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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
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COMMISSION FILE NUMBER 0-9725
AURORA ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1539534
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2030 MAIN STREET, SUITE 1120, IRVINE, CALIFORNIA 92614
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 660-1232
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
- ------------------------------- -------------------------------------------
Common Stock, $.03 Par Value American Stock Exchange
7 3/4% Convertible Subordinated American Stock Exchange
Debentures, Due 2001
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the registrant on December 20, 1996, 1996 based on the closing price of the
Common Stock on the American Stock Exchange was approximately $8,927,692.
Indicated below is the number of shares outstanding of each class of the
registrant's Common Stock, as of December 20, 1996.
Title of Each Class of Common Stock Number of Outstanding
- ----------------------------------- ---------------------
Common Stock, $.03 par value 5,742,523
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of the Form 10-K
- ------------------------------------------- ---------------------
Proxy Statement for the 1997 Annual Meeting Part III
of Stockholders
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<PAGE> 2
PART I
ITEM 1. BUSINESS.
OVERVIEW
Aurora Electronics, Inc. ("Aurora" or the "Company") provides spare
parts distribution and electronics recycling services to major personal computer
manufacturers and computer service organizations. Aurora operates worldwide
through its wholly-owned subsidiary, Aurora Electronics Group, Inc. ("AEG")
with facilities in the United States, Canada, and Europe. AEG distributes new
and refurbished computer spare parts, primarily to the field service departments
of computer OEMs, third-party maintenance and multivendor service organizations
("TPMOs" and "MVSOs"), computer resellers and dealers, and large corporate
self-maintainers. AEG distributes spare parts from over 500 manufacturers, with
particular emphasis on products from Apple Computer, AT&T, AST Computer, Compaq,
Dell Computer, Digital Equipment Corporation, Hewlett-Packard, IBM and Toshiba.
In addition, AEG provides a broad range of materials management services, such
as repair and repair logistics, advance exchange, returned materials management,
inventory management, and electronic materials recycling and remarketing.
In March 1996, the Company completed its comprehensive plan to
recapitalize the Company (the "Recapitalization"). The Recapitalization
included: (1) a tender offer pursuant to which the Company repurchased
approximately 4,268,000 shares of common stock at $2.875 per share; (2) the
Company's sale of $40 million of convertible preferred stock, $.01 par value per
share (the "Preferred Stock"), and $10 million in subordinated debt (with
approximately 607,000 shares of common stock attached) to Welsh, Carson,
Anderson & Stowe ("WCAS") and certain other purchasers; (3) establishment of a
new $35 million senior credit facility with The Chase Manhattan Bank (formerly
Chemical Bank, N.A.) (the "Credit Agreement"); (4) the repayment in full of
AEG's existing senior bank indebtedness of approximately $26 million; and (5)
the redemption of the Company's 9-1/4% Senior Subordinated Notes (approximately
$9.3 million). The Preferred Stock is convertible into common stock at the ratio
of $2.125 per share and votes on an as-converted basis. As a result, WCAS and
its affiliates control about 76.4% of the voting power of the Company.
INDUSTRY
The worldwide personal computer installed base has grown to
approximately 180 million units, and requires a wide range of support,
maintenance, upgrade and recycling services. Due to the competitiveness of the
personal computer industry and the increasingly short manufacturing life cycle
of the products, companies involved in the manufacture, service and distribution
of computers are seeking outsourcing solutions to meet these requirements,
preferably from a single source. Aurora offers its customers a wide range of
these critical aftermarket services through integrated outsourcing programs
provided on a worldwide basis, thereby allowing its customers to achieve cost
savings associated with reduced inventories, lower headcount and less investment
in plant and equipment.
As a result of the trend toward outsourcing of support, maintenance,
upgrade and recycling activities, an independent spare parts distribution,
recycling and repair industry has emerged in support of personal computer
manufacturers and maintenance service providers. This industry is comprised of
companies that are unaffiliated with the manufacturers of computers and computer
parts, yet possess expertise in providing spare parts procurement, distribution,
logistics, repair and recycling services. Companies in this industry operate in
the secondary market for both new and used spare parts, relying on thousands of
parts sourcing contacts among system and subsystem manufacturers, distributors,
brokers and large end-users. Aurora is among the largest companies in the
independent parts distribution, recycling and repair industry.
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BUSINESS STRATEGY
AEG's strategy is to supply an increasing portion of the spare
parts-related aftermarket support requirements of major companies in the
personal computer industry. Key components of this strategy include:
- Pursue Integrated Support Relationships with Major Computer OEMs and
Service Providers. The Company is continuing to aggressively pursue
comprehensive aftermarket support relationships with major customers.
These relationships range from providing individual services to
complete outsourcing of as many of their spare parts distribution,
logistics, repair and recycling requirements as possible. The Company
believes strongly that over time its customers will prefer developing
integrated outsourcing approaches to meeting these needs, and will seek
to have as few such partnerships as possible to address their worldwide
support requirements.
- Integrate Recycling, Repair and Parts Supply. AEG has major market
positions in both recycling of computer systems and spare parts supply.
Generally, the most cost effective source for spare parts is recycled
parts, and for out of production parts, it is frequently the only
source. Conversely, the best use for recycled parts is to resell them
for use in the installed base as either spares or low cost additions to
existing systems. Similarly, recycled parts are also often both less
expensive and more readily available than repaired parts. The Company's
ability to meet a significant portion of its spare parts demand from
used or recycled parts sources is a significant competitive advantage,
and an area which the Company is attempting to expand.
- Build Strong Parts Supply Relationships with Major Parts Manufacturers.
The Company will continue to work closely with both major system and
subsystem manufacturers in order to source spare parts in a
cost-effective manner. Increasingly, these relationships are based on
sophisticated electronic links which allow both parties to service the
after-market in a timely and economic fashion.
- Maintain And Extend Industry Leading Knowledge Of Computer Parts and
the Associated Secondary Markets. The Company believes it currently is
among the industry leaders with respect to knowledge about computer
systems, subsystems and spare parts, and the secondary market sources
and consumers thereof. This knowledge base is extended every day in
operating its business, and catalogued in sophisticated, relational
databases. In addition, the Company makes substantial efforts to gather
such information from its customers, suppliers, computer OEMs and
various reference sources. This knowledge is a key basis for its
primary value added to its customers.
- Build a Sophisticated Technology Platform for Enhanced Service
Delivery. During the last three years, the Company has invested more
than $3 million in sophisticated information systems designed to
improve customer service and establish electronic linkages with major
customers, and it continues to spend aggressively on building its
information systems capabilities. The Company believes that development
of a sophisticated technology platform is critical to establishing a
leadership position in its industry.
- Continue to Develop AEG's Worldwide Presence. The Company believes that
it is critical to provide customers with a worldwide range of
capabilities. Accordingly, AEG continues to make important investments
in expanding its European operations.
SERVICES
The range of spare parts distribution, electronics recycling services
and aftermarket service programs which AEG provides includes:
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- Spare Parts Distribution. AEG sources and distributes a wide range of
spare parts, many of which are out-of-warranty and often
out-of-production. AEG sources these parts either from its own
inventory or by utilizing its parts sourcing database to locate and
procure the parts, and then ships them to the customer, typically
within 24 hours. Currently, approximately 70% of AEG's shipments are
products that are sourced, reconditioned and tested the same day. AEG
also works directly with computer OEMs and spare parts manufacturers
as an authorized parts distributor, providing same and next-day
shipment of new spare parts stocked by AEG on behalf of the OEM.
- Aurora Exchange Programs. AEG provides selected customers with good
working parts at a discounted price in exchange for their defective
parts. In most cases, the defective unit is repaired and placed back
into inventory to fulfill future requests under this program.
- Asset Recovery and Remarketing. AEG refurbishes, reconditions, and
redistributes systems and subsystems received as a result of
manufacturing fallout, field dispositions, dealer and distributor
returns, stock rotations, excess and obsolete inventories and customer
trade-in and exchange programs. Refurbished systems and subsystems are
either utilized for AEG's spare parts inventories or redistributed
worldwide.
- Returns Management Programs. AEG's returns management program assists
OEMs and distributors by facilitating the return of units which are
defective, returned due to buyer's remorse or stock rotation or
otherwise removed from the marketplace. Returned units are received,
processed, tested, refurbished, as required, and either returned to
the manufacturer, sold in secondary channels or used for spare parts
inventory.
- Repair and Logistics Programs. AEG's parts repair and logistics
programs offer critical support for OEM customers and also serve to
lower AEG's acquisition cost for spare parts, AEG maintains a wide
range of parts remanufacturing and repair capabilities, with technical
expertise in floppy disks, tape drives, laser printers, monitors, flat
panel displays, and CD-ROMs.
- Inventory Management. Under AEG's inventory management programs, the
Company takes responsibility for maintaining a customer's parts
inventories at pre-arranged levels. Under this program, the Company
takes responsibility for procuring, selling and liquidating customer-
owned spare parts.
- Parts Procurement Outsourcing. In some cases, customers are interested
in total outsourcing of the parts ownership, management and logistics
function. In these cases, AEG commits to certain service levels with
respect to parts availability and response time, and takes
responsibility for all aspects of the parts fulfillment process,
including ownership of the part.
CUSTOMERS AND SUPPLIERS
AEG provides spare parts sourcing and distribution services primarily
to five groups of customers:
- Customer Maintenance Departments of Major Computer OEMs -- AEG
provides spare parts and related repair, spare parts inventory
management and logistics programs to support the customer maintenance
departments of customers such as AT&T, Compaq, DEC, Hewlett-Packard,
IBM and ICL.
- Third-Party Maintenance Organizations and Multi-Vendor Service
Organizations -- Customers in this category include not only
independent field service organizations (DecisionOne, Entex, Granada,
Sorbus, Vanstar), but also MVSOs of current or former computer OEMs
(IBM, DEC, Hewlett-Packard, Data General, Unisys).
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- Computer Resellers, Distributors and Dealers -- Major computer
resellers, distributors and dealers are increasingly offering
maintenance services to their customers as a means of capturing
additional margin. AEG supports these organizations through parts
sourcing and inventory remarketing programs. Typical customers include
Circuit City, Compucom, Inacom and Microage.
- Corporate Self-Maintainers -- An increasing number of large
corporations are satisfying their internal service requirements
through in-house organizations which meet their spare parts
requirements through external suppliers such as AEG.
- Major Computer OEM's -- By using recycling services, OEM customers,
such as Apple Computer, Compaq Computer, Dell Computer,
Hewlett-Packard, IBM and Storage Technology, can reduce or eliminate
the potential liability and expense related to disposing of excess,
obsolete and defective products, while realizing an economic return on
these products
For fiscal 1996, IBM accounted for approximately 19% of the Company's
sales. For fiscal 1995 and 1994, no single AEG customer accounted for more than
10% of the Company's revenues.
OPERATIONS
AEG services more than 5,000 customers worldwide, maintains a parts
sourcing database of over 8,000 contacts, and completes over 150,000
transactions annually.
Sales and Marketing. AEG believes that it is a market leader in terms
of its approach to the sales and marketing of its materials management services,
spare parts, and recycled parts, and its utilization of sophisticated
information systems to support these efforts. AEG maintains an internal sales
and customer support group of 76 employees which handles daily sales
transactions involving spare parts and recycled product sales. In addition,
AEG's materials management services are marketed through a direct sales force of
9 employees, who work closely with computer OEMs, TPMOs and MVSOs, and computer
resellers in developing customized programs that meet their particular materials
management requirements. Supporting these sales forces is a marketing department
comprised of 9 employees who perform: (i) marketing communications; (ii) OEM and
distributor relations; (iii) industry and competitive analysis; and (iv)
development of new customer targets and new applications for AEG services.
Information Systems. AEG's spare parts distribution services depend
upon the ability to rapidly identify, locate, procure, as is necessary, and
deploy a particular spare part from among the thousands of parts that comprise
the computer industry installed base. Critical to AEG's success is a
sophisticated information system, which relies on a spare parts identification
and sourcing database developed over the last ten years. This database allows
AEG's sales force to quickly find and deliver a spare part from inventory or, if
a part is not available in inventory, to rapidly query the spare parts sourcing
database to locate and procure the part from the hundreds of sources with which
AEG regularly does business. The database also allows the salesperson to
identify functional equivalents for a part. The system provides the salesperson
with a complete pricing history for the part to assist in price discussions with
the customer, as well as a transaction history with that particular customer.
Purchasing. Because customers are often under severe time pressure in
procuring spare parts, AEG's ability to confirm a customer request immediately
from inventory, rather than initiating just-in-time procurement from its parts
sourcing suppliers, increases the likelihood of completing a transaction. In
order to increase the percentage of spare parts sourced directly from inventory,
AEG maintains a department which procures a variety of commonly requested parts
in advance and attempts to select parts from the recycle flow which can be sold
as spares. AEG's information system regularly examines parts usage patterns and
available stocks and performs trend-line analyses to assist this department in
its procurement activities.
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Processing. AEG provides its spare parts distribution services
primarily through distribution facilities in Marina del Rey, California;
Toronto, Canada; and Hoofddorp, The Netherlands; and through repair and
recycling facilities in Sacramento, California; San Diego, California; and
Irvine, Scotland. AEG's distribution operations receive purchased spare parts or
perform specific tear-down of whole systems in order to obtain spare parts,
identify and cross-reference those parts for the AEG database, test and/or
refurbish, as required, package, warehouse and ship. Often these activities must
be performed within a 12 hour period in order to fulfill same-day requirements.
AEG's recycling operations rely on the Company's ability to receive, identify,
test, tear down as appropriate and dispose of materials rapidly, in large
volumes and consistent with customers' requirements. The Company's San Diego
facility has recently been awarded ISO 9002 certification, and the Company
believes it is the only such certified electronics recycling facility in the
world. The Company is currently working towards similar certification for all of
its recycling operations. AEG has developed proprietary methods for recycling
and reconditioning certain materials, particularly including integrated circuits
(ICs), the purpose of which is to produce material that is of the highest value
for either return to the recycling customer or resale. A key value to customers
is the Company's ability to dispose of all unsalable materials in
environmentally safe ways, thus minimizing such customers', and the Company's,
environmental liability.
AEG's principal repair facility in Sacramento, California is also ISO
9002 certified. In Sacramento the Company has repair and repair logistics
processes for disk drives, CD-ROM drives, CRT monitors, flat panel displays,
printed circuit boards, laser and ink-jet printers, and a variety of other
computer products. The facility is an authorized service center for several
major brands of computers and sub systems. During 1996, the Sacramento facility
performed work for various major manufacturers including Apple, Compaq, Digital,
Hewlett Packard, IBM, NCR, Nokia, MKE, and Packard Bell.
COMPETITION
The independent spare parts distribution and the electronic recycling
services industry is fragmented with widespread competition from a variety of
small independent suppliers. AEG believes that competition for OEM, TPMO and
MVSO customers is based on a number of factors, including: (i) breadth of parts
distributed; (ii) ability to offer sophisticated inventory and materials
management programs; (iii) ability to offer rapid delivery and sophisticated
logistics programs; and (iv) price. Among AEG's major independent competitors
are DecisionOne, Data Trend, PC Service Source, and The Cerplex Group
PATENTS/TRADEMARKS
The Company does not currently hold any patents or registered
trademarks. However, the Company has developed several private labels for use in
its business, including PartSmart, Micro-C, Memory Master, MM, and Advantage.
The Company has applied for registration of "The PartSmart Company" trademark.
While management believes that this approach helps distinguish the Company to
its customers, none of these brand names is material to the continuation of
the business.
ENVIRONMENTAL REGULATION
The Company's business is subject to various federal, state and local
environmental laws and regulations relating to the disposal of waste material.
The Company believes that it is in compliance with such environmental laws and
regulations and is not aware of any situation or condition that could reasonably
be expected to have a material adverse affect on the Company's financial
condition or competitive position.
SEASONALITY
The Company does not consider its business to be seasonal.
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EMPLOYEES
On December 20, 1996, the Company had approximately 413 employees. None
of the Company's employees is represented by a union and none are subject to a
collective bargaining agreement. The Company has never experienced a work
stoppage due to labor difficulties and believes that its employee relations are
good.
ITEM 2. PROPERTIES.
The following table sets forth certain information as of December 20, 1996
relating to the Company's principal properties, all of which are leased. The
Company believes that its properties are adequate and suitable for its current
needs.
<TABLE>
<CAPTION>
Approximate
LOCATION Principal Use Square Footage
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Marina del Rey, CA (1) Office, Warehouse and Service Facility 106,715
San Diego, CA Office, Processing and Warehouse Facility 56,808
Sacramento, CA Office, Processing and Warehouse Facility 59,000
Los Gatos, CA Sales Office 1,398
Irvine, CA Corporate Headquarters 2,825
Toronto, Canada Warehouse and Service Facility 9,475
Hoofddorp, Netherlands Warehouse and Service Facility 8,945
Irvine, Scotland Processing Facility 3,000
Chicago, IL (2) Discontinued Operations 163,000
</TABLE>
(1) The Company subleased 48,473 square feet of the Marina del Rey, California
facility to an unrelated third party for a five year period, commencing
December 1, 1994.
(2) The Chicago facility is subject to a sale/leaseback arrangement between the
Company and an unrelated third party, as lessor. This property relates to a
discontinued operation. See Note C of the Notes to Consolidated Financial
Statements -- Discontinued Operations, and Note M of the Notes to
Consolidated Financial Statements -- Commitments and Contingencies. The
lease expires in 2005.
ITEM 3. LEGAL PROCEEDINGS.
