AGREEMENT dated as of February 7, 1997, between Vanguard Communications,
L.P. a California limited partnership ("Vanguard"), Vanguard Communications,
Inc., a California corporation (the "General Partner"), Pacific Capital Group,
Inc., a California corporation ("Pacific"), VPC Corporation, a Delaware
corporation ("VPC"), OpTel, Inc., a Delaware corporation ("OpTel") and Le Groupe
Videotron Ltee, a Quebec corporation ("GVL").
R E C I T A L S
OpTel has issued to VPC convertible promissory notes as specified on
Schedule I hereto (the "Convertible Notes").
The parties hereto are party to a Settlement Agreement, dated as of August
1, 1996, (the "Settlement Agreement") which, among other things, (i) modified
the terms of the then outstanding Convertible Notes and (ii) set forth the terms
of any future loans from VPC to OpTel.
OpTel intends to offer units (the "Units") consisting of $225,000,000
aggregate principal amount of 13% Senior Notes Due 2005 (the "Senior Notes") and
225,000 shares of Class C Common Stock, par value $.01 per share (the "Class C
Common"), subject to increase if agreed to by the Company and the initial
purchasers of the Units, to Qualified Institutional Buyers in compliance with
Rule 144A under the Securities Act of 1934, as amended (the "Act"), and to
certain other buyers in transactions exempt from registration under the Act (the
"Offering").
In connection with the Offering, the initial purchasers of the Units are
requiring VPC to (i) subordinate all outstanding Convertible Notes to the Senior
Notes and (ii) agree that all future loans from VPC to OpTel will be in the form
of Deeply Subordinated Shareholder Loans as such term will be defined in the
indenture governing the Senior Notes.
In consideration of the foregoing and the mutual agreements contained
herein the parties agree as follows:
1. The terms of the outstanding Convertible Notes are hereby modified as
follows:
"The principal of this Convertible Note to the extent not earlier paid
shall be due and payable six months after the earlier to occur of (i) the
indefeasible payment in full of the Senior Notes or due provision therefor
and (ii) the final maturity of the Senior Notes. Interest shall accrue on
the unpaid balance of the principal of this Convertible Note from time to
time outstanding at the rate of 15% per year, until the principal amount of
this Convertible Note shall be
fully paid, and shall be payable simultaneously with the payment of
principal hereunder. On August 31 of each year, all interest accrued on
this Note shall be capitalized and added to the principal of this Note. In
addition, OpTel and VPC hereby acknowledge and agree that the indebtedness
evidenced by this Convertible Note is, to the extent and in the manner
provided on Exhibit A, attached hereto, subordinated and subject in right
of payment to the prior payment in full by OpTel of all Senior
Indebtedness, as such term is defined in Exhibit A. The terms and
conditions set forth in Exhibit A are hereby incorporated herein and made a
part hereof as if set forth in its entirety herein. Further, for the
purpose of determining the Conversion Price, the number of shares
outstanding on a fully-diluted basis shall exclude shares of Common Stock
sold in the initial public offering, shares of Class C Common issued in the
Offering and shares of Common Stock issuable upon conversion of this Note
or any convertible debt of OpTel due to VPC."
Except as modified hereby the terms of the outstanding Convertible Notes
shall remain in full force and effect.
Concurrently herewith, a legend making reference to the foregoing
modifications is being endorsed on each of the outstanding Convertible Notes and
initialed on behalf of OpTel and VPC.
2. From and after the date hereof, neither VPC nor Vanguard nor any of
their respective Affiliates shall be obligated to provide any additional
financing to OpTel. Nevertheless, if the Board so requests as necessary for the
business of OpTel and VPC so elects, VPC may purchase from OpTel (subject to
Vanguard's right to participate in such purchase) one or more convertible
promissory notes substantially in the form attached hereto as Exhibit B.
3. VPC and Vanguard hereby expressly ratify and approve the proposed
Offering and waive any and all preemptive rights that they may have had pursuant
to the Stockholders Agreement dated as of December 22, 1994, by and among VPC,
Vanguard, the General Partner and OpTel, as amended to date (the "Stockholders
Agreement"), or otherwise in respect of the Offering. In addition, each of the
parties hereto acknowledges and agrees that neither the issuance of the shares
of Class C Common nor the registration of the Class C Common by the Company in
order to satisfy its obligations to register such shares upon demand of the
holders of the Class C Common (a "Demand") shall (i) constitute an "initial
public offering" or "IPO" as such term is used in the Settlement Agreement, the
Stockholders Agreement, the Registration Rights Agreement, dated as of December
22, 1994,
between OpTel and Vanguard (the "Registration Rights Agreement") or any other
agreement between the parties hereto or (ii) cause an adjustment to the number
of shares for which any outstanding option or warrant may be exercised or the
exercise price thereof. The issuance of Class C Common, at any time prior to
their conversion into Class A Common or any other class of common equity of the
Company, shall not be considered in determining the outstanding Common Stock for
the purpose of determining the number of nominees to the Board of Directors of
OpTel to be designated by Vanguard or Pacific under the terms of the
Stockholders Agreement.
