<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by Registrant X
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
X Preliminary Proxy Statement
[ ] Definitive Proxy Statement
AURORA ELECTRONICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
BOARD OF DIRECTORS OF AURORA ELECTRONICS, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
X $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
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(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total Fee Paid:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No:
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(3) Filing Party:
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(4) Date Filed:
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__________________________________
1 Set forth the amount on which the filing fee is calculated and state
how it was determined.
<PAGE> 2
AURORA ELECTRONICS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1996
As a stockholder of Aurora Electronics, Inc. (the "Company"), you are
hereby given notice of and invited to attend in person or by proxy the Annual
Meeting of Stockholders of the Company to be held at The Sutton Place Hotel,
4500 MacArthur, Newport Beach, California 92660, on Tuesday, May 21, 1995, at
[2:30 p.m.] local time, for the following purposes:
1. To elect six directors for a one-year term;
2. To approve the Company's 1996 Stock Option Plan;
3. To amend the Company's Restated Certificate of Incorporation
to increase the number of authorized shares of the Company's common stock from
25,000,000 to 50,000,000; and
4. To transact such other business as may properly come before
the meeting and any adjournment(s) thereof.
The Board of Directors has fixed the close of business on May 1, 1996
as the record date (the "Record Date") for the determination of stockholders
entitled to notice of and to vote at such meeting and any adjournment(s)
thereof. Only stockholders of record at the close of business on the Record
Date are entitled to notice of and to vote at such meeting. The transfer books
of the Company will not be closed.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. HOWEVER, WHETHER OR
NOT YOU EXPECT TO ATTEND THE MEETING, MANAGEMENT DESIRES TO HAVE THE MAXIMUM
REPRESENTATION AT THE MEETING AND RESPECTFULLY REQUESTS THAT YOU DATE, EXECUTE
AND MAIL PROMPTLY THE ENCLOSED PROXY IN THE ENCLOSED STAMPED ENVELOPE FOR WHICH
NO ADDITIONAL POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. A proxy may
be revoked by a stockholder any time prior to its use as specified in the
enclosed proxy statement.
By Order of the Board of Directors
DEBORAH A. NICHOLLS,
Secretary
Irvine, California
May [2], 1996
YOUR VOTE IS IMPORTANT.
PLEASE EXECUTE AND RETURN PROMPTLY THE
ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED HEREIN.
<PAGE> 3
AURORA ELECTRONICS, INC.
2030 Main Street, Suite 1120
Irvine, California 92714-7241
_____________
PROXY STATEMENT
_____________
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1996
_____________
TO OUR STOCKHOLDERS:
This Proxy Statement is furnished to stockholders of Aurora
Electronics, Inc. (the "Company"), for use at the Annual Meeting of
Stockholders to be held at The Sutton Place Hotel, 4500 MacArthur, Newport
Beach, California 92660, on Tuesday, May 21, 1996, at [2:30 p.m.] local time,
or at any adjournment or adjournments thereof (the "Annual Meeting"). The
enclosed proxy is being solicited by the Board of Directors of the Company and
is subject to revocation at any time prior to the voting of the proxy. Unless
a different choice is indicated, all duly executed proxies received by the
Company will be voted in accordance with the instructions set forth on the back
side of the proxy card. The record of stockholders entitled to vote at the
Annual Meeting was taken at the close of business on May 1, 1996 (the "Record
Date"). This Proxy Statement and the enclosed proxy card are being sent or
given to stockholders on or about May [2], 1996.
RECENT RECAPITALIZATION AND CHANGE IN CONTROL
On March 29, 1996, the Company completed its comprehensive plan to
recapitalize (the "Recapitalization") the Company, which included a tender
offer for up to 6,500,000 shares of the Company's own Common Stock, $.03 par
value (the "Common Stock"). The Company purchased in the tender offer
approximately 4,268,000 shares of the Common Stock at $2.875 per share in cash.
In addition to the tender offer and in connection with the Recapitalization, on
March 29, 1996, the Company also (a) sold (i) 400,000 shares of Convertible
Preferred Stock, $.01 par value (the "Convertible Preferred Stock"), to Welsh,
Carson, Anderson & Stowe VII, L.P. ("WCAS VII") and certain other investors for
an aggregate purchase price of $40,000,000 (or $100 per share) and (ii) 607,211
shares of Common Stock, along with a $10,000,000 10% Senior Subordinated Note
due September 2001, to WCAS Capital Partners II, L.P. ("WCAS CP II") for an
aggregate purchase price of $10,000,000, and (b) established a new $35,000,000
senior credit facility with Chemical Bank, N.A. pursuant to a Credit Agreement
dated March 29, 1996. The proceeds from the Recapitalization were used to
provide financing for the tender offer, to repay in full the Company's existing
senior bank indebtedness of approximately $26,000,000 and to redeem its 9-1/4%
Senior Subordinated Notes (approximately $9,300,000) and will be used for
general corporate purposes, including working capital.
WCAS VII and its affiliates purchased all but 14,000 shares of the
Convertible Preferred Stock in the Recapitalization. Jim C. Cowart and Harvey
B. Cash, current directors of the Company, each purchased 2,000 shares of
Convertible Preferred Stock in the Recapitalization, and an affiliate of
Chemical Bank, N.A. purchased the remaining 10,000 shares. The Convertible
Preferred Stock acquired by WCAS VII and the other investors in the
Recapitalization is convertible into Common Stock at the rate of $2.125 per
share.
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<PAGE> 4
Accordingly, on an "as-converted" basis, each share of Convertible Preferred
Stock is currently convertible into approximately 47.06 shares of Common Stock.
The Convertible Preferred Stock votes on an "as-converted" basis with
the Common Stock, and votes as a class on any proposals which would (i) effect,
validate or permit (A) a sale, lease or transfer, whether direct or indirect,
of all or substantially all of the assets of the Company and its subsidiaries,
other than to WCAS VII, WCAS CP II or any of their general partners or (B) the
acquisition of beneficial ownership of voting stock of the Company representing
more than 50% of the voting power of all outstanding shares of such voting
stock, whether by way of merger, consolidation or otherwise, other than by WCAS
VII, WCAS CP II or any of their general partners; (ii) amend or repeal the
dividend, voting, conversion, redemption or liquidation rights (collectively,
the "Rights") of the Convertible Preferred Stock; (iii) amend, alter or repeal
the Company's Restated Certificate of Incorporation or Bylaws; or (iv) (A)
create any class or series of stock ranking senior to or on a parity with the
Convertible Preferred Stock as to such Rights or (B) increase the authorized
number of shares of Convertible Preferred Stock or of any other class or series
of capital stock ranking senior to or on a parity with the Convertible
Preferred Stock as to such Rights.
The number of shares of Common Stock into which the Convertible
Preferred Stock is convertible and the conversion price of the Convertible
Preferred Stock are subject to adjustment from time to time upon the occurrence
of certain changes with respect to the Common Stock, including (i) for certain
stock splits and combinations and stock dividends and (ii) on a weighted
average formula basis in the event of certain issuances of Common Stock (or
securities convertible or exchangeable for Common Stock), excluding shares
issued pursuant to employee stock options and previously issued convertible
securities, at a price per share less than the conversion price in effect at
the time.
After giving effect to the Recapitalization transactions, including
the tender offer, and assuming conversion of the Convertible Preferred Stock,
as of March 29, 1996, the Company would have had 24,560,891 shares of Common
Stock outstanding, 17,496,470 of which is beneficially owned by WCAS VII and
WCAS Information Partners on an "as-converted" basis and 607,211 of which is
beneficially owned by WCAS CP II. In the aggregate, WCAS VII, WCAS Information
Partners and WCAS CP II and their affiliates beneficially own approximately 74%
of the Company's issued and outstanding Common Stock and could be deemed to
control the Company.
In connection with the Recapitalization and under the terms of the
Securities Purchase Agreement, dated February 21, 1996, among the Company, WCAS
VII, WCAS CP II and certain other purchasers (the "Securities Purchase
Agreement"), the Company is required to nominate up to four candidates for the
Company's Board of Directors selected by WCAS VII, and the number of directors
on the Board will be restricted to no more than seven directors. On March 29,
1996, Messrs. Richard H. Stowe and Thomas E. McInerney, the designees of WCAS
VII, were appointed to the Company's Board of Directors, thereby increasing the
size of the Board of Directors to seven members. The Company has also been
advised by WCAS VII that, at this time, it intends to nominate only Messrs.
Stowe and McInerney for election to the Board of Directors at the Annual
Meeting.
VOTING PROCEDURES AND REVOCABILITY OF PROXIES
The accompanying proxy card is designed to permit each stockholder of
record at the close of business on May 1, 1996 to vote in the election of
directors and on the proposals described in this Proxy Statement. The proxy
card provides space for a stockholder to (a) vote in favor of or to withhold
voting for the nominees for the Board of Directors, (b) vote for or against any
proposal to be considered at the Annual Meeting or (c) abstain from voting on
any proposal other than election of directors if the
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<PAGE> 5
stockholder chooses to do so. The election of directors will be decided by a
plurality of the votes entitled to be cast at the Annual Meeting by the holders
of the Common Stock and the Convertible Preferred Stock. The affirmative vote
of a majority of the votes present or represented by proxy and entitled to be
cast at the Annual Meeting by the holders of the shares of Common Stock and
Convertible Preferred Stock is required to approve the 1996 Stock Option Plan
(the "New Option Plan"). The affirmative vote of a majority of the votes
entitled to be cast by the holders of the shares of Common Stock and
Convertible Preferred Stock, voting together, and the affirmative vote of the
holders of a majority of the shares of Convertible Preferred Stock, voting
separately as a class, are required to approve the amendment to the Restated
Certificate of Incorporation. In all other matters, the affirmative vote of a
majority of the votes present or represented by proxy and entitled to be cast
at the Annual Meeting by the holders of the Common Stock and Convertible
Preferred Stock is required to take stockholder action.
The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the votes entitled to be cast by the Common Stock and
the Convertible Preferred Stock will constitute a quorum for the transaction of
business at the Annual Meeting. If a quorum is not present, in person or by
proxy, the Annual Meeting may be adjourned from time to time until a quorum is
obtained. WCAS VII's presence at the Annual Meeting, in person or by proxy, is
sufficient to constitute a quorum. Shares as to which authority to vote has
been withheld with respect to any matter brought to a vote before the
stockholders will not be counted as a vote in favor of such matter.
Abstentions and broker nonvotes will be counted for purposes of determining the
presence or absence of a quorum for the transaction of business. With respect
to all matters other than the election of directors, an abstention will have
the same effect as a vote against any specified proposal. A broker nonvote
will have no effect on the outcome of any vote of the stockholders.
Stockholders are urged to sign the accompanying proxy card and return it
promptly.
When a signed proxy card is returned with choices specified with
respect to voting matters, the shares represented will be voted by the proxies
designated on the proxy card in accordance with the stockholder's instructions.
The proxies for the stockholders are Jim C. Cowart and David A. Lahar. A
stockholder wishing to name another person as his or her proxy may do so by
crossing out the names of the designated proxies and inserting the name(s) of
such other person(s) to act as his or her proxy(ies). In that case, it will be
necessary for the stockholder to sign the proxy card and deliver it to the
person named as his or her proxy and for the person so named to be present and
vote at the Annual Meeting. Proxy cards so marked should not be mailed to the
Company.
If a signed proxy card is returned and the stockholder has made no
specifications with respect to voting matters, the shares will be voted for the
election of the six nominees for director and in favor of all the proposals
described in this Proxy Statement and, at the discretion of the proxies, on any
other matter that may properly come before the Annual Meeting or any
adjournment(s) of the Annual Meeting. Valid proxies will be voted at the Annual
Meeting and at any adjournment(s) of the Annual Meeting in the manner
specified.
Any stockholder giving a proxy has the unconditional right to revoke
it at any time before it is voted by any act inconsistent with the proxy,
including notifying the Secretary of the Company in writing, executing a
subsequent proxy or personally appearing at the Annual Meeting and casting a
contrary vote. However, no revocation will be effective unless notice of such
revocation has been received by the Company at or prior to the Annual Meeting.