The Company is engaged in routine legal proceedings incidental to its
business, none of which the Company believes will have a material adverse effect
on the financial position of the Company. See Note M of the Notes to
Consolidated Financial Statements -- Commitments and Contingencies.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The names of the executive officers of the Company, their ages, titles and
biographies as of December 20, 1996, are set forth below. All officers are
elected for a one-year term.
<TABLE>
<CAPTION>
COMPANY
OFFICER
NAME AGE PRESENT POSITION SINCE
- ---- --- ---------------- -------
<S> <C> <C> <C>
Jim C. Cowart 45 Chairman of the Board and Chief Executive 1992
Officer
John P. Grazer 42 President and Chief Financial Officer 1993
Richard A. Kain 58 Senior Vice President - North American Operations 1995
George M. Korchinsky 55 Managing Director - European Operations and 1996
Senior Vice President
Amir Asadi 38 Vice President - Information Systems 1996
Jonathan Shultz 36 Vice President - Finance and Administration 1996
Stephen F. Weber 45 Vice President - Marketing 1996
</TABLE>
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JIM C. COWART, since December 1992, has served as the Chairman of the Board and
Chief Executive Officer of the Company 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., 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.
JOHN P. GRAZER, since October 1996, has served as President and Chief Financial
Officer. From May 1993 to October 1996 Mr. Grazer served as Senior Vice
President, Finance and Administration of the Company. From 1992 to April 1993,
Mr. Grazer served as Vice President of Finance and Administration of Home
Fashions Inc. From 1990 to 1992, Mr. Grazer served as Vice President of Finance
and Chief Financial Officer of RB Industries, Inc. From 1985 to 1990, Mr. Grazer
served as Vice President, Finance of Amplica, Inc. a COMSAT company.
RICHARD A. KAIN, since October 1996, has served as Senior Vice President - North
American Operations. Mr. Kain joined Aurora in May, 1995 as Vice President
Operations and General Manager. From 1985 to 1995, Mr. Kain served as Vice
President Operations for Symbol Technologies, Inc. From 1984 to 1985, Mr. Kain
served as Vice President - Operations for Pancretec, Inc. From 1978 to 1984, Mr.
Kain served as Manager - Manufacturing Scientific Instruments Division for
Beckman Instruments, Inc.
GEORGE M. KORCHINSKY is Managing Director - European Operations and Senior Vice
President. Mr. Korchinsky joined Aurora in November 1996. From May 1991 to
October 1996, Mr. Korchinsky served as Vice President & Managing Director -
Europe, Middle East, Africa for Symantec. From January 1989 to May 1991, Mr.
Korchinsky served as General Manager Northern & Central Europe from Cognos Ltd.
From January 1987 to January 1989, Mr. Korchinsky served as Managing Director
Data Communications Equipment for Paradyne Ltd. and from 1984 to 1987 held
various sales, marketing and technical management positions with Paradyne Ltd.
AMIR ASADI joined Aurora in April 1996 as Vice President - Information Systems.
From June 1990 to April 1996, Mr. Asadi served as Vice President, Information
Systems for Home Fashions Inc. From October 1987 to June 1990, Mr. Asadi served
as Director, Systems Development of Beech Street of California. From May 1986 to
October 1987, Mr. Asadi served as Information Systems Consultant, Project
Manager for Fremont Indemnity.
JONATHAN SHULTZ, since October 1996, has served as Vice President Finance and
Administration. Since joining Aurora in October 1992, Mr. Shultz has held the
following positions: From May 1995 to October 1996, Mr. Shultz served as Vice
President Finance and Administration, ARS Division. From June 1994 to May 1995,
Mr. Shultz served as Vice President Controller/Treasurer. From September 1993 to
June 1994, Mr. Shultz served as Corporate Controller, and from October 1992 to
September 1993, he served as Controller, Micro-C Division. From January 1986 to
October 1992, Mr. Shultz served as Audit Manager/Technology Coordinator for
Ernst & Young.
STEPHEN F. WEBER, since May 1996, has served as Vice President Marketing. From
January 1995 to May 1996, Mr. Weber was a co-founder of MindShare Associates,
LLC. From July 1993 to January 1995, Mr. Weber served as Director, Storage
Marketing for Avnet EMG. From March 1992 to July 1993, Mr. Weber served
as Corporate Marketing Manager for Avnet EMG. From 1984 to 1992, Mr. Weber was a
sales representative for Anthem Electronics.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol AUR. The following table sets forth the range of the
high and low sales prices for the Common Stock for each quarterly period during
the last two fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR 1996 FISCAL YEAR 1995
------------------------------------------ ---------------------------------------
HIGH LOW HIGH LOW
------------------------------------------ ---------------------------------------
<S> <C> <C> <C> <C>
First Quarter 3-1/4 1-3/4 5-3/4 4-1/4
Second Quarter 2-15/16 1-1/2 5-1/8 3-3/8
Third Quarter 4-3/4 2-1/2 3-15/16 2-7/8
Fourth Quarter 3-3/8 1-15/16 4-11/16 2-15/16
</TABLE>
On December 20,1996 the last sale price of the Common Stock as reported
by AMEX was $1- 9/16 per share. As of December 20, 1996, the Company had 634
recordholders of its Common Stock, and four (4) holders of warrants to purchase,
in the aggregate, up to 1,694,000 shares of its Common Stock. See Note J of
the Notes to Consolidated Financial Statements -- Stockholders' Equity.
The Company has not paid any cash or stock dividend on its Common Stock
since September 30, 1993. At present, it is the policy of the Company to retain
all earnings for reinvestment into the Company. In addition, the Credit
Agreement restricts AEG's ability to pay dividends to the Company, and thus
limits the Company's ability to pay dividends to its stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data regarding the
Company's results of operations and financial position. This information should
be read in conjunction with Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and related Notes included elsewhere herein.
(In thousands, except per share figures)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------------------------------- ------------------
OPERATING DATA 1996 1995 1994 1993 1992
----------------------------------------------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Net revenues $98,019 $141,852 $120,386 $58,328 $ --
Gross profit 24,443 34,582 26,350 11,274 --
SG&A expenses 25,943 28,170 17,573 4,657 1,864
Amortization of intangibles 18,042 (1) 9,073 (2) 4,539 (3) 1,284 --
Restructuring charge and other -- 5,643 (4) 2,161 -- --
Litigation settlement -- -- 1,943 -- --
Operating income (loss) (19,542) (8,304) 134 5,333 (1,864)
Other income (expenses) (7,505) (5,406) (4,252) (1,276) 2,269
Earnings (loss) from continuing
operations (30,353) (13,710) (4,118) 2,505 (1,791)
Net income (loss) (31,753) (15,030) (6,518) 3,005 (13,505)
Earnings (loss) from continuing
operations per share $ (4.44) $ (1.79) $ (0.55) $ 0.40 $ (0.38)
Net income (loss) per share $ (4.44) $ (1.79) $ (0.87) $ 70.48 $ (2.85)
Weighted average number of
shares outstanding 7,159 (5) 8,379 7,491 6,273 4,738
</TABLE>
- ----------
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(1) During the fourth quarter of fiscal 1996, approximately $16,580 relating to
a write-down of intangible assets associated with the integrated circuit
business acquired in fiscal 1992 in connection with the Micro-C Corporation
acquisition was charged to operations.
(2) During fiscal 1995, approximately $7,400 relating to a write-down of
intangible assets associated with the repair business acquired in fiscal
1993 in connection with the FRS, Inc. acquisition was charged to
operations.
(3) During fiscal 1994, approximately $2,400 relating to a write-down of
intangible assets associated with a covenant not to compete was charged to
operations.
(4) During fiscal 1995, the Company substantially completed a major corporate
reorganization into two core businesses operating through the IC recycling
and recovery division and the spare parts distribution division.
(5) In connection with the Recapitalization, on March 29, 1996, the Company
repurchased approximately 4,268 shares of Common Stock and issued 607
shares of Common Stock and 400 shares of Preferred Stock to WCAS and
certain other purchasers. The Preferred Stock is convertible into 18,824
shares of Common Stock.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------------------------------------------------------
BALANCE SHEET DATA 1996 1995 1994 1993 1992
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $ 610 $ 196 $ 9,013 $ 10,713 $ 1,732
Total assets 52,788 80,716 102,927 76,857 48,468
Long-term obligations (less
current maturities) 25,842 46,183 51,761 25,904 24,081
Redeemable convertible
preferred stock 40,000 -- -- -- --
Stockholders' equity (31,690) 12,338 26,903 26,655 4,710
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
(In thousands, except per share figures)
OVERVIEW
Aurora as it exists today was formed on September 30, 1992. Prior to
September 30, 1992, the corporation was known as BSN Corp. and was engaged in
the sporting goods industry. From 1990 through 1992, BSN divested itself of a
majority of its sporting goods assets and, effective September 30, 1992,
announced that all of its remaining sporting goods assets would be accounted for
as discontinued operations and that such operations would be sold. Effective
September 30, 1992, the Company entered the computer and electronics industry
through the acquisition of Micro-C Corporation, a San Diego, California based
company founded in 1985, which provided both IC recycling services to computer
OEMs and memory IC distribution services for semiconductor manufacturers.
Effective September 30, 1993, Aurora acquired FRS, Inc., a Sacramento,
California based company founded in 1984, which provided depot repair services
to computer and peripherals OEMs. Effective March 1, 1994, Aurora acquired
Century Computer Marketing, a Marina del Rey, California based company founded
in 1984, a leading supplier of new and refurbished spare parts to the computer
maintenance market.
In the third quarter of fiscal 1995, the Company completed a corporate
reorganization, in which it: (a) exited the memory upgrade manufacturing and
supply business (formerly known as the Premier Division); and (b) substantially
downsized its depot repair services operation (acquired in the FRS, Inc.
acquisition), and refocused these operations to support the Company's remaining
spare parts distribution and electronic recycling services business.
10
<PAGE> 11
In March 1996, the Company completed the Recapitalization. See Item 1.
Business -- Overview.
RESULTS OF OPERATIONS -- YEAR ENDED SEPTEMBER 30, 1996, COMPARED WITH YEAR ENDED
SEPTEMBER 30, 1995.
Net revenues for the year ended September 30, 1996 for the Company were
$98,019 as compared to $141,852 for the year ended September 30, 1995. The
Company's decline in revenues was due primarily to the discontinuation of the
Premier Division ($36,254) during fiscal 1995. Excluding the Premier Division,
net revenues for fiscal 1996 decreased 7.2% over the comparable period in fiscal
1995. The decrease was due to a 27.4% decline in revenues in the IC recycling
and recovery business known as the Asset Recovery Services Division (ARS),
offset by an increase of 5.3% in revenues for the spare parts distribution
business, known as the Parts Support Services Division (PSS). The decline in
revenues for ARS was due primarily to a decline during the year in the average
sales price for DRAM chips of approximately 87.0%.
Gross profit for fiscal 1996 was $24,443 (24.9% of net revenues) as
compared to $34,582 in gross profit for the comparable period last year (24.4%
of net revenues). The decrease in gross profit was due primarily to the
discontinuation of the Premier Division and the decrease of approximately $6,261
for ARS over the comparable period in fiscal 1995. This decline in
profitability is due to the fallen DRAM prices discussed above.
SG&A expenses for fiscal 1996 were $25,943, or 26.5% of revenues, as
compared to $28,170, or 19.9% of revenue for fiscal 1995. Included in the SG&A
expenses were approximately $725 in one time charges related to the
Recapitalization. The increase of the SG&A expenses as a percentage of revenue
was due to the reduction in revenues from the discontinuation of the Premier
Division and the decline in revenues for ARS.
Amortization expense for fiscal 1996 was $18,042, or 18.4% of revenues, as
compared to $9,073, or 6.4% of revenues, for fiscal 1995. The increase was due
to the write-off in the fourth quarter of fiscal 1996 of $16,580 of goodwill
related to the acquisition of Micro-C Corporation, which was only partially
matched by the third quarter of fiscal 1995 write-off of goodwill related to the
acquisition of FRS, Inc. Management wrote off the goodwill related to the
Micro-C acquisition due to the deterioration of the pricing levels in the
integrated circuit market and their negative effects on the Company's business
prospects going forward.
Net interest expense for fiscal 1996 was $6,221, or 6.3% of revenues, as
compared to $5,522, or 3.9% of revenues, for fiscal 1995. The interest expense
for 1996 includes approximately $2,243 of charges related to the
Recapitalization completed on March 29, 1996. This amount includes approximately
$1,070 of previously capitalized financed charges, $917 of interest, fees and
expenses due to the Company's previous lenders and $256 relating to the 9-1/4%
Senior Subordinated Notes.
Other expense for fiscal 1996 included writedowns and disposal of property
and equipment totaling $1,369.
Provision for income taxes for fiscal 1996 was $3,306, or 3.4% of revenues,
as compared to $1,320, or .9% of revenues, for fiscal 1995. This provision
includes the increase of the deferred income tax valuation allowance in the
amount of $3,234 due to management's determination that the deferred tax asset
will not be fully realized. Management reached this conclusion as a result of
the limitation in the utilization of the Company's net operating loss
carryforwards caused by the change of ownership pursuant to the
Recapitalization.
11
<PAGE> 12
Net loss applicable to common stockholders for fiscal 1996 was $31,753
as compared to a net loss of $15,030 for fiscal 1995. The fiscal 1996 loss
included approximately $6,620 of charges incurred in the second quarter of
fiscal 1996 due to the Recapitalization completed on March 29, 1996, $6,320 of
reduced operating income from the ARS when compared to 1995, dividends on
preferred stock of approximately $1,400, writedowns and disposal of property and
equipment totaling $1,369, and the write-off of goodwill from the Micro-C
acquisition totaling $16,580.
RESULTS OF OPERATIONS -- YEAR ENDED SEPTEMBER 30, 1995, COMPARED WITH YEAR ENDED
SEPTEMBER 30, 1994.
Net revenues for the year ended September 30, 1995 for the Company were
$141,852 as compared to $120,386 in net revenues for the year ended September
30, 1994. The increase in revenues was primarily due to the inclusion of the PSS
business for a full twelve months ($27,860) and a 54% revenue growth in the ARS
business ($15,752). These revenue increases offset a 53% revenue decrease in the
repair business and a 24% revenue decrease in the Premier Division.
Gross profit for the year ended September 30, 1995 was $34,582 (24.4%
of net revenues) as compared to $26,350 in gross profit for the year ended
September 30, 1994 (21.9% of net revenues). The increase was due primarily to
the gross profits associated with the higher volumes in ARS and Century's parts
distribution business. This increase was partially offset by the significant
decreases in the volume and profitability for both the Premier Division and the
repair business.
SG&A expenses for the year ended September 30, 1995 were $28,170, or
19.9% of revenues, as compared to $17,573, or 14.6% of revenues for the
comparable 1994 period. The increase of approximately $10,600 was due primarily
to the inclusion of a full year of PSS's SG&A expenses, expenditures related to
the reorganization, non-recurring professional fees, and the investments in
systems and support costs required to support the growth in the Company's
business.
Amortization expense for the year ended September 30, 1995 was $9,073,
or 6.4% of revenues, as compared to $4,539, or 3.8% of revenues, for the
comparable 1994 period. With the completion of the corporate reorganization in
the third quarter of fiscal 1995, management charged the remaining balance of
goodwill related to the acquisition of FRS totaling $7,407 to operations. This
charge was determined to be necessary as management estimated that the
amortization of the goodwill balance over its remaining life would not be
recovered through the projected non-discounted future cash flows over the
remaining amortization period.
Restructuring charges for the year ended September 30, 1995 were $5,643
and consisted of costs related to the shutdown of the Premier Division and the
restructuring and downsizing of the Company's repair services operations. The
charge consists primarily of $2,800 in inventory writedowns, $900 in employee
severance, and $600 in facilities termination costs associated with the
reorganized product lines and businesses. In addition, there were no program
development costs for the year ended September 30, 1996 as compared to $925, or
.8% of revenues, for the comparable 1994 period. The expense in the 1994 period
was related to development of a new service line to complement the then existing
repair business. Also included in the restructuring charges were losses on
disposition of assets of approximately $944. This was primarily due to a charge
of $695 related to the writedown of the investment in the Aurora Merchant
Systems joint venture.
12
<PAGE> 13
Net interest expense for the year ended September 30, 1995 was $5,522
or 3.9% of revenues, as compared to $4,449 or 3.7% of revenues, for the
comparable 1994 period. The increase of $1,073 in net interest expense was
principally the interest expense related to the Company's working capital
facilities.
The net loss for the year ended September 30, 1995 was $15,030 as
compared to a net loss of $6,518 for the comparable period in 1994. The increase
in net loss is due primarily to the charges recorded in connection with the
restructuring and reorganization of the Company's businesses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital are directly related to
its accounts receivable, inventory levels and improvements to its property and
equipment, as well as costs resulting from the consolidation of its businesses.
The Company's working capital was $610 as of September 30, 1996, compared to
$196 as of September 30, 1995.
On March 29, 1996, the Company completed the Recapitalization of the
Company (see Note J of the Notes to Consolidated Financial Statements --
Stockholders' Equity). In conjunction with the Recapitalization, the Company
entered into a $35,000 senior credit facility pursuant to a Credit Agreement
dated March 29, 1996. The facility consists of a $15,000 Senior Secured Asset
Based Revolving Credit ("Working Capital Revolving Credit") and a $20,000 Senior
Secured Reducing Revolving Credit ("Reducing Revolving Credit"). The purpose of
the Working Capital Revolving Credit is to fund ongoing working capital needs.