4. OpTel and Vanguard hereby amend the Registration Rights Agreement to
provide that, in the event that OpTel files a registration statement in order to
satisfy its obligations upon a Demand, the holders of shares of Class C Common
shall have priority over Vanguard with respect to the inclusion of their shares
in such registration. Specifically, Section 1.3(c) of the Registration Rights
Agreement is amended and replaced in its entirety with the following:
"(c) Apportionment in Incidental Registrations. Except as specifically
limited in Section 1.3(b), if (i) a registration pursuant to this Section
1.3 involves an underwritten offering of the securities being registered,
whether or not for sale for the account of the Company, to be distributed
by or through one or more underwriters under underwriting terms appropriate
for such a transaction, and (ii) the managing underwriter of such
underwritten offering shall inform the Company and the Partnership by
letter of its belief that the number of securities requested to be included
in such registration exceed the number which can be sold in (or during the
time of) such offering or that the inclusion would materially adversely
affect the marketing of the securities to be sold by the Company therein
then (x) if such registration is not a registration effected by the Company
in order to satisfy its obligations to register upon demand of the holders
of the Class C Common (a "Demand"), the Company may include all securities
proposed by the Company to be sold for its own account and may decrease the
number of Registrable Securities, and securities of other stockholders of
the Company so proposed to be sold and so requested to be included in such
registration (pro rata on the basis of the number of Registrable Securities
held by the Partnership and the number of shares of Common Stock held by
the other stockholders having rights to include equity securities in such
registration (excluding VPC and its Affiliates)) to the extent necessary to
reduce the number of securities to be included in the registration to the
level recommended by the managing underwriter and (y) if such registration
is effected pursuant to a Demand, the Company may include all securities
required to be registered
pursuant to such Demand and all securities proposed by the Company to be
sold for its own account and may decrease the number of Registrable
Securities, and securities of other stockholders of the Company so proposed
to be sold and so requested to be included in such registration (pro rata
on the basis of the number of Registrable Securities held by the
Partnership and the number of shares of Common Stock held by the other
stockholders having rights to include equity securities in such
registration (excluding VPC and its Affiliates)) to the extent necessary to
reduce the number of securities to be included in the registration to the
level recommended by the managing underwriter. Notwithstanding the
foregoing, the Partnership shall have priority over the Company (but shall
be subordinated to the holders of securities required to be registered
pursuant to a Demand, if the registration is being effected pursuant to a
Demand), with respect to the inclusion of Registrable Securities in the
registration for purposes of the exercise by the underwriters of any
"greenshoe" or over-allotment option with respect to the offering, to the
extent, but only to the extent, that Registrable Securities were excluded
from the firm portion of the offering and, in the case of an IPO, such
excluded Registrable Securities were IPO Permitted Registrable Securities."
[bold text indicates changes]
5. This Agreement may not be amended or modified, nor may the rights of any
party hereunder be waived, except by a written document that is executed by each
party hereto.
6. This Agreement may be executed in any number of counterparts, each of
which when executed and delivered shall be an original, but all of which
together shall constitute one and the same instrument.
7. The Exhibits and Schedules referred to herein are a part of this
Agreement for all purposes.
8. This Agreement is made under and shall be governed by and construed in
accordance with the substantive laws of the State of Delaware applicable to
contracts made and to be performed entirely within that State.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
VANGUARD COMMUNICATIONS, L.P. VPC CORPORATION
by Vanguard Communications, Inc.,
its general partner
By: /s/ Barry Porter By:
------------------------------- -------------------------------
Name: Barry Porter Name:
Title: Title:
PACIFIC CAPITAL GROUP, INC. LE GROUPE VIDEOTRON LTEE
By: /s/ Barry Porter By:
------------------------------- -------------------------------
Name: Barry Porter Name:
Title: Managing Director Title
VANGUARD COMMUNICATIONS, INC. OPTEL, INC.
By: /s/Barry Porter By:
------------------------------- -------------------------------
Name: Barry Porter Name:
Title: Title:
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
VANGUARD COMMUNICATIONS, L.P. VPC CORPORATION
by Vanguard Communications, Inc.,
its general partner
By: By: /s/ Suzanne Renault
------------------------------- -------------------------------
Name: Name: Suzanne Renault
Title: Title: Vice-President
Legal Affairs and Secretary
PACIFIC CAPITAL GROUP, INC. LE GROUPE VIDEOTRON LTEE
By: By: /s/ Claude Chagnon
------------------------------- -------------------------------
Name: Name Claude Chagnon
Title: Title: President and Chief
Operating Officer
VANGUARD COMMUNICATIONS, INC. OPTEL, INC.
By: By:
------------------------------- -------------------------------
Name: Name:
Title: Title:
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
VANGUARD COMMUNICATIONS, L.P. VPC CORPORATION
by Vanguard Communications, Inc.,
its general partner
By: By:
------------------------------- -------------------------------
Name Name:
Title: Title:
PACIFIC CAPITAL GROUP, INC. BE GROUPE VIDEOTRON LTEE
By: By:
------------------------------- -------------------------------
Name: Name:
Title: Title:
VANGUARD COMMUNICATIONS, INC. OPTEL, INC.
By: By: /S/ Michael B. Katzenstein
------------------------------- -------------------------------
Name: Name: Michael B. Katzenstein
Title: Vice President &
General Counsel
By: /s/ Rory Cole
-------------------------------
Name: Rory Cole
Title: COO
Schedule I
SCHEDULE OF 15% CONVERTIBLE
GRID NOTES ISSUED BY
OPTEL, INC. TO VPC CORPORATION
==========================================================
U.S. $ Amount
Date (In Millions)
==========================================================
August 30, 1995 $15.0
- ----------------------------------------------------------
October 16, 1995 14.0
- ----------------------------------------------------------
January 24, 1996 6.0
- ----------------------------------------------------------
January 30, 1996 5.7
- ----------------------------------------------------------
January 30, 1996 1.5
- ----------------------------------------------------------
March 5, 1996 4.5
- ----------------------------------------------------------
March 28, 1996 11.7
- ----------------------------------------------------------
May 7, 1996 22.2
- ----------------------------------------------------------
July 26, 1996 12.275
- ----------------------------------------------------------
August 28, 1996 2.025
- ----------------------------------------------------------
September 13, 1996 1.0
- ----------------------------------------------------------
September 20, 1996 10.5
- ----------------------------------------------------------
November 19, 1996 25.0
==========================================================
EXHIBIT [A]
SUBORDINATION PROVISIONS FOR
OUTSTANDING CONVERTIBLE NOTES
1. Terms defined in the Indenture dated as of [ ], 1997 (the
"Indenture") between Optel, Inc., a company incorporated under the laws of
Delaware, as issuer (the "Company"), and [ ], as trustee (the "Trustee"),
and used herein and not otherwise defined herein have the meanings attributed to
such terms in the Indenture. As used herein, the term "Relevant Obligor" means
the Obligor creating, incurring, assuming or suffering to exist the Indebtedness
evidenced by this agreement or instrument ("Intercompany Debt"). The term
"Obligor" means any of the Company and any Restricted Subsidiary.