The total issued and outstanding capital stock of the Company as of
April 3, 1996 consisted of 5,737,362 shares of Common Stock and 400,000 shares
of Convertible Preferred Stock.
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<PAGE> 6
MATTERS TO BE BROUGHT BEFORE THE MEETING
PROPOSAL ONE - ELECTION OF DIRECTORS
Six directors are proposed to be elected at the Annual Meeting. If
elected, each director will hold office until the next annual meeting of
stockholders or until his successor shall be duly elected and qualified. The
election of directors will be decided by a plurality of the votes entitled to
be cast at the meeting by the holders of the Common Stock and the Convertible
Preferred Stock. All nominees named below are members of the present Board of
Directors of the Company. Messrs. Stowe and McInerney were initially elected
to the Board of Directors in March 1996 in connection with the
Recapitalization. William H. Watkins, Jr., who currently serves as a director,
has declined to stand for reelection. All nominees have consented to serve if
elected, but, if any nominee becomes unable to serve, the persons named as
proxies may exercise their discretion to vote for a substitute nominee.
Management has no reason to believe that any of the nominees named below will
be unable to serve.
As noted above, WCAS VII may designate up to four nominees for
election to the Board of Directors. Except for the WCAS VII nominees, other
nominations for election to the Board of Directors may be made by the Board of
Directors, a nominating committee appointed by the Board of Directors or by any
stockholder entitled to vote for the election of directors. Nominations made by
stockholders must be made by written notice, certified mail, return-receipt
requested and received by the secretary of the Company by December 1 of any
calendar year. If, however, less than thirty days' notice of a stockholders'
meeting called for the election of directors is given to stockholders,
nominations by stockholders must be so made and received by the Secretary of
the Company not later than the close of business on the tenth day following the
day on which the notice was mailed. Such notice shall set forth as to each
proposed nominee who is not an incumbent director: (a) the name, age, business
address and, if known, residence address of each nominee proposed in such
notice; (b) the principal occupation or employment of each such nominee; (c)
the number of shares of Common Stock of the Company that are beneficially owned
by each such nominee and the nominating stockholder; and (d) any other
information concerning the nominee that must be disclosed of nominees in proxy
solicitations pursuant to Rule 14(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
The individuals named below were nominated for election to the Board
of Directors of the Company by the current Board of Directors and by WCAS VII.
The name, age, business experience and public directorships of each nominee for
director are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME AGE OR EMPLOYMENT SINCE
- ---------------------------- -------- --------------------------------------------------- ---------
<S> <C> <C> <C>
Harvey B. Cash 57 General Partner, InterWest Partners III and IV 1993
(Venture Capital Firms) (1)
Jim C. Cowart 44 Chairman of the Board and Chief Executive Officer, 1992
Aurora Electronics, Inc. (2)
Amin J. Khoury 56 Chairman of the Board, B/E Aerospace, Inc. (3) 1993
David A. Lahar 38 President, Aurora Electronics, Inc. (4) 1992
Thomas E. McInerney 54 General Partner, Welsh, Carson, Anderson & Stowe 1996
(5)
Richard H. Stowe 52 General Partner, Welsh, Carson, Anderson & Stowe 1996
(6)
William H. Watkins, Jr. 54 Partner, Watkins, Watkins & Keenas (7) 1983
</TABLE>
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<PAGE> 7
___________________________________________
(1) From June 1985 to present, Mr. Cash has been a general partner of
InterWest Partners III and from June 1989 to present, Mr. Cash has
been a general partner of InterWest Partners IV, both of which are
venture capital firms. Also, Mr. Cash has been a general partner of
Berry Cash Southwest Partnership, a venture capital firm, since
December 1983. Mr. Cash serves as a director of the following public
companies: Cirrus Logic, Inc. ("CRUS" - NASD), a semiconductor
company; Convex Computer Corporation ("CNX" - NYSE), a manufacturer
and distributor of super-mini mainframe computers; Cyrix Corporation
("CYRX" - NASD), a manufacturer and distributor of math co-
processors; and ProNet, Inc., ("PNET" - NASD), a distributor of
medical pagers and electronic tracking systems. Mr. Cash has served
as a director of the Company since September 1993. Mr. Cash and Mr.
Cowart are first cousins.
(2) Mr. Cowart has served as the Chairman of the Board and Chief Executive
Officer of the Company since December 31, 1992 and formerly served as
Vice President of Strategic Development of the Company. Since February
1992, Mr. Cowart has served as Chairman of EOS Capital, Inc. and is a
founding General Partner of Aurora Partners, a private capital firm
which has been, from time to time, retained by the Company. From 1987
to 1991, Mr. Cowart was a founding General Partner of Capital Resource
Partners, a private capital firm and investment manager for
institutional investors. Mr. Cowart is also a director of B/E
Aerospace, Inc. ("BEAV" - NASD), a leading manufacturer of aircraft
cabin interior products. Mr. Cowart has been a director of the
Company since October 1992. Mr. Cowart and Mr. Cash are first
cousins.
(3) Since July 1987, Mr. Khoury has served as Chairman of the Board of B/E
Aerospace, Inc. ("BEAV" - NASD), a leading manufacturer of aircraft
cabin interior products. From July 1987 until March 1996, Mr. Khoury
also served as Chief Executive Officer of B/E Aerospace, Inc. Mr.
Khoury is Chairman of the Board of Directors of Applied Extrusion
Technologies, Inc. ("AETC" - NASD), a manufacturer of packaging films,
polymer nets and other specialty products. Since July 1994, Mr.
Khoury has also served as director of Brooks Automation, Inc., a
supplier of wafer handling systems on modules for the electronics
industry. Mr. Khoury has been a director of the Company since January
1993, with the exception of the period from approximately July 1, 1993
to November 23, 1993.
(4) Mr. Lahar has served as the President of the Company since December
31, 1992 and formerly served as the Chief Financial Officer of the
Company. Since February 1992, Mr. Lahar has served as President of
EOS Capital, Inc. and is a founding General Partner of Aurora
Partners, a private capital firm which has been, from time to time,
retained by the Company. From 1987 to February 1992, Mr. Lahar was
First Vice President and Managing Director with the Corporate Finance
Department of PaineWebber Incorporated. Mr. Lahar has been a director
of the Company since October 1992.
(5) Mr. McInerney has served as a Director of DecisionOne Holdings Corp.
("DOCI" - NASD) since 1988, and from 1994 to 1995, served as its
Chairman. Mr. McInerney, since 1987, has been a general partner of
Welsh, Carson, Anderson & Stowe and has been a general partner of the
respective sole general partners of its associated limited
partnerships. Mr. McInerney is also a director of Bisys Group, Inc.
("BSYS" - NASD). Mr. McInerney has been a director of the Company
since March 29, 1996.
(6) Mr. Stowe, since 1979, has been a general partner of Welsh, Carson,
Anderson & Stowe and has been a general partner of the respective sole
general partners of its associated limited partnerships. Mr. Stowe is
a director of ADVO, Inc. ("AD" - NYSE), a provider of direct-mail
advertising services, EmCare Holdings Inc. ("EMCR" - NASD), a
provider of physician services management in hospital emergency
departments, Medaphis Corporation ("MEDA" - NASD), a provider of
accounts receivable management services to hospital-affiliated
physicians and hospitals, Health Management Systems, Inc.("HMSY" -
NASD), a provider of revenue enhancement services for health care
providers and payors, and several private companies. Mr. Stowe has
been a director of the Company since March 29, 1996.
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<PAGE> 8
(7) Mr. Watkins has been a partner and certified public accountant with
Watkins, Watkins & Keenan since December 1971. Mr. Watkins has been a director
of the Company since 1983.
THE BOARD OF DIRECTORS URGES STOCKHOLDERS TO VOTE "FOR"
EACH OF THE NOMINEES FOR DIRECTOR SET FORTH ABOVE
PROPOSAL TWO - APPROVAL OF THE AURORA ELECTRONICS, INC. 1996 STOCK OPTION PLAN
The Board of Directors adopted the 1996 Stock Option Plan (the "New
Option Plan") in February 1996 subject to the consummation of the
Recapitalization. To qualify the New Option Plan for the benefits of Rule
16b-3 (exemption from the "short-swing" trading prohibitions of the Securities
and Exchange Act of 1934, as amended, for qualifying plans) and to permit the
granting of "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986, as amended ("Qualified Options"), the New Option Plan is being
submitted for stockholder approval. A summary of the material features of the
New Option Plan follows. This summary is qualified in its entirety by
reference to the full text of the New Option Plan, which is set forth as
Exhibit A hereto and incorporated by reference herein.
Purpose of the New Option Plan. The purpose of the New Option Plan is
to attract and retain the best available personnel for positions of substantial
responsibility and to provide incentives to such personnel to promote the
success of the business of the Company and its subsidiaries.
Shares Subject to the New Option Plan. Pursuant to the terms of the
New Option Plan, the Company has offered to grant to existing employees who
currently hold options or warrants to purchase Common Stock under previously
existing stock option plans or warrants new options under the New Option Plan
in exchange for the cancellation of such existing options and warrants. The
total number of shares of Common Stock available for the grant of options under
the New Option Plan (the "Option Pool") is 5,209,886, equal to 17.5% of the pro
forma shares outstanding at the closing of the Recapitalization (the
"Closing"). The Option Pool is divided into three tranches, as follows:
Tranche A Options: Tranche A is comprised of options equal to 34.3%
of the Option Pool (6% of the 17.5% pro forma ownership). Tranche A
Options are fully vested at the time of grant, with the exception of
Tranche A1 Options described below. 50% of the Tranche A Options
issued to each of Jim C. Cowart, David A. Lahar and John P. Grazer
(the "Tranche A1 Options") vest ratably on the first day of each month
for the 24 months following the first anniversary of the Closing. If
a Tranche A1 Optionholder leaves voluntarily or is terminated for
cause prior to the third anniversary of the closing date, such
person's unvested Tranche A1 Options will be forfeited. If such
Tranche A1 Optionholder's employment terminates for any other reason,
all of such Optionholder's Tranche A1 Options will vest upon
termination.
Tranche B Options: Tranche B is comprised of options equal to 28.6%
of the Option Pool (5% of the 17.5% pro forma ownership). Tranche B
Options vest at the rate of 12.5% semi-annually over a four-year
period commencing on the later of the Closing or the effective date of
grant of the Tranche B Option. With respect to all Tranche B Options,
vesting will occur only so long as the optionholder remains an
employee of the Company.
Tranche C Options: Tranche C Options are comprised of options equal
to 37.1% of the Option Pool (6.5% of the 17.5% pro forma ownership).
Tranche C Options vest at the rate of 25% each year over a four-year
period commencing on the sixth anniversary of the later of the
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<PAGE> 9
Closing or the effective date of grant of the Tranche B Option, but are subject
to accelerated vesting according to annual performance-based targets based on
the Company's actual and projected earnings before interest, taxes,
depreciation and amortization less capital expenditures. Generally, the
vesting of no more than 25% of the Tranche C Options may accelerate in any
given annual period; however, the vesting of 50% of a Tranche C Option may
accelerate in a year if the relevant performance-based target for that year is
met but the relevant performance-based target (if any) for the immediately
preceding year was not met.
Prior to the grant of options under the New Option Plan as
contemplated by the Recapitalization, certain of the Company's employees and
directors held options and warrants to purchase 1,267,740 shares of Common
Stock, all at prices in excess of $2.125. See "Executive Compensation and
Other Information -- Option Grants in Fiscal 1995" and "Ten-Year Option
Repricing". To the extent that employees do not accept the Company's offer to
exchange their current options for options issued under the New Option Plan,
the Option Pool will be reduced as follows: (a) Tranche A Options will be
reduced by the number of vested options held by existing employees not
accepting the Company's offer to exchange; and (b) Tranche B Options will be
reduced by the number of unvested options held by existing employees not
accepting the Company's offer to exchange. The table below contains certain
information with respect to options and warrants held by employees and
directors prior to the Recapitalization, as well as a calculation of employee
and director ownership after giving effect to the Recapitalization and the
contemporaneous repurchase of shares pursuant to the Company's tender offer, as
though such options and warrants were exchanged for options under the New
Option Plan:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995 AS OF MARCH 31, 1995
---------------------------------------- ----------------------------------------
PRO FORMA PRO FORMA
PERCENTAGE (%) OF PERCENTAGE (%) OF
NUMBER OF OPTIONS SHARES SHARES
AND WARRANTS OUTSTANDING NUMBER OF OPTIONS OUTSTANDING
----------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Vested 879,560 7.8% 1,054,486 3.5%
Unvested 388,180 3.4 2,220,300 7.5
Performance-based,
unvested -- -- 1,935,101 6.5
----------------- ------------------- ----------------- -------------------
Total 1,267,740 11.3% 5,209,887 17.5%
================= =================== ================= ===================
</TABLE>
Options issued under the New Option Plan are and will be evidenced by
option agreements, which shall contain such terms and provisions as are
approved by the Committee (defined below) and executed on behalf of the Company
by an appropriate officer.
