.15 Field Examination.

      The Lender shall have completed a field examination and audit of the U.S.
Borrower's and the Dutch Borrower's business, operations and income, the results
of which field examination and audit shall be in all respects acceptable to the
Lender in its sole and absolute discretion and shall include reference
discussions with key customers and vendors.

5.1.16 Equipment Appraisal.

      The Lender shall have received an appraisal of the Equipment owned by the
U.S. Borrower in form and substance satisfactory to the Lender.

5.1.17 Proforma Balance Sheet and Projections.

      The Lender shall have received and approved the Obligors' Proforma Balance
Sheet and Proforma Financial Projections, which Proforma Balance Sheet and
Proforma Financial Projections must be in form and content acceptable to the
Lender in its sole and absolute discretion.

5.1.18 Subordinated Obligations Documents.

      The Lender shall have received and approved copies of the fully executed
Subordinated Note and other Subordinated Obligations Documents, all of which
must be in form and content acceptable to the Lender.

5.1.19 Subordinated Obligations.

      The Lender shall have received a certificate signed by a Responsible
Officer of the U.S. Borrower, certifying to the Lender that the U.S. Borrower
has executed and delivered the Subordinated Note to the Seller in payment of a
portion of the purchase price under the Purchase Agreement Documents, thereby
incurring the Subordinated Obligations.

5.1.20 Purchase Agreement Transaction.

      The Purchase Agreement Transaction shall have been completed and closed
prior to or simultaneously herewith upon terms and conditions satisfactory to
the Lender, in accordance with the Purchase Agreement and applicable Laws.

      The Lender shall have received photocopies of all Purchase Agreement
Documents executed, delivered and/or furnished in connection with the Purchase
Agreement Transaction, together with a certificate signed by a Responsible
Officer of the U.S. Borrower certifying (a)

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that the Purchase Agreement and the other Purchase Agreement Documents furnished
to the Lender are true, correct, in full force and effect and the provisions
thereof have not been in any way modified, amended or waived, (b) the Purchase
Agreement Transaction has been closed and completed in accordance with the
Purchase Agreement and the other Purchase Agreement Documents furnished to the
Lender and in accordance with all applicable Laws, including, any and all
applicable antitrust and labor Laws, (c) the U.S. Borrower has obtained any
consents, licenses and approvals necessary to permit it to own the stock of the
Dutch Borrower.

      With respect to the obligations and liabilities of the Seller assumed by
the Obligors under, and in connection with, the Purchase Agreement, the Lender
shall have received from the Obligors a list setting forth the name of each
Person to whom such obligations and liabilities are owed, the amount owed to
such Person, and the due date or maturity date of each such amount.

      In addition, the Lender shall have received all opinions of counsel for
the Seller and the Obligors required under or in connection with the Purchase
Agreement, the other Purchase Agreement Documents and the Purchase Agreement
Transaction, on which opinions the Lender must be authorized to rely.

Section 5.2 Conditions to all Extensions of Credit.

      The making of all advances under the Loans and the issuance of each Letter
of Credit is subject to the fulfillment of the following conditions precedent in
a manner satisfactory in form and substance to the Lender.

5.2.1 Borrowing Base.

      The U.S. Borrower and the Dutch Borrower shall have furnished all U.S.
Borrowing Base Reports and Dutch Borrowing Base Reports required by Section
2.1.4 (U.S. Borrowing Base Report) and Dutch Borrowing Base Reports required by
Section 2.3.4 (Dutch Borrowing Base Report), there shall exist no U.S. Borrowing
Base Deficiency or Dutch Borrowing Base Deficiency, and as evidence thereof, the
Obligors shall have furnished to the Lender such reports, schedules,
certificates, records and other papers as may be requested by the Lender.

5.2.2 Default.

      There shall exist no Event of Default (including, without limitation, an
Event of Default under Section 7.1.14 (Material Adverse Effect)) or Default
hereunder, and none shall arise immediately before and immediately after the
making of the advance.

5.2.3 Representations and Warranties.

      The representations and warranties of the Obligors contained among the
provisions of each of this Agreement shall be true in all material respects and
with the same effect as though such representations and warranties had been made
at the time of the making of, and of the request for, each advance under the
Loans and the issuance of each Letter of Credit, except that the representations
and warranties which relate to financial statements which are referred to in
Section 4.1.11 (Financial Condition), shall also be deemed to cover financial
statements

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furnished from time to time to the Lender pursuant to Section 6.1.1 (Financial
Statements) and except to the extent such representations were made only as of a
specific date.

5.2.4 Legal Matters.

      All legal documents incident to each advance under the Loans and each
issuance of the Letters of Credit shall be reasonably satisfactory to counsel
for the Lender.

                                   ARTICLE VI
                            COVENANTS OF THE OBLIGORS

Section 6.1 Affirmative Covenants.

      So long as any of the Obligations (or any the Commitments therefor) shall
be outstanding hereunder, the Obligors agree jointly and severally with the
Lender as follows (except with the prior written consent of the Lender):

6.1.1 Financial Statements.

      (a) Annual Statements. The Obligor shall furnish to the Lender as soon as
it is filed with the U.S. Securities and Exchange Commission, a copy of the
annual 10-K Report of the U.S. Borrower and its Subsidiaries.

      (b) Quarterly Statements and Quarterly Compliance Certificates. The
Obligors shall furnish to the Lender (i) as soon as available, but in no event
more than forty-five (45) days after the close of each fiscal quarter, balance
sheets and income statements of the Dutch Borrower and the consolidated and
consolidating balance sheet and income statements of the U.S. Borrower; (ii) as
soon as it is filed with the U.S. Securities and Exchange Commission, a copy of
the quarterly 10-Q report of the U.S. Borrower and its Subsidiaries and (iii)
within thirty (30) days of the filing of each 10-Q Report, a Compliance
Certificate, in substantially the form attached to this Agreement as EXHIBIT C,
containing a detailed computation of each financial covenant in this Agreement
and a certification that no change has occurred to the information contained in
the Collateral Lists (except as set forth on any schedule attached to the
certification), all as prepared and certified by a Responsible Officer of the
U.S. Borrower and accompanied by a certificate of that officer stating whether
any event has occurred which constitutes a Default or an Event of Default
hereunder, and, if so, stating the facts with respect thereto.

      (c) Monthly reports. The U.S. Borrower and the Dutch Borrower shall
furnish to the Lender on an individual basis, within twenty (20) days after the
end of each month or more frequently if requested by the Lender (i) a U.S.
Borrowing Base Report or a Dutch Borrowing Base Report, as applicable, and (ii)
a report containing the following information:

                  (1) a detailed aging schedule of all Receivables by Account
            Debtor, in such detail, and accompanied by such supporting
            information required to establish the eligibility of Receivables
            under the U.S. Borrowing Base or the Dutch Borrowing Base (as
            applicable), as the Lender may from time to time reasonably request;

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                  (2) for the U.S. Borrower only, a detailed report of Inventory
            containing such supporting information required to establish the
            eligibility of Inventory under the U.S. Borrowing Base; and

                  (3) such other information as the Lender may reasonably
            request.

      (d) Additional Reports and Information. The Obligors shall furnish to the
Lender, such additional information, reports or statements as the Lender may
from time to time reasonably request.

6.1.2 Reports to SEC and to Stockholders.

      The U.S. Borrower shall furnish to the Lender, promptly upon the filing or
making thereof, at least one (l) copy of all financial statements, reports,
notices and proxy statements sent by the U.S. Borrower to its stockholders, and
of all regular and other reports filed by any Borrower with any securities
exchange or with the Securities and Exchange Commission.

6.1.3 Recordkeeping, Rights of Inspection, Field Examination, Etc.

      (a) Each of the Obligors shall, and shall cause each of its Subsidiaries
to, maintain (i) a system of accounting in accordance with GAAP and (ii) proper
books of record and account in which entries full, true and correct in all
material respects are made of all dealings and transactions in relation to its
properties, business and activities.

      (b) Each of the Obligors shall, and shall cause each of its Subsidiaries
to, permit authorized representatives of the Lender to visit and inspect the
properties of each of the Obligors, to review, audit, check and inspect the
Collateral at any time with or without notice, to review, audit, check and
inspect each of the Obligor's other books of record at any time with or without
notice and to make abstracts and photocopies thereof, and to discuss the
affairs, finances and accounts of each Obligor and its Subsidiaries, with the
officers, directors, employees and other representatives of such Obligor and its
Subsidiaries and their respective accountants, all at such times during normal
business hours and other times and as often as the Lender may reasonably
request.

      (c) Each of the Obligors hereby irrevocably authorizes and directs all
accountants and auditors employed by any of the Obligors at any time prior to
the repayment in full of the Obligations to discuss freely with the Lender any
information they may have concerning the financial status and business
operations of any or all of the Obligor.

      (d) Any and all out-of-pocket costs and expenses reasonably incurred by,
or on behalf of, the Lender in connection with the conduct of any of the
foregoing shall be part of the Enforcement Costs and shall be payable to the
Lender upon demand. The Obligors acknowledge and agree that such expenses may
include, but shall not be limited to, any and all out-of-pocket reasonable costs
and expenses (no airfare other than "coach") of the Lender's employees and
Lender in, and when, traveling to any of the Obligor's facilities.

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6.1.4 Corporate Existence.

      Each of the Obligors shall maintain, its corporate existence in good
standing in the jurisdiction in which it is incorporated and in each other
jurisdiction where it is required to register or qualify to do business if the
failure to do so in such other jurisdiction would have a Material Adverse
Effect.

6.1.5 Compliance with Laws.

      Each of the Obligors shall comply with all applicable Laws, including,
without limitation, the Patriot Act and the foreign assets control regulations
of the United States Treasury Department, and observe the valid requirements of
Governmental Authorities, the noncompliance with or the nonobservance of which
would have a Material Adverse Effect.