2. The indebtedness represented by this Intercompany Debt shall be
subordinated as follows:
2.1 Definition of Senior Indebtedness. "Senior Indebtedness" means, at any
date, all Indebtedness and other obligations under the Securities and the
Indenture (including, without limitation, principal, interest, premium, fees,
penalties, indemnities and "post-petition interest" in bankruptcy).
2.2 Agreement to Subordinate. The Relevant Obligor, for itself and its
successors and assigns, and the holder of this Intercompany Debt (in such
capacity, the "Holder") agree that the indebtedness evidenced by this
Intercompany Debt (including, without limitation, principal, interest, premium,
fees, penalties, indemnities and "post-petition interest" in bankruptcy) is
subordinate and junior in right of payment, to the extent and in the manner
provided in this Section 2, to the indefeasible prior payment in United States
Dollars in full of Senior Indebtedness or due provision therefor. The provision
of this Section 2 are for the benefit of the holders from time to time of Senior
Indebtedness, and the Trustee on behalf of such holders, and the Trustee and
such holders are hereby made obligees hereunder to the same extent as if their
names were written herein as such, and they (collectively or singly) may proceed
to enforce such provisions.
2.3 Liquidation; Dissolution; Bankruptcy; (a) Upon any distribution of
assets of the Relevant Obligor to creditors
-2-
or upon a liquidation or dissolution or winding-up of the Relevant Obligor or in
a bankruptcy, arrangement with creditors, liquidation, reorganization,
insolvency, receivership or similar case or proceeding relating to the Relevant
Obligor or its property or other marshalling of property or assets of the
Relevant Obligor:
(i) the holders of Senior Indebtedness shall be entitled to receive
payment in full of all Senior Indebtedness before the Holder shall be
entitled to receive any payment of principal of or interest on, or any
other amount owing in respect of, this Intercompany Debt;
(ii) until payment in full of all Senior Indebtedness, any
distribution of assets of any kind or character in respect of this
Intercompany Debt to which the Holder would be entitled but for this
Section 2 shall be paid by the Relevant Obligor or by any receiver, trustee
in bankruptcy, liquidating trustee, assignee, agent or other Person
making such payment or distribution to the holders of Senior Indebtedness,
as their interests may appear; and
(iii) in the event that, notwithstanding the foregoing, any payment
or distribution of any kind or character in respect of this Intercompany
Debt, whether in cash, property or securities, shall be received by the
Holder from the Relevant Obligor or from any other source in respects of
this Intercompany Debt or set-off against liabilities of the Holder to the
Relevant Obligor before all Senior Indebtedness is paid in full, such
payment or distribution shall be held in trust for the benefit of and
shall, at the Holder's expense, be paid over to the holders of Senior
Indebtedness, as their interests may appear, for application to the payment
of all Senior Indebtedness until all Senior Indebtedness shall have been
paid in full after giving effect to any concurrent payment or distribution
to the holders of Senior Indebtedness in respect of such Senior
Indebtedness.
For purposes of this Section 2, "payment in full" or "paid in full", with
respect to Senior Indebtedness, means the receipt on an irrevocable basis of
United States Dollars in an amount equal to the unpaid principal amount of the
Senior Indebtedness and premium, if any, and interest thereon to the date of
such payment, together with all other amounts owing with respect to such Senior
Indebtedness.
-3-
(b) If the Holder does not file proper claims or proofs of claim in the
form required in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Relevant Obligor or its property prior to 45
days before the expiration of the time to file such claims, then (i) upon the
request of the Trustee, the Holder shall file such claims and proofs of claim in
respect of this Intercompany Debt and execute and deliver such powers of
attorney, assignments and proofs of claim as may be directed by the Trustee to
enable it to enforce any and all claims upon or in respect of this Intercompany
Debt and to collect and receive any and all payments or distributions which may
be payable or deliverable at any time upon or in respect of this Intercompany
Debt, and (ii) whether or not the Trustee shall take action described in clause
(i) above, the Trustee shall nevertheless be deemed to have such powers of
attorney as may be necessary to file appropriate claims and proofs of claim and
otherwise exercise the powers described above.
(c) It is hereby agreed that any provision hereof pursuant to which one
party holds assets in trust for the benefit of the other party is not intended
to (and shall not) constitute, create or give rise to a security interest of any
kind in respect of such assets.
(d) If for any reason a trust in favor of, or a holding of property for,
the holders of Senior Indebtedness or the Trustee is invalid or unenforceable,
the Holder will pay and deliver to the holders of Senior Indebtedness or the
Trustee (as the case may be) for application in accordance with Section
2.3(a)(iii) above an amount equal to the payment, receipt or recovery in cash or
in kind which it would otherwise have been bound to hold in trust for or as
property of the holders of Senior Indebtedness or the Trustee (as the case may
be).
2.4 Senior Indebtedness. (a) The Relevant Obligor shall not pay any
principal, interest or premium on, or any other amount in respect of, this
Intercompany Debt, acquire this Intercompany Debt for cash or property (other
than capital stock of the Relevant Obligor) or make any loans, advances or
extensions of credit to the Holder with respect to this Intercompany Debt, or
pay or acquire any obligation or liability upon which the Holder is the obligor,
and the Holder shall not ask for, demand, accept, sue for, claim, prove for or
receive howsoever any payment of any principal, interest or premium on, or any
other amount in respect of, this Intercompany Debt or any such cash, property
(other than capital stock of the Rele-
-4-
vent Obligor), loans, advances or extensions of credit at any time when (x) a
Default or an Event of Default in respect of the payment of any Senior
Indebtedness, whether at maturity or at a date fixed for prepayment or by
declaration of an acceleration or otherwise, has occurred and is continuing or
will occur as a result of such action or (y) the maturity of any Senior
Indebtedness has been accelerated.
(b) If, notwithstanding the foregoing, any payment of any kind or
character, whether in cash, property or otherwise, shall be received by the
Holder from the Relevant Obligor or from any other source or set-off against
liabilities of the Holder to the Relevant Obligor in respect of this
Intercompany Debt before all Senior Indebtedness is paid in full, such payment
shall be held in trust in accordance with Section 2.3(a)(iii).