Option Price. Options issued effective as of March 29, 1996 were
issued with exercise prices of $2.125, the conversion price of the Convertible
Preferred Stock issued in the Recapitalization. The exercise price represents
a 21% premium over the closing sale price of the Company's Common Stock on
February 21, 1996, the date the Company entered into the Securities Purchase
Agreement. Any options in the Option Pool reserved for grant and granted at
some later date will have an exercise price as determined by the Committee (as
defined below). On March 29, 1996, the closing sale price of the Company's
Common Stock was $2.875.
Eligibility. Qualified Options may be granted under the New Option
Plan to such officers or other key employees ("Employees") of the Corporation
or its Subsidiaries as shall be determined by the Committee. Nonqualified
Options may be granted under the New Option Plan to such Employees and
directors of the Corporation or its Subsidiaries as shall be determined by the
Committee.
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<PAGE> 10
Administration. The New Option Plan shall be administered by the
Board of Directors, if each member is a disinterested director, or by a
committee of two or more disinterested directors appointed by the Board (the
group responsible for administering the Plan is referred to herein as the
"Committee"). Options may be granted under this Plan only by majority agreement
of the members of the Committee, which will have the authority to construe,
interpret and administer the provisions of the Plan and the provisions of the
option agreements entered into thereunder. The Board of Directors and the
Committee may amend or terminate the New Option Plan at any time, provided that
no amendment may be made without the approval of the stockholders of the
Company if the amendment would materially (i) increase the benefits accruing to
plan participants, (ii) increase the number of securities which may be issued
under the New Option Plan (subject to certain exceptions), or (iii) modify the
requirements as to eligibility for participation in the New Option Plan.
Option Expiration and Termination. Subject to the expiration and
termination provisions of individual option agreements, qualified incentive
stock options expire ten years after the date of the option grant or, if held
by a ten percent stockholder, such options expire five years after the date of
grant.
Subject to the expiration and termination provisions of individual
option agreements, if an optionholder of a qualified option ceases to be an
employee of the Company or its subsidiaries, then such optionholder's vested
options will terminate (a) three months following the date such optionholder
ceases to be an employee, if such cessation of service is not due to the death
or permanent and total disability of the employee or (b) twelve months
following the date such optionholder ceases to be an employee, if such
cessation of service is due to the death or permanent and total disability of
the employee.
The expiration and termination periods of nonqualified stock options
will be determined by the Committee and set forth in the individual stock
option agreements.
Certain Federal Income Tax Consequences.
Incentive Stock Options. Any employee receiving a qualified
incentive stock option ("ISOs") under the New Option Plan, as defined in
Section 422 of the Internal Revenue Code of 1986, as amended generally will not
realize taxable income, and the Company will not be entitled to a federal
income tax deduction, at the time an ISO is granted or at the time the ISO is
exercised. However, there may be certain alternative minimum tax consequences
to the employee resulting from the exercise of an ISO. Upon a sale of the
Common Stock acquired upon exercise of an ISO, the employee generally will
realize a capital gain or capital loss, and the Company will receive no
deduction, so long as the sale does not occur within two years of the date of
the grant of the ISO or within one year from the date the shares were
transferred to the employee upon the exercise of the ISO. If a sale does occur
within two years of the date of grant or one year of the transfer date,
however, part or all of the income recognized by the employee may be treated as
ordinary income. Under such circumstances, the Company could be entitled to a
federal income tax deduction equal to the ordinary income recognized by the
employee.
Nonqualified Options. An employee receiving nonqualified
stock options ("NQSOs") will not realize any taxable income, and the Company
will not be entitled to any federal income tax deduction, at the time the NQSO
is granted. At the time the NQSO is exercised, however, the employee generally
will realize ordinary income in an amount equal to the excess of the fair
market value of the Common Stock on the date of exercise over the option price
paid, and the Company will generally be entitled to a corresponding federal
income tax deduction. Upon the sale of the Common Stock acquired upon exercise
of a NQSO, the employee generally will recognize capital gain or loss.
-8-
<PAGE> 11
THIS SUMMARY OF THE EFFECT OF THE FEDERAL INCOME TAX UPON THE
PARTICIPANTS IN THE NEW OPTION PLAN DOES NOT PURPORT TO BE COMPLETE. THE TAX
TREATMENT UNDER FOREIGN, STATE, OR LOCAL LAW IS NOT COVERED IN THIS SUMMARY.
Stockholder Approval. The affirmative vote of a majority of the votes
present or represented by proxy and entitled to be cast at the Annual Meeting
by the holders of the shares of Common Stock and Convertible Preferred Stock is
required to approve the New Option Plan. WCAS VII, WCAS CP II and other
purchasers of the Convertible Preferred Stock and the Common Stock in the
Recapitalization contractually agreed to vote in favor of the New Option Plan,
and their vote in favor would be sufficient to approve the New Option Plan.
The Board of Directors believes the New Option Plan is in the best interest of
the Company and its stockholders.
New Option Plan Benefits. The table below discloses the benefits or
amounts that will be received or allocated under the New Option Plan to
executive officers, directors and nominees for directors, executive officers as
a group, current directors who are not executive officers as a group and all
employees who are not executive officers as a group. The Dollar Value
indicated below is the difference between the exercise price of $2.125 and the
closing price of the Company's Common Stock on March 29, 1996, or $2.875. The
Number of Shares shown below is the total of all Common Stock available if all
conditions of the individual options are met.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
1996 STOCK OPTION PLAN
-----------------------------------------------------
Name and Position Dollar Value ($) Number of Shares
---------------------------------------- --------------------------- ------------------------
<S> <C> <C>
Jim C. Cowart, Chairman of the Board and $1,001,215 1,334,953
Chief Executive Officer
David A. Lahar, President and director $1,001,215 1,334,953
John P. Grazer, Chief Financial Officer $674,752 899,669
and
Senior Vice President, Finance &
Administration
Harold Haagsma, President, Asset Recovery $168,750 225,000
Services, a division of Aurora
Electronics
Group, Inc. ("AEG")
William H. McMahon, Jr., President, $150,000 200,000
Century Division, a division of AEG
Harvey B. Cash, director $26,250 35,000
Amin J. Khoury, director $26,250 35,000
Thomas E. McInerney, director $18,750 25,000
Richard H. Stowe, director $18,750 25,000
William H. Watkins, Jr., director $26,250 35,000
Executive Officer Group $2,677,181 3,569,575
</TABLE>
-9-
<PAGE> 12
<TABLE>
<S> <C> <C>
Non-Executive Director Group $78,750 105,000
Non-Executive Officer Employee Group $1,230,233 1,640,311
</TABLE>
THE BOARD OF DIRECTORS URGES STOCKHOLDERS TO VOTE "FOR"
APPROVAL OF THE COMPANY'S 1996 STOCK OPTION PLAN
PROPOSAL THREE -- AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM
25,000,000 TO 50,000,000 SHARES
On February 16, 1996, the Board of Directors unanimously approved and
recommended that the stockholders consider and approve an amendment to ARTICLE
FOURTH(A) of the Company's Restated Certificate of Incorporation (the
"Certificate of Incorporation") that would increase the number of authorized
shares of Common Stock from 25,000,000 to 50,000,000. ARTICLE FOURTH(A) of the
Certificate, as proposed to be amended, is set forth below:
FOURTH. A. The total number of shares of capital stock which
the Corporation shall have the authority to issue is Fifty Million
(50,000,000) shares of Common Stock, $0.03 par value per share, and
One Million (1,000,000) shares of Preferred Stock, $0.01 par value per
share.
As of April 3, 1996, the Company had 10,484,409 shares of Common Stock
issued and outstanding, 4,747,047 shares of Common Stock held in treasury and
400,000 shares of Convertible Preferred Stock issued and outstanding. As of
the same date, approximately 26,270,000 shares of Common Stock were reserved
for issuance (a) upon the conversion of the Convertible Preferred Stock
(approximately 18,824,000 shares); (b) upon the exercise of stock options and
warrants (approximately 5,606,000 shares); (c) upon the conversion of
outstanding notes and debentures (approximately 1,055,000 shares); and (d)
pursuant to other contractual obligations (approximately 785,000 shares).
Accordingly, at May 1, 1996, the Company did not have a sufficient number of
shares of authorized Common Stock to satisfy all of its potential issuance
obligations.
The Company agreed, in connection with the Recapitalization and the
issuance of the Convertible Preferred Stock, that prior to June 30, 1996, it
would authorize and reserve for issuance a sufficient number of shares of
Common Stock to permit the issuance of Common Stock upon the conversion of the
Convertible Preferred Stock, and WCAS VII, WCAS CP II and the other purchasers
in the Recapitalization agreed to vote in favor of an increase of authorized
capital stock to permit such reservation for issuance of Common Stock upon the
conversion of the Convertible Preferred Stock.
In addition, the proposed amendment is intended to provide the Company
with additional shares of authorized Common Stock, which may be used in
connection with the issuance of Common Stock under the New Option Plan, future
acquisitions of related businesses, stock dividends and stock splits, employee
benefits and the issuance of Common Stock for other corporate purposes,
including the raising of additional capital, at times when the Board of
Directors, in its discretion, deems it advantageous to do so. If the proposed
amendment is approved, the Board would be able to authorize the issuance of
Common Stock in future transactions for any of the foregoing purposes, at any
time, without obtaining further authorization from stockholders, unless such
authorization is required by applicable law or the rules and regulations of any
stock exchange on which the Common Stock may then be listed. Other than as
needed upon the conversion of Convertible Preferred Stock, the exercise of
stock options or warrants,
-10-
<PAGE> 13
the conversion of notes or debentures, or to satisfy existing contractual
obligations, no specific use of the additional authorized shares is presently
contemplated.
The amendment to the Certificate of Incorporation is not being
proposed for an anti-takeover related purpose or in response to any known
effort to obtain control of the Company. Further, the Board of Directors does
not have any present intention of issuing additional shares for anti-takeover
purposes. However, the proposed increase in the number of authorized shares of
Common Stock could enable the Board of Directors to render more difficult or
discourage an attempt by a third party to obtain control of the Company. Such
additional shares of Common Stock could be issued by the Board in a public or
private sale, merger or similar transaction, thereby increasing the number of
outstanding shares and diluting the equity interest and voting power of a party
attempting to obtain control of the Company.
Certain existing provisions of the Restated Certificate of
Incorporation and the Company's Bylaws could also have the effect of
discouraging or deterring an attempted change of control. The Restated
Certificate of Incorporation permits the Board of Directors (although it has no
present intention of doing so) to issue additional shares of Preferred Stock
having preferential voting, dividend or conversion rights to persons opposed to
a change of control of the Company. The Company's Restated Certificate of
Incorporation does not currently provide for cumulative voting by stockholders,
even though such a provision is permitted under the Delaware General
Corporation Law.
The Company's Bylaws currently provide that special meetings of
stockholders may only be called by the Chief Executive Officer or the President
of the Company upon the written request of a majority of the directors or
stockholders entitled to vote. In addition, the Company's Bylaws establish
advance notice procedures with regard to the nomination of candidates for
election as directors other than by the Board of Directors or on behalf of the
Board of Directors by a nominating committee appointed by the Board. (For a
more detailed description of this provision, see "Matters to Be Brought Before
the Meeting -- Proposal One -- Election of Directors.") The Company's Bylaws
also allow no more than ten directors, and under the Securities Purchase
Agreement with WCAS VII, WCAS CP II and the other purchasers in the
Recapitalization, the Company has agreed to limit the Board to seven members.