6.1.6 Preservation of Properties.

      Each of the Obligors will, and will cause each of its Subsidiaries to, at
all times (a) maintain, preserve, protect and keep its properties which are
material in value or are necessary for the conduct of its business, whether
owned or leased, in good operating condition, working order and repair (ordinary
wear and tear excepted), and from time to time will make all proper repairs,
maintenance, replacements, additions and improvements thereto needed to maintain
such properties in good operating condition, working order and repair, and (b)
do or cause to be done all things necessary to preserve and to keep in full
force and effect its material franchises, leases of real and personal property,
trade names, patents, trademarks and permits which are necessary for the orderly
continuance of its business.

6.1.7 Line of Business.

      Each of the Obligors will continue to engage substantially only in the
business of the manufacture, production, marketing, distribution and sale of
advanced communication platforms that transport data, video, and audio over
networks.

6.1.8 Insurance.

      Each of the Obligors will, at all times, maintain with B+ or better by
A.M. Best Company insurance companies such insurance as is required by
applicable Laws and such other insurance, in such amounts, of such types and
against such risks, hazards, liabilities, casualties and contingencies as are
usually insured against in the same geographic areas by business entities
engaged in the same or similar business. In the event an insurance company's
rating at any time falls below B+ or better by A.M. Best Company, the Obligors
will replace the insurance company at the next policy renewal date or, if the
Lender determines that the insurance company is financially unsound, the
Obligors will use their best and continuous efforts to replace the insurance
company at the earliest possible date. Without limiting the generality of the
foregoing, each Obligor will keep adequately insured all of its property against
loss or damage resulting from fire or other risks insured against by extended
coverage and maintain public liability insurance against claims for personal
injury, death or property damage occurring upon, in or about any properties
occupied or controlled by it, or arising in any manner out of the businesses
carried on by it, all in such amounts not less than the Lender shall reasonably
determine from

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time to time based on the foregoing standard. Each of the Obligors has delivered
to the Lender (and will deliver thereafter on each date there is a material
change in the insurance coverage) a certificate of a Responsible Officer of that
Obligor containing a detailed list of the insurance then in effect and stating
the names of the insurance companies, the types, the amounts and rates of the
insurance, dates of the expiration thereof and the properties and risks covered
thereby. Within thirty (30) days after notice in writing from the Lender, the
Obligors shall obtain such additional insurance as the Lender may reasonably
request.

6.1.9 Taxes.

      Except to the extent that the validity or amount thereof is being
contested in good faith and by appropriate proceedings, each of the Obligors
will pay and discharge all Taxes prior to the date when any interest or penalty
would accrue for the nonpayment thereof. Each of the Obligors shall furnish to
the Lender at such times as the Lender may require proof satisfactory to the
Lender of the making of payments or deposits required by applicable Laws
including, without limitation, payments or deposits with respect to amounts
withheld by any of the Obligors from wages and salaries of employees and amounts
contributed by any of the Obligors on account of federal and other income or
wage taxes and amounts due under the Federal Insurance Contributions Act, as
amended, or under any similar laws of any jurisdiction in which any Non-U.S.
Obligor is operating and existing.

6.1.10 ERISA.

      The U.S. Borrower will, and will cause each of its Affiliates to, comply
in all material respects with the funding requirements of ERISA with respect to
employee pension benefit plans for its respective employees. The U.S. Borrower
will not permit with respect to any employee benefit plan or plans covered by
Title IV of ERISA (a) any prohibited transaction or transactions under ERISA or
the Internal Revenue Code, which would result in a Material Adverse Effect, or
(b) any Reportable Event if, upon termination of the plan or plans with respect
to which one or more such Reportable Events shall have occurred, there is or
would be any material liability of the U.S. Borrower or any of its Affiliates to
the PBGC which would result in a Material Adverse Effect. Upon the Lender's
request, the U.S. Borrower will deliver to the Lender a copy of the most recent
actuarial report, financial statements and annual report completed with respect
to any "defined benefit plan", as defined in ERISA. The Non-U.S. Obligors agree
to comply in all material respects with any similar Laws of any jurisdiction in
which they are operating and existing.

6.1.11 Notification of Events of Default and Adverse Developments.

      Each of the Obligors shall promptly notify the Lender upon obtaining
knowledge of the occurrence of:

      (a) any Event of Default;

      (b) any Default;

      (c) any litigation instituted or threatened against any of the Obligors or
any of their Subsidiaries and of the entry of any judgment or Lien (other than
any Permitted Liens) against any of the assets or properties of any of the
Obligors where the claims against any Obligor

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exceed One Hundred Thousand Dollars ($100,000) or the Euro Currency Equivalent
thereof and are not covered by insurance;

      (d) any event, development or circumstance whereby the financial
statements furnished hereunder fail in any material respect to present fairly,
in accordance with GAAP, the financial condition and operational results of any
of the Obligors or any of their respective Subsidiaries;

      (e) any judicial, administrative or arbitral proceeding pending against
any of the Obligors or any of their respective Subsidiaries and any judicial or
administrative proceeding known by any of the Obligors to be threatened against
any Obligor which, if adversely decided, would have a Material Adverse Effect;

      (f) the receipt by any of the Obligors of any notice, claim or demand from
any Governmental Authority which alleges that any Obligor is in violation of any
of the material terms of, or has failed to comply in any material respect with
any applicable Laws regulating its operation and business, including, but not
limited to, the Occupational Safety and Health Act and the Environmental
Protection Act or similar laws of any jurisdiction in which any Non-U.S. Obligor
is operating and existing;

      (g) any other development in the business or affairs of any of the
Obligors or any of their Subsidiaries which has had, or which the senior
management of any of the Obligors believes will have, a Material Adverse Effect;
and

            in each case describing in detail reasonably satisfactory to the
Lender the nature thereof and the action the Obligors propose to take with
respect thereto.

6.1.12 Hazardous Materials; Contamination.

      Each of the Obligors agrees to:


      (a) give notice to the Lender reasonably promptly upon acquiring knowledge
of the presence of any Hazardous Materials or any Hazardous Materials
Contamination on any property owned, operated or controlled by any Obligor or
for which any Obligor is, or is claimed to be, responsible (provided that such
notice shall not be required for Hazardous Materials which are placed or stored
on such property in accordance with applicable Laws in the ordinary course of
the Obligor's line of business described in Section 6.1.7 (Line of Business) or
which would not have a Material Adverse Effect), with a full description
thereof;

      (b) promptly comply in all material respects with any Laws requiring the
removal, treatment or disposal of Hazardous Materials or Hazardous Materials
Contamination and, upon the written request of the Lender, provide the Lender
with satisfactory evidence of such compliance; and

      (c) as part of the Obligations, defend, indemnify and hold harmless the
Lender and its agents, employees, trustees, successors and assigns from any and
all claims which may now or in the future (whether before or after the
termination of this Agreement) be asserted as a result of the presence of any
Hazardous Materials or any Hazardous Materials Contamination (except as a result
of the gross negligence or willful misconduct of the Lender or its agents,
employees, trustees, successors and assigns) on any property owned, operated or
controlled by any Obligor

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for which any Obligor is, or is claimed to be, responsible; subject, however, to
the limitations set forth in the next sentence. Each Obligor acknowledges and
agrees that this indemnification shall survive the termination of this Agreement
and the Commitments and the payment and performance of all of the other
Obligations; provided, however, that this indemnification shall not apply to any
claims resulting from the ownership, operation or other conduct of any
subsequent owner, operator or lessee with respect to any such property which may
be asserted after the termination of this Agreement.

6.1.13 Disclosure of Significant Transactions.

      Each of the Obligors shall deliver to the Lender a written notice
describing in reasonable detail each transaction by it involving the purchase,
sale, lease, or other acquisition or loss or casualty to or disposition of an
interest in Fixed or Capital Assets which exceeds Two Hundred Thousand Dollars
($200,000) or the Euro Currency Equivalent thereof, said notices to be delivered
to the Lender within thirty (30) days of the occurrence of each such
transaction.

6.1.14 Financial Covenants.

      (a) Fixed Charge Coverage Ratio. The U.S. Borrower will maintain, on a
consolidated basis and tested as of the last day of each of the U.S. Borrower's
fiscal quarters for the four (4) quarter period ending on that date, a Fixed
Charge Coverage Ratio of not less than 1.15 to 1.0.

      (b) Senior Debt Coverage Ratio. The U.S. Borrower will maintain, on a
consolidated basis and tested as of the last day of each of the U.S. Borrower's
fiscal quarters for the four (4) quarter period ending in that date, a Senior
Debt Leverage Ratio of not greater than 2.5 to 1.0.

6.1.15 Collection of Receivables.

      Until a Default shall have occurred and be continuing and the Lender shall
have notified the Obligors of the revocation of such privilege, the Obligors and
their Subsidiaries shall at their own expense have the privilege for the account
of, and in trust for, the Lender of collecting their Receivables and receiving
in respect thereto all Items of Payment and shall otherwise completely service
all of the Receivables including (a) the billing, posting and maintaining of
complete records applicable thereto, (b) the taking of such action with respect
to the Receivables, as each of the Obligors and each of the Subsidiaries may
deem advisable; and (c) the granting, in the ordinary course of business, to any
Account Debtors rebates, refunds or adjustments, and may accept, in connection
therewith, the return of goods, the sale or lease of which shall have given rise
to a Receivable and may take such other actions relating to the settling of any
Account Debtor's claim as may be commercially reasonable. The Lender may, at its
option, at any time or from time to time after and during the continuance of a
Default hereunder, revoke the collection privilege given in this Agreement to
the Obligors and each of the Subsidiaries by either giving notice of its
assignment of, and Lien on the Collateral to the Account Debtors or giving
notice of such revocation to the Obligors. The Lender shall not have any duty
to, and the Obligors hereby release the Lender from all claims of loss or damage
caused by the delay or failure to, collect or enforce any of the Receivables or
to preserve any rights against any other party with an interest in the
Collateral.