2.5 Subordination May Not Be Impaired. (a) No right of any holder of Senior
Indebtedness to enforce the subordination of indebtedness evidenced by this
Intercompany Debt shall in any way be prejudiced or impaired or in any way
affected by any act or failure to act by the Relevant Obligor or by any act or
omission in good faith by any such holder or the Trustee, or by any
non-compliance by the Relevant Obligor with the terms, provisions or covenants
herein, regardless of any knowledge thereof which any such holder or the Trustee
may have or be otherwise charged with, or by any other act, omission, matter
or thing which, but for this Section 2.5, would prejudice, impair, reduce,
release or otherwise affect the subordination. Neither the subordination of this
Intercompany Debt as herein provided nor the rights of the holders of Senior
Indebtedness with respect hereto shall be affected by any extension, renewal or
modification of the terms of, or the granting of any security in respect of, any
Senior Indebtedness or any exercise or non-exercise of any right, power or
remedy with respect thereto.
(b) The Holder agrees that all indebtedness evidenced by this Intercompany
Debt will be unsecured by any Lien upon or with respect to any property of the
Relevant Obligor or any Obligor, and that the Holder will not permit to subsist
any Liens upon its claim in respect of or upon the proceeds of this Intercompany
Debt.
(c) The Holder agrees not to exercise any offset or counterclaim or similar
right in respect of the indebtedness evidenced by this Intercompany Debt except
to the extent payment of such indebtedness is permitted and will not assign or
-5-
otherwise dispose of this Intercompany Debt or the indebtedness which it
evidences unless the assignee or acquirer, as the case may be, agrees to be
bound by the terms of this Section 2.
(d) The Holder waives any right it might have of first requiring any holder
of Senior Indebtedness or the Trustee to proceed against or to enforce any other
rights or Lien or claim for payment from any person before claiming the benefit
of the subordination therein provided for.
3. Miscellaneous. (a) This Agreement may not be amended or modified in any
respect, nor may any of the terms or provisions hereof be waived, except by an
instrument signed by the Relevant Obligor, the Holder and the Trustee (with the
consent of holders of a majority in aggregate principal amount at maturity of
Senior Indebtedness).
(b) This Agreement shall be binding upon each of the parties hereto and
their respective successors and assigns and shall inure to the benefit of the
Trustee and each and every holder of Senior Indebtedness and their respective
successors and assigns.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws.
(d) The Holder and the Relevant Obligor each hereby irrevocably agree that
any suits, actions or proceedings arising out of or in connection with this
Agreement may be brought in any state or federal court sitting in The City of
New York and submit and attorn to the non-exclusive jurisdiction of such courts.
(e) Any payment made by the Holder to the holders of Senior Indebtedness
may be made to the Trustee under the Indenture.
Exhibit B
This Note and the securities issuable on conversion hereof have not been
registered under the Securities Act of 1933 and may not be transferred or sold
in the absence of (i) an effective registration statement with respect thereto
under such Act or (ii) an opinion of OpTel, Inc. counsel that such registration
and filings are not required. The securities issuable on the conversion of this
Note will be subject to the restrictions set forth in the Stockholders Agreement
dated as of December 22, 1994, as amended, among VPC Corporation, Vanguard
Communications, L.P. and OpTel, Inc., a copy of which is on file in the offices
of OpTel, Inc., and certificates representing such securities will bear a
restrictive legend to that effect.
- --------------------------------------------------------------------------------
OPTEL, INC.
15% Subordinated Convertible Grid Note due_____, 2005
$[ ] New York, New York
_______, 199_
FOR VALUE RECEIVED, the undersigned, OPTEL, INC., a Delaware corporation
("OpTel"), hereby promises to pay to the order of VPC Corporation, a Delaware
corporation (the "Lender"), the principal sum of _______ DOLLARS ($ ), or so
much thereof as shall be advanced by the Lender to OpTel, in the Lender's sole
discretion, and not repaid. The principal of this Note to the extent not earlier
paid shall be due and payable six months after the earlier to occur of (i) the
indefeasible payment in full of the % Senior Notes Due 2005 issued by OpTel (the
"Senior Notes") or due provision therefor and (ii) the final maturity of the
Senior Notes. Interest shall accrue on the unpaid balance of the principal of
this Note from time to time outstanding at the rate of 15% per year, until the
principal amount of this Note shall be fully paid, and shall be payable
simultaneously with the payment of principal hereunder.
OpTel and the Lender hereby acknowledge and agree that the indebtedness
evidenced by this Note will be, to the extent and in the manner provided on the
exhibit attached hereto ("Exhibit B-1"), subordinated and subject in right of
payment to the prior payment in full by OpTel of all Senior Indebtedness, as
this term is defined in Exhibit B-1. The terms and conditions
set forth in Exhibit B-1 are hereby incorporated herein and made a part hereto
as if set forth in its entirety herein.
This Note incorporates the following additional terms:
1. This Note evidences loans made by the Lender to OpTel, in Lender's sole
discretion, from time to time, as requested by OpTel. The unpaid principal
balance of this Note at any time shall be the total amount advanced by the
Lender to OpTel in the Lender's sole discretion, less the total amount of
principal payments made hereon by OpTel. The date and amount of each such loan
and each payment on account of principal thereof may be endorsed by the Lender
on the grid attached to and made a part of this Note, and when so endorsed shall
represent evidence thereof binding upon OpTel in the absence of manifest error.
Any failure by the Lender to so endorse any such loan shall in no way mitigate
or discharge the obligation of OpTel to repay any loans actually made.
Requests by OpTel for loans to be made and directions as to the disposition
of the proceeds thereof must be given in writing to the Lender by the officers
of OpTel or other persons authorized to borrow on OpTel's behalf by borrowing
resolutions of OpTel's Board of Directors heretofore delivered to the Lender, as
such resolutions may be amended or superseded from time to time, provided that
any such amending or superseding resolutions shall have been certified by the
Secretary or an Assistant Secretary of OpTel, and a copy thereof, so certified,
shall have been delivered to an officer of the Lender at its office for payment.