At present, the Board of Directors of the Company does not intend to propose
further amendments to the Restated Certificate of Incorporation that would have
an anti-takeover effect.
Stockholder Approval. The affirmative vote of a majority of the votes
entitled to be cast by the holders of the shares of Common Stock and
Convertible Preferred Stock issued and outstanding as of the Record Date,
voting together, and the affirmative vote of the holders of a majority of the
shares of Convertible Preferred Stock, voting separately as a class, is
required to approve the proposed amendment to the Restated Certificate of
Incorporation. As noted above, the purchasers of the Convertible Preferred
Stock and the Common Stock in the Recapitalization contractually agreed to vote
in favor of an increase in authorized capital stock to permit the reservation
for issuance of Common Stock upon the conversion of the Convertible Preferred
Stock, and such purchasers have informed the Company that they intend to vote
for the amendment. If the amendment is approved, it will become effective upon
the filing of an amendment with the Delaware Secretary of State, which is
expected to be accomplished as promptly as practicable after obtaining
stockholder approval.
THE BOARD OF DIRECTORS URGES STOCKHOLDERS TO VOTE "FOR"
THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
-11-
<PAGE> 14
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and notes thereto set forth certain information
with respect to the beneficial ownership of the Company's Common Stock as of
April 1, 1996 by (i) each of the "Named Executive Officers," (ii) each director
of the Company, (iii) each beneficial owner of more than 5% of the Company's
Common Stock and (iv) all executive officers and directors of the Company as a
group. This table reflects the grant of options under the New Option Plan,
effective March 1996, to the officers and directors listed below (with the
exception of Robert G. Allison, who resigned from the Company in September
1995) in exchange for the cancellation of all options and warrants previously
held by such officers and directors.
Except as otherwise indicated, each of the stockholders named below
has sole voting and investment power with respect to the shares of Common Stock
beneficially owned:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE PERCENT OF
CLASS OF OF BENEFICIAL OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK OWNERSHIP (1) SHARES
------------------------------------ ------------ ------------- -----------
<S> <C> <C> <C>
Robert G. Allison** Common Stock 79,524(2) ***
Harvey B. Cash* Common Stock 149,11(3) ***
Jim C. Cowart*/** Common Stock 420,38(4) 1.71%
John P. Grazer** Common Stock 157,01(5) ***
Harold Haagsma** Common Stock 58,151(6) ***
Amin J. Khoury* Common Stock 40,000(7) ***
David A. Lahar*/** Common Stock 307,39(8) 1.25%
Thomas E. McInerney* Common Stock 18,186,034 (9) 74.04%
William H. McMahon, Jr.** Common Stock 17,26(10) ***
Richard H. Stowe* Common Stock 18,174,269 (11) 74.00%
William H. Watkins, Jr.* Common Stock 37,00(12) ***
WCAS Capital Partners II, L.P. Common Stock 607,2(13) 2.47%
One World Financial Center, Suite 3601
New York, NY 10281
Welsh, Carson, Anderson & Stowe VII, L.P. Common Stock 17,261,1(13)(14) 70.28%
One World Financial Center, Suite 3601
New York, NY 10281
WCAS Information Partners, L.P. Common Stock 235,29(13)(14) ***
One World Financial Center, Suite 3601
New York, NY 10281
Directors and Executive Officers Common Stock 19,442,959 (15) 76.34%
as a group (10 persons)
</TABLE>
___________________________________________
* Director
** Named Executive Officer
*** Less than one percent
-12-
<PAGE> 15
(1) Sole voting and investment power unless otherwise indicated, subject
to community property laws where applicable. Shares of Common Stock
that can be acquired through the conversion of Convertible Preferred
Stock are deemed outstanding for the purpose of computing the
percentage of beneficial ownership. Shares of Common Stock that were
not outstanding but that could be acquired through the exercise of
stock options or the conversion of convertible debentures within 60
days of April 1, 1996 are deemed outstanding for the purpose of
computing the percentage of outstanding shares beneficially owned by a
particular person. However, such shares are not deemed outstanding
for the purpose of computing the percentage of outstanding shares
beneficially owned by any other person.
(2) Mr. Allison resigned from the Company effective September 1, 1995.
Includes (i) currently exercisable stock options to purchase 78,573
shares of the Company's Common Stock and (ii) 951 shares of Common
Stock owned by Mr. Allison. Mr. Allison's options expire, unless
earlier exercised, on September 30, 1996.
(3) Includes (i) currently exercisable stock options to purchase 35,000
shares of the Company's Common Stock, (ii) 2,000 shares of the
Company's Convertible Preferred Stock directly owned by Mr. Cash
which, if converted, represents 94,118 shares of Common Stock and
(iii) 20,000 shares of Common Stock owned by Mr. Cash.
(4) Includes (i) currently exercisable stock options to purchase 288,387
shares of the Company's Common Stock, (ii) 853 shares of Common Stock
issuable upon conversion of the Company's 7-3/4% Convertible
Subordinated Debentures due 2001 (the "Convertible Debentures"), (iii)
2,000 shares of the Company's Convertible Preferred Stock directly
owned by Mr. Cowart which, if converted, represents 94,118 shares of
Common Stock and (iv) 37,027 shares of Common Stock owned by Mr.
Cowart.
(5) Includes (i) currently exercisable stock options to purchase 154,987
shares of the Company's Common Stock and (ii) 2,032 shares of Common
Stock owned by Mr. Grazer.
(6) Includes (i) currently exercisable stock options to purchase 58,000
shares of the Company's Common Stock and (ii) 151 shares of Common
Stock owned by Mr. Haagsma.
(7) Includes (i) currently exercisable stock options to purchase 35,000
shares of the Company's Common Stock and (ii) 5,000 shares of Common
Stock owned by Mr. Khoury.
(8) Includes (i) currently exercisable stock options to purchase 288,387
shares of the Company's Common Stock, (ii) 853 shares of Common Stock
issuable upon conversion of the Company's 7-3/4% Convertible
Subordinated Debentures due 2001 (the "Convertible Debentures") and
(iv) 18,158 shares of Common Stock owned by Mr. Lahar.
(9) Includes (i) 1,750 shares of the Company's Convertible Preferred Stock
owned directly by Mr. McInerney, which if converted, represents 82,353
shares of Common Stock, (ii) 607,211 shares of the Company's Common
Stock beneficially owned by WCAS Capital Partners, II L.P. of which
Mr. McInerney is a general partner of its sole general partner, (iii)
366,800 shares of the Company's Convertible Preferred Stock which if
converted, represents 17,261,176 shares of Common Stock beneficially
owned by Welsh, Carson, Anderson & Stowe VII, L.P. of which Mr.
McInerney is a general partner of its sole general partner and (iv)
5,000 shares of the Company's Convertible Preferred Stock which if
converted, represents 235,294 shares of Common Stock beneficially
owned by WCAS Information Partners, L.P. of which Mr. McInerney is a
general partner of its sole general partner.
(10) Includes (i) currently exercisable stock options to purchase 14,800
shares of the Company's Common Stock and (ii) 2,466 shares of Common
Stock owned by Mr. McMahon.
(11) Includes (i) 1,500 shares of the Company's Convertible Preferred Stock
owned directly by Mr. Stowe, which if converted, represents 70,588
shares of Common Stock, (ii) 607,211 shares of the Company's Common
Stock beneficially owned by WCAS Capital Partners, II L.P. of which
Mr. Stowe is a general partner of its sole general partner, (iii)
366,800 shares of the Company's Convertible Preferred Stock which if
converted, represents 17,261,176 shares of Common Stock beneficially
owned by Welsh, Carson, Anderson & Stowe VII, L.P. of which Mr. Stowe
is a general partner of its sole general partner and (iv) 5,000 shares
of the Company's Convertible Preferred Stock which if converted,
represents 235,294 shares
-13-
<PAGE> 16
of Common Stock beneficially owned by WCAS Information Partners, L.P.
of which Mr. Stowe is a general partner of its sole general partner.
(12) Includes (i) currently exercisable stock options to purchase 35,000
shares of the Company's Common Stock and (ii) 2,000 shares of Common
Stock owned by Mr. Watkins.
(13) Messrs. McInerney and Stowe are general partners of the respective
sole general partners of WCAS Capital Partners II, L.P., Welsh,
Carson, Anderson & Stowe VII, L.P. and WCAS Information Partners, L.P.
and may be deemed to beneficially own the shares of Common Stock and
Convertible Preferred stock owned by such partnerships.
(14) Reflects ownership of Convertible Preferred Stock which, if converted,
represents shares of Common Stock beneficially owned.
(15) Includes 911,267 shares of Common Stock issuable upon exercise of
stock options and convertible debentures and 379,050 shares of
Convertible Preferred Stock which, if converted, represents 17,837,647
shares of Common Stock.
MANAGEMENT
MEETING ATTENDANCE AND COMMITTEES OF THE BOARD
The business of the Company is managed under the direction of the
Board of Directors. The Board meets during the Company's fiscal year to review
significant developments affecting the Company and to act on matters requiring
Board approval. The Board of Directors held four (4) formal meetings and acted
by unanimous written consent four (4) times during the fiscal year ended
September 30, 1995. During the fiscal year, each member of the Board
participated in at least 75% of all Board and committee meetings held during
the period that he served as a director and/or committee member.
The Board of Directors has established an Audit Committee and a
Compensation and Stock Option Committee to devote attention to specific
subjects and to assist the Board in the discharge of its responsibilities. The
functions of these committees and their current members are described below.
Audit Committee. During the fiscal year, the Audit Committee was
comprised of Amin J. Khoury, David A. Lahar (Chairman) and William H. Watkins,
Jr. The Audit Committee is empowered to recommend to the Board of Directors a
firm of certified public accountants to conduct audits of the accounts and
affairs of the Company, review accounting objectives and procedures of the
Company and the findings and reports of the independent certified public
accountants, and make such reports and recommendations to the Board of
Directors as it deems appropriate. The Audit Committee did not hold any formal
meetings during the past fiscal year. Following the Annual Meeting, it is
expected that the Audit Committee will be comprised of Amin J. Khoury, William
H. Watkins, Jr. and Richard H. Stowe (Chairman).
Compensation and Stock Option Committee. During the fiscal year, the
Compensation and Stock Option Committee was comprised of Harvey B. Cash and
William H. Watkins, Jr. (both Mr. Cash and Mr. Watkins are Disinterested
Directors of the Company). The Compensation and Stock Option Committee is
empowered to establish and revise the compensation paid to all executive
officers of the Company and has complete authority to (a) construe, interpret,
and administer the provisions of the 1993 Stock Option Plan and the 1996 Stock
Option Plan, and the provisions of the option agreements granted thereunder;
(b) select the key employees, consultants and directors to whom awards are
granted, the number of options, the number of shares of Common Stock with
respect to each option, the exercise
-14-
<PAGE> 17
price or prices of each option, the vesting and exercise period of each option,
whether an option may be exercised as to less than all of the Common Stock
subject to the option and such other terms and conditions of each option, if
any, that are not inconsistent with the provisions of the Company's Stock
Option Plans; (c) prescribe, amend and rescind rules and regulations pertaining
to the Company's Stock Option Plans; and (d) make all other determinations
necessary or advisable for their implementation and administration. The
Compensation and Stock Option Committee held various telephonic meetings
during the past fiscal year, and acted by unanimous written consent five (5)
times during the past fiscal year. Following the Annual Meeting, it is
expected that the Compensation and Stock Option Committee will be comprised of
Harvey B. Cash, Richard H. Stowe and Thomas E. McInerney (Chairman).