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6.1.16 Assignments of Receivables.

      Subject to the limitations set forth in Section 2.9 (Limitations on Joint
and Several Liability for Obligations), each of the Obligors will, following a
Default which is continuing, promptly, upon request, execute and deliver to the
Lender written assignments, in form and content acceptable to the Lender, of
specific Receivables or groups of Receivables; provided, however, the Lien
and/or security interest granted to the Lender under this Agreement shall not be
limited in any way to or by the inclusion or exclusion of Receivables within
such assignments. Receivables so assigned shall secure payment of the
Obligations and are not sold to the Lender whether or not any assignment
thereof, which is separate from this Agreement, is in form absolute. The
Obligors agree that neither any assignment to the Lender nor any other provision
contained in this Agreement or any of the other Financing Documents shall impose
on the Lender any obligation or liability of any Obligor with respect to that
which is assigned and the Obligors hereby agree (subject to the limitations set
forth in Section 2.9 (Limitations on Joint and Several Liability for
Obligations)) jointly and severally to indemnify the Lender and hold the Lender
harmless from any and all claims, actions, suits, losses, damages, costs,
expenses, fees, obligations and liabilities which may be incurred by or imposed
upon the Lender by virtue of the assignment of and Lien on any Obligor's rights,
title and interest in, to, and under the Collateral.

6.1.17 Government Accounts.

      Each of the Obligors will promptly notify the Lender if any of the
Receivables arise out of contracts with the United States or with any other
Governmental Authority, and, as appropriate, execute any instruments and take
any steps reasonably required by the Lender in order that all moneys due and to
become due under such contracts shall be assigned to the Lender and notice
thereof given to the Governmental Authority under the Federal Assignment of
Claims Act or any other applicable Laws.

6.1.18 Notice of Returned Goods, etc.

      Each of the Obligors will promptly notify, and will cause the Subsidiaries
to promptly notify, the Lender of the return, rejection or repossession of any
goods sold or delivered in respect of any Receivables, and of any claims made in
regard thereto to the extent that the aggregate purchase price of any such goods
in any given calendar month exceeds in the aggregate One Hundred Thousand
Dollars ($100,000) or the Euro Currency Equivalent thereof for such month.

6.1.19 Inventory.

      With respect to the Inventory, the U.S. Borrower and the Dutch Borrower
will: (a) as soon as possible upon demand by the Lender from time to time,
prepare and deliver to the Lender designations of Inventory specifying the cost
of Inventory and such other matters and information relating to the Inventory as
the Lender may reasonably request; (b) keep correct and accurate records
itemizing and describing the kind, type, quality and quantity of Inventory, the
cost therefor and the selling price thereof, all of which records shall be
available to the officers, employees or agents of the Lender upon demand in
accordance with the terms hereof for inspection and copying thereof; and (c)
except for incidental, short-term storage or as disclosed on Schedule 6.1.19,
not store any Inventory with an aggregate value in excess of the One

                                       75


Hundred Thousand Dollars ($100,000) with a bailee, warehouseman or similar
Person without the Lender's prior written consent, which consent shall not be
unreasonably withheld and may be conditioned on prior to storage (i) the filing
of appropriate financing statements in the jurisdiction in which such warehouse
or other facility is located, (ii) delivery by the bailee, warehouseman or
similar Person to the Lender of (A) warehouse receipts, in form acceptable to
the Lender, in the name of the Lender evidencing the storage of Inventory and
the interests of the Lender therein and (B) an acknowledgment of receipt of
notice of the Liens of the Lender in each Borrower's Inventory, and (iii) other
reasonable conditions.

6.1.20 Insurance With Respect to Equipment and Inventory.

      Each of the Obligors will (a) maintain and cause each of its Subsidiaries
to maintain hazard insurance with fire and extended coverage and naming the
Lender as additional insured with loss payable to the Lender as its interest may
appear on the Equipment and Inventory in an amount at least equal to the lesser
amount of the outstanding principal amount of the Obligations or the fair market
value of the Equipment and Inventory (but in any event sufficient to avoid any
co-insurance obligations) and with a specific endorsement to each such insurance
policy pursuant to which the insurer agrees to give the Lender at least thirty
(30) days written notice before any alteration or cancellation of such insurance
policy and that no act or default of any of the Obligors shall affect the right
of the Lender to recover under such policy in the event of loss or damage; (b)
file, and cause each of its Subsidiaries to file, with the Lender, upon its
request, a detailed list of the insurance then in effect and stating the names
of the insurance companies, the amounts and rates of the insurance, dates of the
expiration thereof and the properties and risks covered thereby; and (c) within
thirty (30) days after notice in writing from the Lender, obtain, and cause each
of its Subsidiaries to obtain, such additional insurance as the Lender may
reasonably request. Unless a Default has occurred and is continuing, if net
insurance proceeds aggregate less than $200,000 or the Euro Currency Equivalent
thereof, they must be applied to the restoration or replacement of the damaged
property in which case such proceeds shall be held by the Lender as additional
security for the Obligations. If a Default has occurred and is continuing or
either (i) the cost to replace, repair or restore the damaged property or (ii)
the net insurance proceeds aggregate $200,000 or the Euro Currency Equivalent
thereof or more, the Lender shall determine, in its sole discretion, the manner
in which net insurance proceeds are to be applied. Unless a Default has occurred
and is continuing, the Obligors shall have the right to settle any insurance
claim not exceeding $200,000 or the Euro Currency Equivalent thereof, and the
Lender shall have the right to settle for the Obligors any insurance claim in
excess of $200,000 or the Euro Currency Equivalent thereof or any amount during
the continuance of a Default.

6.1.21 Maintenance of the Collateral.

      The Obligors will maintain the Collateral in good working order, saving
and excepting ordinary wear and tear, and will not permit anything to be done to
the Collateral that may materially impair the value thereof.

6.1.22 Equipment.

      No Obligor shall hold any Equipment on a sale on approval basis. Each
Obligor hereby declares its intent that, notwithstanding the means of
attachment, no goods of such Obligor

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hereafter attached to any realty shall be deemed a fixture, which declaration
shall be irrevocable, without the Lender's consent, until all of the Obligations
have been paid in full and all of the Commitments have been terminated or have
expired.

6.1.23 Defense of Title and Further Assurances.

      At their expense, the Obligors will defend the title to the Collateral
(and any part thereof), and will immediately execute, acknowledge and deliver
any financing statement, renewal, affidavit, deed, assignment, continuation
statement, security agreement, certificate or other document which the Lender
may require in order to perfect, preserve, maintain, continue, protect and/or
extend the Lien or security interest granted to the Lender under this Agreement,
under any of the other Financing Documents and the first priority of that Lien,
subject only to the Permitted Liens. The Obligors will from time to time do
whatever the Lender may reasonably require by way of obtaining, executing,
delivering, and/or filing financing statements, landlords' or mortgagees'
waivers, notices of assignment and other notices and amendments and renewals
thereof and the Obligors will take any and all steps and observe such
formalities as the Lender may require, in order to create and maintain a valid
Lien upon, pledge of, or paramount security interest in, the Collateral, subject
to the Permitted Liens. The Obligors shall pay to the Lender on demand all
taxes, costs and expenses incurred by the Lender in connection with the
preparation, execution, recording and filing of any such document or instrument.
To the extent that the proceeds of any of the Accounts or Receivables of any of
the Obligors is expected to become subject to the control of, or in the
possession of, a party other than the Obligors or the Lender, the Obligors shall
cause all such parties to execute and deliver on the Closing Date security
documents, financing statements or other documents as requested by the Lender
and as may be necessary to evidence and/or perfect the security interest of the
Lender in those proceeds. The Obligors agree that a copy of a fully executed
security agreement and/or financing statement shall be sufficient to satisfy for
all purposes the requirements of a financing statement as set forth in Article 9
of the applicable Uniform Commercial Code. Each Obligor hereby irrevocably
appoints the Lender as that Obligor's attorney-in-fact, with power of
substitution, in the name of the Lender or in the name of that Obligor or
otherwise, for the use and benefit of the Lender, but at the cost and expense of
the Obligors and without notice to the Obligors, to execute and deliver any and
all of the instruments and other documents and take any action which the Lender
may require pursuant to the foregoing provisions of this Section 6.1.23.

6.1.24 Business Names; Locations.

      Each Obligor will notify and cause each of the Subsidiaries to notify the
Lender not less than thirty (30) days prior to (a) any change in the name under
which such Obligor or the applicable Subsidiary conducts its business, (b) any
change of the location of the chief executive office of the applicable Obligor
or Subsidiary, (c) any change in the jurisdiction of incorporation of any
Obligor or Subsidiary, and (d) the opening of any new place of business or the
closing of any existing place of business, and any change in the location of the
places where the Collateral, or any part thereof, or the books and records, or
any part thereof, are kept.

6.1.25 Subsequent Opinion of Counsel as to Recording Requirements.

      In the event that any Obligor shall transfer its jurisdiction of
incorporation or principal place of business or the office where it keeps its
records pertaining to the Collateral, upon the

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Lender's request, the Obligors will provide to the Lender a subsequent opinion
of counsel as to the filing, recording and other requirements with which the
Obligors and their Subsidiaries have complied to maintain the Lien and security
interest in favor of the Lender in the Collateral.

6.1.26 Use of Premises and Equipment.

      The Obligors agree that until the Obligations are fully paid and all of
the Commitments have been terminated or have expired, the Lender (a) after and
during the continuance of a Default, may use the Obligors' owned or leased
lifts, hoists, trucks and other facilities or equipment for handling or removing
the Collateral; and (b) in connection with the Lender's right to inspect the
Collateral and exercise rights and remedies during a Default, shall have, and
are hereby granted, a right of ingress and egress to the places where the
Collateral is located, and may proceed over and through any Obligor's owned or
leased property.