The Lender may conclusively rely on the authorities contained in said
resolutions. Any such loan so made shall be conclusively presumed to have been
made to or for the benefit of OpTel and OpTel shall be liable in respect thereof
when made in accordance with any such request or direction. OpTel shall inform
its board of directors of the amount of any borrowings under this Note at the
first regularly scheduled board meeting following any such borrowing.
2. Payments of principal of and interest on this Note shall be made in
lawful money of the United States of America to the Lender c/o Kronish, Lieb,
Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036, or
at such other place as the Lender shall have designated to OpTel in writing. On
August 31 of each year, all interest accrued on this Note shall be capitalized
and added to the principal of this Note.
3. OpTel acknowledges that the Lender holds and may hereafter acquire from
OpTel one or more notes, debentures or other securities of OpTel that are or may
be convertible into shares of Class B Common Stock of OpTel ("OpTel Shares").
All of such convertible securities of OpTel now outstanding or hereafter
-2-
issued to the Lender are herein referred to as the "Convertible Securities".
4. (a) The Lender by acceptance of this Note covenants and represents to
OpTel that this Note and any securities issued on exercise of the conversion
privilege contained herein are being acquired by the Lender without a view to
distribution and that the Lender will at no time dispose of this Note or such
securities except in compliance with the requirements of the Securities Act of
1933, as amended.
(b) This Note may not be transferred or assigned except in compliance with
applicable federal and state securities laws and subject to the applicable
provisions of the Stockholders Agreement, dated as of December 22, 1994, as
amended (the "Stockholders Agreement"), to which the Lender, Vanguard
Communications, L.P. ("Vanguard") and OpTel are parties. If this Note is validly
transferred, the term "Lender" shall include such transferee.
5. This Note may not be prepaid by OpTel at any time prior to the
expiration of the Conversion Period (as defined in Section 6), provided that to
the extent permitted by the indenture governing the Senior Indebtedness, this
Note shall be prepaid by OpTel to the extent requested by the Lender out of the
net proceeds of any sale of debt or equity securities of OpTel.
6. (a) Subject to and upon compliance with the provisions of this Section 6
and Section 7,(i) during the period commencing on the IPO Date (as defined in
the Stockholders Agreement), and ending 180 days after the IPO Date (the
"Post-IPO Exercise Period") or (ii) if the Post-IPO Exercise Period shall not
previously have commenced and expired, during the period commencing on April 30,
1999 and ending 90 days after such date (the earlier of such periods, the
"Conversion Period"), the Lender may, at its option, convert the entire
principal balance of this Note together with all accrued interest thereon, into
fully paid and nonassessable OpTel Shares at the Conversion Price (as
hereinafter defined) in effect at the time of conversion. The right of the
Lender to convert principal of and interest on this Note shall expire if not
exercised prior to the expiration of the Conversion Period. The date of such
conversion shall be the "Conversion Date".
(b) Subject to certain adjustments as hereinafter provided, the Conversion
Price shall be either (i) the per share price at which Common Stock of OpTel is
first sold to the public in a public offering (an "IPO"), provided that the
product of such per share price and the number of shares of Common Stock of
OpTel outstanding, on a fully diluted basis (excluding shares sold in the IPO,
shares issuable upon exercise of the 225,000 warrants each to purchase one share
of Class A Common Stock of
-3-
OpTel which warrants were issued pursuant to a Warrant Agreement dated as of
February , 1997 and shares issuable upon conversion of this Note or any
Convertible Securities (the "Excludable Shares")), equals or exceeds $225
million, or (ii) if no such IPO has taken place, a per share price equal to the
quotient of $225 million divided by the number of shares of OpTel Common Stock
outstanding on that date, on a fully diluted basis (excluding Excludable
Shares).
(c) The Conversion Price shall be subject to appropriate decrease or
increase, as the case may be, if OpTel shall at any time after the date of
issuance of this Note:
(i) declare with respect to OpTel Shares any dividend or distribution
payable in shares of Common Stock of OpTel or in securities directly or
indirectly convertible into or exchangeable for shares of OpTel Common
Stock (but only upon the issuance of shares of OpTel Common Stock following
the conversion or exchange of such securities), or
(ii) subdivide or combine outstanding shares of OpTel Common Stock.
(d) In case of any reclassification, change or exchange of outstanding
shares of OpTel Common Stock (except for a change as a result of a subdivision
or combination of such shares), or in case of any consolidation of OpTel with,
or merger of OpTel into, another corporation (except for a merger or a
consolidation in which OpTel is the continuing corporation and which does not
result in any reclassification, change or exchange of outstanding shares of
OpTel Common Stock other than a change as a result of a subdivision or
combination of such shares), or in case of any transfer to another corporation
of the assets of OpTel as an entirety or substantially as an entirety, or if
OpTel shall declare a dividend or distribution (except in shares of OpTel Common
Stock or in securities directly or indirectly convertible into or exchangeable
for shares of OpTel Common Stock) upon the shares of OpTel Common Stock payable
otherwise than in cash out of earned surplus, this Note shall thereafter be
convertible pursuant to this Section 6 into the kind and amount of shares and
other securities and property that the Lender would have owned or would have
been entitled to receive immediately after such reclassification, change,
exchange, consolidation, merger, transfer, dividend or distribution, had this
Note been converted immediately prior to the effective date of such
reclassification, change, exchange, consolidation, merger or transfer or
immediately prior to the date for the determination of security holders of
record entitled to receive such dividend or distribution.
(e) At the option of the Lender, to avoid the issuance of any fractional
shares upon any conversion, adjustment
-4-
therefor may be made in cash in an amount equal to the same fraction of the
Conversion Price in effect on the date of such conversion.
(f) No adjustment will be made upon conversion of this Note in respect of
dividends or distributions previously paid or declared (the date for the
determination of security holders of record entitled to receive such dividends
or distributions having passed) on the shares of OpTel Common Stock previously
outstanding, except as otherwise provided in Section 7(d).