The Board of Directors does not have a standing nominating committee
or any other committee performing a similar function. The function customarily
attributable to a nominating committee is performed by the Board of Directors
as a whole.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the
compensation paid by the Company to the Named Executive Officers during fiscal
1995, 1994 and 1993:
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
----------------
ANNUAL COMPENSATION SECURITIES
FISCAL ---------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION (1)
--------------------------- --------- ------------ -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Jim C. Cowart, 1995 $168,080 $112,742 (2) 66,000 (3 ) $4,126
Chairman of the Board 1994 124,519 60,000 20,000 4,324
and Chief Executive 1993 -- -- -- 462
Officer
David A. Lahar, 1995 $166,238 $114,742 (2) 66,000 (3 ) $3,775
President 1994 124,519 60,000 20,000 2,794
1993 -- -- -- 462
Robert G. Allison, (4) 1995 $240,885 $16,747 16,000 (3 ) $4,126
Chief Operating Officer 1994 240,000 60,000 127,000 4,363
and Executive Vice 1993 13,500 -- -- 23,482
President
John P. Grazer, 1995 $143,322 $106,425 (2) 66,000 (3 ) $4,893
Chief Financial Officer 1994 133,384 50,000 20,000 3,406
and
Senior Vice President, 1993 55,154 45,462 80,000 32,000
Finance & Administration
Harold Haagsma, 1995 $145,000 $58,875 16,000 (3 ) $5,387
President, Asset Recovery 1994 123,616 32,639 20,000 3,916
Services, a division of 1993 85,543 32,933 -- 1,821
AEG
William H. McMahon, Jr., 1995 $167,231 $71,139 40,000 (3 ) $5,020
President, Century 1994 61,385 15,250 35,000 --
Division,
a division of AEG 1993 -- -- -- --
</TABLE>
-15-
<PAGE> 18
(1) The amounts disclosed in this column consist only of Company
contributions under the Company's 401(k) plan.
(2) In connection with the completion of the Recapitalization of the
Company on March 29, 1996, Messrs. Cowart, Lahar and Grazer received
bonuses in the amounts of $112,000, $114,000 and $105,000,
respectively, in respect of 1995 performance payable in the event that
a satisfactory Recapitalization of the Company was obtained.
(3) During May 1995, the Compensation and Stock Option Committee of the
Board of Directors offered each optionee the opportunity to surrender
for cancellation his or her outstanding options and replace such
outstanding options with non-qualified stock options to acquire eighty
percent (80%) of the number of shares of the Company's Common Stock as
canceled, at a price per share equal to twenty-five cents ($0.25) over
the closing price of the Company's Common Stock on May 15, 1995.
(4) Mr. Allison resigned from the Company effective September 1, 1995.
Mr. Allison's options expire, unless earlier exercised, on September
30, 1996. Mr. Allison's options are not eligible for exchange under
the New Option Plan.
OPTION GRANTS IN FISCAL 1995
The following table sets forth certain information relating to stock
option grants made by the Company during the last fiscal year to the Named
Executive Officers. The Company did not grant any stock appreciation rights
during the last fiscal year. In connection with the Recapitalization, the
Named Executive Officers listed below (with the exception of Mr. Allison, who
resigned from the Company in September 1995) exchanged the options referred to
below for new grants of stock options under the New Option Plan. See "Matters
to be Brought Before the Meeting -- Proposal Two" and "Security Ownership of
Certain Beneficial Owners and Management."
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH)(1) DATE
---------------------- -------------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Jim C. Cowart 16,000 (1) 1.42% $3.625 12/12/2004
50,000 4.42% $3.38 05/15/2004
David A. Lahar 16,000 (1) 1.42% $3.625 12/12/2004
50,000 4.42% $3.38 05/15/2004
Robert G. Allison (2) 85,600 (1) 7.57% $3.625 10/15/2003
16,000 (1) 1.42% $3.625 12/12/2004
John P. Grazer 64,000 (1) 5.66% $3.625 06/09/2003
16,000 (1) 1.42% $3.625 12/12/2004
50,000 4.42% $3.38 05/15/2004
Harold Haagsma 50,000 (1) 4.42% $3.625 09/30/1997
16,000 (1) 1.42% $3.625 10/15/2003
William H. McMahon, Jr. 28,000 (1) 2.48% $3.625 05/25/2004
12,000 (1) 1.06% $3.625 12/12/2004
</TABLE>
- ---------------
-17-
<PAGE> 19
(1) During May 1995, the Compensation and Stock Option Committee of the
Board of Directors offered each optionee the opportunity to surrender
for cancellation his or her outstanding options and replace such
outstanding options with non-qualified stock options to acquire eighty
percent (80%) of the number of shares of the Company's Common Stock as
canceled, at a price per share equal to twenty-five cents ($0.25) over
the closing price of the Company's Common Stock on May 15, 1995.
(2) Mr. Allison resigned from the Company effective September 1, 1995.
Mr. Allison's options expire, unless earlier exercised, on September
30, 1996.
TEN-YEAR OPTION REPRICING
The following table provides information for the Named Executive
Officers relating to the repricing of stock options by the Company's
Compensation and Stock Option Committee of the Board of Directors during the
last fiscal year. The Company does not have any outstanding stock appreciation
rights. As previously noted, in connection with the Recapitalization, the
Named Executive Officers listed below (with the exception of Mr. Allison, who
resigned from the Company in September 1995) exchanged the options referred to
below for new grants of stock options under the New Option Plan. See "Matters
to be Brought Before the Meeting -- Proposal Two" and "Security Ownership of
Certain Beneficial Owners and Management."
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES MARKET PRICE ORIGINAL
UNDERLYING OF STOCK AT EXERCISE OPTION TERM
OPTIONS TIME OF PRICE AT TIME REMAINING AT
REPRICED OR REPRICING OR OF REPRICING NEW EXERCISE DATE OF
AMENDED AMENDMENT OR AMENDMENT PRICE REPRICING OR
NAME DATE (#) ($) ($) ($) AMENDMENT
- ----------------------- -------- ----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jim C. Cowart 05/15/95 16,000 $3.375 $4.50 $3.625 10 years
David A. Lahar 05/15/95 16,000 $3.375 $4.50 $3.625 10 years
Robert G. Allison (1) 05/15/95 85,600 $3.375 $7.00 $3.625 8 years
05/15/95 16,000 $3.375 $4.50 $3.625 9 years
John P. Grazer 05/15/95 64,000 $3.375 $7.50 $3.625 8 years
05/15/95 16,000 $3.375 $4.50 $3.625 9 years
Harold Haagsma 05/15/95 50,000 $3.375 $6.40 $3.625 2 years
05/15/95 16,000 $3.375 $7.00 $3.625 8 years
William H. McMahon, Jr. 05/15/95 28,000 $3.375 $7.88 $3.625 9 years
05/15/95 12,000 $3.375 $4.50 $3.625 9 years
</TABLE>
- ---------------
(1) Mr. Allison resigned from the Company effective August 31, 1995. Mr.
Allison's options expire, unless earlier exercised, on September 30,
1996.
COMPENSATION OF DIRECTORS
Each non-employee director receives $2,500 for each quarter in which
such person serves as a director of the Company. Officers of the Company do
not receive any fees for serving on the Board of Directors. Non-employee
directors are automatically granted nonqualified stock options to purchase
25,000 shares of Common Stock upon election to the Board of Directors and
options to purchase 5,000 shares of Common Stock on the date of each annual
meeting of the Company's stockholders when such non-employee director has
served on the Board of Directors for the immediately preceding 181
-18-
<PAGE> 20
consecutive days, has agreed to serve as a director upon such re-election and
is re-elected to the Board of Directors. All directors are entitled to
reimbursement for expenses incurred for attendance at each meeting.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Jim C. Cowart. In connection with the Recapitalization, Mr. Cowart
entered into a new employment agreement, effective as of ________, 1996, which
supersedes and replaces his prior employment agreements dated May 18, 1995 and
March 19, 1993. Under the new employment agreement, Mr. Cowart will continue
to serve as Chairman of the Board and Chief Executive Officer of the Company.
Mr. Cowart receives an annual base salary of $200,000 and is eligible for a
performance and discretionary bonus, 75% of which is performance based,
calculated as a function of corporate EBITDA minus capital expenditures, and
25% of which is discretionary, as determined by the Compensation and Stock
Option Committee. In addition, in connection with the Recapitalization, Mr.
Cowart was awarded 1,334,953 options to purchase Common Stock, including
288,387 Tranche A options, 288,387 Tranche A1 options, 379,090 Tranche B
options and 379,090 Tranche C options. Mr. Cowart is also entitled to standard
health and dental coverage and an automobile allowance, each provided by the
Company.]
Mr. Cowart's employment is at will; however, if the Company terminates
Mr. Cowart's employment without cause (as defined in the agreement), Mr.
Cowart's compensation will continue until the earlier of 15 months or the date
in which he accepts full-time employment in a position where he receives annual
compensation equal to or in excess of the annual compensation he receives from
the Company. In the event of a Change in Control of the Company (as defined in
the agreement), all outstanding unvested options will vest immediately, unless
WCAS VII maintains Company Control (as defined in the agreement) and it is the
judgment of the Compensation and Stock Option Committee members who are WCAS
VII appointees that WCAS VII and WCAS CP II's investment in the Company has
been less than successful.
David A. Lahar. In connection with the Recapitalization, Mr. Lahar
entered into a new employment agreement, effective as of ________, 1996, which
supersedes and replaces his prior employment agreements dated May 18, 1995 and
March 19, 1993. Under the new employment agreement, Mr. Lahar will continue to
serve as President of the Company. Mr. Lahar receives an annual base salary
of $200,000 and is eligible for a performance and discretionary bonus, 75% of
which is performance based, calculated as a function of corporate EBITDA minus
capital expenditures, and 25% of which is discretionary, as determined by the
Compensation and Stock Option Committee. In addition, in connection with the
Recapitalization, Mr. Lahar was awarded 1,334,953 options to purchase Common
Stock, including 288,387 Tranche A options, 288,387 Tranche A1 options, 379,090
Tranche B options and 379,090 Tranche C options. Mr. Lahar is also entitled to
standard health and dental coverage and an automobile allowance, each provided
by the Company.]
Mr. Lahar's employment is at will; however, if the Company terminates
Mr. Lahar's employment without cause (as defined in the agreement), Mr. Lahar's
compensation will continue until the earlier of 15 months or the date in which
he accepts full-time employment in a position where he receives annual
compensation equal to or in excess of the annual compensation he receives from
the Company. In the event of a Change in Control of the Company (as defined in
the agreement), all outstanding unvested options will vest immediately, unless
WCAS VII maintains Company Control (as defined in the agreement) and it is the
judgment of the Compensation and Stock Option Committee
-19-
<PAGE> 21
members who are WCAS VII appointees that WCAS VII and WCAS CP II's investment
in the Company has been less than successful.
John P. Grazer. In connection with the Recapitalization, Mr. Grazer
entered into a new employment agreement, effective as of ________, 1996, which
supersedes and replaces his prior employment agreements dated May 18, 1995 and
March 19, 1993. Under the new employment agreement, Mr. Grazer will continue
to serve as Vice President of Finance and Administration and Chief Financial
Officer of the Company. Mr. Grazer receives an annual base salary of $175,000
and is eligible for a performance and discretionary bonus, 75% of which is
performance based, calculated as a function of corporate EBITDA minus capital
expenditures, and 25% of which is discretionary, as determined by the
Compensation and Stock Option Committee. In addition, in connection with the
Recapitalization, Mr. Lahar was awarded 899,669 options to purchase Common
Stock, including 154,987 Tranche A options, 154,987 Tranche A1 options, 294,847
Tranche B options and 294,847 Tranche C options. Mr. Grazer is also entitled
to standard health and dental coverage and an automobile allowance, each
provided by the Company.]
Mr. Grazer's employment is at will; however, if the Company terminates
Mr. Grazer's employment without cause (as defined in the agreement), Mr.
Grazer's compensation will continue until the earlier of 15 months or the date
in which he accepts full-time employment in a position where he receives annual
compensation equal to or in excess of the annual compensation he receives from
the Company. In the event of a Change in Control of the Company (as defined in
the agreement), all outstanding unvested options will vest immediately, unless
WCAS VII maintains Company Control (as defined in the agreement) and it is the
judgment of the Compensation and Stock Option Committee members who are WCAS
VII appointees that WCAS VII and WCAS CP II's investment in the Company has
been less than successful.
-20-
<PAGE> 22
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
General. Harvey B. Cash and William H. Watkins, Jr. served on the
Compensation and Stock Option Committee of the Board of Directors during the
last fiscal year. Neither Mr. Cash nor Mr. Watkins are current or former
officers or employees of the Company.