6.1.27 Protection of Collateral.

      The Obligors agree that the Lender may at any time following a Default
which is continuing take such steps as the Lender deems reasonably necessary to
protect the interest of the Lender in, and to preserve the Collateral,
including, the hiring of such security guards or the placing of other security
protection measures as the Lender deems appropriate, may employ and maintain at
any of the Obligors' premises a custodian who shall have full authority to do
all acts necessary to protect the interests of the Lender in the Collateral and
may lease warehouse facilities to which the Lender may move all or any part of
the Collateral to the extent commercially reasonable. The Obligors agree to
cooperate fully with the Lender's efforts to preserve the Collateral and will
take such actions to preserve the Collateral as the Lender may reasonably
direct. All of the reasonable expenses of the Lender of preserving the
Collateral, including any reasonable expenses relating to the compensation and
bonding of a custodian, shall be part of the Enforcement Costs.

Section 6.2 Negative Covenants.

      So long as any of the Obligations or the Commitments shall be outstanding
hereunder, the Obligors agree with the Lender, that without the prior written
consent of the Lender:

6.2.1 Merger, Acquisition or Sale of Assets.

      None of the Obligors will enter into any merger except as permitted by
Section 6.2.6 (Stock of Subsidiaries)) or consolidation or amalgamation, windup
or dissolve itself (or suffer any liquidation or dissolution), or make any Asset
Disposition except for sales permitted by Section 6.2.16 (Disposition of
Collateral). Any consent of the Lender to the disposition of any assets not
specifically permitted hereby may be conditioned on a specified use of the
proceeds of disposition.

6.2.2 Subsidiaries.

      None of the Obligors will create or acquire any Subsidiaries other than
Subsidiaries approved by the Lender in the exercise of its reasonable
discretion, which approval shall be

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conditioned, among other things, on the execution and delivery of an Additional
Obligor Joinder Supplement and such other Financing Documents as the Lender may
require.

6.2.3 Purchase or Redemption of Securities, Dividend Restrictions.

      None of the Obligors (a) will purchase, redeem or otherwise acquire any
shares of its capital stock or warrants now or hereafter outstanding, declare or
pay any dividends thereon (other than stock dividends), apply any of its
property or assets to the purchase, redemption or other retirement of, set apart
any sum for the payment of any dividends on, or for the purchase, redemption, or
other retirement of, make any distribution by reduction of capital or otherwise
in respect of, any shares of any class of capital stock of any Obligor, or any
warrants, permit any Subsidiary to purchase or acquire any shares of any class
of capital stock of, or warrants issued by, any Obligor, make any distribution
to stock holders or set aside any funds for any such purpose, except for (i)
dividends by any Subsidiary of the Obligor to a Obligor, (ii) payments under the
Subordinated Note which are expressly permitted under its terms or payments
under the Subordinated Note which are expressly permitted by the ender in
writing and (iii) payment of amounts required for any repurchase, redemption or
other acquisition for value of any capital stock or options held by any member
of any Obligor's management or employees pursuant to any management equity
subscription agreement or stock option agreement or similar agreement or
otherwise upon their death, disability, retirement or termination of employment
or departure from the Board of Directors (provided that the aggregate price paid
for all such repurchased, redeemed, acquired or retired capital stock or options
shall not exceed One Hundred Thousand Dollars ($100,000) or the Euro Currency
Equivalent thereof in any twelve month period), and (b) will not prepay,
voluntarily purchase or voluntarily redeem any Indebtedness for Borrowed Money
other than the Obligations, unless such prepayment is not prohibited by the
terms of the subordination applicable to the Subordinated Indebtedness.

6.2.4 Indebtedness.

      None of the Obligors will create, incur, assume or suffer to exist any
Indebtedness for Borrowed Money or permit any Subsidiary to do so, except:

      (a) the Obligations;

      (b) Indebtedness for Borrowed Money secured by Permitted Liens;

      (c) Capital Leases permitted by the terms of this Agreement;

      (d) Subordinated Indebtedness;

      (e) Indebtedness for Borrowed Money of the Obligors to non-related
entities described on Schedule 4.1.14 (Indebtedness for Borrowed Money);


      (f) Liabilities under Interest Rate/Currency Protection Agreements entered
into in the ordinary course of business with respect to permitted Indebtedness
for Borrowed Money or short-term currency needs and not for speculative
purposes;

      (g) additional Indebtedness for Borrowed Money not exceeding in the
aggregate One Hundred Thousand Dollars ($100,000) or the Euro Currency
Equivalent thereof;

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      (h) indebtedness under loans permitted by Section 6.2.16(b)(i)
(Disposition of Collateral); and

      (i) intercompany transactions classified as loans, advances and all
past-due trade accounts payable by one or more of the Obligors to any other
Obligor.

6.2.5 Investments, Loans and Other Transactions.

      Except as otherwise provided in this Agreement, none of the Obligors will
or will permit any of the Subsidiaries to, (a) make, assume, acquire or continue
to hold any investment in any real property (unless used in connection with
their business and treated as a Fixed or Capital Asset of any Obligor) or any
Person, whether by stock purchase, capital contribution, acquisition of
indebtedness of such Person, acquisition of all or substantially all the assets
of any Person, or otherwise (including, without limitation, investments in any
joint venture or partnership), (b) guaranty or otherwise become contingently
liable for the Liabilities or obligations of any Person, or (c) make any loans
or advances, or otherwise extend credit to any Person, except:

      (i) any advance to an officer or employee of any Obligor for travel or
other business expenses in the ordinary course of business, provided that the
aggregate amount of all such advances by all of the Obligors (taken as a whole)
outstanding at any time shall not exceed in the aggregate One Hundred Thousand
Dollars ($175,000) or the Euro Currency Equivalent thereof;

      (ii) any advance to an officer or employee of any Obligor for housing
purposes, provided that the aggregate amount of all such advances by all of the
Obligors (taken as a whole) outstanding at any time shall not exceed in the
aggregate One Hundred Thousand Dollars ($100,000) or the Euro Currency
Equivalent thereof;

      (iii) the endorsement of negotiable instruments for deposit or collection
or similar transactions in the ordinary course of business;


      (iv) any investment in Cash Equivalents, which are pledged to the Lender
as collateral and security for the Obligations;


      (v) trade credit extended to customers in the ordinary course of business;
and

      (vi) advance payment guarantees by any Obligor of progress payments made
by the purchasers of products manufactured by any of the Obligors, the
obligations under which do not exceed in the aggregate not exceeding in the
aggregate One Hundred Thousand Dollars ($100,000) or the Euro Currency
Equivalent thereof at any one time outstanding.

6.2.6 Stock of Subsidiaries.

      None of the Obligors will sell or otherwise dispose of any shares of
capital stock of any Subsidiary (except in connection with a merger or
consolidation of any one Obligor into any of the other Obligors.

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6.2.7 Subordinated Indebtedness.

      None of the Obligors will, or will permit any Subsidiary to, make any
payment of principal of, or interest on, the Subordinated Obligations or any
other Subordinated Indebtedness if such payment is not permitted by the terms of
the Subordinated Note, by terms applicable to such other Subordinated
Indebtedness or is not permitted by the terms of this Agreement.

6.2.8 Liens.

      Each Obligor agrees that it (a) will not create, incur, assume or suffer
to exist any Lien upon any of its properties or assets, whether now owned or
hereafter acquired, or permit any Subsidiary so to do, except for Liens securing
the Obligations and Permitted Liens, (b) will not agree to, assume or suffer to
exist any provision in any instrument or other document for confession of
judgment, cognovit or other similar right or remedy, (c) will not allow or
suffer to exist any Permitted Liens, except permitted purchase money Liens and
Liens under the Subordinated Obligations Documents, to be superior to Liens
securing the Obligations, (d) without the prior written consent of the Lender
(which consent shall not be unreasonably withheld but may be conditioned on the
execution and delivery of an intercreditor agreement reasonably satisfactory to
the Lender), will not enter into any contracts for the consignment of goods,
will not execute or suffer the filing of any financing statements or the posting
of any signs giving notice of consignments, and will not, as a material part of
its business, engage in the sale of goods belonging to others, and (e) will not
allow or suffer to exist the failure of any Lien described in the Security
Documents to attach to, and/or remain at all times perfected, as applicable, on,
any of the property described in the Security Documents.

6.2.9 Transactions with Affiliates.

      Except as permitted in Section 6.2.3 (Purchase or Redemption of
Securities, Dividend Restrictions) or in Section 6.2.13 (Compensation), none of
the Obligors nor any of their Subsidiaries will enter into or participate in any
transaction with any Affiliate on terms which are not fair and reasonable and
which are no less favorable than would be obtained in a comparable arms-length
transaction with a Person who is not an Affiliate.

6.2.10 ERISA Compliance.

      None of the Obligors nor any Commonly Controlled Entity shall: (a) engage
in or permit any "prohibited transaction" (as defined in ERISA); (b) cause any
"accumulated funding deficiency" as defined in ERISA and/or the Internal Revenue
Code; (c) terminate any pension plan in a manner which could result in the
imposition of a lien on the property of any Obligor pursuant to ERISA; (d)
terminate or consent to the termination of any Multi-employer Plan; or (e) incur
a complete or partial withdrawal with respect to any Multi-employer Plan, which
with respect to any of the events set forth in clauses (a) through (e) would
cause a Material Adverse Effect.

6.2.11 Prohibition on Hazardous Materials.

      None of the Obligors shall place, manufacture or store or permit to be
placed, manufactured or stored any Hazardous Materials on any property owned,
operated or controlled

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by any Obligor or for which any Obligor is responsible other than Hazardous
Materials placed, manufactured or stored on such property in compliance in all
material respects with applicable Laws in the ordinary course of a Obligor's
business expressly described in this Agreement.