Funds are available based on a percentage of eligible accounts receivables and
inventory. The Reducing Revolving Credit is to be used for (i) approved
acquisitions, (ii) regularly scheduled payments due under the Subordinated
Notes, and (iii) other payments as mutually agreed upon in the Credit Agreement.
As of September 30, 1996, the Company had drawn down $3,707 on the Working
Capital Revolving Credit and $2,635 on the Reducing Revolving Credit. The
facilities bear interest at a rate of either LIBOR plus 2.75% or prime rate plus
1.25%, at the Company's option. All indebtedness of the Company under the Credit
Agreement is secured by substantially all of the assets of the Company, and the
Company is subject to a number of restrictions including covenants relating to
Company's financial performance and various other limitations on the Company's
activities.
As of June 30, 1996, the Company was not in compliance with certain
financial covenants under its Credit Agreement dated March 29, 1996. The primary
reason for the non-compliance was due to the decline in operating income from
ARS due to the fallen DRAM prices discussed above and the flatness in revenue
performance in the PSS. To obtain a waiver of noncompliance from the bank
lender, the Company obtained WCAS' limited guarantee of up to $3 million under
the Working Capital Revolving Credit and, if drawn upon, up to $9 million under
the Reducing Revolving Credit. In return, the Company granted WCAS warrants
that, if fully vested, would give WCAS the right to buy a number of shares equal
to the indebtedness guaranteed divided by the lower of the Common Stock price on
the date the guarantees were initially issued or on certain anniversary dates.
The warrants vest 20% on issuance, 20% on June 1, 1997, 20% on March 1, 1998 and
100% if at any time the bank calls the guarantees. The guarantees will be
released, and unvested warrants will expire, if and when the Company returns to
full compliance with the original financial covenants under the Credit
Agreement.
As of September 30, 1996, the bank had waived compliance with the
financial covenants under the Credit Agreement, and effective December 31, 1996,
amended financial covenants took effect under which the Company expects to be in
compliance.
Other than the funds for the remaining discontinued operations, the
Company had no material capital commitments at September 30, 1996.
13
<PAGE> 14
Management believes existing cash on hand, funds generated from
operations, and funds available under its credit facilities will be sufficient
to meet the operating requirements for the next twelve months. The Company's
cash and credit facilities are managed in order to be available for strategic
investment opportunities.
OUTLOOK AND UNCERTAINTIES
Aurora does not provide forecasts of potential future financial
performance. While management of the Company is optimistic about Aurora's
long-term prospects, the following issues and uncertainties, among others,
should be considered in evaluating its growth outlook.
Market in Early Stages of Development. The Company believes that the
market for its spare parts distribution and electronics recycling services is in
the early stages of development and that awareness among certain potential
customers of the availability of these services may be relatively low. Once
customers are made aware of the availability of and benefits provided by these
aftermarket support services, however, the Company's experience is that
customers are generally receptive to making these services an important element
of their manufacturing, post-sales support and environmental strategies. While
the Company believes that it offers a mutually beneficial solution to large
customers' and field service organizations' spare parts, recycling and asset
recovery requirements, and has therefore targeted these entities as its primary
potential customers, there is no assurance that these entities will choose to
make use of these services, continue to outsource their spare parts, recycling
and asset recovery needs, or choose not to become direct competitors of the
Company. The Company addresses these issues in many ways, particularly including
the development of information tools to use in its business, and the
installation of information processing software. These projects require large
budgets and manpower commitments, and have uncertain time schedules. Successful
completion of these projects is not certain, and a failure of these projects may
have adverse consequences for the development of the Company's business and/or
its ability to successfully compete.
Dependence on the Computer Industry. The Company's business is
dependent upon the continued growth, viability and financial stability of its
customers and potential customers in the computer industry. The computer
industry has been characterized by rapid technological change, compressed
product life cycles, and pricing and margin pressures. While these factors could
be beneficial to the Company's business, such factors affecting segments of the
computer industry in general, and the Company's customers in particular, could
have an adverse effect on the Company's business.
Inventory Obsolescence. The market for personal computers and
subsystems is characterized by rapidly changing technology and frequent new
product introductions. Innovations and improvements in computer and subsystem
design, engineering and production may shorten the useful lives of existing
systems and associated spare parts. Such rapid changes and improvements in
technology, coupled with the need to maintain sufficient inventory levels of
spare parts to ensure ready availability, subject the Company to the risk of
inventory obsolescence. The Company has successfully reduced its exposure to
such inventory obsolescence by maintaining rapid inventory turnover. There can
be no assurance that the Company's efforts in this area will continue to be
successful.
Lack of Long-Term Supply Contracts. The Company's success is dependent
on its ability to continue to sell spare parts to its customers and to attract a
reliable stream of recyclable material from its customers. Generally, the
Company distributes spare parts to, and receives its recyclable material from,
customers pursuant to non-exclusive contracts that to do not contain guaranteed
or minimum quantities and are subject to cancellation on short notice at the
customer's discretion. There is no assurance that the
14
<PAGE> 15
Company's customers will continue to do business with the Company. The
termination of a material contract or any substantial decrease in demand for
spare parts or of the supply of recyclable material from significant customers
could result in a significant decrease in the Company's sales.
Cyclicality and Price Fluctuation in the IC Industry. The Company
derives some of its revenue from the sale of ICs. The IC industry has been
characterized in the past periods of cyclicality in which prices of commodity
ICs, such as DRAMs, SRAMs, EPROMs and microprocessors, have fluctuated. In
periods of IC oversupply, prices have declined. Similarly, one generation of
commodity ICs can decline in price as the next generation comes to market.
Significant declines in unit volume demand or unit pricing could have an adverse
effect on the Company's business.
Dependence on Key Personnel. The success of the Company is dependent,
in part, upon key management personnel. The loss of the services of any of the
Company's key management personnel could have a material adverse effect on the
Company. Expansion of the Company's business may require additional managers and
employees with industry experience. Competition for skilled management personnel
in the industry is intense.
Competition. The independent spare parts distribution and the
electronic recycling services industry is fragmented with widespread competition
from a variety of small independent suppliers. The Company believes that
competition for OEM, TPMO and MVSO customers is based on a number of factors,
including: (i) breadth of parts distributed; (ii) ability to offer sophisticated
inventory and materials management programs; (iii) ability to offer rapid
delivery and sophisticated logistics programs; and (iv) price. Among the
Company's major independent competitors are DecisionOne, Data Trend, PC Service
Source, and The Cerplex Group. Certain of these competitors are larger in total
company revenue or have larger capitalizations than the Company.
Control by Major Shareholder. As discussed above under
"Recapitalization," WCAS, and their affiliates, own approximately 76.4% of the
Company's voting stock. As a result, WCAS is able to elect the entire Board of
Directors, and will retain the voting power to control all matters requiring
shareholder approval. The Company's ability to raise additional capital or to
sell control of the Company to third parties will be restricted if it is unable
to obtain such shareholder approval.
Other Uncertainties. Other operating, financial or legal risks or
uncertainties are discussed in the Form 10-K in specific contexts. The Company
is, of course, also subject to general economic risks, the risk of interruption
in the source of supply, the risk of loss of a major customer, dependence on
key personnel and other risks and uncertainties.
NEW ACCOUNTING STANDARDS
In 1997, the Company will be required to adopt SFAS No. 123, Accounting
for Stock-Based Compensation. However, the Company has decided to continue to
account for employee stock options under Accounting Principles Board Opinion No.
25. This standard will be effective for transactions entered into after October
1, 1996. The primary impact of this standard will be to disclose the fair market
value of equity issued to employees and third parties.
15
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
AURORA ELECTRONICS, INC. AND SUBSIDIARIES PAGE
<S> <C> <C>
1. Index to the Company's Financial Statements and Financial Statement Schedules.
Report of Independent Public Accountants ................................................... 17
Consolidated Balance Sheets as of September 30, 1996 and September 30, 1995................. 18
Consolidated Statements of Operations for the years ended September 30, 1996,
1995 and 1994.......................................................................... 19
Consolidated Statements of Stockholders' Equity for the years ended September 30,
1996, 1995 and 1994.................................................................... 20
Consolidated Statements of Cash Flows for the years ended September 30, 1996,
1995 and 1994.......................................................................... 21
Notes to Consolidated Financial Statements.................................................. 23
Schedule II- Valuation and Qualifying Accounts for the years ended September 30,
1996, 1995 and 1994.................................................................... 34
</TABLE>
All other financial statement schedules are omitted as the required information
is presented in the financial statements or the notes thereto or is not
necessary.
16
<PAGE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Aurora Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of Aurora
Electronics, Inc. (a Delaware Corporation) and subsidiaries as of September 30,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended September 30, 1996,
1995 and 1994. These consolidated financial statements and the schedule referred
to below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and the
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aurora Electronics,
Inc. and subsidiaries as of September 30, 1996 and 1995, and the results of
their operations and their cash flows for the years ended September 30, 1996,
1995 and 1994 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to the consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic consolidated financial statements taken as a whole.
Orange County, California
December 30, 1996
ARTHUR ANDERSEN LLP
17
<PAGE> 18
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30,
---------------------------
1996 1995
---------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,537 $ 81
Trade receivables, less allowance for doubtful accounts
of $1,209 ($1,414 in 1995) 8,629 15,828
Inventories 4,098 4,021
Deferred income taxes 500 1,532
Other current assets 716 516
- --------------------------------------------------------------------------------------------------------
Total current assets 15,480 21,978
Property, plant and equipment, net 4,811 5,752
Deferred income taxes - 2,202
Intangible and other assets 32,497 50,784
- --------------------------------------------------------------------------------------------------------
Total assets $ 52,788 $ 80,716
========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,974 $ 6,700
Accounts payable 8,465 8,105
Accrued compensation 1,912 2,021
Accrued interest 433 920
Current portion of reserve for discontinued operations 702 1,569
Other current liabilities 1,384 2,467
- --------------------------------------------------------------------------------------------------------
Total current liabilities 14,870 21,782
Reserve for discontinued operations 2,366 2,504
Long-term debt 25,842 44,092
Commitments and contingencies
Redeemable convertible preferred stock, 400,000 shares issued 41,400 -
Stockholders' equity:
Preferred stock, 1,000 shares authorized, none issued - -
Common stock, 10,486 shares issued (8,062 shares in 1995) 315 242
Additional paid-in capital 61,679 61,932
Accumulated deficit (77,045) (44,683)
Treasury stock, at cost, 4,743 shares (561 shares in 1995) (16,639) (5,153)
- --------------------------------------------------------------------------------------------------------
Total stockholders' equity (31,690) 12,338
- --------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 52,788 $ 80,716
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
Years ended September 30
--------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues $ 98,019 $ 141,852 $ 120,386
Cost of sales 73,576 107,270 94,036
- -----------------------------------------------------------------------------------------------------------------------------------
Gross profit 24,443 34,582 26,350
Selling, general and administrative expenses 25,943 28,170 17,573
Amortization of intangibles, including write-offs of $16,580, $7,407 and $2,400
in 1996, 1995 and 1994, respectively 18,042 9,073 4,539
Restructuring charges and other - 5,643 2,161
Provision for litigation settlements - - 1,943
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (19,542) (8,304) 134
Interest expense (6,221) (5,522) (4,449)
Other income (expense), net (1,284) 116 197
- ------------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before provision for income taxes (27,047) (13,710) (4,118)
Provision for income taxes 3,306 1,320 -
- ------------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations (30,353) (15,030) (4,118)
Discontinued operations, net of income taxes:
Loss on disposal - - (2,400)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss (30,353) (15,030) (6,518)
Dividends on preferred stock (1,400) - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss applicable to common shareholders $ (31,753) $ (15,030) $ (6,518)
====================================================================================================================================
Loss per share of common stock:
Continuing operations $ (4.44) $ (1.79) $ (0.55)
Discontinued operations - - (0.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss per share of common stock $ (4.44) $ (1.79) $ (0.87)
====================================================================================================================================
Weighted average number of common and common equivalent shares 7,159 8,379 7,491
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 20
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common stock Additional
--------------------- paid-in
Shares Par Value capital
--------------------- -------------
<S> <C> <C> <C>
Balance at September 30, 1993 7,744 $ 232 $ 55,260
Issuance of common stock/treasury stock - acquisitions 271 8 4,718
Common stock to be issued - acquisitions - - 559
Exercise of stock options 5 - 40
Purchase of treasury stock - - -
Treasury stock - sale of assets - - -
Common stock to be issued - litigation settlement - - 1,250
Net loss - - -
- ------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 8,020 240 61,827
Issuance of common stock/treasury stock - acquisitions 42 2 (240)
Common stock to be issued - acquisitions - - 345
Net loss - - -
- ------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 8,062 242 61,932
Issuance of common stock/treasury stock - acquisitions 1,476 45 66
Issuance of common stock with notes payable 607 18 1,029
Repurchase of common stock - - -
Issuance of common stock 340 10 903
Financing costs from issuance of redeemable, convertible preferred stock - - (2,254)
Accretion of dividends on redeemable, convertible preferred stock - - -
Exercise of stock options 1 - 3
Net loss - - -
- ------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 10,486 $ 315 $ 61,679
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated Treasury
deficit stock Total
----------------- ------------- -------------
<S> <C> <C> <C>
Balance at September 30, 1993 $ (22,683) $ (6,154) $ 26,655
Issuance of common stock/treasury stock - acquisitions (99) 560 5,187
Common stock to be issued - acquisitions - - 559
Exercise of stock options - - 40
Purchase of treasury stock - (226) (226)
Treasury stock - sale of assets - (44) (44)
Common stock to be issued - litigation settlement - - 1,250
Net loss (6,518) - (6,518)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 (29,300) (5,864) 26,903
Issuance of common stock/treasury stock - acquisitions (353) 711 120
Common stock to be issued - acquisitions - - 345
Net loss (15,030) - (15,030)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 (44,683) (5,153) 12,338
Issuance of common stock/treasury stock - acquisitions (601) 771 281
Issuance of common stock with notes payable - - 1,047
Repurchase of common stock - (12,271) (12,271)
Issuance of common stock (8) 14 919
Financing costs from issuance of redeemable, convertible preferred stock - - (2,254)
Accretion of dividends on redeemable, convertible preferred stock (1,400) - (1,400)
Exercise of stock options - 3
Net loss (30,353) (30,353)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $ (77,045) $ (16,639) $ (31,690)
================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 21
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended September 30
-----------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations $ (30,353) $ (15,030) $ (4,118)
Adjustments to reconcile loss from
continuing operations to net cash flows
from operating activities:
Depreciation and amortization 19,686 10,493 6,451
Noncash interest expense 1,340 655 352
Noncash portion of litigation provision - - 1,250
Loss on disposition of assets 1,369 944 711
Changes in assets and liabilities, net of acquisitions:
Trade receivables, inventories and other assets 7,133 6,667 (5,113)
Accounts payable, accrued compensation and other liabilities (729) (1,789) 454
Accrued interest and income taxes receivable/payable 632 (60) 260
Deferred income taxes 3,234 1,304 -
- --------------------------------------------------------------------------------------------------------------------------
Net cash flows from continuing operations 2,312 3,184 247
Net cash flows from discontinued operations (1,005) (951) (1,336)
- --------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 1,307 2,233 (1,089)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (2,072) (1,440) (1,993)
Payments for purchases of companies, net of cash acquired - - (12,131)
Proceeds from sales of marketable securities and SSG note - 1,171 975
- --------------------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities (2,072) (269) (13,149)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (19,454) (4,092) (5,840)
Issuance of preferred stock 37,747 - -
Issuance of common stock - - 40
Purchases of treasury stock, net (12,271) - (226)
Advances under line of credit 7,486 12,070 22,238
Repayments under line of credit (11,287) (11,400) (16,636)
- --------------------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities 2,221 (3,422) (424)
- --------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 1,456 (1,458) (14,662)
Cash and cash equivalents at beginning of period 81 1,539 16,201
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,537 $ 81 $ 1,539
==========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 22
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended September 30
-----------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Cash paid (refunded) for:
Interest $ 5,368 $ 4,157 $ 3,837
=============================================================================================================================
Income taxes $ 72 $ 1 $ (337)
=============================================================================================================================
In conjunction with the acquisition of the stock or assets of certain entities,
the following liabilities were assumed as follows:
Fair value of assets acquired $ - $ - $ 45,039
Cash paid for the acquisitions, net of cash acquired - - (7,356)
Imputed interest - - 352
Debt issued for the acquisitions - - (27,345)
Common stock issued for the acquisitions - - (4,660)
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities assumed $ - $ - $ 6,030
=============================================================================================================================
Payment of employment contract with issuance of stock $ - $ 119 $ -
=============================================================================================================================
Contingent shares issuable for additional acquisition costs $ - $ 345 $ 445
=============================================================================================================================
Reduction in 7% debt as a result of common stock sale $ 956 $ - $ -
=============================================================================================================================
Reduction in 9 1/4% debt as a result of issuance of Notes $ 8,593 $ - $ -
=============================================================================================================================
Reduction in 7% debt as a result of indemnity claim settlement $ - $ 1,224 $ 3,507
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 23
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share figures)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization. Aurora Electronics, Inc. operates in one business segment
providing spare parts distribution and electronics recycling services to major
personal computer manufacturers and field service organizations.
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of Aurora Electronics, Inc. (the "Company") and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain operating segments that have been sold
and segments for which a plan of disposal had been adopted as of September 30,
1992 have been reported as discontinued operations.
Use of Estimates. The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The Company's industry is subject to significant
fluctuations in prices and technologies.