During fiscal 1995, Jim C. Cowart (Chairman of the Board and Chief
Executive Officer of the Company) served as a director and member of the
compensation committee of the Board of Directors of B/E Aerospace, Inc. Amin
J. Khoury, a director of the Company, is Chairman of the Board of B/E
Aerospace, Inc.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation and Stock Option Committee has responsibility for
determining compensation for the Company's executive officers, setting overall
compensation policy for the Company, and administering the Company's Stock
Option Plans, including authority regarding the selection of award recipients
and the size and terms of all option grants under the Option Plans. The Chief
Executive Officer and the President of the Company make annual compensation
recommendations for the Company's executive officers to the Compensation and
Stock Option Committee.
The Compensation and Stock Option Committee believes that the Company
must attract and retain superior executives in order to succeed. In fiscal
1995, the Company focused on assembling and retaining a highly qualified senior
management team and in aligning the interests of its officers with the success
of the Company. Reaching this goal was the objective of the Compensation and
Stock Option Committee in determining the type and amount of executive officer
compensation for fiscal 1995, using base salary, short term incentives in the
form of a bonus, long term incentives in the form of stock options and various
benefits generally available to employees of the Company (such as health
insurance).
The cash compensation levels for the Company's executive officers for
fiscal 1995 were determined by the Compensation and Stock Option Committee
based on a variety of subjective elements, including each executive officer's
compensation history, experience in rendering services to the Company and
individual talents. In addition to considering these elements, the
Compensation and Stock Option Committee evaluated industry-specific executive
compensation survey reports with respect to the executive officers of the
Company. The Compensation and Stock Option Committee based its decisions
regarding the split between base salary and target bonus payments on the
Company's objective of aligning officers' interests with the success of the
Company by placing a percentage of each executive officer's pay at risk through
a short-term incentive target bonus dependent upon Company performance and
individual performance. This is consistent with the philosophy extended to the
Company's management employee population in general. With respect to each
executive officer other than the Chief Executive Officer and President, the
Compensation and Stock Option Committee reviewed base salary in place for the
prior fiscal year and target bonus levels for which each executive officer was
previously eligible and made adjustments to each executive officer's cash
compensation based on the foregoing elements, considered in light of the cash
compensation paid to similarly situated executives as indicated by the survey
reports, although the Committee did not assign weights to any one element or to
the survey reports.
Pursuant to letter agreements entered into between the Company and
Messrs. Cowart and Lahar in 1995, Messrs. Cowart and Lahar each received an
annual base salary of $175,000. In setting this
-21-
<PAGE> 23
figure, the Compensation and Stock Option Committee considered an independent
study of executive compensation in addition to the foregoing variety of
elements considered with respect to all executive officers. The study compared
compensation data from (a) nine comparable organizations, weighting the
organizations comparable to the Company in terms of annual sales and the
positions comparable to those of Messrs. Cowart and Lahar in terms of perceived
levels of accountability, and (b) published survey reports of executive
compensation paid in similar industry groups as a function of annual sales,
weighting the groups comparable to the Company in terms of similarity to the
Company's business and the positions comparable to those of Messrs. Cowart and
Lahar in terms of similarity of duties. The group of comparable organizations
covered in the independent study is not the same as the peer group established
to compare shareholder returns in the Performance Graph included in this Proxy
Statement, but the Committee noted that some overlap existed between the two
groups.
The Compensation and Stock Option Committee did not assign weights to
any one of the variety of elements or to the independent study of executive
compensation in making the determination concerning base salary and target
bonus levels for Messrs. Cowart and Lahar. Rather, the Compensation and Stock
Option Committee followed the general philosophy that Messrs. Cowart and Lahar
have the opportunity to receive total cash compensation in the mid-range of the
lowest and highest combinations of base salary and target bonus levels
established by the comparison data and considered the elements within this
framework. The study recommended a base salary for Messrs. Cowart and Lahar of
$175,000, which fell within the mid-range of the lowest and highest base
salaries established from the comparison data. The Committee ultimately
decided that the current base annual salary level for each of Messrs. Cowart
and Lahar would be $175,000.
The Compensation and Stock Option Committee authorized bonuses for
Messrs. Cowart, Lahar and Grazer in the amount of $112,000, $114,000 and
$105,000, respectively. These bonuses, which were paid during fiscal 1996,
represent compensation for 1995 performance which became payable in the event
that a satisfactory Recapitalization of the Company was obtained. In setting
these figures, the Compensation and Stock Option Committee took into
consideration the overall importance to the Company of the Recapitalization,
which was achieved largely through the efforts of Messrs. Cowart, Lahar and
Grazer. Specifically, the Recapitalization raised approximately $50,000,000 in
equity and debt through the sale of Common Stock and Convertible Preferred
Stock and established a new $35,000,000 senior credit facility, thereby
allowing the Company to (i) repay in full the Company's existing senior bank
indebtedness of approximately $26,000,000, (ii) redeem its 9-1/4% Senior
Subordinated Notes (of approximately $9,300,000) and (iii) maintain sufficient
liquidity for general corporate purposes, including working capital. If the
Recapitalization was not consummated, the Company would have likely defaulted
on its subordinated debt obligations, and the Company's continued lack of
liquidity would have likely affected its relationships with its customers and
suppliers in a material adverse fashion.
During May 1995, the Compensation and Stock Option Committee
determined that certain stock options issued to all employees of the Company
had an exercise price higher than the market price of the Company's Common
Stock. In light of the Compensation and Stock Option Committee's conclusion
that such options were not providing the desired incentive, it recommended a
repricing of all outstanding options under then existing option plans pursuant
to which the Company offered to all optionholders holding unexercised options
the opportunity to surrender for cancellation his or her outstanding options
and replace such outstanding options with non-qualified stock options to
acquire eighty percent (80%) of the number of shares of the Company's Common
Stock as canceled, at a exercise price per share equal to twenty-five cents
($0.25) over the closing price of the Company's Common Stock on May 15, 1995,
or
-22-
<PAGE> 24
$3.375. During fiscal 1995, pursuant to this offer, options to purchase 640,000
shares of Common Stock were exchanged.
This report is submitted by the Compensation and Stock Option
Committee and the Stock Option Committee:
Compensation and Stock Option Committee
---------------------------------------
Harvey B. Cash
William H. Watkins, Jr.
This Report will not be deemed to be incorporated by reference in any
filing by the Company under the Securities Act of 1933 (the "Securities Act")
or the Exchange Act, except to the extent that the Company specifically
incorporates this Report by reference.
-23-
<PAGE> 25
PERFORMANCE GRAPH
Prior to September 30, 1992, the Company was involved in the
manufacturing, distribution and marketing of sporting goods. On September 30,
1992, the Company positioned itself in the electronics industry through the
acquisition of Micro-C. The Company believes that a comparison of stockholder
returns achieved subsequent to fiscal 1993 to stockholder returns achieved
during periods prior to fiscal 1993 would not be meaningful because of (a) the
different nature of the Company's current and former principal operations, (b)
the changes in the Company's management after September 30, 1992, and (c) the
different peer groups associated with the Company's current and former
operations. Accordingly, the following graph shows a comparison of cumulative
total returns for the Company, the S&P 500 Composite Index and an index of peer
companies selected by the Company for the period since September 30, 1992.
Companies in the peer group are as follows: Bell Microproducts, Benchmark
Electronics, Inc., The Cerplex Group, Inc., Genicom Corp., IEC Electronics
Corp., Intelogic Trace, Jabil Circuits, Inc., Jaco Electronics, Inc., Milgray
Electronics, Inc., Nu Horizons Electronics Corp., PC Service Source, Inc.,
Plexus Corp., Richardson Electronics, Ltd., Sterling Electronics and Western
Micro Technology, Inc. The comparison assumes $100 was invested on September
30, 1992 in the Company's Common Stock and in each of the two indices and
assumes reinvestment of dividends.
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
09/30/92 09/30/93 09/30/94 09/30/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Peer Group $100.00 $101.30 $ 88.44 $111.24
S&P 500 Composite $100.00 $112.90 $117.14 $147.95
Aurora Electronics, $100.00 $121.50 $ 91.63 $ 50.80
Inc.
</TABLE>
The stock price performance depicted in the above graph is not
necessarily indicative of future price performance. This Performance Graph
will not be deemed to be incorporated by reference in any filing by the Company
under the Securities Act or the Exchange Act, except to the extent that the
Company specifically incorporates the graph by reference.
-24-
<PAGE> 26
STOCKHOLDER PROPOSALS
A proper proposal submitted by a stockholder in accordance with
applicable rules and regulations for presentation at the Company's next annual
meeting that is received at the Company's principal executive office by
[January 1, 1997] will be included in the Company's proxy statement and form of
proxy for that meeting.
PERSONS MAKING THE SOLICITATION
The enclosed proxy is solicited on behalf of the Board of Directors of
the Company. The cost of soliciting proxies in the accompanying form will be
paid by the Company. Officers of the Company may solicit proxies by mail,
telephone or telegraph. Upon request, the Company will reimburse brokers,
dealers, banks and trustees, or their nominees, for reasonable expenses
incurred by them in forwarding proxy material to beneficial owners of shares of
the Common Stock.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen & Co., independent certified public accountants, has
been selected by the Board of Directors as the Company's independent auditor
for the current year. A representative of Arthur Andersen & Co. is expected to
be present at the Annual Meeting, will have an opportunity to make a statement
if he or she desires to do so and is expected to be available to respond to
appropriate questions.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the meeting other than the matters set forth herein. Should any
other matter requiring a vote of stockholders arise, the proxies in the
enclosed form confer upon the person or persons entitled to vote the shares
represented by such proxies discretionary authority to vote the same in
accordance with their best judgment in the interest of the Company.
FINANCIAL STATEMENTS
THE COMPANY HAS PREVIOUSLY PROVIDED A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1995, AS AMENDED, WHICH
CONTAINS AUDITED FINANCIAL STATEMENTS, TO ALL STOCKHOLDERS OF RECORD ON JANUARY
31, 1996. THE COMPANY WILL PROVIDE A COPY OF SUCH ANNUAL REPORT ON FORM 10-K,
ALONG WITH THIS PROXY STATEMENT, TO ALL STOCKHOLDERS OF RECORD ON MAY 1, 1996
WHO WERE NOT ALSO STOCKHOLDERS OF RECORD ON JANUARY 31, 1996. IN ADDITION, THE
COMPANY WILL PROVIDE, WITHOUT CHARGE, TO EACH PERSON TO WHOM A COPY OF THIS
PROXY STATEMENT IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON
AND BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE BUSINESS DAY
OF RECEIPT OF SUCH REQUEST, A COPY OF SUCH ANNUAL REPORT ON FORM 10-K.
REQUESTS SHOULD BE DIRECTED TO DEBORAH A. NICHOLLS, SECRETARY, AURORA
ELECTRONICS, INC., 2030 MAIN STREET, SUITE 1120, IRVINE, CALIFORNIA 92714-7241;
TELEPHONE NUMBER: (714) 660-1232, FAX NUMBER: (714) 851-8414.
By Order of the Board of Directors,
DEBORAH A. NICHOLLS,
Secretary
May [1], 1996
-25-
<PAGE> 27
EXHIBIT A
AURORA ELECTRONICS, INC.
1996 STOCK OPTION PLAN
1. Purpose of the Plan. This Plan shall be known as the Aurora
Electronics, Inc. 1996 Stock Option Plan. The purpose of the Plan is to
attract and retain the best available personnel for positions of substantial
responsibility and to provide incentives to such personnel to promote the
success of the business of Aurora Electronics, Inc., and its subsidiaries.
Certain options granted under this Plan are intended to qualify as
"incentive stock options" pursuant to Section 422 of the Internal Revenue Code
of 1986, as amended from time to time, while certain other options granted
under the Plan will constitute nonqualified options.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the
Corporation.
(b) "Closing Date" shall mean the date of the closing of
the Corporation's tender offer to purchase from its stockholders up to
6,500,000 shares of Common Stock pursuant to the Offer to Purchase dated
February 23, 1996.