6.2.12 Method of Accounting; Fiscal Year.

      Each Obligor agrees that:

      it shall not change the method of accounting employed in the preparation
of any financial statements furnished to the Lender under the provisions of
Section 6.1.1 (Financial Statements), unless required to conform to GAAP and on
the condition that the Obligors' accountants shall furnish such information as
the Lender may request to reconcile the changes with the Obligors' prior
financial statements; and

      it will not change its fiscal year from a year ending on December 31.

6.2.13 Compensation.

      None of the Obligors will pay any bonuses, fees, compensation,
commissions, salaries, drawing accounts, or other payments (cash and non-cash),
whether direct or indirect, to any stockholders of any Obligor, or any Affiliate
of any Obligor, other than reasonable compensation for actual services rendered
by stockholders in their capacity as officers or employees, except for, (a)
reasonable director's fees, (b) reasonable and customary indemnification of
officers, directors, employees and consultants, and (c) the reimbursement of
reasonable travel and other out-of-pocket expenses reasonably incurred by the
Obligors' directors in the performance of their duties with respect to the
Obligors.

6.2.14 Transfer of Collateral.

      None of the Obligors nor any of their Subsidiaries will transfer, or
permit the transfer, to another location of any of the Collateral or the books
and records related to any of the Collateral unless the notice required by
Section 6.1.24 (Business Names; Locations) has been given and, if required, the
Liens of the Lender have been perfected by filing in that location.

6.2.15 Sale and Leaseback.

      None of the Obligors nor any of their Subsidiaries will directly or
indirectly enter into any arrangement to sell or transfer all or any substantial
part of its fixed assets and thereupon or within one year thereafter rent or
lease the assets so sold or transferred.

6.2.16 Disposition of Collateral.

      None of the Obligors will sell, discount, allow credits or allowances,
transfer, assign, extend the time for payment on, convey, lease, assign,
transfer or otherwise dispose of the Collateral, except, prior to a Default
which is continuing (a) dispositions that are not Asset Dispositions, and (b)
the sale of unnecessary or obsolete Equipment, but only if the proceeds of the
sale of such Equipment are (i) used to purchase other Equipment with a
transaction or book value not to exceed in the aggregate, in any twelve (12)
month period, Two Hundred Thousand

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Dollars ($200,000) or the Euro Currency Equivalent thereof or (ii) immediately
turned over to the Lender for application to the Obligations in such order as
the Lender may determine in the exercise of its sole and absolute discretion.

6.2.17 Amendments or Modification to Charter Documents.

      None of the Obligors shall permit any amendment or modification to their
Charter Documents or to the Charter Documents of any of their Subsidiaries.

                                   ARTICLE VII
                         DEFAULT AND RIGHTS AND REMEDIES

Section 7.1 Events of Default.

      The occurrence of any one or more of the following events shall constitute
a default under the provisions of this Agreement, and the term "Default" shall
mean, whenever it is used in this Agreement, any one or more of the following
events after giving effect to the giving of notice, the lapse of time, or both,
as herein provided (and the term "Event of Default" as used herein means one or
more of the following events, whether or not any requirement for the giving of
notice, the lapse of time, or both has been satisfied):

7.1.1 Failure to Pay.

      The failure of the Obligors to pay any of the Obligations as and when due
and payable in accordance with the provisions of this Agreement and/or any of
the other Financing Documents, and, except in the case of the failure to make
any payment of principal and in the case of the failure to pay any Obligation at
its maturity (whether by acceleration or otherwise) or when due on demand, such
failure continues uncured for a period of five (5) Business Days.

7.1.2 Breach of Representations and Warranties.

      Any representation or warranty made in this Agreement or in any report,
statement, schedule, certificate, opinion (including any opinion of counsel for
any Obligor), financial statement or other document furnished in connection with
this Agreement, any of the other Financing Documents, or the Obligations, is
false or misleading when made (or, if applicable, when reaffirmed) in any
material respect.

7.1.3 Failure to Comply with Certain Covenants.

      The failure of the Obligors to perform, observe or comply with any of the
provisions of Section 6.1.1 (Financial Statements) and 6.1.2 (Reports to SEC and
Stockholders) of this Agreement or of Section 6.2 (Negative Covenants) of this
Agreement.

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7.1.4 Failure to Comply with Other Covenants.

      The failure of the Obligors to perform, observe or comply with any of the
provisions of this Agreement other than those covered by Section 7.1.1 (Failure
to Pay), Section 7.1.2 (Breach of Representations and Warranties) and Section
7.1.3 (Failure to Comply with Certain Covenants) of this Agreement, and such
failure is not cured to the satisfaction of the Lender within a period of thirty
(30) days.

7.1.5 Default Under Other Financing Documents.

      The occurrence of a default (as defined and described therein) under the
provisions of any of the other Financing Documents which is not cured within
applicable cure periods, if any; or to the extent there is no default defined in
such Financing Document a material failure to perform under such Financing
Document.

7.1.6 Insolvency.

      If the U.S. Borrower on a consolidated basis shall become insolvent and/or
admit its inability to pay its debts as they mature.

7.1.7 Bankruptcy.

      If proceedings in Bankruptcy, or for reorganization of any or all of the
Obligors, or for the readjustment of any or all of the Obligor's debts, under
the United States Bankruptcy Code (as amended), or in the case of the Dutch
Borrower having filed a notice under section 36 of the Tax Collection Act of the
Netherlands (Invorderingswet 1990) or section 16d of the Social Insurance
Co-ordination Act of the Netherlands (Coordinatiewet Sociale Verzekeringen) or
any part thereof, or under any other applicable laws, whether state or federal,
for the relief of debtors, now or hereafter existing, shall be commenced against
or by any or all of the Obligors and, except with respect to any such
proceedings instituted by any or all of the Obligors, shall not be discharged
within sixty (60) days of their commencement.

7.1.8 Receivership.

      A receiver or trustee shall be appointed for any or all of the Obligors or
for any substantial part of any or all of the Obligor's assets, or any
proceedings shall be instituted for the dissolution or the full or partial
liquidation of any or all of the Obligors and, except with respect to any such
appointments requested or instituted by any of the Obligors, such receiver or
trustee shall not be discharged within sixty (60) days of his or her
appointment, and, except with respect to any such proceedings instituted by the
Borrower, such proceedings shall not be discharged within sixty (60) days of
their commencement.

7.1.9 Judgment.

      One or more judgments or decrees shall be entered against any or all of
the Obligors involving in the aggregate liability in excess of Two Hundred
Thousand Dollars ($200,000), and all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within thirty (30)
days after the entry thereof.

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7.1.10 Execution; Attachment.

      Any execution or attachment shall be levied against the Collateral, or any
part thereof, and such execution or attachment shall not be set aside,
discharged or stayed within thirty (30) days after the same shall have been
levied.

7.1.11 Default Under Other Borrowings.

      Default shall be made with respect to any Indebtedness for Borrowed Money
of any Obligor (other than the Loans) for an amount in excess of Two Hundred
Thousand Dollars ($200,000) in the aggregate if the effect of such default is to
accelerate the maturity of such Indebtedness for Borrowed Money or to permit the
holder or obligee thereof or other party thereto to cause such Indebtedness for
Borrowed Money to become due prior to its stated maturity.

7.1.12 Unenforceable Liens.

      If the Lender in good faith reasonably determines a material portion of
the Lender's Liens on the Collateral is invalid or unenforceable, or if Lender
reasonably determines that it does not have the lien position on the Collateral
that was contemplated under the terms of this Agreement and the other Financing
Documents.

7.1.13 Challenge to Agreements.

      Any Obligor or any guarantor shall challenge the validity and binding
effect of any provision of any of the Financing Documents or shall state its
intention to make such a challenge of any of the Financing Documents or any of
the Financing Documents shall for any reason (except to the extent permitted by
its express terms) cease to be effective or to create a valid and perfected
first priority Lien (except for Permitted Liens) on, or security interest in,
any of the Collateral purported to be covered thereby.

7.1.14 Material Adverse Effect.

      An event has occurred which has a Material Adverse Effect.

7.1.15 Change in Control.

      The occurrence of any Change of Control.

7.1.16 Liquidation, Termination, Dissolution.

      Any Obligor shall liquidate, dissolve or terminate its existence without
the prior written consent of the Lender.

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7.1.17 Suit by Seller.

      If the Seller should bring suit or other legal action for breach of
contract or non-performance under the Purchase Agreement following the U.S.
Borrower's failure to pay the amount in excess of Two Hundred Thousand Dollars
($200,000) of any Cash Tax Benefit (as such term is defined in the Purchase
Agreement) due under the terms of the Purchase Agreement determined by an
accounting firm (acceptable to the Lender in its reasonable discretion) on the
date when due in accordance with the terms of the Purchase Agreement.

Section 7.2 Remedies.

      Upon the occurrence of a Default, the Lender may, in the exercise of its
or their sole and absolute discretion from time to time, at any time thereafter
exercise any one or more of the following rights, powers or remedies:

7.2.1 Acceleration, Termination.

      The Lender may (i) declare the Commitments and the Credit Facilities and
any obligation or commitment of the Lender hereunder to make Loans to the
Borrowers or to issue Letters of Credit for the account of the Borrowers to be
terminated, whereupon the same shall forthwith terminate, and (ii) declare the
unpaid principal amount of the Loans, together with accrued and unpaid interest
thereon, and all other Obligations then outstanding to be immediately due and
payable, whereupon the same shall become and be forthwith due and payable by the
Obligors to the Lender, without presentment, demand, protest or further notice
of any kind, all of which are expressly waived by the Obligors; provided, that,
in the case of any Default referred to in Section 7.1.6 (Insolvency), Section
7.1.7 (Bankruptcy), and 7.1.8 (Receivership) above, the Commitments and the
Credit Facilities and any obligation or commitment of the Lender hereunder to
make Loans to the Borrowers Obligors or to issue Letters of Credit for the
account of the Borrowers shall immediately and automatically terminate and the
unpaid principal amount of the Loans, together with accrued and unpaid interest
thereon, and all other Obligations then outstanding shall be automatically and
immediately due and payable by the Obligors to the Lender without notice,
presentment, demand, protest or other action of any kind, all of which are
expressly waived by the Obligors.