Cash and Cash Equivalents. The Company considers all liquid investments
with a maturity of three months or less at the date of purchase to be cash
equivalents.
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Reserves for cost in excess of
net realizable value are determined periodically by comparing sales prices and
volumes to cost and quantity of inventory on hand.
Property, Plant and Equipment. Property, plant and equipment is recorded at
cost and is depreciated over the estimated useful lives of the related assets by
the straight-line method for financial reporting purposes, and accelerated
methods with respect to certain assets for income tax purposes. Property, plant
and equipment includes computer hardware, software and implementation costs
which are purchased, acquired and modified for internal use. The Company's
policy is to capitalize and accumulate such costs as incurred and to commence
amortization when placed in service. Leasehold improvements are amortized over
the terms of the related leases or their useful lives, whichever is shorter.
Intangible Assets. Goodwill associated with acquisitions is amortized using
the straight-line method over forty years. The Company assesses the
recoverability of its goodwill by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through projected
non-discounted future cash flows over the remaining amortization period. If
projected future cash flows indicate that unamortized goodwill will not be
recovered, an adjustment is made to reduce the net goodwill to an amount
consistent with projected future cash flows discounted at the Company's
incremental borrowing rate. Cash flow projections, although subject to a degree
of uncertainty, are based on trends of historical performance and management's
estimate of future performance, giving consideration to existing and anticipated
competitive and economic conditions.
Revenue Recognition. Revenue is recognized upon shipment of products to
customers. The Company warrants products against defects and has policies
permitting the return of products under
23
<PAGE> 24
certain circumstances. Provisions are made for warranty costs and returns. Such
costs generally have not been material. The Company does not offer price
protection to its customers.
The Company performs ongoing credit evaluations of its customers and
has established provisions for potential credit losses.
Earnings Per Share of Common Stock. Earnings per share of common stock
is based upon the weighted average number of common and common equivalent shares
outstanding, less cumulative dividends to holders of the Company's preferred
stock. Outstanding stock options and warrants are treated under the treasury
stock method as common stock equivalents when dilution results from their
assumed exercise. The Company's Redeemable Convertible Preferred Stock, 7-3/4%
Convertible Subordinated Debentures due April 15, 2001, and 7% Subordinated
Convertible Promissory Notes (the "7% Notes") due September 30, 1997, were not
common stock equivalents at the time of issuance and are therefore not included
in the calculation of primary earnings per share. Fully diluted net earnings per
share is not presented as it is anti-dilutive.
New Accounting Standards
In 1997, the Company will be required to adopt SFAS No. 123,
Accounting for Stock-Based Compensation. However, the Company has decided to
continue to account for employee stock options under Accounting Principles
Board Opinion No. 25. This standard will be effective for transactions entered
into after October 1, 1996. The primary impact of this standard will be to
disclose the fair market value of equity issued to employees and third parties.
NOTE B - ACQUISITIONS
Micro-C Corporation ("Micro-C")
Effective September 30, 1992, the Company acquired all of the
outstanding Common Stock of Micro-C, a recycler of integrated circuits for the
electronics industry. The purchase price consisted of $10,949 in cash and the
issuance of the 7% Notes in the original principal amount of $7,379.
Additionally, the purchase agreement provided for the issuance of up to
approximately 447 shares of the Company's Common Stock valued at $11.20 per
share (subject to anti-dilution adjustments) to the sellers over a three year
period commencing in 1993. In fiscal 1996, 1995 and 1994, the Company issued 82,
77 and 61 shares, respectively in connection with the fiscal 1995, 1994 and 1993
operating results. Pursuant to the terms of a settlement agreement, the
remaining 227 shares will not be issued.
FRS, Inc. ("FRS")
On September 30, 1993, the Company acquired all of the outstanding
Common Stock of FRS, a provider of maintenance and repair services on selected
computer peripherals and products. FRS also provides inventory management
control services to certain manufacturers of electronic products and third party
maintenance organizations. Pursuant to the Merger Agreement, the total
consideration paid to the former shareholders of FRS was approximately $5,400
comprised of cash of approximately $100 and 744 shares of the Company's Common
Stock valued at $7.125 per share (the last closing share price of Aurora's
Common Stock prior to signing the Merger Agreement on September 12, 1993).
Century Computer Marketing ("Century")
Effective March 1, 1994, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of Century. Century is a
distributor of new and refurbished spare parts to the computer maintenance
market, supporting the products of over 500 manufacturers. Pursuant to the terms
of the Asset Purchase Agreement, the total consideration paid to Century was
approximately $29,000 in cash, $2,000 in Common Stock of the Company and an
additional $2,700 in Common Stock of the Company. The Company financed the
acquisition of Century with proceeds from a five year $25,000 senior term loan
and internally generated cash.
All acquisitions have been accounted for by the purchase method of
accounting, and accordingly each purchase price has been allocated to the assets
acquired and the liabilities assumed based on the
24
<PAGE> 25
estimated fair values at the date of the acquisitions. The excess of the
purchase price over the estimated fair values of the net assets acquired was
recorded as goodwill amortizable over 40 years. The contingent consideration was
recorded as additional goodwill when the related contingencies were resolved and
the consideration was determined. Goodwill from the Micro-C and FRS acquisitions
has been written off. See Note F -- Intangibles and Other Assets.
The estimated fair value of assets and liabilities as of the date of
the acquisitions are summarized as follows:
<TABLE>
<CAPTION>
MICRO-C FRS CENTURY
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 4,911 $ 3,588 $ 8,545
Machinery and equipment 497 1,082 947
Identifiable intangible and other assets 4,000 142 3,578
Goodwill 15,444 7,625 31,730
Liabilities (12,302) (7,135) (5,630)
---------------------------------------
$ 12,550 $ 5,302 $ 39,170
=======================================
</TABLE>
The following table presents the unaudited pro forma results of
operations of the Company for the year ended September 30, 1994, assuming the
Century acquisitions had occurred on October 1, 1993.
<TABLE>
<CAPTION>
1994
(unaudited)
- ------------------------------------------------------------------------------
<S> <C>
Net revenues $ 137,236
Gross Profit 32,988
Operating income 2,315
Earnings (loss) from continuing operation before tax (3,510)
Net income (loss) (6,151)
Net income (loss) per share $ (0.82)
</TABLE>
NOTE C - DISCONTINUED OPERATIONS
Commencing in 1990, the Company began to discontinue its sporting goods
operations and divest itself of the related assets. Effective September 30,
1992, the Company announced that its remaining sporting goods operations would
be accounted for as discontinued operations and the remaining assets would be
sold. As of September 30, 1994, no material assets remained related to the
discontinued operations. During 1994, management revised the estimated reserve
for remaining contractual and contingent obligations resulting in a provision
for loss on disposal of $2,400. Such obligations and contingencies relate
primarily to a leased building, reserves for helmet litigation, and estimation
of liabilities due to an income tax dispute. (See Note M of the Notes to
Consolidated Financial Statements -- Commitments and Contingencies).
NOTE D - INVENTORIES
Inventories at September 30, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Spare and repair parts $ 395 $ 535
Work in process 59 253
Finished goods 3,644 3,233
------------------------------------
Total inventories $ 4,098 $ 4,021
====================================
</TABLE>
25
<PAGE> 26
NOTE E - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, 1996 and 1995 consisted
of the following:
<TABLE>
<CAPTION>
ESTIMATED
LIFE 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture, fixtures and equipment 3 - 5 year $ 7,150 $ 7,801
Leasehold improvements 1 - 5 years 949 707
-----------------------
8,099 8,508
Less accumulated depreciation and amortization (3,288) (2,756)
-----------------------
Total property, plant and equipment $ 4,811 $ 5,752
=======================
</TABLE>
The Company leases office, processing and warehousing facilities under
various operating leases through 2001. Future minimum lease payments under
non-cancelable operating leases with remaining terms in excess of one year for
the fiscal year ending September 30 are as follows: 1997 - $1,789; 1998 -
$1,676; 1999 - $1,592; 2000 - $842; 2001 - $104. Rent expense was approximately
$1,246, $1,662, and $1,393 for the years ended September 30, 1996, 1995 and
1994, respectively.
NOTE F - INTANGIBLES AND OTHER ASSETS
Intangibles and other assets at September 30, 1996 and 1995 consisted
of the following:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
Goodwill $31,730 $50,152
Database valuation 1,462 1,462
Debt issuance costs 1,485 1,939
Other 620 832
Less accumulated amortization (2,800) (3,601)
------------------
$32,497 $50,784
==================
</TABLE>
Due to the deterioration of the pricing levels in the integrated
circuit market in the latter part of fiscal 1996 and their related negative
effects on the Company's business prospects, management charged the remaining
balance of goodwill related to the acquisition of Micro-C, totaling $16,580, to
operations in the fourth quarter of fiscal 1996. Also, upon the completion of a
major corporate reorganization in the third quarter of fiscal 1995, management
charged the remaining balance of goodwill related to the acquisition of FRS,
totaling $7,407, to operations in fiscal 1995. These charges were determined
necessary as management estimated that the amortization of the respective
goodwill balances over their remaining lives would not be recovered through the
projected non-discounted future cash flows over their respective remaining
amortization periods. Other reductions of goodwill related to the reduction of
the notes payable due to the sellers of Micro-C as a result of a favorable
arbitration award in April 1995. (See Note G -- Long-Term Debt.)
In fiscal 1994, management determined that the remaining unamortized
balance of $2,400, which had been assigned to a non-compete agreement with the
sellers of Micro-C, should be charged to operations. The non-compete agreement
was determined to be of no continuing value due to the decision by the Company's
major supplier of reduced specification ICs to indefinitely suspend shipments
and to the decline of the Company's activities in general in the reduced
specification IC business.
26
<PAGE> 27
NOTE G - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Revolving line of credit $ 6,342 $ 9,295
Senior term loan - 19,000
9-1/4% Senior subordinated notes - 8,724
10% Senior subordinated notes 9,043 -
7-3/4% Convertible subordinated debentures 10,326 10,299
7% Subordinated convertible promissory notes 1,692 2,648
Capital lease financing 413 826
----------------------
27,816 50,792
Less current portion of long-term debt (1,974) (6,700)
----------------------
$ 25,842 $ 44,092
======================
</TABLE>
Bank Financing
In March 1996, in conjunction with the successful recapitalization of
the Company ("Recapitalization"), the Company's operating subsidiary, Aurora
Electronics Group, Inc. ("AEG"), entered into a the Credit Agreement with a
group of financial institutions (lenders) which provides for up to $35,000 of
borrowings. The Credit Agreement consists of borrowings totaling $15,000 for
working capital purposes, and $20,000 ($18,000 at September 30, 1996) that may
be used to repay outstanding debt and for approved future acquisitions. All
borrowings under the Credit Agreement are secured by substantially all of the
assets of AEG.
The term of the Credit Agreement is five years. The availability of the
$20,000 portion of the Facilities is reduced by $1,000 each quarter commencing
June 1996, with the remainder due and payable at maturity. The Facilities also
provide for mandatory prepayments in the event of asset sales, new stock or debt
financing and extraordinary receipts. The interest rate will be based on LIBOR
plus 2.75% or the Bank's Base Rate plus 1.25%, with interest rate adjustments
based on the ratio of total funded senior debt to the Company's earnings before
interest, taxes, amortization and depreciation.
AEG failed to meet certain of the financial covenants imposed by the
Credit Agreement for the year ended September 30, 1996. The lenders waived
compliance for failure to meet certain of the fiscal 1996 covenants. Effective
December 31, 1996, the lenders have issued modified covenants for two years
through September 30, 1998. The covenants include minimum levels of earnings and
interest coverage (as defined) and stipulate maximum levels of leverage (as
defined).
In connection with the Credit Agreement, the Company's largest
shareholder agreed to guarantee up to $3,000 of AEG borrowings. In consideration
for the guarantee, the shareholder will receive warrants to purchase up to 1,397
shares of common stock. at an exercise price of $2.075 per share. The number of
shares under warrant is determined based on the length of time the guarantee
remains in force and the price may be adjusted lower due to antidulution
provisions in the warrant agreements. (See Note J of the Notes to Consolidated
financial Statements -- Stockholders' Equity.)
10% Senior Subordinated Notes
In connection with the Recapitalization, the Company issued 10% Notes
to its largest shareholder with a face value of $10 million due September 30,
2001. The Notes are shown net of the value of 607 shares of common stock issued
simultaneously with the Notes. Interest on the Notes is payable on March 31 and
September 30 of each year beginning September 30, 1996 through maturity. The
proceeds of the Notes were used to repay the 9-1/4% Senior Subordinated Notes
due November 1996. (See Note J of the Notes to Consolidated Financial Statements
- -- Stockholders' Equity.)
27
<PAGE> 28
7-3/4% Convertible Subordinated Debentures
The 7-3/4% Convertible Subordinated Debentures mature April 15, 2001
("Convertible Debentures") and are shown net of unamortized discount of
approximately $125 and $152 at September 30, 1996 and 1995, respectively. The
Company is required to make partial sinking fund payments of approximately $117
and $2,516 in 1999 and 2000, respectively. The Convertible Debentures are
convertible into Common Stock of the Company at a conversion price, subject to
adjustment in certain instances, of $11.66 per share, and are redeemable at the
option of the Company at face value plus accrued interest thereon. Interest on
the 7-3/4% Debentures is payable on April 14 and October 14 of each year through
maturity.
7% Subordinated Convertible Promissory Notes
In connection with the acquisition of Micro-C, the Company issued 7%
Notes to the sellers aggregating approximately $7,379. In April 1995, the
Company was awarded in arbitration a final settlement which reduced the
outstanding balance of the notes to $2,648. Interest on the 7% Notes is payable
on March 31 and September 30 of each year beginning March 31, 1993 through
maturity. The remaining principal balance of the 7% Notes is due in monthly
installments totaling $74 beginning September 30, 1996 through September 30,
1997, and a final installment of $804 due September 30, 1997. The 7% Notes are
convertible into shares of the Company's Common Stock at a rate of $11.20 per
share, subject to certain adjustments as defined in the note agreements.
Other Long-term Debt
Additional long-term debt consists primarily of secured equipment
financing and capital lease obligations with interest rates ranging from 8.9% to
12.9%, due in monthly installments through 1999.
Aggregate maturities of long-term debt for the fiscal years ending
September 30 are as follows: 1997 - $1,974, 1998 - $90, 1999 - $168, 2000 -
$2,516 and 2001 - $23,068.
NOTE H - INCOME TAXES
The provision for income taxes for the years ended September 30, 1996,
1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30
1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision (benefit) - Federal $ -- $ -- $ --
- State -- -- --
---------------------------------------
Total current provision -- -- --
---------------------------------------
Deferred provision (benefit):
Net operating loss generated (4,895) (3,193) (2,639)
Net reversal of non-deductible accruals and reserves 768 213 1,935
Reserve method for allowance for doubtful accounts 83 (146) (174)
Depreciation 1,467 276 (623)
Goodwill amortization 532 616 --
Deferred benefit not currently recognized 2,045 2,234 1,501
Increase in non-utilization of deferred tax asset due to
uncertainty of recovery 3,234 1,304 --
Other 72 16 --
---------------------------------------
Total deferred provision 3,306 1,320 --
---------------------------------------
Total federal income tax provision exclusive of
discontinued operations $ 3,306 $ 1,320 $ --
=======================================
</TABLE>
28
<PAGE> 29
The provision (benefit) for income taxes in the accompanying
consolidated statements of operations differs from the amount of tax based on
the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30
1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision (benefits) for income taxes at statutory rate $ (9,196) $ (4,661) $ (1,400)
Nondeductible expenses 5,794 3,227 331
Deferred benefit not currently recognized 2,045 2,234 1,501
Permanent effect of book/tax adjustments 1,747 -- --
Increase in non-utilization of deferred tax asset due to
uncertainty 3,234 1,304 --
State taxes, net of Federal benefit (614) (823) (253)
FSC benefit -- -- (75)
Reversal of Riddell book gain -- -- --
Other 296 39 (104)
------------------------------------
Total provision for income taxes $ 3,306 $ 1,320 $ --
====================================
</TABLE>
The components of the Company's deferred income tax benefit as of
September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Reserves for discontinued operations $ 1,232 $ 1,679
Net operating loss carryforwards - current -- 1,576
Allowance for doubtful accounts and notes 640 723
Inventory reserves 318 499
Non-deductible accruals 1,102 1,400
Valuation allowance - current (2,792) (4,345)
-----------------------
Current deferred income tax benefit 500 1,532
-----------------------
Depreciation (1,115) 352
Net operating loss carryforwards - long-term 14,152 7,681
Capital loss carryback 3,218 3,218
Tax credits 158 --
Goodwill amortization (1,148) (616)
Valuation allowance - long-term (15,265) (8,433)
-----------------------
Long-term deferred income tax benefit -- 2,202
-----------------------
$ 500 $ 3,734
=======================
</TABLE>
At September 30, 1996, the Company had tax basis net operating losses
("NOLs") of approximately $39,400 available to offset future ordinary taxable
income. The utilization of the Company's NOLs will be substantially limited due
to the Recapitalization. These carryforwards begin to expire during 2007. The
income tax benefit related to these NOLs, as well as to certain reserves
recorded by the Company, have been reflected in the deferred income tax asset
accounts to the extent they are considered realizable.
A valuation allowance is provided against the deferred tax asset when
it is more likely than not that some portion of the deferred tax asset will not
be realized. The Company has established a valuation allowance for the portion
of the deferred tax asset that is not likely to be realized within approximately
the next fiscal year based on Management's best estimate of results of
operations for that upcoming period.