(c) "Common Stock" shall mean the Common Stock, $.03 par
value per share, of the Corporation. Except as otherwise provided herein, all
Common Stock issued pursuant to the Plan shall have the same rights as all
other issued and outstanding shares of Common Stock, including but not limited
to voting rights, the right to dividends, if declared and paid, and the right
to pro rata distributions of the Corporation's assets in the event of
liquidation.
(d) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
(e) "Committee" shall have the meaning set forth in
Section 18(a) of this Plan.
(f) "Corporation" shall mean Aurora Electronics, Inc., a
Delaware corporation.
(g) "Date of Grant" shall mean the date on which an
Option is granted pursuant to this Plan or, if the Committee so determines, the
date specified by the Committee as the date the award is to be effective.
(h) "Disinterested Director" shall mean a director who is
not, during the one year prior to service as an administrator of the Plan, or
during such service, granted an Option pursuant to the Plan or any other plan
of the Corporation or any of its affiliates (except as may be permitted by Rule
16b-3 promulgated under the Exchange Act).
(i) "Employee" shall mean any officer or other key
employee of the Corporation or one of its Subsidiaries (including any director
who is also an officer or key employee of the Corporation or one of its
Subsidiaries).
(j) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
A-1
<PAGE> 28
(k) "Exercise Price" shall mean the Option price for a
share of Common Stock subject to an Option.
(l) "Fair Market Value" shall mean the closing sale price
(or average of the quoted closing bid and asked prices if there is no closing
sale price reported) of the Common Stock on the date specified as reported by
the American Stock Exchange or the principal national stock exchange on which
the Common Stock is then listed, or if the Common Stock is not listed on the
American Stock Exchange or a national stock exchange, as reported by the
National Association of Securities Dealers Automated Quotation System (NASDAQ).
If there is no reported price information for the Common Stock on an exchange
or by NASDAQ, the Fair Market Value will be determined by the Committee, in its
sole discretion. In making such determination, the Committee may, but shall
not be obligated to, commission and rely upon an independent appraisal of the
Common Stock.
(m) "Non-electing Unvested Amount" shall mean the total
number of shares of Common Stock as of the Closing Date subject to unvested
Prior Options with respect to which employees holding the Prior Options do not
agree to accept the Corporation's offer to exchange their Prior Options for
Options.
(n) "Non-electing Vested Amount" shall mean the total
number of shares of Common Stock as of the Closing Date subject to vested Prior
Options with respect to which employees holding the Prior Options do not agree
to accept the Corporation's offer to exchange their Prior Options for Options.
(o) "Nonqualified Option" shall mean any Option that is
not a Qualified Option.
(p) "Option" shall mean a stock option granted pursuant
to Section 6 of this Plan.
(q) "Optionee" shall mean any Employee or director who
receives an Option.
(r) "Participant" shall mean an Employee or director who
receives an Option pursuant to this Plan.
(s) "Plan" shall mean the Aurora Electronics, Inc. 1996
Stock Option Plan, as amended from time to time.
(t) "Prior Option" shall mean any option or warrant
issued by the Corporation (or its predecessor) to acquire Common Stock of the
Corporation which is held by an existing Employee and which was outstanding
immediately prior to the Closing Date.
(u) "Qualified Option" shall mean any Option that is
intended to qualify as an "incentive stock option" within the meaning of
Section 422 of the Code.
(v) "Rule 16b-3" shall mean Rule 16b-3 of the rules and
regulations under the Exchange Act as Rule 16b-3 may be amended from time to
time, and any successor provisions to Rule 16b-3 under the Exchange Act.
(w) "Subsidiary" shall mean any now existing or
hereinafter organized or acquired company of which at least fifty percent (50%)
of the issued and outstanding voting stock is owned or
A-2
<PAGE> 29
controlled directly or indirectly by the Corporation or through one or more
Subsidiaries of the Corporation.
(x) "Tranche A Amount" shall mean 1,786,247 shares of
Common Stock.
(y) "Tranche B Amount" shall mean 1,488,539 shares of
Common Stock.
(z) "Tranche C Amount" shall mean 1,935,101 shares of
Common Stock.
3. Term of Plan. The Plan has been adopted by the Board and, to
qualify for the benefits of Rule 16b-3 and to permit the granting of Qualified
Options, shall be submitted for approval by the shareholders of the Corporation
at the next annual meeting thereof. The Plan shall be deemed approved by the
shareholders upon the affirmative vote of the holders of a majority of the
shares of the Corporation present or represented and entitled to vote at a
meeting duly held in accordance with Delaware law, and shall continue in effect
until terminated pursuant to Section 18(a) of this Plan.
4. Shares Subject to the Plan. Except as otherwise provided in
Section 18 of this Plan, the aggregate number of shares of Common Stock
issuable upon the exercise of Options pursuant to this Plan shall not exceed
5,209,886. Such shares may either be authorized but unissued shares or
treasury shares. The Corporation shall, during the term of this Plan, reserve
and keep available a number of shares of Common Stock sufficient to satisfy the
requirements of this Plan.
5. Eligibility. Qualified Options may be granted under Section 6
of this Plan to such Employees of the Corporation or its Subsidiaries as shall
be determined by the Committee. Nonqualified Options may be granted under
Section 6 of this Plan to such Employees and directors of the Corporation or
its Subsidiaries as shall be determined by the Committee. Subject to the
limitations and qualifications set forth in this Plan, the Committee shall also
determine the number of Options to be granted, the number of shares subject to
each Option, the exercise price or prices of each Option, the vesting and
exercise period of each Option, whether an Option may be exercised as to less
than all of the Common Stock subject thereto, and such other terms and
conditions of each Option, if any, as are consistent with the provisions of
this Plan. In connection with the granting of Qualified Options, the aggregate
Fair Market Value (determined at the Date of Grant of a Qualified Option) of
the shares with respect to which Qualified Options are exercisable for the
first time by an Optionee during any calendar year (under all such plans of the
Optionee's employer corporation and its parent and subsidiary corporations as
defined in Section 424(e) and (f) of the Code, or a corporation or a parent or
subsidiary corporation of such corporation issuing or assuming an Option in a
transaction to which Section 424(a) of the Code applies (collectively, such
corporations described in this sentence are hereinafter referred to as "Related
Corporations")) shall not exceed $100,000 or such other amount as from time to
time may be provided in Section 422(d) of the Code or any successor provision.
In connection with the granting of any Options under the Plan, the maximum
number of shares of Common Stock issuable to any single Employee shall not
exceed the number of shares subject to the Plan referred to in Section 4
hereof.
6. Grant of Options.
(a) Tranche A Options. The total amount of Common Stock
to be subject to Options under this Section 6(a) ("Tranche A Options") shall be
equal to the Tranche A Amount. Each Tranche A Option (other than Tranche A1
Options (defined below)) shall vest immediately on the date of grant thereof;
provided, however, that one-half of the Tranche A Options granted to each of
Jim C. Cowart, David A. Lahar and John P. Grazer (such Tranche A Options are
hereinafter referred to as
A-3
<PAGE> 30
"Tranche A1 Options") shall each vest ratably on the first day of each month
for the 24 months following the first anniversary of the Closing Date. Each
Tranche A1 Option shall expire, and shall not be exercisable, with respect to
any unvested portion, on the date that the holder of the Tranche A1 Option
leaves the Corporation voluntarily (which shall not include termination of a
result of death or disability) or is terminated for cause. If a holder of a
Tranche A1 Option is terminated by the Corporation for any other reason, his
unvested Tranche A1 Options shall vest upon termination.
(b) Tranche B Options. The maximum amount of Common
Stock to be subject to Options under this Section 6(b) ("Tranche B Options")
shall be equal to the Tranche B Amount. Each Tranche B Option shall vest at the
rate of 12.5% semi-annually over a four-year period. With respect to each
Tranche B Option having a Date of Grant on or prior to April 30, 1996, the
vesting dates shall be September 30, 1996, and each March 31 and September 30
thereafter through March 31, 2000. With respect to each Tranche B Option
having a Date of Grant after April 30, 1996, the first vesting date shall be
the last day of the calendar quarter immediately following six months after the
Date of Grant (the "First Vesting Date"), with the remaining vesting dates
being the next seven six-month anniversaries of the First Vesting Date. Each
Tranche B Option shall expire, and shall not be exercisable, with respect to
any unvested portion, on the date that the holder of the Tranche B Option is no
longer an employee of the Corporation.
(c) Tranche C Options. The maximum amount of Common
Stock to be subject to Options under this Section 6(c) ("Tranche C Options")
shall be equal to the Tranche C Amount. Each Tranche C Option shall vest at
the rate of 25% each year over a four-year period commencing on the sixth
anniversary of the Closing Date or the Date of Grant of the Tranche C Option
(whichever is later); provided, however, some or all Tranche C Options may, in
the discretion of the Committee, be subject to accelerated vesting according to
annual performance-based targets based on the Corporation's actual and
projected earnings before interest, taxes, depreciation and amortization less
capital expenditures. Notwithstanding the foregoing, the vesting of no more
than 25% of the Tranche C Options may accelerate in any given annual period
(the "Subject Year"); provided, however, that the vesting of 50% of a Tranche C
Option may accelerate in the Subject Year if, in the immediately prior annual
period, vesting of the Tranche C Option was not accelerated as a result of
failure to meet the relevant performance-based target and the relevant
performance-based target applicable to the Subject Year is met. Each Tranche C
Option shall expire, and shall not be exercisable, with respect to any unvested
portion, on the date that the holder of the Tranche C Option is no longer an
employee of the Corporation.
(d) Reissued Options. If an Option should expire or
become unexercisable for any reason without having been exercised in full, then
the shares that were subject thereto shall, unless the Plan shall have
terminated, be available for the grant of additional Options (hereinafter
referred to as a "Reissued Option"). A Reissued Option shall contain such
terms and provisions as are approved by the Committee and executed on behalf of
the Corporation by an appropriate officer, and is not required to be a Tranche
A, Tranche A1, Tranche B or Tranche C Option. To the extent there are
sufficient shares of Common Stock available to issue an Option as a Reissued
Option, a Tranche A Option, Tranche A1 Option, Tranche B Option or a Tranche C
Option, the Committee shall determine in its sole discretion whether the Option
is a Reissued Option or a Tranche A Option, Tranche A1 Option, Tranche B Option
or a Tranche C Option.
(e) Provisions Applicable to All Options. Each Option
shall be evidenced by an Option agreement. Subject to the limitations set
forth in this Section 6, each Option agreement shall contain such terms and
provisions as are approved by the Committee and executed on behalf of the
Corporation by an appropriate officer.
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7. Time of Grant of Options. The Date of Grant for each Option
shall be the date on which the Committee awards the Option or, if the Committee
so determines, the date specified by the Committee as the date the award is to
be effective. Notice of the grant shall be given to each Participant to whom
an Option is granted promptly after the date of such grant.
8. Price. The Exercise Price for each Tranche A Option and any
other Option whose Date of Grant is on or before April 30, 1996 shall be
$2.125. The Exercise Price for any other Option granted pursuant to Section 6
of this Plan shall be determined by the Committee at the Date of Grant;
provided, however, that (a) the Exercise Price for any Qualified Option shall
not be less than 100% of the Fair Market Value of the Common Stock at the Date
of Grant, and (b) if the Optionee owns on the Date of Grant more than 10
percent of the total combined voting power of all classes of stock of the
Corporation or its parent or any of its subsidiaries, as more fully described
in Section 422(b)(6) of the Code or any successor provision (such shareholder
is referred to herein as a "10-Percent Stockholder"), the Exercise Price for
any Qualified Option granted to such Optionee shall not be less than 110% of
the Fair Market Value of the Common Stock at the Date of Grant.
9. Vesting. Each Option shall vest in accordance with the
vesting provisions set forth in the applicable Option agreement, provided that
the vesting provisions set forth in each Option agreement shall comply with
Section 6 of this Plan. The Committee may, but shall not be required to,
permit acceleration of vesting upon any sale of the Corporation or similar
transaction.
10. Exercise. A Participant may pay the Exercise Price of the
shares of Common Stock as to which an Option is being exercised by the delivery
of cash, check or, at the Corporation's option, by the delivery of shares of
Common Stock having a Fair Market Value on the date immediately preceding the
exercise date equal to the Exercise Price; provided, however, that to the
extent necessary for an Option to be accounted for as a fixed plan pursuant to
generally accepted accounting principles, the Common Stock used to pay the
Exercise Price shall be either shares (x) acquired by the Optionee in the
public market, or (y) which have been held by the Optionee for more than six
months and which were not acquired by the Optionee in the public market.