7.2.2 Uniform Commercial Code.

      The Lender shall have all of the rights and remedies of a secured party
under the applicable Uniform Commercial Code and other applicable Laws. Upon the
occurrence and during the continuation of a Default, to the extent permitted
under applicable law, upon demand by the Lender, the Obligors shall assemble the
Collateral and make it available to the Lender at a place designated by the
Lender. Upon the occurrence and during the continuation of a Default, the Lender
may without notice from time to time enter upon any Obligor's premises to take
possession of the Collateral, to remove it, to render it unusable, to process it
or otherwise prepare it for sale, or to sell or otherwise dispose of it. Upon
the occurrence and during the continuation of a Default, at the Lender's
direction, the Obligors shall cease to process, prepare for sale, sell or
otherwise dispose of the Collateral.

                                       86


      Any written notice of the sale, disposition or other intended action by
the Lender with respect to the Collateral which is sent by regular mail, postage
prepaid, to the Obligors at the address set forth in Section 8.1 (Notices) of
this Agreement, or such other address of the Obligors which may from time to
time be shown on the Lender's records, at least ten (10) days prior to such
sale, disposition or other action, shall constitute commercially reasonable
notice to the Obligors. The Lender may alternatively or additionally give such
notice in any other commercially reasonable manner. Nothing in this Agreement
shall require the Lender to give any notice not required by applicable Laws.

      If any consent, approval, or authorization of any state, municipal or
other Governmental Authority or of any other Person or of any Person having any
interest therein, should be necessary to effectuate any sale or other
disposition of the Collateral, the Obligors agree to execute all such
applications and other instruments, and to take all other action, as may be
required in connection with securing any such consent, approval or
authorization.

      The Obligors recognize that the Lender may be unable to effect a public
sale of all or a part of the Collateral consisting of Securities by reason of
certain prohibitions contained in the Securities Act of 1933, as amended, and
other applicable Federal and state Laws. The Lender may, therefore, in its
discretion, take such steps as it may deem appropriate to comply with such Laws
and may, for example, at any sale of the Collateral consisting of securities
restrict the prospective bidders or purchasers as to their number, nature of
business and investment intention, including, without limitation, a requirement
that the Persons making such purchases represent and agree to the satisfaction
of the Lender that they are purchasing such securities for their account, for
investment, and not with a view to the distribution or resale of any thereof.
The Obligors covenant and agree to do or cause to be done promptly all such acts
and things as the Lender may request from time to time and as may be necessary
to offer and/or sell the securities or any part thereof in a manner which is
valid and binding and in conformance with all applicable Laws. Upon any such
sale or disposition, the Lender shall have the right to deliver, assign and
transfer to the purchaser thereof the Collateral consisting of securities so
sold.

7.2.3 Standard of Care.

      To the extent that applicable law may impose duties on the Lender to
exercise remedies in a commercially reasonable manner, the Obligors acknowledges
and agrees that it is not commercially unreasonable for the Lender (a) to fail
to incur expenses reasonably deemed significant by the Lender to prepare any of
the Collateral for disposition or otherwise to fail to complete raw material or
work in process into finished goods or other finished products for disposition,
(b) to fail to obtain third party consents for access to the Collateral to be
disposed of, or to obtain or, if not required by other law, to fail to obtain
governmental or third party consents for the collection or disposition of the
Collateral to be collected or disposed of, (c) to fail to exercise collection
remedies against account debtors or other Persons obligated on the Collateral or
to fail to remove liens or encumbrances on or any adverse claims against the
Collateral, (d) to exercise collection remedies against account debtors and
other Persons obligated on the Collateral directly or through the use of
collection agencies and other collection specialists, (e) to advertise
dispositions of the Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (f) to
contact other Persons, whether or not in the same business as the Obligors, for
expressions of interest in acquiring all or any portion of the Collateral, (g)
to hire one or more professional auctioneers to assist in the disposition of the
Collateral, whether or not the collateral is of a specialized nature, (h) to
dispose

                                       87


of the Collateral by utilizing Internet sites that provide for the auction of
assets of the types included in the Collateral or that have the reasonable
capability of doing so, or that match buyers and sellers of assets, (i) to
dispose of assets in wholesale rather than retail markets, (j) to disclaim
disposition warranties, (k) to purchase insurance or credit enhancements to
insure the Lender against risks of loss, collection or disposition of Collateral
or to provide to the Lender a guaranteed return from the collection or
disposition of Collateral, or (l) to the extent deemed appropriate by the
Lender, to obtain the services of other brokers, investment bankers, consultants
and other professionals to assist the Lender in the collection or disposition of
any of the Collateral.

7.2.4 Specific Rights With Regard to Collateral.

      Upon the occurrence and during the continuation of a Default, in addition
to all other rights and remedies provided hereunder or as shall exist at law or
in equity from time to time, the Lender may (but shall be under no obligation
to), without notice to the Obligors, and each Obligor hereby irrevocably
appoints the Lender as its attorney-in-fact, with power of substitution, in the
name of the Lender and/or in the name of any or all of the Obligors or
otherwise, for the use and benefit of the Lender, but at the cost and expense of
the Obligors and without notice to the Obligors:

      (a) request any Account Debtor obligated on any of the Accounts to make
payments thereon directly to the Lender, with the Lender taking control of the
cash and non-cash proceeds thereof;

      (b) compromise, extend or renew any of the Collateral or deal with the
same as it may deem advisable;

      (c) make exchanges, substitutions or surrenders of all or any part of the
Collateral;

      (d) copy, transcribe, or remove from any place of business of any Obligor
all books, records, ledger sheets, correspondence, invoices and documents,
relating to or evidencing any of the Collateral or without cost or expense to
the Lender make such use of any Obligor's place(s) of business as may be
reasonably necessary to administer, control and collect the Collateral;

      (e) repair, alter or supply goods if necessary to fulfill in whole or in
part the purchase order of any Account Debtor;

      (f) demand, collect, receipt for and give renewals, extensions, discharges
and releases of any of the Collateral;

      (g) institute and prosecute legal and equitable proceedings to enforce
collection of, or realize upon, any of the Collateral;

      (h) settle, renew, extend, compromise, compound, exchange or adjust claims
in respect of any of the Collateral or any legal proceedings brought in respect
thereof;

      (i) endorse or sign the name of any Obligor upon any items of payment,
certificates of title, instruments, securities, stock powers, documents,
documents of title, financing statements, assignments, notices or other writing
relating to or part of the Collateral and on any proof of claim in bankruptcy
against an Account Debtor;

                                       88


      (j) notify the Post Office authorities to change the address for the
delivery of mail to the Obligors to such address or Post Office Box as the
Lender may designate and receive and open all mail addressed to any of the
Obligors (which the Lender reasonably believes to be related to an Account of
any of the Obligors; and

      (k) take any other action reasonably necessary to realize upon or dispose
of the Collateral or to carry out the terms of this Agreement.

      The Obligors further acknowledge and agree that following the occurrence
and during the continuation of a Default, the Lender, shall be entitled to
enforce any and all rights and remedies available to any or all of the Obligors
under the Purchase Agreement and/or under any or all of the Purchase Agreement
Documents and/or applicable Laws with respect to the Purchase Agreement
Transaction, including (without limitation) rights to indemnification for breach
of representations, warranties and covenants.

7.2.5 Application of Proceeds.

      Any proceeds of sale or other disposition of the Collateral will be
applied by the Lender to the payment first of any and all Enforcement Costs, and
thereafter to the Obligations in such order and manner as the Lender may
determine in its sole and absolute discretion; provided that any proceeds of
sale or other disposition of the Dutch Collateral will be applied by the Lender
only to the payment of the Dutch Obligations in such order and manner as the
Lender shall determine in its sole and absolute discretion. If the sale or other
disposition (by foreclosure, liquidation or otherwise) of the Collateral fails
to fully satisfy the Obligations, the Obligors shall remain liable to the Lender
for any deficiency, as appropriate, subject to the limitations provided in
Section 2.9 (Limitations on Joint and Several Liability for Obligations).

7.2.6 Performance by Lender.

      If the Obligors shall fail to pay the Obligations or otherwise fail to
perform, observe or comply with any of the conditions, covenants, terms,
stipulations or agreements contained in this Agreement or any of the other
Financing Documents, the Lender without notice to or demand upon the Obligors
and without waiving or releasing any of the Obligations or any Default or Event
of Default, may following the occurrence and during the continuation of a
Default (but shall be under no obligation to) at any time thereafter make such
payment or perform such act for the account and at the expense of the Obligors,
and may enter upon the premises of the Obligors for that purpose and take all
such action thereon as the Lender may reasonably consider necessary or
appropriate for such purpose and each of the Obligors hereby irrevocably appoint
the Lender as its attorney-in-fact to do so, with power of substitution, in the
name of the Lender, or in the name of any or all of the Obligors or otherwise,
for the use and benefit of the Lender but at the cost and expense of the
Obligors and without notice to the Obligors. All sums so paid or advanced by the
Lender, together with interest thereon from the date of payment, advance or
incurring until paid in full at the Post-Default Rate and all costs and
expenses, shall be deemed part of the Enforcement Costs, shall be paid by the
Obligors to the Lender on demand, and shall constitute and become a part of the
Obligations.