29
<PAGE> 30
NOTE I - REDEEMABLE CONVERTIBLE PREFERRED STOCK
Concurrent with the Recapitalization, the Company issued 400 shares of
Redeemable Convertible Preferred Stock to its largest shareholder. The shares
have a par value of $.01 per share and were issued for $100 per share. The
Preferred Stock has a liquidation preference of $100 per share plus accrued and
unpaid dividends. The dividends accrue at 7% per annum. The Preferred Stock
(including all unpaid dividends) is convertible into common stock of the Company
at a conversion price of $2.125 per share, subject to antidilusion adjustments.
The Preferred Stock is subject to mandatory redemption by the Company on
September 30, 2006 at the price of $100 per share plus all accrued and unpaid
dividends to the redemption date. The holders of the Preferred Stock have voting
rights equivalent to the holders of common stock on an "as converted" basis.
NOTE J - STOCKHOLDERS' EQUITY
The Company has 1,000 shares of authorized $.01 par value preferred
stock, with none issued or outstanding. The Company has 50,000 shares of
authorized $.03 par value Common Stock with 10,486 shares issued and 5,743
shares outstanding at September 30, 1996, (compared to 8,062 and 7,501,
respectively, at September 30, 1995).
In October 1995, the Company sold 340 shares of Common Stock to
investors in a private placement of equity securities in exchange for proceeds
totaling $883, net of issuance costs. Proceeds from the offering were used to
make the principal payment due September 30, 1996 on the 7% notes payable.
In March 1996, the Company completed its comprehensive plan to
recapitalize the Company, pursuant to which the Company (a) sold (i) 400 shares
of Redeemable Convertible Preferred Stock, $.01 par value, to WCAS and certain
other investors for an aggregate purchase price of $40,000 and (ii) 607 shares
of Common Stock, along with a $10,000 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, and (b) repurchased 4,268 shares of the Company's Common
Stock, $.03 par value at $2.875 per share pursuant to a tender offer for up to
6,500 shares of Common Stock.
To obtain a waiver of noncompliance with certain covenants as of June
30, 1996 from the bank lender, the Company obtained WCAS' limited guarantee of
up to $3 million in revolving indebtedness and, if drawn upon, up to $9 million
in acquisition-related indebtedness under the Credit Agreement. In return, the
Company granted WCAS, and its affiliates, warrants that, if fully vested, would
give WCAS, and its affiliates, the right to buy a number of shares equal to the
indebtedness guaranteed divided by the lower of the Common Stock price on the
date the guarantees were initially issued or on certain anniversary dates. The
warrants vest 20% on issuance, 20% on June 1, 1997, 20% on March 1, 1998 and
100% if at any time the bank calls the guarantees. The guarantees will be
released, and unvested warrants will expire, if and when the Company returns to
full compliance with the original financial covenants under the Credit
Agreement.
In connection with AEG's prior Senior Credit Agreement dated May 1994,
and the Third Amendment effective September 30, 1995 which was repaid in full
as part of the Recapitalization. The Company issued Warrants to the lenders to
acquire 397 shares of common stock at $2.18 per share.
NOTE K - EMPLOYEE STOCK AND SAVINGS PLANS
Employee stock purchase plan. Effective October 1, 1994, the Company
established an employee stock purchase plan for all eligible employees. Under
the plan, shares of the Company's Common Stock may be purchased at three-month
intervals at 85% of the lower of the fair market value on the first or the last
day of each three-month period. Employees may purchase shares having a value not
exceeding 15% of their gross compensation during an offering period. At
September 30, 1996, 350 shares were reserved for future issuance.
30
<PAGE> 31
Savings plan. The Company has a savings plan, which qualifies under
Section 401(k) of the Internal Revenue Code. Under the plan, participating U.S.
employees may defer up to 15% of their pretax salary, but not more than
statutory limits. The Company contributes a discretionary amount, set by the
Board of Directors, for each dollar contributed by a participant, with a maximum
of 6% of participant earnings. The Company's matching contribution to the
savings plan was $252, $279 and $161 for the years ended September 30, 1996,
1995 and 1994, respectively.
Stock option plan. The Company has a stock option plan for directors,
officers, and key employees which provides for incentive and nonqualified stock
options. A committee comprised of disinterested directors determines the option
price (not less than the fair market value of the stock at the date of grant).
The options generally expire ten years from the date of grant and vest over five
years. As of September 30, 1996, options for 4,031 shares were issued and 1,377
shares were available for future grants under the plan. Options for 200 shares
were issued outside the Stock Option Plan. The new stock option plan was
instituted at the time of the Recapitalization. At that time, the Company
offered to exchange options issued under prior stock option plans for options
under the new plan at the market price per share ($2.125) at the time of the
Recapitalization.
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------
SHARES RANGE OF OPTION PRICES
(in thousands)
--------------------------------------
<S> <C> <C>
Outstanding at September 30, 1993 585 $6.40 - 11.75
Granted 487 7.00 - 8.13
Exercised (5) 7.00 - 7.50
Forfeited (99) 7.00 - 8.13
--------------------------------------
Outstanding at September 30, 1994 967 6.40 - 11.75
Granted 1,130 3.38 - 4.50
Forfeited (953) 7.00 - 8.13
--------------------------------------
Outstanding at September 30, 1995 1,145 3.38 - 11.75
Granted 4,901 2.13 - 4.19
Exercised (1) 2.13
Forfeited (2,013) 3.38 - 11.75
--------------------------------------
Outstanding at September 30, 1996 4,031 2.13 - 11.75
======================================
</TABLE>
NOTE L - FAIR VALUE INFORMATION
The following disclosure of the estimated fair value of financial
instruments at September 30, 1996 and 1995 is made in accordance with the
requirements of SFAS No. 107 "Disclosures about Fair Value of Financial
Instruments." The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
31
<PAGE> 32
The carrying amounts of cash and cash equivalents, short - term
investments, trade receivables, and accounts payable are a reasonable estimate
of their fair value. The carrying amount of long-term debt approximates fair
value because the obligations either bear interest at floating rates, or compare
favorably with fixed rate obligations that would be available to the Company.
The fair value information presented herein is based on pertinent
information available to management as of September 30, 1996. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these consolidated financial statements since that
date, and current estimates of fair value may differ significantly from the
amounts presented herein.
NOTE M - COMMITMENTS AND CONTINGENCIES
Discontinued operations
The Company is subject to a non-cancelable building lease though 2005.
Management is pursuing various alternatives which would terminate this
obligation prior to the expiration of the lease and has recorded a reserve which
contemplates termination prior to 1999. In estimating the reserve management has
considered operating costs, net present value of the remaining lease payments,
an early termination payment and sublease rental income. However, additional
reserves may be needed in the event management is not able to successfully
negotiate an early termination of the lease.
Pursuant to a Tax Indemnity Agreement entered into between the Company
and Sport Supply Group, Inc. ("SSG") in connection with the SSG Public Offering,
the Company agreed to indemnify SSG against certain consolidated income tax
liabilities of the Company incurred prior to the SSG Public Offering. The
Company does not believe that amounts paid, if any, pursuant to these agreements
will have a material effect on the results of operations and financial condition
of the Company.
Class Action Settlement
In connection with the settlement of a class action complaint, the
parties reached agreement on the terms of a settlement, which required the
Company to contribute $250 in cash and $1,250 in Common Stock priced at the
issuance date. The balance of the settlement ($1,500 in cash) would be funded by
the Company's insurer. The settlement was approved on September 5, 1995. The
Company will issue the settlement stock after proofs of claims have been filed
and verified as entitling the holders thereof to a share of the settlement
proceeds.
NOTE N - EXPORT SALES AND MAJOR CUSTOMERS
Export sales to customers in foreign countries amounted to
approximately $21,192, $28,032 and $15,600 in fiscal 1996, 1995 and 1994,
respectively. Revenues from the Company's foreign operations approximated
$9,278, $10,109 and $8,100 in 1996, 1995 and 1994, respectively. In fiscal 1996,
one customer accounted for approximately 19% of sales. No customer accounted for
10 percent or more of sales in fiscal 1995 and 1994.
NOTE O - TRANSACTIONS WITH RELATED PARTIES
The Company's Chairman and Chief Executive Officer and its former
President are owners of EOS Capital, Inc. ("EOS"), a private capital firm
previously retained by the Company for consulting and investment banking
services. During the first quarter of fiscal 1994, the Company did not pay these
individuals salaries as they were not employees of the Company until January 1,
1994. The Company paid EOS $45 for consulting and investment banking services
for the first quarter of fiscal 1994. Additionally, the Company paid $21 during
the same period for reimbursement of incurred expenses. Effective January 1,
1994, these individuals became employees of the Company.
32
<PAGE> 33
To obtain a waiver of noncompliance with certain financial covenants
under the Credit Agreement, in September 1996, the Company obtained WCAS'
limited guarantee of up to $3 million in revolving indebtedness and, if drawn
upon, up to $9 million in acquisition-related indebtedness under the Credit
Agreement. In return, the Company granted WCAS warrants that, if fully vested,
would give WCAS the right to buy a number of shares equal to the indebtedness
guaranteed divided by the lower of the Common Stock price on the date the
guarantees were initially issued or on certain anniversary dates. The warrants
vest 20% on issuance, 20% on June 1, 1997, 20% on March 1, 1998 and 100% if at
any time the bank calls the guarantees. The guarantees will be released, and
unvested warrants will expire, if and when the Company returns to full
compliance with the original financial covenants under the Credit Agreement.
33
<PAGE> 34
SCHEDULE II
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
Additions
-----------------------
Balance at Charged to Charges to
beginning of costs and other Balance at end
period expenses accounts Deductions of perid
---------------------------------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED SEPTEMBER 30, 1996
Allowance for doubtful accounts $ 1,414 $ 410 $ - $ 615 (1) $ 1,209
======== ======== ====== ======== ========
Reserve for discontinued operations $ 4,073 $ - $ - $ 1,005 $ 3,068
======= ======== ====== ======== ========
FOR THE YEAR ENDED SEPTEMBER 30, 1995
Allowance for doubtful accounts $ 1,046 $ 857 $ - $ 489 (1) $ 1,414
======= ======== ====== ======== ========
Reserve for discontinued operations $ 5,024 $ - $ - $ 951 $ 4,073
======= ======== ====== ======== ========
FOR THE YEAR ENDED SEPTEMBER 30, 1994
Allowance for doubtful accounts $ 788 $ 205 $ 300 (2) $ 247 (1) $ 1,046
======== ======== ====== ======== ========
Reserve for discontinued operations $ 5,166 $ 2,400 $ - $ 2,542 $ 5,024
======== ======== ====== ======== ========
</TABLE>
(1) Uncollectible accounts written off, net of recoveries
(2) Century Acquisition
34
<PAGE> 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the directors of the Company is set forth under
the caption "Election of Directors" contained in the Proxy Statement for the
Annual Meeting of Stockholders currently expected to be held March 25, 1997,
which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding the Company's compensation of its executive
officers is under the caption "Executive Compensation" contained in the Proxy
Statement for the Annual Meeting of Stockholders currently expected to be held
March 25, 1997, which is incorporated herein by reference except that
information in subsections titled "Report of Compensation Committee and the
Stock Option Committee on Executive Compensation" and "Performance Graph" of
such section are not incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners
and management is under the caption "Security Ownership of Management and
Principal Stockholders" contained in the Proxy Statement for the Annual Meeting
of Stockholders currently expected to be held March 25, 1997, which is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding transactions with the Company's executive
officers and directors is under the caption "Transactions with Management and
Related Parties" contained in the Proxy Statement for the Annual Meeting of
Stockholders currently expected to be held March 25, 1997, which is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements. See Item 8.
(a)(2) Supplemental Schedules Supporting Financial Statements. See Item 8.
(c) Exhibits. See Index to Exhibits.
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: December 30, 1996
AURORA ELECTRONICS, INC.
By: /s/John P. Grazer
___________________________________
John P. Grazer, President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed on December 30, 1996 by the following persons
on behalf of the registrant and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
___________________________ ______________________________________________
<S> <C>
/s/ Jim C. Cowart Director, Chairman and Chief Executive Officer
___________________________ (Principal Executive Officer)
Jim C. Cowart
/s/ John P. Grazer President and Chief Financial Officer
___________________________ (Principal Accounting and Financial Officer)
John P. Grazer
/s/ Harvey B. Cash Director
___________________________
Harvey B. Cash
/s/ Amin J. Khoury Director
___________________________
Amin J. Khoury
/s/ David A. Lahar Director
___________________________
David A. Lahar
/s/ Thomas E. McInerney Director
___________________________
Thomas E. McInerney
/s/ Richard H. Stowe Director
___________________________
Richard H. Stowe
/s/ William H Watkins Director
___________________________
William H. Watkins
</TABLE>
36
<PAGE> 37
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- -------- -----------------------------------------------------------------
<S> <C>
3.1 The Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference from Exhibit 3.1 to the
Company's Transition Report on Form 10-K for the transition
period from December 31, 1991 to September 30, 1992).
3.2 Bylaws of the Company, as amended (incorporated by reference
from Exhibit 4.2 to the Company's Registration Statement on Form
S-8 (Registration No. 33-79426)).
4.1 Indenture between the Company and MBank Dallas, National
Association relating to the Company's 7-3/4% Convertible
Subordinated Debentures due 2001, including form of
Debenture (incorporated by reference from Exhibit 4.1 to
the Company's Registration Statement on Form S-2
(Registration No. 33-4276)).
4.2 First Supplemental Indenture relating to the Company's 7-3/4%
Convertible Subordinated Debentures, dated December 1, 1987,
between the Company and MTrust Corp., National Association,
appointing MTrust Corp. as successor trustee to MBank Dallas
(incorporated by reference from Exhibit 4.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1993).
4.3 Tripartite Agreement relating to the Company's 7-3/4% Convertible
Subordinated Debentures, dated as of January 7, 1990, by and
among MTrust Corp., National Association, Ameritrust Texas N.A.,
and the Company (incorporated by reference from Exhibit 4.3 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989).
4.4 Second Supplemental Indenture relating to the Company's 7-3/4%
Convertible Subordinated Debentures, dated to be effective
as of November 30, 1992, between the Company and Society National
Bank (incorporated by reference from Exhibit 4.4 to the Company's
Post-Effective Amendment No. 1 to Registration Statement on Form
S-3 (No. 33-32377)).
*4.5 Certificate of Designations, Preferences and Rights of
Convertible [__] Preferred Stock dated March 1996 relating to
400,000 shares of Preferred Stock.
4.6 Common Stock Purchase Warrant (Paribas), Form of Warrant to
Purchase 94,903 Shares of Common Stock of Aurora Electronics,
Inc., dated May 12, 1994, issued to each of Banque Paribas and
Banque Indosuez (incorporated by reference from Exhibit 4.2 to
the Company's Report on Form 8-K dated May 26, 1994).
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- -------- -----------------------------------------------------------------
<S> <C>
4.7 Common Stock Warrant (Lender) Banque Indosuez, Form of
Warrant to Purchase Shares of Common Stock of Aurora
Electronics, Inc., dated May 12, 1994, issued to each of Banque
Paribas, Banque Indosuez and Union Bank (incorporated by
reference from Exhibit 4.3 to the Company's Report on
Form 8-K dated May 26, 1994).
*4.8 Aurora Electronics, Inc. Common Stock Purchase Warrant, dated
September 30, 1996, issued to Welsh, Carson, Anderson & Stowe
VII, L.P.
*4.9 Aurora Electronics, Inc. Common Stock Purchase Warrant, dated
September 30, 1996, issued to WCAS Capital Partners II, L.P.
*4.10 Form of Aurora Electronics, Inc. Common Stock Purchase Warrant,
issued to Welsh, Carson, Anderson & Stowe VII, L.P.
*4.11 Form of Aurora Electronics, Inc. Common Stock Purchase Warrant,
issued to WCAS Capital Partners II, L.P.
10.1 Aurora Electronics, Inc. 1993 Stock Option Plan, as amended by
Amendment No. 1 dated to be effective as of March 1, 1994 and by
Amendment No. 2 dated to be effective as of March 1, 1994
(incorporated by reference from Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (Registration No. 33-79426)).
10.2 Aurora Electronics, Inc. 1996 Stock Option Plan (incorporated by
reference from Exhibit 10.19 to the Company's Form 10-Q for the
quarter ended June 30, 1996).
10.3 Form of Indemnification Agreement entered into between the
Company and each of the directors of the Company (incorporated
by reference from Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991).
*10.4 Letter Agreement, dated October 22, 1996, between the Company
and John P. Grazer relating to employment.
</TABLE>
38
<PAGE> 39
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- -------- -----------------------------------------------------------------
<S> <C>
10.5 Letter Agreement, dated March 1, 1994, between the Company and
Jim C. Cowart relating to employment (incorporated by reference
from Exhibit 10.5 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994).
10.5.1 Letter Agreement, dated May 18, 1995, between the Company and
Jim C. Cowart relating to employment (incorporated by reference
from Exhibit 10.5.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995)
10.8 Standard Multi-Tenant Net Lease, dated November 3, 1992, by and
between Sorrento Mesa Properties, Inc. and Micro-C Corporation
(now Aurora Electronics Group, Inc.) (incorporated by reference
from Exhibit 10.7 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993).
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- -------- -----------------------------------------------------------------
<S> <C>
10.9 Standard Industrial Lease - Net, dated March 27, 1984, by and
between Northgate Investment Company (now David Pick) and
Repair Services, Inc. (now Aurora Electronics Group, Inc.)
(incorporated by reference from Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1993).