If the shares to be purchased are covered by an effective registration
statement under the Securities Act of 1933, as amended, any Option granted
under the Plan may be exercised by a broker-dealer acting on behalf of an
Optionee if (a) the broker-dealer has received from the Optionee or the
Corporation a fully- and duly-endorsed agreement evidencing such Option,
together with instructions signed by the Optionee requesting the Corporation to
deliver the shares of Common Stock subject to such Option to the broker-dealer
on behalf of the Optionee and specifying the account into which such shares
should be deposited, (b) adequate provision has been made with respect to the
payment of any withholding taxes due upon such exercise, and (c) the
broker-dealer and the Optionee have otherwise complied with Section 220.3(e)(4)
of Regulation T, 12 CFR Part 220, or any successor provision.
11. When Qualified Options May be Exercised. No Qualified Option
shall be exercisable at any time after the expiration of ten (10) years from
the Date of Grant; provided, however, that if the Optionee with respect to a
Qualified Option is a 10-Percent Stockholder on the Date of Grant of such
Qualified Option, then such Option shall not be exercisable after the
expiration of five (5) years from its Date of Grant. In addition, if an
Optionee of a Qualified Option ceases to be an employee of the Corporation or
any Related Corporation for any reason, such Optionee's vested Qualified
Options shall not be exercisable after (a) three months following the date such
Optionee ceases to be an employee of the Corporation or any Related
Corporation, if such cessation of service is not due to the death or permanent
and total disability (within the meaning of Section 22(e)(3) of the Code) of
the Optionee, or
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(b) twelve months following the date such Optionee ceases to be an employee of
the Corporation or any Related Corporation, if such cessation of service is due
to the death or permanent and total disability (as defined above) of the
Optionee. Upon the death of an Optionee, any vested Qualified Option
exercisable on the date of death may be exercised by the Optionee's estate or
by a person who acquires the right to exercise such Qualified Option by bequest
or inheritance or by reason of the death of the Optionee, provided that such
exercise occurs within both the remaining option term of the Qualified Option
and twelve months after the date of the Optionee's death. This Section 11 only
provides the outer limits of allowable exercise dates with respect to Qualified
Options; the Committee may determine that the exercise period for a Qualified
Option shall have a shorter duration than as specified above.
12. Option Financing. Upon the exercise of any Option granted
under the Plan, the Corporation may, but shall not be required to, make
financing available to the Participant for the purchase of shares of Common
Stock pursuant to such Option on such terms as the Committee shall specify.
13. Withholding of Taxes. The Committee shall make such
provisions and take such steps as it may deem necessary or appropriate for the
withholding of any taxes that the Corporation is required by any law or
regulation of any governmental authority to withhold in connection with any
Option including, but not limited to, withholding the issuance of all or any
portion of the shares of Common Stock subject to such Option until the
Participant reimburses the Corporation for the amount it is required to
withhold with respect to such taxes, canceling any portion of such issuance in
an amount sufficient to reimburse the Corporation for the amount it is required
to withhold or taking any other action reasonably required to satisfy the
Corporation's withholding obligation.
14. Conditions Upon Issuance of Shares. The Corporation shall not
be obligated to sell or issue any shares upon the exercise of any Option
granted under the Plan unless the issuance and delivery of shares shall comply
with all provisions of applicable federal and state securities laws and the
requirements of any stock exchange upon which shares of the Common Stock may
then be listed.
As a condition to the exercise of an Option, the Corporation
may require the person exercising the Option to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of applicable federal and state securities laws.
The Corporation shall not be liable for refusing to sell or
issue any shares covered by any Option if the Corporation cannot obtain
authority from the appropriate regulatory bodies deemed by the Corporation to
be necessary to lawfully sell or issue such shares. In addition, the
Corporation shall have no obligation to any Participant, express or implied, to
list, register or otherwise qualify the shares of Common Stock covered by any
Option.
No Participant will be, or will be deemed to be, a holder of
any Common Stock subject to an Option unless and until such Participant has
exercised his or her Option and paid the purchase price for the subject shares
of Common Stock. Each Option under this Plan shall be transferable only by
will or the laws of descent and distribution and shall be exercisable during
the Participant's lifetime only by such Participant.
To the extent required to comply with Rule 16b-3, any Common
Stock issued pursuant to the exercise of an Option to a person who would be
deemed an officer or director of the Corporation under Rule 16b-3 shall not be
transferred until at least six months have elapsed from the Date of Grant to
the date of disposition of the Common Stock.
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<PAGE> 33
15. Restrictions on Shares. Shares of Common Stock issued
pursuant to this Plan shall be subject to restrictions on transfer under
applicable federal and state securities laws. The Board may impose such
additional restrictions on the ownership and transfer of shares of Common Stock
issued pursuant to this Plan as it deems desirable; any such restrictions shall
be set forth in any Option agreement entered into hereunder.
16. Modification of Options. Subject to Section 6 of this Plan,
at any time and from time to time, the Committee may execute an instrument
providing for modification, extension or renewal of any outstanding Option,
provided that no such modification, extension or renewal shall impair the
Option without the consent of the holder of the Option or conflict with the
provisions of Rule 16b-3. Notwithstanding the foregoing, in the event of such a
modification, substitution, extension or renewal of a Qualified Option, the
Committee may increase the exercise price of such Option if necessary to retain
the qualified status of such Option.
17. Effect of Change in Stock Subject to the Plan. In the event
that each of the outstanding shares of Common Stock (other than shares held by
dissenting stockholders) shall be changed into or exchanged for a different
number or kind of shares of stock of the Corporation or of another corporation
(whether by reason of merger, consolidation, reclassification, split-up,
combination of shares or similar event), or in the event a stock split or stock
dividend shall have occurred, then there shall be substituted for each share of
Common Stock then subject to Options or available for Options the number and
kind of shares of stock into which each outstanding share of Common Stock
(other than shares held by dissenting stockholders) shall be so changed or
exchanged, or the number of shares of Common Stock as is equitably required in
the event of a stock split or stock dividend, together with an appropriate
adjustment of the Exercise Price.
18. Administration.
(a) Notwithstanding anything to the contrary herein, to
comply with the requirements of Rule 16b-3, the Plan shall be administered by
the Board, if each member is a Disinterested Director, or by a committee of two
or more Disinterested Directors appointed by the Board (the group responsible
for administering the Plan is referred to herein as the "Committee"). Options
may be granted under this Plan only by majority agreement of the members of the
Committee. Option agreements, in the forms as approved by the Committee, and
containing such terms and conditions consistent with the provisions of this
Plan as shall have been determined by the Committee, may be executed on behalf
of the Corporation by the Chairman of the Board, the President or any Vice
President of the Corporation. Except with respect to Section 18(b) of this
Plan, the Committee shall have complete authority to construe, interpret and
administer the provisions of this Plan and the provisions of the Option
agreements entered into hereunder; to prescribe, amend and rescind rules and
regulations pertaining to this Plan; to amend the Plan; to suspend, terminate
or discontinue this Plan (subject to Section 18(d) of this Plan); and to make
all other determinations necessary or deemed advisable in the administration of
the Plan. In addition, the Board may amend or terminate this Plan at any time.
The determinations, interpretations and constructions made by the Committee
shall be final and conclusive. No member of the Committee shall be liable for
any action taken, or failed to be taken, made in good faith relating to the
Plan or any award thereunder, and the members of the Committee shall be
entitled to indemnification and reimbursement by the Corporation in respect of
any claim, loss, damage or expense (including attorneys' fees) arising
therefrom to the fullest extent permitted by law.
(b) Members of the Committee shall be specified by the
Board, and shall consist solely of Disinterested Directors. Disinterested
Directors shall not be eligible to receive any Options.
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<PAGE> 34
(c) Notwithstanding Section 18(a) of this Plan, to the
extent necessary to comply with Rule 16b-3, no amendment may be made without
the approval of the shareholders of the Corporation by the affirmative votes of
the holders of a majority of the shares of the Corporation present or
represented and entitled to vote at a meeting duly held in accordance with
Delaware law, which amendment would materially (i) increase the benefits
accruing to Participants, (ii) increase the number of securities which may be
issued under the Plan, other than in accordance with Section 17 of this Plan,
or (iii) modify the requirements as to eligibility for participation in the
Plan.
(d) Although this Plan may be suspended, terminated or
discontinued at any time, all Qualified Options must be granted within ten (10)
years from the effective date of the Plan or the date the Plan is approved by
the shareholders of the Corporation, whichever is earlier.
19. Continued Employment Not Presumed. Nothing in this Plan or
any document describing it nor the grant of any Option shall give any
Participant the right to continue in the employment of the Corporation or
affect the right of the Corporation to terminate the employment of any such
person with or without cause.
20. Liability of the Corporation. Neither the Corporation, its
directors, officers or employees or the Committee, nor any Subsidiary which is
in existence or hereafter comes into existence, shall be liable to any
Participant or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Qualified Option
granted hereunder does not qualify for tax treatment as an incentive stock
option under Section 422 of the Code.
21. GOVERNING LAW. THE PLAN SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF STATE OF DELAWARE AND THE UNITED STATES, AS
APPLICABLE, WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
22. Severability of Provisions. If any provision of this Plan is
determined to be invalid, illegal or unenforceable, such invalidity, illegality
or unenforceability shall not affect the remaining provisions of the Plan, but
such invalid, illegal or unenforceable provision shall be fully severable, and
the Plan shall be construed and enforced as if such provision had never been
inserted herein.
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[FRONT OF PROXY CARD]
-------------------
AURORA ELECTRONICS, INC.
BOARD OF DIRECTORS PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS AT
[2:30 P.M.], TUESDAY, MAY 21, 1996
THE SUTTON PLACE HOTEL, 4500 MACARTHUR, NEWPORT BEACH, CALIFORNIA 92660
The undersigned stockholder of Aurora Electronics, Inc. (the "Company")
hereby appoints Jim C. Cowart and David A. Lahar, or either of them, as proxies,
each with full powers of substitution, to vote the shares of the undersigned at
the above-stated Annual Meeting and at any adjournment(s) thereof:
(1) ELECTION OF DIRECTORS:
<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as provided to the contrary below) to vote for all nominees listed below
</TABLE>
Harvey B. Cash, Jim C. Cowart, Amin J. Khoury, David A. Lahar,
Thomas E. McInerney, Richard H. Stowe and William H. Watkins, Jr.
(INSTRUCTION: To withhold authority to vote for any individual
nominee(s), write that nominee's name on the space
provided below):
----------------------------------------------------------------------
(2) Approval of Aurora Electronics, Inc. 1996 New Stock Option Plan:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) Amendment of Aurora Electronics, Inc. Restated Certificate of
Incorporation to increase the number of authorized shares of the
Company's Common Stock from 25,000,000 to 50,000,000:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(4) On any other business that may properly come before the meeting;
hereby revoking any proxy or proxies heretofore given by the
undersigned.
(Please sign on the reverse side)
- --------------------------------------------------------------------------------
[BACK OF PROXY CARD]
------------------
(Continued from reverse side)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE
VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE ON THE REVERSE SIDE. IF A
CHOICE IS NOT INDICATED WITH RESPECT TO ITEMS (1), (2) AND (3), THIS PROXY WILL
BE VOTED "FOR" SUCH ITEMS. THE PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO
ANY MATTER REFERRED TO IN ITEM (4). THIS PROXY IS REVOCABLE AT ANY TIME BEFORE
IT IS EXERCISED.
Receipt herewith of the Company's Annual Report and Notice of Meeting and Proxy
Statement, dated May [1], 1996, is hereby acknowledged.
Dated: , 1996.
--------------------------
------------------------------------
------------------------------------
(Signature of Stockholder(s))
(Joint owners must EACH sign.
Please sign EXACTLY as your name(s)
appear(s) on this card. When
signing as attorney, trustee,
executor, administrator, guardian
or corporate officer, please give
your FULL title.)
PLEASE SIGN, DATE AND MAIL TODAY.