                                       89


7.2.7 Other Remedies.

      The Lender may from time to time proceed to protect or enforce the rights
of the Lender by an action or actions at law or in equity or by any other
appropriate proceeding, whether for the specific performance of any of the
covenants contained in this Agreement or in any of the other Financing
Documents, or for an injunction against the violation of any of the terms of
this Agreement or any of the other Financing Documents, or in aid of the
exercise or execution of any right, remedy or power granted in this Agreement,
the Financing Documents, and/or applicable Laws. The Lender is authorized to
offset and apply to all or any part of the Obligations all moneys, credits and
other property of any nature whatsoever of any or all of the Obligors now or at
any time hereafter in the possession of, in transit to or from, under the
control or custody of, or on deposit with, the Lender or any Affiliate of the
Lender.

                                  ARTICLE VIII
                                  MISCELLANEOUS

Section 8.1 Notices.

      All notices, requests and demands to or upon the parties to this Agreement
shall be in writing, or by a telecommunications device capable of creating a
written record, and any such notice shall become effective (a) upon personal
delivery thereof, including but not limited to, delivery by overnight mail or
courier service, (b) five (5) days after it shall have been deposited in the
mail, first class, certified or registered, with postage prepaid, or (c) in the
case of notice by a telecommunications device, when properly transmitted, in
each case addressed to the party to be notified as follows:

      Obligors:                 Optelecom, Inc.
                                12920 Cloverleaf Center Drive
                                Germantown, Maryland  20874
                                Attention: Jim Armstrong
                                Facsimile:
                                E-mail:

            with a copy to:     Venable LLP
                                8010 Towers Crescent Drive
                                Suite 300
                                Vienna, Virginia  22182
                                Attention:  Elizabeth R. Hughes
                                Facsimile:
                                E-mail:  erhughes@venable.com

      Lender:                   Manufacturers and Traders Trust Company
                                6303 Ivy Lane, Mail Code 261-012
                                Greenbelt, Maryland  20770
                                Attention: Jack Lewin
                                Facsimile:
                                E-mail:  jlewin@mandtbank.com

                                       90


            with a copy to:     William J. Thomas
                                Miles & Stockbridge P. C.
                                10 Light Street
                                Baltimore, Maryland 21202
                                Facsimile: 410-385-3700
                                E-mail: wthomas@milesstockbridge.com

By written notice, each party to this Agreement may change the address to which
notice is given to that party, provided that such changed notice shall include a
street address to which notices may be delivered by overnight courier in the
ordinary course on any Business Day.

Section 8.2 Amendments; Waivers.

      This Agreement and the other Financing Documents may not be amended,
modified, or changed in any respect except by an agreement in writing signed by
the Lender and the Obligors. No waiver of any provision of this Agreement or of
any of the other Financing Documents, nor consent to any departure by the
Obligors therefrom, shall in any event be effective unless the same shall be in
writing signed by the Lender. No course of dealing between the Obligor and the
Lender and no act or failure to act from time to time on the part of the Lender
shall constitute a waiver, amendment or modification of any provision of this
Agreement or any of the other Financing Documents or any right or remedy under
this Agreement, under any of the other Financing Documents or under applicable
Laws. Without implying any limitation on the foregoing:

      Any waiver or consent shall be effective only in the specific instance,
for the terms and purpose for which given, subject to such conditions as the
Lender may specify in any such instrument.

      No waiver of any Default or Event of Default shall extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereto.

      No notice to or demand on the Obligors in any case shall entitle the
Obligors to any other or further notice or demand in the same, similar or other
circumstance.

      No failure or delay by the Lender to insist upon the strict performance of
any term, condition, covenant or agreement of this Agreement or of any of the
other Financing Documents, or to exercise any right, power or remedy consequent
upon a breach thereof, shall constitute a waiver, amendment or modification of
any such term, condition, covenant or agreement or of any such breach or
preclude the Lender from exercising any such right, power or remedy at any time
or times.

      By accepting payment after the due date of any amount payable under this
Agreement or under any of the other Financing Documents, the Lender shall not be
deemed to waive the right either to require prompt payment when due of all other
amounts payable under this Agreement or under any of the other Financing
Documents, or to declare a default for failure to effect such prompt payment of
any such other amount.

                                       91


Section 8.3 Cumulative Remedies.

      The rights, powers and remedies provided in this Agreement and in the
other Financing Documents are cumulative, may be exercised concurrently or
separately, may be exercised from time to time and in such order as the Lender
shall determine, subject to the provisions of this Agreement, and are in
addition to, and not exclusive of, rights, powers and remedies provided by
existing or future applicable Laws. In order to entitle the Lender to exercise
any remedy reserved to it in this Agreement, it shall not be necessary to give
any notice, other than such notice as may be expressly required in this
Agreement. Without limiting the generality of the foregoing and subject to the
terms of this Agreement, the Lender may, subject to the limitations set forth in
Section 2.9 (Limitations on Joint and Several Liability for Obligations):

      (a) proceed against any one or more of the Obligors with or without
proceeding against any other Person (including, without limitation, any
guarantor) who may be liable (by endorsement, guaranty, indemnity or otherwise)
for all or any part of the Obligations;

      (b) proceed against any one or more of the Obligors with or without
proceeding under any of the other Financing Documents or against any Collateral
or other collateral and security for all or any part of the Obligations;

      (c) without reducing or impairing the obligation of the Obligors and
without notice, release or compromise with any guarantor or other Person liable
(by endorsement, guaranty, indemnity or otherwise) for all or any part of the
Obligations under the Financing Documents or otherwise;

      (d) without reducing or impairing the obligations of the Obligors and
without notice thereof: (i) fail to perfect the Lien in any or all Collateral or
to release any or all the Collateral or to accept substitute Collateral, (ii)
approve the making of U.S. Revolving Loan Advances and/or the Dutch Revolving
Loan Advances under this Agreement, (iii) waive any provision of this Agreement
or the other Financing Documents, (iv) exercise or fail to exercise rights of
set-off or other rights, or (v) accept partial payments or extend from time to
time the maturity of all or any part of the Obligations.

Section 8.4 Severability.

      In case one or more provisions, or part thereof, contained in this
Agreement or in the other Financing Documents shall be invalid, illegal or
unenforceable in any respect under any Law, then without need for any further
agreement, notice or action:

      (a) the validity, legality and enforceability of the remaining provisions
shall remain effective and binding on the parties thereto and shall not be
affected or impaired thereby;

      (b) the obligation to be fulfilled shall be reduced to the limit of such
validity;

      (c) if such provision or part thereof pertains to repayment of the
Obligations then, at the sole and absolute discretion of the Lender, all of the
Obligations of the Obligors to the Lender shall become immediately due and
payable; and


                                       92


      (d) if the affected provision or part thereof operates or would
prospectively operate to invalidate this Agreement in whole or in part, then
such provision or part thereof only shall be void, and the remainder of this
Agreement shall remain operative and in full force and effect.

Section 8.5 Assignments and Participations by Lender.

      The Lender may, without notice to or consent of the Obligor, sell, dispose
of, assign or transfer to any Person or Persons, all or any part of the
Obligations or all or any part of the Financing Documents and each such Person
or Persons shall have the right to enforce the provisions of the Financing
Documents and any of the Obligations as fully as the Lender, provided that the
Lender shall continue to have the unimpaired right to enforce the provisions of
the Financing Documents and any of the Obligations as to so much of the
Financing Documents and/or the Obligations that it has not sold, assigned or
transferred. Additionally, the Lender may sell or grant to any other Person or
Persons participations in all or any part of the Obligations or all or any part
of the Financing Documents. The Obligor will fully cooperate with the Lender in
connection with any such assignment and will execute and deliver such consents
and acceptances to any such assignment, amendments to this Agreement in order to
effect any such assignment (including, without limitation, the appointment of
the Lender as agent for itself and all assignees); provided, that the Obligor's
indebtedness, obligations and liabilities under this Agreement and the other
Financing Documents will not be increased by reason of any such assignment.

Section 8.6 Disclosure of Information by Lender.

      In connection with any sale, transfer, assignment or participation by the
Lender in accordance with Section 8.5 (Assignments and Participations by
Lender), the Lender shall have the right to disclose to any actual or potential
purchaser, assignee, transferee or participant all financial records,
information, reports, financial statements and documents obtained in connection
with this Agreement and/or any of the other Financing Documents or otherwise,
provided that any such purchaser, assignee, transferee or participant agrees to
treat such information as confidential.

Section 8.7 Successors and Assigns.

      This Agreement and all other Financing Documents shall be binding upon and
inure to the benefit of the Obligors and the Lender and their respective
successors and assigns, except that the Obligors shall not have the right to
assign their rights hereunder or any interest herein without the prior written
consent of the Lender.

Section 8.8 Continuing Agreements.

      All covenants, agreements, representations and warranties made by the
Obligors in this Agreement, in any of the other Financing Documents, and in any
certificate delivered pursuant hereto or thereto shall survive the making by the
Lender of the Loans and the execution and

                                       93


delivery of this Agreement, shall be binding upon the Obligors regardless of how
long before or after the date hereof any of the Obligations were or are
incurred, and shall continue in full force and effect so long as any of the
Obligations are outstanding and unpaid.

Section 8.9 Enforcement Costs.

      Subject to the limitations set forth in Section 2.9 (Limitations on Joint
and Several Liability for Obligations), the Obligors agree to pay to the Lender
on demand all Enforcement Costs, together with interest thereon from the date
which is five (5) Business Days after written notice of demand until paid in
full at a per annum rate of interest equal at all times to the Post-Default
Rate. Enforcement Costs shall be immediately due and payable at the time
advanced or incurred, whichever is earlier. Without implying any limitation on
the foregoing, the Obligors agree, as part of the Enforcement Costs, to pay upon
demand any and all stamp and other Taxes and fees payable or determined to be
payable in connection with the execution and delivery of this Agreement and the
other Financing Documents and to save the Lender harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay any Taxes or fees referred to in this Section. The provisions of
this Section shall survive the execution and delivery of this Agreement, the
repayment of the other Obligations and shall survive the termination of this
Agreement.