10.10 Standard Industrial / Commercial Single Tenant Lease - Net dated
November 30, 1994, by and between The Equitable Life Assurance
Society of the United States and Aurora Electronics Group, Inc.
(incorporated by reference from Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994).
10.11 Standard Lease Agreement dated October 27, 1992, by and between
Crow-Brindell-Mitchell and Aurora Electronics Group, Inc. as
Assignee of CCB Computer Brokers, Inc. d/b/a Century Computer
Services, Inc. (incorporated by reference from Exhibit 10.10 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994).
10.12 Lease Agreement Shelby Distribution Center dated November 11,
1994 by and between J. Shea Leatherman, William A. Leatherman,
Jr., Irwin L. Zanone and Aurora Electronics Group, Inc.
(incorporated by reference from Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1994).
10.13 Lease dated July 14, 1988, by and between American National Bank
and Trust Company of Chicago and BSN Corp. (now Aurora
Electronics, Inc.) (incorporated by reference from Exhibit 10.12
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994).
10.14 Form of Tax Indemnity Agreement by and between the Company
and SSG (incorporated by reference from Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991).
10.15 Stock Purchase Agreement, dated as of September 30, 1992, by and
among the Company, Robert E. Morris and Norma J. Morris, Trustees
of the Robert and Norma Morris Family Trust and The Robert and
Norma Morris Charitable Remainder Unitrust (incorporated by
reference from Exhibit 2.1 to Form 8-K filed on October 19,
1992).
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- -------- -----------------------------------------------------------------
<S> <C>
10.16 Merger Agreement and Plan of Reorganization, dated September 12,
1993, by and between the Company and FRS, Inc. (incorporated by
reference from Exhibit 2.1 to the Company's Current Report on
Form 8-K, dated October 15, 1993).
10.17 Asset Purchase Agreement, dated March 15, 1994 to be effective as
of March 1, 1994, as amended, by and among the Company, Aurora
Electronics Group, Inc. and CCB Computer Brokers, Inc. and CCM
Computers International, Ltd. (incorporated by reference from
Exhibit (b)(1) to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994).
10.18 Aurora Electronics, Inc. 401-K Plan (incorporated by reference
from Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993).
10.19 Securities Purchase Agreement among Aurora Electronics, Inc.,
Welsh, Carson, Anderson & Stowe VII, L.P., WCAS Capital Partners
II, L.P. and the Several Purchasers Named Therein, dated February
21, 1996, incorporated by reference from Exhibit (b)(2) of the
Company's Issuer Tender Offer Statement on Schedule 13E-4, which
was filed with the Securities and Exchange Commission on February
23, 1996.
10.20 Aurora Electronics Inc. Offer to Purchase for Cash up to
6,500,000 Shares of Its Common Stock at $2.875 Per Share, dated
February 23, 1996, incorporated by reference from Exhibit (a)(1)
of the Company's Issuer Tender Offer Statement on Schedule 13E-4,
which was filed with the Securities and Exchange Commission on
February 23, 1996.
10.21 Credit Agreement among Aurora Electronics Group, Inc., as
Borrower, the Guarantors Named Therein, the Lenders Named therein
and Chemical Bank, N.A., as Agent, dated March 29, 1996
(incorporated by reference from Exhibit 10.21 to the Company's
Report on Form 8-K dated March 29, 1996).
10.22 $15,000,000 Tranche A Note between Aurora Electronics Group,
Inc., as Maker, and Chemical Bank, N.A., as Lender, dated March
29, 1996 (incorporated by reference from Exhibit 10.22 to the
Company's Report on Form 8-K dated March 29, 1996).
10.23 $20,000,000 Tranche B Note between Aurora Electronics Group,
Inc., as Maker, and Chemical Bank, N.A., as Lender, dated March
29, 1996 (incorporated by reference from Exhibit 10.23 to the
Company's Report on Form 8-K dated March 29, 1996).
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- -------- -----------------------------------------------------------------
<S> <C>
10.24 Pledge Agreement among Aurora Electronics Group, Inc.,
Aurora Electronics, Inc. and Chemical Bank, N.A., dated March
29, 1996 (incorporated by reference from Exhibit 10.24
to the Company's Report on Form 8-K dated March 29,
1996).
10.25 Security Agreement among Aurora Electronics Group, Inc.,
Aurora Electronics, Inc. and Chemical Bank, N.A., dated March
29, 1996 (incorporated by reference from Exhibit 10.25
to the Company's Report on Form 8-K dated March 29,
1996).
10.26 Security Agreement and Mortgage -- Patents and Trademarks
among Aurora Electronics Group, Inc., Aurora Electronics, Inc.
and Chemical Bank, N.A., dated March 29, 1996
(incorporated by reference from Exhibit 10.26 to the
Company's Report on Form 8-K dated March 29, 1996).
10.27 Assignment for Security (Patents) among Aurora Electronics
Group, Inc., as Assignor, and Chemical Bank, as Assignee,
dated March 29, 1996 (incorporated by reference from
Exhibit 10.27 to the Company's Report on Form 8-K dated
March 29, 1996).
10.28 Assignment for Security (Patents) among Aurora Electronics,
Inc., as Assignor, and Chemical Bank, as Assignee, dated March
29, 1996 (incorporated by reference from Exhibit 10.28
to the Company's Report on Form 8-K dated March 29,
1996).
10.29 Assignment for Security (Trademarks) among Aurora
Electronics Group, Inc., as Assignor, and Chemical Bank, as
Assignee, dated March 29, 1996 (incorporated by reference from
Exhibit 10.29 to the Company's Report on Form 8-K dated
March 29, 1996).
10.30 Assignment for Security (Trademarks) among Aurora
Electronics, Inc., as Assignor, and Chemical Bank, as Assignee,
dated March 29, 1996 (incorporated by reference from
Exhibit 10.30 to the Company's Report on Form 8-K dated
March 29, 1996).
*10.31 Registration Rights Agreement, among Aurora Electronics, Inc.,
Welsh, Carson, Anderson & Stowe VII, L.P., and WCAS Capital
Partners II, L.P., dated March 29, 1996.
*10.32 Aurora Electronics, Inc. 10% Senior Subordinated Note due
September 30, 2001, by Aurora Electronics, Inc. as payor to WCAS
Capital Partners II, L.P., as payee, dated March 29, 1996.
*10.33 Financial Support Agreement, among Aurora Electronics, Inc.,
Aurora Electronics Group, Inc., Welsh, Carson, Anderson & Stowe
VII, L.P., and WCAS Capital Partners II, L.P., dated as of
September 30, 1996.
*10.34 Limited (Overadvance) Guarantee, made by Welsh, Carson, Anderson
& Stowe, VII, L.P. and WCAS Capital Partners II, L.P., each a
Guarantor, and collectively, the Guarantors, in favor of The
Chase Manhattan Bank (formerly known as Chemical Bank), as Agent
for the Lenders, dated as of September 30, 1996.
*10.35 Limited (Acquisition) Guarantee, made by Welsh, Carson, Anderson
& Stowe, VII, L.P. and WCAS Capital Partners II, L.P., each a
Guarantor, and collectively, the Guarantors, in favor of The
Chase Manhattan Bank (formerly known as Chemical Bank), as Agent
for the Lenders, dated as of September 30, 1996.
*10.36 Form of Note, Aurora Electronics Group, Inc. 10% Senior
Subordinated Note due September 30, 2001, by Aurora Electronics
Group, Inc. as payor.
*10.37 Amendment No. 1 to Registration Rights Agreement, among Aurora
Electronics, Inc. and the parties listed on Schedule I thereto,
dated as of September 30, 1996.
*11 Computation of Earnings Per Share
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- -------- -----------------------------------------------------------------
<S> <C>
21.1 Subsidiaries of the Company:
JURISDICTION
NAME OF INCORPORATION
---------------------------- ----------------
Aurora Electronics Group, Inc. California
Aurora Electronics Limited United Kingdom
Micro-C (Barbados) Ltd. Barbados
*23.1 Consent of Arthur Andersen LLP
*27 Financial Data Schedule
</TABLE>
- --------------------
*Filed herewith.
43
<PAGE> 1
EXHIBIT 4.5
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
CONVERTIBLE PREFERRED STOCK
OF
AURORA ELECTRONICS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
___________________________________________
AURORA ELECTRONICS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies
that, pursuant to authority vested in the Board of Directors of the Corporation
by Article Fourth of the Restated Certificate of Incorporation, as amended, of
the Corporation, the following resolution was adopted as of February 16, 1996
by the Board of Directors of the Corporation pursuant to Section 141 of the
Delaware General Corporation Law:
"RESOLVED that, pursuant to authority vested in the Board of
Directors of the Corporation by Article Fourth of the Corporation's Restated
Certificate of Incorporation, as amended, of the total authorized number of
1,000,000 shares of Preferred Stock, par value $.01 per share, of the
Corporation, there shall be designated a series of 400,000 shares which shall
be issued in and constitute a single series to be known as "Convertible
Preferred Stock" (hereinafter called the "Convertible Preferred Stock"). The
shares of Convertible Preferred Stock shall have the voting powers,
designations, preferences and other special rights, and qualifications,
limitations and restrictions thereof set forth below:
1. Dividends. (a) The holders of shares of Convertible
Preferred Stock shall be entitled to receive, out of funds legally available
for such purpose, cash dividends at the rate of $7.00 per share per annum, and
no more, payable as provided herein or when and as declared by the Board of
Directors of the Corporation. Such dividends shall be cumulative and shall
accrue from and after the date of issue whether or not declared and whether or
not there are any funds of the Corporation legally available for the payment of
dividends. Accrued but unpaid
<PAGE> 2
dividends shall not bear interest. The Board of Directors of the Corporation
may fix a record date for the determination of holders of Convertible Preferred
Stock entitled to receive payment of a dividend declared thereon, which record
date shall be no more than 60 days prior to the date fixed for the payment
thereof.
(b) As long as any shares of Convertible Preferred Stock
shall remain outstanding, in no event shall any dividend be declared or paid
upon, nor shall any distribution be made upon, any Junior Capital Stock (as
defined herein), other than a dividend or distribution payable solely in shares
of common stock of the Corporation, nor shall any shares of Junior Capital
Stock be purchased or redeemed by the Corporation, nor shall any moneys be paid
to or made available for a sinking fund for the purchase or redemption of
shares of any Junior Capital Stock, unless, in each such case, (i) full
cumulative dividends on the outstanding shares of Convertible Preferred Stock
shall have been declared and paid and (ii) any arrears or defaults in any
redemption of shares of Convertible Preferred Stock shall have been cured.
The term "Junior Capital Stock" as used herein means any shares of capital
stock of the Corporation, including the Corporation's Common Stock, par value
$.03 per share (the "Common Stock"), other than shares of the Corporation's
capital stock permitted to rank on a parity with or senior to the Convertible
Preferred Stock pursuant to Section 6 hereof.
2. Redemption. The shares of Convertible Preferred
Stock shall be redeemable as follows:
(a) Mandatory Redemption. On September 30, 2006, subject
to the terms of the Credit Agreement dated as of March 29, 1996 (the "Credit
Agreement"), among Aurora Electronics Group, Inc., the Corporation and the
Guarantors named therein, the Lenders named therein and Chemical Bank, as
Agent, the Corporation shall redeem (the "Mandatory Redemption") all of the
shares of Convertible Preferred Stock then outstanding, at a redemption price
of $100 per share, plus all accrued but unpaid dividends to which the holders
of the Convertible Preferred Stock are then entitled pursuant to Section 1
above as of such date.
(b) Optional Redemption. Subject to the terms of the
Credit Agreement, upon the occurrence of any of the following (each a
"Corporate Disposition"):
(i) the sale, lease or transfer, whether direct or
indirect, of all or substantially all of the assets of the Company and
its subsidiaries, taken as a whole, in one transaction or a series of
related transactions, to any "person" or "group" other than the WCAS
Group, or
2
<PAGE> 3
(ii) the acquisition of "beneficial ownership" by any
"person" or "group" other than the WCAS Group, of voting stock of the
Corporation representing more than 50% of the voting power of all
outstanding shares of such voting stock, whether by way of merger or
consolidation or otherwise,
then each holder of any share or shares of Convertible Preferred Stock shall
have the right, at such holder's option, to require the Corporation to redeem
(the "Optional Redemption"), any or all of such holder's shares of Convertible
Preferred Stock (any such redemption of less than all of a holder's shares to
be in integral multiples of 1,000 shares) on or prior to the effective date of
such Corporate Disposition, at a redemption price of $100 plus all accrued but
unpaid dividends to which the holders of the Convertible Preferred Stock are
then entitled pursuant to Section 1 above as of such date. Such option shall be
exercised by written notice to the Corporation given within fifteen days of the
date of receipt of the Redemption Notice (as defined herein) to be delivered
pursuant to Section 2(e) below.
For purposes of this Certificate of Designations: (i) the
terms "person" and "group" shall have the meaning set forth in Section 13(d)(3)
of the Exchange Act, whether or not applicable, (ii) the term "beneficial
owner" shall have the meaning set forth in Rules 13d-3 and 13d-5 under the
Exchange Act, whether or not applicable, except that a person shall be deemed
to have "beneficial ownership" of all shares that any such person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time or upon the occurrence of certain events, (iii) any "person" or
"group" will be deemed to beneficially own any voting stock of the Company so
long as such person or group beneficially owns, directly or indirectly, in the
aggregate a majority of the voting stock of a registered holder of the voting
stock of the Company, and (iv) the term "WCAS Group" shall mean Welsh, Carson,
Anderson & Stowe VII, L.P., a Delaware limited partnership ("WCAS VII"), WCAS
Capital Partners II, L.P., a Delaware limited partnership ("WCAS CP II"), and
any general partners thereof.
Any date on which any shares of Convertible Preferred Stock
are to be redeemed as herein provided is hereinafter called a "Redemption
Date." The price at which any shares of Convertible Preferred Stock are to be
redeemed as herein provided is hereinafter called the "Redemption Price."
(c) Notice of Redemption. At least 20 days (and not more
than 60 days) prior to any Redemption Date (which in the case of any Optional
Redemption shall be prior to the effective date of any such sale, lease or
transfer of assets or consolidation, merger or other transaction), written
notice thereof (a "Redemption Notice") shall be mailed, by first class or
registered
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mail, postage prepaid, to each holder of record of Convertible Preferred Stock,
at his, her or its address last shown on the records of the transfer agent of
the Convertible Preferred Stock (or the records of the Corporation, if it
serves as its own transfer agent). The Redemption Notice shall set forth (i)
the Redemption Date, (ii) the Redemption Price, (iii) in the case of the
Mandatory Redemption, the total number of shares to be redeemed from all
holders and the number of shares to be redeemed from such holder, and (iv) in
the case of an Optional Redemption, a description of the events which will,
upon the occurrence thereof, constitute a Corporate Disposition, including a
summary description of the terms thereof, and such holder's right to exercise
its option to require a redemption under Section 2(b) hereof. In the case of a
Mandatory Redemption, the Redemption Notice shall call upon such holder to
surrender to the Corporation, in the manner and at the place designated, his or
its certificate or certificates representing any shares of Convertible
Preferred Stock to be redeemed.
(d) Redeemed or Otherwise Acquired Shares to be Retired.
On or prior to a Redemption Date, all holders of shares of Convertible
Preferred Stock to be redeemed shall surrender their certificates representing
such shares to the Corporation, in the manner and at the place designated in
the Redemption Notice, and against such surrender the Redemption Price of such
shares shall be paid to the order of the person whose name appears on each such
certificate as the owner thereof. Each surrendered certificate shall be
canceled. From and after the Redemption Date, unless there shall have been a
default in payment of the Redemption Price, all rights of the holders of the
shares of redeemed Convertible Preferred Stock as holders of such shares of
Convertible Preferred Stock (except the right to receive the Redemption Price
without interest against surrender of their certificate or certificates) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of the Corporation (or its transfer agent, if any) or
be deemed to be outstanding for any purpose whatsoever.
(e) Shares to be Redeemed or Purchased. If the funds of
the Corporation legally available for redemption of Convertible Preferred Stock
on any Redemption Date are insufficient, after redemption of any other shares
ranking senior thereto, to redeem the full number of shares of Convertible
Preferred Stock to be redeemed on such date, those funds which are legally
available shall be used to redeem the maximum possible number of such shares of
Convertible Preferred Stock ratably from each holder whose shares are otherwise
required to be redeemed. At any time thereafter when additional funds of the
Corporation become legally available for the redemption of Convertible
Preferred Stock, such funds will be used, at the end of the next succeeding
fiscal quarter, to redeem the balance of the shares
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which the Corporation was theretofore obligated to redeem, ratably on the basis
set forth in the preceding sentence.
3. Liquidation, Dissolution or Winding Up. (a) In
the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the holders of shares of Convertible Preferred Stock
then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, before any payment
shall be made to the holders of any shares of Junior Capital Stock by reason of
their ownership thereof, an amount equal to $100 per share of Convertible
Preferred Stock, plus all accrued but unpaid dividends to which the holders of
the Convertible Preferred Stock are then entitled pursuant to Section 1 above
as of such date, and no more. If upon any such liquidation, dissolution or
winding up of the Corporation the remaining assets of the Corporation available
for distribution to its stockholders (after making all distributions to which
holders of capital stock ranking senior to the Convertible Preferred Stock
shall be entitled) shall be insufficient to pay the holders of shares of
Convertible Preferred Stock the full amount to which they shall be entitled
pursuant to this Section 3(a), the holders of shares of Convertible Preferred
Stock, and any other shares ranking on a parity therewith, shall share ratably
in any distribution of the remaining assets and funds of the Corporation in
proportion to the respective amounts which would otherwise be payable in
respect of the shares of Convertible Preferred Stock held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(b) After the payment of all amounts required to be paid
pursuant to Section 3(a) to the holders of shares of Convertible Preferred
Stock, and any other shares ranking on a parity therewith, upon the
dissolution, liquidation or winding up of the Corporation, the holders of
shares of Junior Capital Stock then outstanding shall share in any distribution
of the remaining assets and funds of the Corporation in the manner provided by
law, in the Restated Certificate of Incorporation of the Corporation, as
amended, or as provided in any pertinent Certificate of Designations of the
Corporation, as the case may be.