(g) Whenever the number of OpTel Shares or other securities or assets
deliverable upon conversion of this Note shall be adjusted as provided in this
Section 6, OpTel shall forthwith obtain and file with its corporate records a
certificate or letter from the firm of independent public accountants then
retained by OpTel setting forth the adjusted number of OpTel Shares or other
securities or assets deliverable upon conversion of this Note, and a copy of
such certificate or letter shall be mailed to the holder hereof. Any such
certificate or letter shall be conclusive evidence as to the correctness of the
adjustment or adjustments referred to therein and shall be available at the
principal office of OpTel for inspection by the holder of this Note on any day
during normal business hours.
7. To exercise the conversion privilege described in Section 6(a) at any
time when such privilege is exercisable in accordance with the terms of this
Note (including, without limitation, whether prior to or after the occurrence of
any event referred to in Section 9), the Lender shall surrender this Note, with
the attached form of Conversion Notice duly completed, to OpTel at the principal
office of OpTel or at such other place as OpTel may designate. As promptly as
practicable after surrender of this Note as aforesaid but in no event later than
three business days thereafter, OpTel shall issue and deliver to the Lender a
certificate or certificates for the number of OpTel Shares and/or other
securities issuable or deliverable upon the conversion of this Note in
accordance herewith and cash in respect of any fraction of an OpTel Share for
which the Lender has elected to receive cash. Such conversion shall be deemed to
have been effected at the time when such notice shall have been received by
OpTel and this Note shall have been surrendered as aforesaid, and the person in
whose name any certificate for OpTel Shares or other securities shall be
issuable upon such conversion shall be deemed to have become on such date the
holder of record of the shares or other securities represented thereby, subject
to the provisions of Section 9.
8. OpTel covenants and agrees that it will at all times reserve and keep
available such number of its duly
-5-
authorized and unissued OpTel Shares and other shares of its Common Stock as
shall from time to time be sufficient to effect the conversion of this Note and
the exercise or conversion of all other outstanding securities exercisable or
convertible with respect to shares of OpTel's Common Stock and that, if at any
time the number of authorized but unissued OpTel Shares and other shares of
OpTel's Common Stock shall not be sufficient to effect the conversion of this
Note and the exercise or conversion of all other outstanding securities
exercisable or convertible with respect to shares of OpTel's Common Stock or at
the Conversion Price then in effect, OpTel will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued OpTel Shares and other shares of its Common Stock to such number as
shall be sufficient for such purpose.
9. If, at any time prior to the payment of this Note upon maturity or any
date fixed for redemption, any of the following events shall occur:
(a) OpTel shall declare any dividend or other distribution upon the
shares of its Common Stock payable otherwise than in cash out of earned
surplus; or
(b) OpTel shall offer to the holders of shares of its Common Stock any
additional shares of OpTel or options or warrants therefor or securities
convertible into shares of OpTel or any right to subscribe therefor; or
(c) a recapitalization, reclassification, consolidation, merger,
transfer of assets, dissolution, liquidation, winding-up of OpTel or other
similar action of OpTel requiring approval by its stockholders shall be
proposed,
then in any one or more of such events, OpTel shall give to the Lender, in
accordance with Section 14, not less than 20 days prior notice of the date on
which:
(i) the books of OpTel shall be closed or a record taken for
determination of the stockholders entitled to such dividend, distribution
or subscription rights, or
(ii) the books of OpTel shall be closed or a record taken for
determination of the stockholders entitled to vote on such proposed
recapitalization, reclassification, consolidation, merger, transfer of
assets, dissolution, liquidation, winding-up or other similar action.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken.
-6-
10. (a) In the case of any Event of Default (as hereinafter defined), the
Lender may, by notice to OpTel specifying such Event of Default, declare the
principal of and any accrued interest on this Note to be immediately due and
payable and thereupon, this Note including both principal and interest, shall
become immediately due and payable. This provision is subject to the condition
that if, at any time after this Note has been declared due and payable and
before any judgment or decree for the payment of the moneys due shall have been
obtained or entered, OpTel shall pay all matured installments of interest then
due and all payments on account of principal then due (other than by reason of
such declaration), then such declaration and its consequences shall be rescinded
and annulled, but no such rescission or annulment shall extend to or affect any
subsequent default or impair or exhaust any right or power consequent thereon.
(b) Notice of any Event of Default shall be given by OpTel to the Lender
within five business days after OpTel shall become aware of its existence.
(c) For purposes of this Note any one or more of the following shall
constitute an "Event of Default":
(i) Default in the payment of the principal of this Note when the same
shall mature or become due and payable, either by the terms hereof or
otherwise; or
(ii) Default in the payment of any interest on this Note for more than
15 days after the same has become due and payable; or
(iii) Acceleration, by reason of default, of the maturity of a
material amount (but in no event less than $200,000) of outstanding
indebtedness for money borrowed of OpTel; or
(iv) Any judgment, writ or warrant of attachment or of any similar
process in an amount material to OpTel (but in no event less than $200,000)
is entered or filed against OpTel or against the property or assets of
OpTel and remains unpaid, unvacated, unhanded and unstayed for a period of
60 days.
11. Nothing in this Note shall affect or impair the right, which is
absolute and unconditional, of the Lender to receive payment of or to institute
suit to enforce this Note at and after the maturity hereof (including maturity
by redemption,
-7-
declaration pursuant to this Note or otherwise) or the obligation of OpTel,
which is also absolute and unconditional, to pay the principal of and interest
on this Note to the Lender at the time and place expressed herein.
12. In any case where the date of maturity of interest on, or principal of,
this Note shall be a Sunday or a legal holiday in the State of New York or a day
on which banking institutions doing business in the State of New York are
authorized by law to close, then payment of such interest may be made on the
next succeeding business day with the same force and effect as if made on the
nominal date of maturity (and no interest shall accrue for the period after such
nominal date).
13. The agreements, undertakings, representations and warranties contained
in this Note shall remain operative and in full force and effect and, subject to
payment in full of all principal and interest due hereon, and shall survive the
surrender and/or delivery of this Note to OpTel for cancellation or otherwise in
connection with the redemption or other transfer hereof.