Section 8.10 Applicable Law; Jurisdiction.

8.10.1 Applicable Law.

      As a material inducement to the Lender to enter into this Agreement, the
Obligors acknowledge and agree that the Financing Documents, including, this
Agreement, shall be governed by the Laws of the State, as if each of the
Financing Documents and this Agreement had each been executed, delivered,
administered and performed solely within the State even though for the
convenience and at the request of the Obligors, one or more of the Financing
Documents may be executed elsewhere. The Lender acknowledges, however, that
remedies under certain of the Financing Documents that relate to property
outside the State may be subject to the laws of the jurisdiction in which the
property is located.

8.10.2 Submission to Jurisdiction.

      The Obligors irrevocably submit to the jurisdiction of any state or
federal court sitting in the State over any suit, action or proceeding arising
out of or relating to this Agreement or any of the other Financing Documents.
Each of the Obligors irrevocably waives, to the fullest extent permitted by law,
any objection that it may now or hereafter have to the laying of the venue of
any such suit, action or proceeding brought in any such court and any claim that
any such suit, action or proceeding brought in any such court has been brought
in an inconvenient forum. Final judgment in any such suit, action or proceeding
brought in any such court shall be conclusive and binding upon the Obligors and
may be enforced in any court in which the Obligors are subject to jurisdiction,
by a suit upon such judgment, provided that service of process is effected upon
the Obligors in one of the manners specified in this Section or as otherwise
permitted by applicable Laws.

                                       94


8.10.3 Appointment of Agent for Service of Process.

      Each of the Non- U.S. Obligors hereby irrevocably designates and appoints
Harvard Business Services as that Non-U.S. Obligor's authorized agent to receive
on such Non-U.S. Obligor's behalf service of any and all process that may be
served in any suit, action or proceeding of the nature referred to in this
Section in any state or federal court sitting in the State. If such agent shall
cease so to act, each of the Non- U.S. Obligors shall irrevocably designate and
appoint without delay another such authorized agent in the State satisfactory to
the Lender and shall promptly deliver to the Lender evidence in writing of such
other agent's acceptance of such appointment and its agreement that such
appointment shall be irrevocable.

8.10.4 Service of Process.

      The Obligors hereby consent to process being served in any suit, action or
proceeding of the nature referred to in this Section by (a) the mailing of a
copy thereof by registered or certified mail, postage prepaid, return receipt
requested, to the Obligors at the Obligors' address designated in or pursuant to
Section 8.1 (Notices), and (b) serving a copy thereof upon the agent, if any,
designated and appointed by each Obligor as the Obligor's agent for service of
process by or pursuant to this Section. Each of the Obligors irrevocably agrees
that such service (y) shall be deemed in every respect effective service of
process upon the Obligors in any such suit, action or proceeding, and (z) shall,
to the fullest extent permitted by law, be taken and held to be valid personal
service upon the Obligors. Nothing in this Section shall affect the right of the
Lender to serve process in any manner otherwise permitted by law or limit the
right of the Lender otherwise to bring proceedings against any or all of the
Obligors in the courts of any jurisdiction or jurisdictions.

Section 8.11 Duplicate Originals and Counterparts; Counterpart Facsimile
Execution.

      This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument. For purposes of executing this Agreement, a document signed and
transmitted by facsimile machine or telecopier is to be treated as an original
document. The signature of any party thereon, for purposes hereof, is to be
considered as an original signature, and the document transmitted is to be
considered to have the same binding effect as an original signature on an
original document. At the request of any party, any facsimile or telecopy
document is to be re-executed in original form by the parties who executed the
facsimile or telecopy document. No party may raise the use of a facsimile
machine or telecopier or the fact that any signature was transmitted through the
use of a facsimile or telecopier machine as a defense to the enforcement of this
Agreement or any amendment or other document executed in compliance with this
Section.

Section 8.12 Headings.

      The headings in this Agreement are included herein for convenience only,
shall not constitute a part of this Agreement for any other purpose, and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.

                                       95


Section 8.13 No Agency.

      Nothing herein contained shall be construed to constitute the Obligors as
agents of any of the Lender for any purpose whatsoever or to permit the Obligors
to pledge any of the credit of the Lender. The Lender shall not be responsible
or liable for any shortage, discrepancy, damage, loss or destruction of any part
of the Collateral wherever the same may be located and regardless of the cause
thereof other than through the Lender's gross negligence or willful misconduct.
The Lender shall not, by anything herein or in any of the Financing Documents or
otherwise, assume the Obligors' obligations under any contract or agreement
assigned to the Lender, and the Lender shall not be responsible in any way for
the performance by the Obligors of any of the terms and conditions thereof.

Section 8.14 Date of Payment.

      Should the principal of or interest on the Loans become due and payable on
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and in the case of principal, interest shall be payable
thereon at the rate per annum specified herein during such extension.

Section 8.15 Entire Agreement.

      This Agreement and the other Financing Documents are intended by the
Lender and the Obligors to be a complete, exclusive and final expression of the
agreements contained herein. None of the Obligors or the Lender shall hereafter
have any rights under any prior agreements pertaining to the matters addressed
by this Agreement but shall look solely to this Agreement for definition and
determination of all of their respective rights, liabilities and
responsibilities under this Agreement.

Section 8.16 Liability of the Lender.

      The Obligors hereby agree that in the absence of the Lender's gross
negligence or willful misconduct, the Lender shall not be chargeable for any
mistake, act or omission of any accountant, examiner, agency or attorney
employed by the Lender in making examinations or investigations or otherwise in
perfecting, maintaining or protecting upon any Lien or security interest or any
other interest in the Collateral or other security for the Obligations.

      By inspecting the Collateral or any other properties of any Obligor or by
accepting or approving anything required to be observed, performed or fulfilled
by any Obligor or to be given to the Lender pursuant to this Agreement or any of
the other Financing Documents, the Lender shall not be deemed to have warranted
or represented the condition, sufficiency, legality, effectiveness or legal
effect of the same, and such acceptance or approval shall not constitute any
warranty or representation with respect thereto by the Lender.

                                       96


Section 8.17 Patriot Act Notice.

      The Each Lender hereby notifies the Obligors that pursuant to the
requirements of the Patriot Act, the Lender is required to obtain, verify and
record information that identifies the Obligors, which information includes the
name and address of the Obligors and other information that will allow such
Lender to identify the Obligors in accordance with the Act.

Section 8.18 Waiver of Trial by Jury.

      EACH OF THE OBLIGORS AND THE LENDER HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO WHICH ANY OR ALL OF THE OBLIGORS AND THE LENDER MAY BE
PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY
OF THE FINANCING DOCUMENTS, OR (C) THE COLLATERAL. THIS WAIVER CONSTITUTES A
WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS
AGREEMENT.

      This waiver is knowingly, willingly and voluntarily made by the Obligors
and the Lender, and the Obligors and the Lender hereby represent that no
representations of fact or opinion have been made by any individual to induce
this waiver of trial by jury or to in any way modify or nullify its effect. The
Obligors and the Lender further represent that they have been represented in the
signing of this Agreement and in the making of this waiver by independent legal
counsel, selected of their own free will, and that they have had the opportunity
to discuss this waiver with counsel.

                        (SIGNATURES FOLLOW ON NEXT PAGE)

                                       97


      WITNESS WHEREOF, each of the parties hereto have executed and delivered
this Agreement under their respective seals as of the day and year first written
above.

WITNESS OR ATTEST:          OPTELECOM, INC.

/s/ James Armstrong         BY: /s/ Edmund Ludwig (SEAL)
- -----------------------         ------------------------
    James Armstrong                 Edmund Ludwig, President and CEO
    -------------------             -------------  -----------------
     (NAME)                             (NAME)           (TITLE)

WITNESS OR ATTEST:          OPTELECOM EUROPE LIMITED

/s/ James Armstrong         BY: /s/ Edmund Ludwig (SEAL)
- -----------------------         ------------------------
    James Armstrong                 Edmund Ludwig, President and CEO
    -------------------             -------------  -----------------
     (NAME)                             (NAME)          (TITLE)

WITNESS OR ATTEST:          OPTELECOM UK LIMITED

/s/ James Armstrong         BY: /s/ Edmund Ludwig (SEAL)
- -----------------------         ------------------------
    James Armstrong                 Edmund Ludwig, President and CEO
    -------------------             -------------  -----------------
     (NAME)                             (NAME)          (TITLE)

WITNESS OR ATTEST:          NKF ELECTRONICS, B. V.
                             OPTELECOM, INC. ITS MANAGING DIRECTOR

/s/ James Armstrong         BY: /s/ Edmund Ludwig (SEAL)
- -----------------------         ------------------------
    James Armstrong                 Edmund Ludwig, President and CEO
    -------------------             -------------  -----------------
     (NAME)                             (NAME)          (TITLE)

WITNESS OR ATTEST:          NKF ELECTRONICS IBERICA S.L., FORMERLY KNOWN AS
                                  NKF IBERICA S.L.

_______________________     BY: /s/ T.W. M Overwijn (SEAL)
                                --------------------------
_______________________             T.W.M Overwijn, Director
                                    --------------  --------
     (NAME)                             (NAME)      (TITLE)

WITNESS OR ATTEST:          MANUFACTURERS AND TRADERS TRUST
                                 COMPANY
_______________________
                            BY: /s/ John H. Lewin, III, (SEAL)
_______________________         ------------------------------
     (NAME)                         JOHN H. LEWIN III, ASSISTANT VICE PRESIDENT


                                       98