(c) No Corporate Disposition shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of this
Section 3 (unless in connection therewith the liquidation of the Corporation is
specifically approved).
4. Conversion. The shares of Convertible Preferred Stock
shall be convertible as follows:
(a) Right to Convert. Subject to the terms and conditions
of this Section 4, the holder of any share or shares of Convertible Preferred
Stock shall have the right, at his, her or
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<PAGE> 6
its option at any time, to convert any such shares of Convertible Preferred
Stock (except that upon any liquidation of the Corporation the right of
conversion shall terminate as to all shares at the close of business 15 days
after notice thereof has been given to the holders of Convertible Preferred
Stock as provided in Section 4(h) hereof) into such number of fully paid and
nonassessable whole shares of Common Stock as is obtained by (i) multiplying
the number of shares of Convertible Preferred Stock so to be converted by $100,
(ii) adding the Additional Conversion Amount (as defined in Section 4(c)
herein), if any, and (iii) dividing the result by the conversion price of
$2.125 or, if there has been an adjustment of the conversion price, by the
conversion price as last adjusted and in effect at the date any share or shares
of Convertible Preferred Stock are surrendered for conversion (such price, or
such price as last adjusted, being referred to herein as the "Conversion
Price"). Such right of conversion shall be exercised by the holder thereof by
giving written notice that the holder elects to convert a stated number of
shares of Convertible Preferred Stock into Common Stock (such number shall
either be an integral multiple of 1,000 or the total number of shares held by
such holder) and by surrender of a certificate or certificates for the shares
so to be converted to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may designate by notice
in writing to the holder or holders of the Convertible Preferred Stock) at any
time during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with address), subject to
compliance with applicable laws to the extent such designation shall involve a
transfer, in which the certificate or certificates for shares of Common Stock
shall be issued.
(b) Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt by the Corporation of the written notice referred to
in Section 4(a) above and surrender of the certificate or certificates for the
share or shares of the Convertible Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and delivered, to
the holder, registered in such name or names as such holder may direct, subject
to compliance with applicable laws to the extent such designation shall involve
a transfer, a certificate or certificates for the number of whole shares of
Common Stock issuable upon the conversion of such share or shares of Convert-
ible Preferred Stock. To the extent permitted by law, such conversion shall be
deemed to have been effected and the Conversion Price shall be determined as of
the close of business on the date on which such written notice shall have been
received by the Corporation and the certificate or certificates for such share
or shares shall have been surrendered as aforesaid, and at such time the rights
of the holder of such share or shares of Convertible Preferred Stock shall
cease, and the person or persons in whose name or names any certificate or
certificates for shares of
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<PAGE> 7
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
(c) Fractional Shares; Dividends; Partial Conversion.
(i) No fractional shares shall be issued upon conversion
of the Convertible Preferred Stock into Common Stock and the number of
shares of Common Stock to be issued shall be rounded to the nearest
whole share. If any fractional interest in a share of Common Stock
would, except for the provisions of this Section 4(c), be deliverable
upon any such conversion, the Corporation, in lieu of delivering the
fractional share thereof, shall pay to the holder surrendering the
Convertible Preferred Stock for conversion an amount in cash equal to
the current fair market value of such fractional interest as
determined in good faith by the Board of Directors of the Corporation.
(ii) Upon the conversion of any shares of Convertible
Preferred Stock, the Corporation will pay the holder thereof, out of
funds legally available for such purpose, any accrued but unpaid
dividends thereon to the date of such conversion. In the event that
the Corporation is for any reason unable to pay some or all of such
accrued but unpaid dividends, any amount not so paid shall (for
purposes of Section 4(a) hereof) constitute the "Additional Conversion
Amount." No other payment or adjustment shall be made upon any
conversion on account of the Convertible Preferred Stock so converted
or the Common Stock issued upon such conversion.
(iii) In case the number of shares of Convertible Preferred
Stock represented by the certificate or certificates surrendered
pursuant to Section 4(a) exceeds the number of shares converted, the
Corporation shall, upon such conversion, execute and deliver to the
holder thereof, at the expense of the Corporation, a new certificate
or certificates for the number of shares of Convertible Preferred
Stock represented by the certificate or certificates surrendered which
are not to be converted.
(d) Adjustment of Price Upon Issuance of Common Shares.
Except as provided in Section 4(e) hereof, if and whenever (after the date of
effectiveness of this Certificate of Designation and whether or not any shares
of Convertible Preferred Stock shall at the time have been issued and be
outstanding) the Corporation shall issue or sell, or is, in accordance with
subparagraphs (d)(i) through (d)(vii), deemed to have issued or sold, any
shares of its Common Stock without consideration or for a consideration per
share less than the Conversion Price in
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<PAGE> 8
effect immediately prior to the time of such issue or sale, then, forthwith
upon such issue or sale, the Conversion Price shall be adjusted to the price
(calculated to the nearest cent) determined by dividing (x) an amount equal to
the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such issue or sale (including as outstanding all shares of Common
Stock issuable upon conversion of outstanding Convertible Preferred Stock)
multiplied by the then existing Conversion Price, and (B) the consideration, if
any, received by the Corporation upon such issue or sale, by (y) the total
number of shares of Common Stock outstanding immediately after such issue or
sale (including as outstanding all shares of Common Stock issuable upon
conversion of outstanding Convertible Preferred Stock without giving effect to
any adjustment in the number of shares so issuable by reason of such issue and
sale).
No adjustment of the Conversion Price, however, shall be made
in an amount less than $.01 per share, and any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to $.01 per share or more.
For purposes of this Section 4(d), the following subparagraphs
(i) through (vii) shall also be applicable:
(i) Issuance of Rights or Options. Subject to Section
4(e) hereof, in case at any time the Corporation shall in any manner
grant (whether directly or by assumption in a merger or otherwise) any
rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock (other than shares of
Convertible Preferred Stock) or securities convertible into or
exchangeable for Common Stock (such rights or options being herein
called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities") whether or
not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such
Options or upon conversion or exchange of such Convertible Securities
(determined by dividing (A) the total amount, if any, received or
receivable by the Corporation as consideration for the granting of
such Options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon the exercise of all such
Options, plus, in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration,
if any, payable upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or
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<PAGE> 9
exchange of all such Convertible Securities issuable upon the exercise
of such Options) shall be less than the Conversion Price in effect
immediately prior to the time of the granting of such Options, then
the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for such
price per share as of the date of granting of such Options and
thereafter shall be deemed to be outstanding. Except as otherwise
provided in subparagraph (iii) below, no adjustment of the Conversion
Price shall be made upon the actual issue of such Common Stock or of
such Convertible Securities upon exercise of such Options or upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
(ii) Issuance of Convertible Securities. Subject to
Section 4(e) hereof, in case the Corporation shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell
any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (A) the total amount received or
receivable by the Corporation as consideration for the issue or sale
of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (B) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Con- vertible Securities) shall be less than the Conversion Price
in effect immediately prior to the time of such issue or sale, then
the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be
deemed to have been issued for such price per share as of the date of
the issue or sale of such Convertible Securities and thereafter shall
be deemed to be outstanding, provided that (x) except as otherwise
provided in subparagraph (iii) below, no adjustment of the Conversion
Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities, and (y) if any
such issue or sale of such Convertible Securities is made upon
exercise of any Option to purchase any such Convertible Securities for
which adjustments of the Conversion Price have been or are to be made
pursuant to other provisions of this Section 4(d), no further
adjustment of the Conversion Price shall be made by reason of such
issue or sale.
(iii) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the
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purchase price provided for in any Option referred to in subparagraph
(i), the additional consideration, if any, payable upon the conversion
or exchange of any Convertible Securities referred to in subparagraph
(i) or (ii), or the rate at which any Convertible Securities referred
to in subparagraph (i) or (ii) are convertible into or exchangeable
for Common Stock shall change at any time (in each case other than
under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such event
shall forthwith be readjusted to the Conversion Price which would have
been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold; and on the expiration of any such
Option or the termination of any such right to convert or exchange
such Convertible Securities, the Conversion Price then in effect
hereunder shall forth- with be increased to the Conversion Price which
would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or termination, never
been issued, and the Common Stock issuable thereunder shall no longer
be deemed to be outstanding. If the purchase price provided for in any
such Option referred to in subparagraph (i) or the rate at which any
Convertible Securities referred to in subparagraph (i) or (ii) are
convertible into or exchangeable for Common Stock shall be reduced at
any time under or by reason of provisions with respect thereto
designed to protect against dilution, then, in case of the delivery of
Common Stock upon the exercise of any such Option or upon conversion
or exchange of any such Convertible Securities, the Conversion Price
then in effect hereunder shall forthwith be adjusted to such
respective amount as would have been obtained had such Option or
Convertible Securities never been issued as to such Common Stock and
had adjustments been made upon the issuance of the shares of Common
Stock delivered as aforesaid, but only if as a result of such
adjustment the Conversion Price then in effect hereunder is thereby
reduced.
(iv) Stock Dividends. In case the Corporation shall
declare a dividend or make any other distribution upon any stock of
the Corporation payable in Common Stock, Options or Convertible
Securities, any Common Stock, Options or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without consideration.
(v) Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide its outstanding shares of
Common Stock into a greater number of shares, the
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Conversion Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding
shares of Common Stock of the Corporation shall be combined into a
smaller number of shares, the Conversion Price in effect immediately
prior to such combination shall be proportionately increased.
(vi) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection
therewith. In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration
as determined in good faith by the Board of Directors of the
Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. The amount of consideration
deemed to be received by the Corporation pursuant to the foregoing
provisions of this subparagraph (vi) upon any issuance and/or sale of
shares of Common Stock, Options or Convertible Securities, pursuant to
an established compensation plan of the Corporation, to directors,
officers or employees of the Corporation in connection with their
employment shall be increased by the amount of any tax benefit
realized by the Corporation as a result of such issuance and/or sale,
the amount of such tax benefit being the amount by which the Federal
and/or state income or other tax liability of the Corporation shall be
reduced by reason of any deduction or credit in respect of such
issuance and/or sale. In case any Options shall be issued in
connection with the issue and sale of other securities of the
Corporation, together comprising one integral transaction in which no
specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued without
consideration.
(vii) Record Date. In case the Corporation shall take a
record of the holders of its Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities, or (B) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such
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other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(e) Certain Issues of Stock Excepted. Anything herein to
the contrary notwithstanding, the Corporation shall not make any adjustment of
the Conversion Price in the case of (i) the issuance of shares of Convertible
Preferred Stock pursuant to that certain Securities Purchase Agreement, dated
as of February 21, 1996, as amended, among the Corporation, WCAS VII, WCAS CP
II and the several persons named on Schedule I thereto; (ii) the issuance of
shares of Common Stock upon conversion of Convertible Preferred Stock; (iii)
the issuance of up to 4,737,270 shares of Common Stock to employees of the
Corporation or its subsidiaries, either directly or pursuant to stock options,
pursuant to plans or arrangements approved by the Board of Directors of the
Corporation; or (iv) the issuance of shares of Common Stock in respect of any
Convertible Securities issued by the Corporation prior to the date of said
Securities Purchase Agreement.
(f) Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation (a
"Reorganization") shall be effected in such a way (including, without
limitation, by way of consolidation or merger) that holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such Reorganization, lawful
and adequate provision (in form satisfactory to the holders of a majority of
the then outstanding shares of Convertible Preferred Stock) shall be made
whereby each holder of a share or shares of Convertible Preferred Stock shall
thereafter have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock of the
Corporation immediately theretofore receivable upon the conversion of such
share or shares of the Convertible Preferred Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such stock immediately theretofore so receivable had such Reorga-
nization not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of such holder to the end that
the provisions hereof (including without limitation provisions for adjustments
of the Conversion Price) shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights (including an immediate adjustment,
by reason of such Reorganization, of the Conversion Price to the value for the
Common Stock reflected by the terms of such Reorganization if the value so
reflected is less than the Conversion Price in effect immediately prior to such
Reorganization). In the event of a merger or consolidation of the Corporation
as a result of which a greater or lesser number of shares of common stock (or
other equity interests, of
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the case may be) of the surviving corporation or business entity are issuable
to holders of Common Stock of the Corporation outstanding immediately prior to
such merger or consolidation, the Conversion Price in effect immediately prior
to such merger or consolidation shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of Common
Stock of the Corporation. The Corporation will not effect any Corporate
Disposition unless prior to the consummation thereof the acquiring corporation
or other business entity, or successor corporation or other business entity (if
other than the Corporation) resulting from such Corporate Disposition, as the
case may be, shall assume by written instrument (in form reasonably
satisfactory to the holders of a majority of the shares of Convertible
Preferred Stock at the time outstanding) executed and mailed or delivered to
each holder of a share or shares of Convertible Preferred Stock at the last
address of such holder appearing on the books of the Corporation (or its
transfer agent, if any), the obligation to deliver to such holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to receive.
(g) Notice of Adjustment. Upon any adjustment of the
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, by first class mail, postage prepaid, addressed to each holder
of shares of Convertible Preferred Stock at the address of such holder as shown
on the books of the Corporation (or its transfer agent, if any), which notice
shall state the Conversion Price resulting from such adjustment, setting forth
in reasonable detail the method of calculation and the facts upon which such
calculation is based.
(h) Other Notices. In case at any time:
(i) the Corporation shall declare any dividend upon its
Common Stock payable in cash or stock or make any other distribution
to the holders of its Common Stock;
(ii) the Corporation shall offer for subscription pro rata
to the holders of its Common Stock any additional shares of stock of
any class or other rights;
(iii) there shall be any Reorganization or Corporate
Disposition or the Corporation shall become aware of any event or
events that could reasonably be expected to result in a Reorganization
or Corporate Disposition; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, addressed to each holder of any shares of
Convertible Preferred Stock at the
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address of such holder as shown on the books of the Corporation (or its
transfer agent, if any), (A) at least 15 days' prior written notice of the date
on which the books of the Corporation (or its transfer agent) shall close or a
record shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such Reorganization or
Corporate Disposition, and (B) in the case of any such Reorganization or
Corporate Disposition, at least 15 days' prior written notice of the date when
the same shall take place. Such notice in accordance with the foregoing clause
(A) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause (B)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such Reorganization or Corporate Disposition, as the case may
be.
(i) Conversion at Corporation's Option. All outstanding
shares of Convertible Preferred Stock shall, at the option of the Corporation,
be automatically converted into Common Stock if at any time the Corporation
shall effect a firm commitment public offering of Common Stock or Convertible
Securities registered pursuant to the Securities Act of 1933, as amended,
resulting in proceeds to the Corporation and/or selling stockholders of not
less than $20,000,000, after deduction of underwriting discounts and
commissions but before deduction of other expenses of issuance, and in which
the offering price to the public (or, in the case of a sale of Convertible
Securities, the price per share of Common Stock payable upon conversion
thereof) is not less than two times the Conversion Price. Such conversion shall
be effected at the time of and subject to the closing of the sale of such
shares of Common Stock.
(j) Stock to be Reserved. The Corporation will at all
times reserve and keep available out of its authorized but unissued Common
Stock, solely for the purpose of issuance upon the conversion of the
Convertible Preferred Stock as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of all outstanding shares
of Convertible Preferred Stock. All shares of Common Stock which shall be so
issued shall be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges arising out of or by reason of the issue
thereof, and, without limiting the generality of the foregoing, the Corporation
covenants that it will from time to time take all such action as may be requi-
site to assure that the par value per share of the Common Stock is at all times
equal to or less than the effective Conversion Price. The Corporation will take
all such action within its control as may be necessary on its part to assure
that all such shares of Common Stock may be so issued without violation of any
applicable law or regulation, or of any requirements of any national securities
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exchange upon which the Common Stock of the Corporation may be listed. The
Corporation will not take any action which results in any adjustment of the
Conversion Price if after such action the total number of shares of Common
Stock issued and outstanding and thereafter issuable upon exercise of all
options and conversion of Convertible Securities, including upon conversion of
the Convertible Preferred Stock, would exceed the total number of shares of
Common Stock then authorized by the Corporation's Restated Certificate of
Incorporation.
(k) No Reissuance of Convertible Preferred Stock. Shares
of Convertible Preferred Stock that are converted into shares of Common Stock
as provided herein shall not be reissued.
(l) Issue Tax. The issuance of certificates for shares of
Common Stock upon conversion of the Convertible Preferred Stock shall be made
without charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Convertible
Preferred Stock which is being converted.
(m) Closing of Books. The Corporation will at no time
close its transfer books against the transfer of any Convertible Preferred
Stock or of any shares of Common Stock issued or issuable upon the conversion
of any shares of Convertible Preferred Stock in any manner which interferes
with the timely conversion of such Convertible Preferred Stock.