14. Except as herein otherwise expressly provided, all notices, requests,
demands, consents and other communications required or permitted under this Note
shall be in writing and shall be considered to have been duly given when (i)
delivered by hand, (ii) sent by telecopier (with receipt confirmed), provided
that a copy is mailed (on the same date) by certified or registered mail, return
receipt requested, postage prepaid, or (iii) received by the addressee, if sent
by Express Mail, Federal Express or other reputable express delivery service
(receipt requested), or by first class certified or registered mail, return
receipt requested, postage prepaid, in each case to the appropriate addresses
and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a person whose address is herein specified may from time
to time designate as to itself by notice similarly given to the other such
designees in accordance herewith). A notice of change of address shall not be
deemed given until received by the addressee. Notices shall be addressed:
(i) if to the Lender:
VPC Corporation
1114 Avenue of the Americas
46th Floor
New York, New York 10036-7798
Attn: Secretary
Telecopier: 514-985-8834
-8-
copy to: Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036-7798
Attn: Russell S. Berman, Esq.
Telecopier: 212-479-6275
(2) to OpTel at:
OpTel, Inc.
1111 West Mockingbird Lane
Suite 1130
Dallas, TX 75247
Attn: General Counsel
Telecopier: 214-634-3800
copy to:
Vanguard Communications, L.P.
c/o Pacific Capital Group, Inc.
150 El Camino Drive
Suite 204
Beverly Hills, California 90212
15. This Note shall be governed by and construed in accordance with the
laws of the State of New York (without regard to the conflict of laws principles
thereof).
16. All the covenants, stipulations, promises and agreements contained in
this Note by or on behalf of OpTel shall bind its successors and assigns,
whether or not so expressed.
OPTEL, INC.
By: ___________________________________
Name: ________________________________
Title: ________________________________
-9-
NOTICE OF CONVERSION
To be executed by the owner of the attached Note if such owner desires to
convert the attached Note pursuant to Section 6(a):
The undersigned owner of the attached Note hereby
[ ] irrevocably exercises the option to convert such Note into shares of
Class B Common Stock of OPTEL, INC. ("OpTel Shares") in accordance
with the terms of such Note,
[ ] elects to receive payment in cash for any fractional share issuable
upon such conversion,
and directs that the OpTel Shares issuable and deliverable upon such conversion,
together with any check in payment for any fractional share as to which an
election to receive cash is made above, be delivered to the undersigned.
VPC CORPORATION
Dated:
By: ___________________________________
Name: ________________________________
Title: ________________________________
-10-
LOANS AND PAYMENTS OF PRINCIPAL
Amount
Loan Amount of of Loan Principal Notation
Date No. Loan Paid Balance Made By
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-11-
EXHIBIT [B-l]
SUBORDINATION PROVISIONS FOR DEEPLY
SUBORDINATED SHAREHOLDER LOANS
1. Terms defined in the Indenture dated as of [ ], 1997 (the
"Indenture") between Optel, Inc., a company incorporated under the laws of
Delaware, as issuer (the "Company"), and [ ], as trustee (the "Trustee"),
and used herein and not otherwise defined herein have the meanings attributed to
such terms in the Indenture. As used herein, the term "Relevant Obligor." means
the Obligor creating, incurring, assuming or suffering to exist the Indebtedness
evidenced by this agreement or instrument ("Intercompany Debt"). The term
"Obligor" means any of the Company and any Restricted Subsidiary.
2. The indebtedness represented by this Intercompany Debt shall be
subordinated as follows:
2.1 Definition of Senior Indebtedness. "Senior Indebtedness" means, at any
date, all Indebtedness and other obligations under the Securities and the
Indenture (including, without limitation, principal, interest, premium, fees,
penalties, indemnities and "post-petition interest" in bankruptcy).
2.2 Agreement to Subordinate. The Relevant Obligor, for itself and its
successors and assigns, and the holder of this Intercompany Debt (in such
capacity, the "Holder") agree that the indebtedness evidenced by this
Intercompany Debt (including, without limitation, principal, interest, premium,
fees, penalties, indemnities and "post-petition interest" in bankruptcy) is
subordinate and junior in right of payment, to the extent and in the manner
provided in this Section 2, to the indefeasible prior payment in United States
Dollars in full of Senior Indebtedness or due provision therefor. The provision
of this Section 2 are for the benefit of the holders from time to time of Senior
Indebtedness, and the Trustee on behalf of such holders, and the Trustee and
such holders, are hereby made obligees hereunder to the same extent as if their
names were written herein as such, and they (collectively or singly) may proceed
to enforce such provisions.
2.3 Liquidation; Dissolution; Bankruptcy. (a) Upon any distribution of
assets of the Relevant Obligor to creditors
-2-
or upon a liquidation or dissolution or winding-up of the Relevant Obligor or in
a bankruptcy, arrangement with creditors, liquidation, reorganization,
insolvency, receivership or similar case or proceeding relating to the Relevant
Obligor or its property or other marshalling of property or assets of the
Relevant Obligor:
(i) the holders of Senior Indebtedness shall be entitled to receive
payment in full of all Senior Indebtedness before the Holder shall be
entitled to receive any payment of principal of or interest on, or any
other amount owing in respect of, this Intercompany Debt;
(ii) until payment in full of all Senior Indebtedness, any
distribution of assets of any kind or character in respect of this
Intercompany Debt to which the Holder would be entitled but for this
Section 2 shall be paid by the Relevant Obligor or by any receiver, trustee
in bank ruptcy, liquidating trustee, assignee, agent or other Person
making such payment or distribution to the holders of Senior Indebtedness,
as their interests may appear; and
(iii) in the event that, notwithstanding the foregoing, any payment or
distribution of any kind or character in respect of this Intercompany Debt,
whether in cash, property or securities, shall be received by the Holder
from the Relevant Obligor or from any other source in respect of this
Intercompany Debt or set-off against liabilities of the Holder to the
Relevant Obligor before all Senior Indebtedness is paid in full, such
payment or distribution shall be held in trust for the benefit of and
shall, at the Holder's expense, be paid over to the holders of Senior
Indebtedness, as their interests may appear, for application to the payment
of all Senior Indebtedness until all Senior Indebtedness shall have been
paid in full after giving effect to any concurrent payment or distribution
to the holders of Senior Indebtedness in respect of such Senior
Indebtedness.
For purposes of this Section 2, "payment in full" or "paid in full", with
respect to Senior Indebtedness, means the receipt on an irrevocable basis of
United States Dollars in an amount equal to the unpaid principal amount of the
Senior Indebtedness and premium, if any, and interest thereon to the date of
such payment, together with all other amounts owing with respect to such Senior
Indebtedness.
-3-
(b) If the Holder does not file proper claims or proofs of claim in the
form required in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Relevant Obligor or its property prior to 45
days before the expiration of the time to file such claims, then (i) upon the
request of the Trustee, the Holder shall file such claims and proofs of claim in
respect of this Intercompany Debt and execute and deliver such powers of
attorney, assignments and proofs of claim as may be directed by the Trustee to
enable it to enforce any and all claims upon or in respect of this Intercompany
Debt and to collect and receive any and all payments or distributions which may
be payable or deliverable at any time upon or in respect of this Intercompany
Debt, and (ii) whether or not the Trustee shall take action described in clause
(i) above, the Trustee shall nevertheless be deemed to have such powers of
attorney as may be necessary to file appropriate claims and proofs of claim and
otherwise exercise the powers described above.
(c) It is hereby agreed that any provision hereof pursuant to which one
party holds assets in trust for the benefit of the other party is not intended
to (and shall not) constitute, create or give rise to a security interest of any
kind in respect of such assets.
(d) If for any reason a trust in favor of, or a holding of property for,
the holders of Senior Indebtedness or the Trustee is invalid or unenforceable,
the Holder will pay and deliver to the holders of Senior Indebtedness or the
Trustee (as the case may be) for application in accordance with Section
2.3(a)(iii) above an amount equal to the payment, receipt or recovery in cash or
in kind which it would otherwise have been bound to hold in trust for or as
property of the holders of Senior Indebtedness or the Trustee (as the case may
be).
2.4 Senior Indebtedness. (a) The Relevant Obligor shall not pay any
principal, interest or premium on, or any other amount in respect of, this
Intercompany Debt, acquire this Intercompany Debt for cash or property (other
than capital stock of the Relevant Obligor) or make any loans, advances or
extensions of credit to the Holder with respect to this Intercompany Debt, or
pay or acquire any obligation or liability upon which the Holder is the obligor,
and the Holder shall not ask for, demand, accept, sue for, claim, prove for or
receive howsoever any payment of any principal, interest or premium on, or any
other amount in respect of, this Intercompany Debt or any such cash, property
(other than common stock of the Rele-
-4-
vent Obligor), loans, advances or extensions of credit at any time prior to six
months after all Senior Indebtedness has been paid in full.
(b) If, notwithstanding the foregoing, any payment of any kind or
character, whether in cash, property or otherwise, shall be received by the
Holder from the Relevant Obligor or from any other source or set-off against
liabilities of the Holder to the Relevant Obligor in respect of this
Intercompany Debt before all Senior Indebtedness is paid in full, such payment
shall be held in trust in accordance with Section 2.3(a)(iii).
2.5 Subordination May Not Be Impaired. (a) No right of any holder of Senior
Indebtedness to enforce the subordination of indebtedness evidenced by this
Intercompany Debt shall in any way be prejudiced or impaired or in any way
affect by any act or failure to act by the Relevant Obligor or by any act or
omission in good faith by any such holder or the Trustee, or by any
non-compliance by the Relevant Obligor with the terms, provisions or covenants
herein, regardless of any knowledge thereof which any such holder or the Trustee
may have or be otherwise charged with, or by any other act, omission, matter or
thing which, but for this Section 2.5, would prejudice, impair, reduce, release
or otherwise affect the subordination. Neither the subordination of this
Intercompany Debt as herein provided nor the rights of the holders of Senior
Indebtedness with respect hereto shall be affected by any extension, renewal or
modification of the terms of, or the granting of any security in respect of, any
Senior Indebtedness or any exercise or non-exercise of any right, power or
remedy with respect thereto.
(b) The Holder agrees that all indebtedness evidenced by this Intercompany
Debt will be unsecured by any Lien upon or with respect to any property of the
Relevant Obligor or any Obligor, and that the Holder will not permit to subsist
any Liens upon its claim in respect of or upon the proceeds of this Intercompany
Debt.
(c) The Holder agrees not to exercise any offset or counterclaim or similar
right in respect of the indebtedness evidenced by this Intercompany Debt except
to the extent payment of such indebtedness is permitted and will not assign or
otherwise dispose of this Intercompany Debt or the indebtedness which it
evidences unless the assignee or acquirer, as the case may be, agrees to be
bound by the terms of this Section 2.
-5-
(d) The Holder waives any right it might have of first requiring any holder
of Senior Indebtedness or the Trustee to proceed against or to enforce any other
rights or Lien or claim for payment from any person before claiming the benefit
of the subordination therein provided for.
3. Miscellaneous. (a) This Agreement may not be amended or modified in any
respect, nor may any of the terms or provisions hereof be waived, except by an
instrument signed by the Relevant Obligor, the Holder and the Trustee (with the
consent of holders of a majority in aggregate principal amount at maturity of
Senior Indebtedness).
(b) This Agreement shall be binding upon each of the parties hereto and
their respective successors and assigns and shall inure to the benefit of the
Trustee and each and every holder of Senior Indebtedness and their respective
successors and assigns.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws.
(d) The Holder and the Relevant Obligor each hereby irrevocably agree that
any suits, actions or proceedings arising out of or in connection with this
Agreement may be brought in any state or federal court sitting in The City of
New York and submit and attorn to the non-exclusive jurisdiction of such courts.
(e) Any payment made by the Holder to the holders of Senior Indebtedness
may be made to the Trustee under the Indenture.