(n) Definition of Common Stock. As used in this Section
4, the term "Common Stock" shall mean and include the Corporation's authorized
Common Stock, par value $.03 per share, as constituted on the date of filing of
this Certificate of Designation and shall also include any capital stock of any
class of the Corporation thereafter authorized that shall not be limited to a
fixed sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided, however, that such term, when used to describe the
securities receivable upon conversion of shares of the Convertible Preferred
Stock of the Corporation, shall include only shares designated as Common Stock
of the Corporation on the date of filing of this Certificate of Designations,
any shares resulting from any combination or subdivision thereof referred to in
subparagraph (v) of Section 4(d), or in case of any reorganization or
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in Section 4(f).
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5. Voting. Except as otherwise provided by law or in
Section 6 below, the holders of Convertible Preferred Stock shall vote together
with the holders of Common Stock on all matters to be voted on by the
stockholders of the Corporation, and each holder of Convertible Preferred Stock
shall be entitled to one vote for each share of Common Stock that would be
issuable to such holder upon the conversion of all the shares of Convertible
Preferred Stock held by such holder on the record date for the determination of
stockholders entitled to vote.
6. Restrictions. So long as any shares of Convertible
Preferred Stock are outstanding, without the consent of the holders of a
majority of the Convertible Preferred Stock at the time outstanding given in
person or by proxy, either in writing or at a special meeting called for that
purpose at which the holders of the Convertible Preferred Stock shall vote
separately as a class, the Corporation may not (i) effect, validate or permit a
Corporate Disposition; (ii) effect or validate the amendment, alteration or
repeal of any provision hereof which would amend or repeal the dividend,
voting, conversion, redemption or liquidation rights of the Convertible
Preferred Stock set forth herein; (iii) effect or validate the amendment,
alteration or repeal of any provision of the Restated Certificate of Incor-
poration or the By-laws of the Corporation; or (iv) (A) create or authorize any
additional class or series of stock ranking senior to or on a parity with the
Convertible Preferred Stock as to dividends or as to rights upon redemption,
liquidation, dissolution or winding up, or (B) increase the authorized number
of shares of the Convertible Preferred Stock or of any other class or series of
capital stock of the Corporation ranking senior to or on a parity with the
Convertible Preferred Stock as to dividends or as to rights upon redemption,
liquidation, dissolution or winding up, whether any such creation or
authorization or increase shall be by means of amendment hereof, amendment of
the Restated Certificate of Incorporation of the Corporation, Certificate of
Designation or amendment thereof, merger, consolidation or otherwise.
7. Reacquired Shares. Any shares of Convertible
Preferred Stock, which are redeemed or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof and the number of authorized shares of Convertible
Preferred Stock shall be reduced accordingly.
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<PAGE> 17
IN WITNESS WHEREOF, this Certificate of Designations has been
executed by the Corporation by its Chairman and Chief Executive Officer this
29th day of March, 1996.
AURORA ELECTRONICS, INC.
By ____________________________
Chairman and Chief
Executive Officer
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<PAGE> 1
EXHIBIT 4.8
EXHIBIT B-1(A)
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER
THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS
THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES
ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
WARRANT TO PURCHASE SHARES
ISSUED: September 30, 1996 OF AURORA ELECTRONICS, INC.
VOID AFTER FIVE (5) YEARS COMMON STOCK
AURORA ELECTRONICS, INC.
COMMON STOCK
PURCHASE WARRANT
THIS IS TO CERTIFY that, for value received and subject to the terms
and conditions hereof, Welsh, Carson, Anderson & Stowe VII, L.P. is entitled to
purchase up to the number of shares of the common stock, $.03 par value per
share, of Aurora Electronics, Inc., a Delaware corporation, as set forth in
Section 2 of this Warrant, at the price per share set forth in Section 2 of this
Warrant.
This Warrant is subject to the following additional terms and
conditions:
1. DEFINITIONS
a. AEG shall mean Aurora Electronics Group, Inc., a California
corporation and wholly-owned subsidiary of Aurora.
b. Agent shall mean The Chase Manhattan Bank (formerly known
as Chemical Bank), as agent for the lenders named in the Credit Agreement dated
March 29, 1996 between AEG and Agent.
c. Aurora shall mean Aurora Electronics, Inc., a Delaware
corporation.
d. Common Stock shall mean the common stock of Aurora, $.03
par value per share, as more specifically set forth in Section 13 hereof.
e. Exercise Period shall mean from September 30, 1996 until
September 30, 2001.
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f. Exercise Price shall mean (i) with respect to the First
Warrant Tranche, the average closing price of the Common Stock as reported by
the American Stock Exchange for the five trading days preceding the date of this
Warrant and (ii) with respect to the Second Warrant Tranche, Third Warrant
Tranche or Final Warrant Tranche, the lower of the average closing price of the
Common Stock as reported by the American Stock Exchange for the five trading
days preceding (x) the date of this Warrant or (y) the applicable Warrant
Accrual Date.
g. Fair Market Value shall mean the value of the Common Stock
as determined in accordance with Section 5 hereof.
h. First Guarantee shall mean the guarantee issued by WCAS and
its affiliate, WCAS Capital Partners II, L.P., to secure the indebtedness of AEG
under the Tranche A Credit Facility and the Tranche B Credit Facility, up to a
maximum of $3,000,000.
i. Guaranteed Amount shall mean $3,000,000, which is the
maximum principal amount of indebtedness under the First Guarantee.
j. Purchase Price shall mean the Exercise Price multiplied by
the number of shares of Common Stock subject to this Warrant pursuant to Section
2 hereof.
k. Warrant Accrual Date shall mean (i) the date of this
Warrant with respect to the First Warrant Tranche (as hereinafter defined), (ii)
June 1, 1997 with respect to the Second Warrant Tranche (as hereinafter
defined), (iii) March 1, 1998 with respect to the Third Warrant Tranche (as
hereinafter defined), and (iv) the date that the First Guarantee is called with
respect to the Final Warrant Tranche (as hereinafter defined).
l. Warrant Shares shall mean the number of shares of Common
Stock as determined by the following formula:
[(Guaranteed Amount)/(Exercise Price)] x (WCAS
Interest).
m. WCAS shall mean Welsh, Carson, Anderson & Stowe VII, L.P.
n. WCAS Interest shall mean 96.6%, which is the percentage of
the Guaranteed Amount that is guaranteed by WCAS.
2. NUMBER OF SHARES SUBJECT TO WARRANT
The number of shares subject to this Warrant will be calculated as
follows:
a. From September 30, 1996 until May 31, 1997, WCAS shall have
the right to purchase a number of shares of Common Stock equal to twenty percent
(20%) of the Warrant Shares (the "First Warrant Tranche"), exercisable at the
Exercise Price.
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<PAGE> 3
b. If as of June 1, 1997 the First Guarantee is still
outstanding, then from June 1, 1997 until February 28, 1998, WCAS shall have the
right to purchase an additional number of shares of Common Stock equal to an
additional twenty percent (20%) of the Warrant Shares (or, a total of 40% of the
Warrant Shares) (the "Second Warrant Tranche"), exercisable at the Exercise
Price.
c. If as of March 1, 1998 the First Guarantee is still
outstanding, then from March 1, 1998 until September 30, 2001, WCAS shall have
the right to purchase an additional number of shares of Common Stock equal to an
additional twenty percent (20%) of the Warrant Shares (or, a total of 60% of the
Warrant Shares) (the "Third Warrant Tranche"), exercisable at the Exercise
Price.
d. If the WCAS First Guarantee is called at any time by Agent,
WCAS shall have the right to purchase an additional number of shares of Common
Stock equal to the difference between 100% of the Warrant Shares and the
aggregate percentage of Common Stock for which this Warrant is then exercisable
pursuant to Section 2(a), Section 2(b) and Section 2)(c) hereof (or, a total of
100% of the Warrant Shares) (the "Final Warrant Tranche"), exercisable at the
Exercise Price.
3. METHOD OF EXERCISE
The rights represented by this Warrant may be exercised by the
holder hereof, in whole at any time or from time to time in part, but not as to
a fractional share of Common Stock, by the surrender of this Warrant (properly
endorsed) at the office of Aurora as it may designate by notice in writing to
the holder hereof at the address of such holder appearing on the books of
Aurora, and by payment as provided below. The holder may make payment in respect
of the exercise of this Warrant as follows:
i) Cash Exercise. By payment to Aurora of the Exercise price
in cash or by certified or official bank check, for each share being
purchased;
ii) Notes Exercise. By surrender to Aurora of any promissory
notes or other obligations issued by Aurora, with all such notes or
other obligations of Aurora so surrendered being credited against the
Exercise Price in an amount equal to the principal amount thereof plus
the amount of any interest thereon to the date of such surrender;
iii) Securities Exercise. By delivery to Aurora of any other
securities issued by Aurora, with such securities being credited
against the Exercise Price in an amount equal to the fair market value
thereof;
iv) Net Issue Exercise. By an election to receive shares the
aggregate fair market value of which as of the date of exercise is
equal to the fair market value of this Warrant (or the portion thereof
being exercised) on such date, in which event Aurora, upon receipt of
notice of such election, shall issue to the holder hereof a number of
shares of Common stock equal to (A) the number of shares of Common
Stock acquirable upon
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<PAGE> 4
exercise of all or any portion of this Warrant being exercised, as at
such date, multiplied by (B) the balance remaining after deducting (x)
the Exercise Price, as in effect on such date, from (y) the Fair Market
Value of one share of Common Stock as at such date and dividing the
result by (c) such Fair Market Value; or
v) Combined Payment Method. By satisfaction of the Exercise
Price for each share being acquired in any combination of the methods
described in clauses (i) through (iv) above.
4. DELIVERY OF STOCK CERTIFICATES
Within ten (10) days after the payment of the Purchase Price
following the exercise of this Warrant, Aurora shall issue in the name of and
deliver to WCAS a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock to which WCAS shall be entitled upon such
exercise and payment. WCAS shall for all purposes be deemed to have become
holder of record of such shares of Common Stock on the date by which this
Warrant was surrendered and payment of the Purchase Price was made, irrespective
of the date of delivery of the certificate or certificates representing the
Common Stock; provided, that if the date by which such surrender and payment is
made is a date when the stock transfer books of Aurora are closed, such person
shall be deemed to have become holder of record of such shares of Common Stock
at the close of business on the next succeeding date on which the stock transfer
books are open.
5. DEFINITION OF FAIR MARKET VALUE
For the purposes of this Warrant, the Fair Market Value of the Common
Stock shall be determined as follows: (i) if the Common stock is listed or
admitted to trading on one or more national securities exchanges, the average of
the last reported sales prices per share regular way or, in case no such
reported sales take place or such day, the average of the last reported bid and
asked prices per share regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
for the five trading days immediately preceding the date of the exercise of this
Warrant (the "Determination Date"); (ii) if the Common Stock is not listed or
admitted to trading on a national securities exchange but is quoted by NASDAQ,
the average of the last reported sales prices per share regular way or, in case
no reported sale takes place on any such day or the last reported sales prices
are not then quoted by NASDAQ, the average of the last reported bid and asked
prices per share, for the five trading days immediately preceding the
Determination Date as furnished by the National Quotation Bureau Incorporated or
any similar successor organization; and (iii) if the Common Stock is not listed
or admitted to trading on a national securities exchange or quoted by NASDAQ or
any other nationally recognized quotation service, the Fair Market Value shall
be the fair value thereof determined jointly by the Board of Directors of Aurora
and the holders of
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<PAGE> 5
Warrants outstanding representing a majority of the shares of Common Stock
acquirable upon exercise of the Warrants; provided, however, that if such
parties are unable to reach agreement within a reasonable time, the Fair Market
Value shall be determined in good faith by an independent investment banking
firm selected jointly by the Board of Directors of Aurora and the holders of
Warrants outstanding representing a majority of the shares of Common Stock
issuable upon exercise of the Warrants or, if that selection cannot be made
within fifteen (15) days, by an independent investment banking firm selected by
the American Arbitration Association in accordance with its rules. Anything in
this Section 5 to the contrary notwithstanding, the Fair Market Value of this
Warrant or any portion thereof as of any Determination Date shall be equal to
(A) the Fair Market Value of the shares of Common Stock issuable upon exercise
of this Warrant (or such portion thereof) (determined in accordance with the
foregoing provisions of this paragraph) minus (B) the aggregate Exercise Price
of the Warrant (or such portion thereof).
6. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE
If any capital reorganization or reclassification of the
capital stock of Aurora or any consolidation or merger of Aurora with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby each holder of the Warrants shall thereafter have the
right to receive upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
receivable upon the exercise of such Warrants, such shares of stock, securities
or assets (including cash) as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provisions shall be made with respect to the
rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the Exercise Price)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of such
exercise rights (including an immediate adjustment, by reason of such
reorganization or reclassification, of the Exercise Price to the value for the
Common Stock reflected by the terms of such reorganization or reclassification
if the value so reflected is less than the Exercise Price in effect immediately
prior to such reorganization or reclassification). In the event of a merger or
consolidation of Aurora as a result of which a greater or lesser number of
shares of common stock of the surviving corporation are issuable to holders of
Common Stock of Aurora outstanding immediately prior to such merger or
consolidation, the Exercise Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of Aurora.
Aurora will not effect any such consolidation, merger or any sale of all or
substantially all of its assets of properties, unless prior to the consummation
thereof the successor corporation (if other than Aurora) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed or delivered to each holder of the
Warrants at the last address of such holder appearing on the books of Aurora,
the obligation to deliver to such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to receive.
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<PAGE> 6
7. ADJUSTMENTS TO EXERCISE PRICE FOR DISTRIBUTIONS, SUBDIVISIONS
AND COMBINATIONS
In the event that Aurora, after the date hereof: (a) pays a
stock dividend with respect to the Common Stock; (b) subdivides its outstanding
shares of Common Stock; (c) combines its outstanding shares of Common Stock into
a smaller number of shares of any class of Common Stock or (d) issues shares of
its capital stock in a reclassification of the Common Stock, including any such
reclassification in connection with a consolidation or merger in which Aurora is
the surviving corporation (any one of which actions is herein referred to as an
"Adjustment Event"), the Exercise Price shall be adjusted by multiplying such
Exercise Price immediately prior to such Adjustment Event by a fraction, the
numerator of which shall be the number of shares of Common Stock issued and
outstanding immediately prior to such Adjustment Event, and the denominator of
which shall be the number of shares of Common Stock issued and outstanding
immediately thereafter.
Whenever the Exercise Price is adjusted in accordance with
this Section 7, WCAS shall be entitled to purchase at the new Exercise Price the
number of shares of Common Stock obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common
Stock purchasable pursuant to the terms of this Warrant immediately prior to
such adjustment and dividing the product thereof by the new Exercise Price.
8. ADJUSTMENTS TO EXERCISE PRICE FOR ISSUANCES BELOW MARKET PRICE
If Aurora issues any shares of Common Stock for a
consideration per share less than the then Fair Market Value, then upon such
issuance the Exercise Price shall be reduced to the price determined by
multiplying the Exercise Price in effect immediately prior to the time of such
issue or sale by a fraction, the numerator of which shall be the sum of (a) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale multiplied by the Fair Market Value of the Common Stock immediately prior
to such issue or sale plus (b) the consideration received by Aurora upon such
issue or sale, and the denominator of which shall be the product of (x) the
total number of shares of Common Stock outstanding immediately after such issue
or sale multiplied by (y) the Fair Market Value of the Common Stock immediately
prior to such issue or sale.
Whenever the Exercise Price is adjusted in accordance with
this Section 8, WCAS shall be entitled to purchase at the new Exercise Price the
number of shares of Common Stock obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common
Stock purchasable pursuant to the terms of this Warrant immediately prior to
such adjustment and dividing the product thereof by the new Exercise Price.
9. FRACTIONAL SHARES
No fractional shares shall be issued upon the exercise of this
Warrant. In lieu of fractional shares, Aurora shall pay WCAS a sum in cash equal
to the Fair Market Value of the fractional shares on the date of exercise.
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<PAGE> 7
10. STOCK TO BE RESERVED
Aurora will at all times reserve and keep available out of its
authorized Common Stock or its treasury shares, solely for the purpose of issue
upon the exercise of this Warrant as herein provided, such number of shares of
Common Stock as shall then be issuable upon the exercise of this Warrant. Aurora
covenants that all shares of Common Stock which shall be so issued shall be duly
and validly issued and fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof, and, without limited the
generality of the foregoing, Aurora covenants that it will from time to time
take all such action as may be requisite to assure that the par value per share
of the Common Stock is at all times equal to or less than the effective Exercise
Price. Aurora will take all such action as may be necessary and within its
control to assure that all such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange upon which the Common Stock of Aurora may be
listed. Aurora will not take any action which results in any adjustment of the
Exercise price if the total number of shares of Common Stock issued and issuable
after such action upon exercise of this Warrant would exceed the total number of
shares of Common Stock then authorized by Aurora's Articles of Incorporation.
Aurora has not granted and will not grant any right of first refusal with
respect to shares issuable upon exercise of this Warrant, and there are no
preemptive rights associated with such shares.
11. ISSUE TAX
The issuance of certificates for shares of Common Stock upon
exercise of the Warrants shall be made without charge to the holders of such
Warrants for any issuance tax in respect thereof provided that Aurora shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of any holder of the Warrants.
12. CLOSING OF BOOKS
Aurora will at no time close its transfer books against the
transfer of the shares of Common Stock issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant.
13. DEFINITION OF COMMON STOCK
As used herein the term "Common Stock" shall mean and include
the Common Stock, $.03 par value, of Aurora as authorized on the date hereof,
and also any capital stock of any class of Aurora hereinafter authorized which
shall not be limited to a fixed sum or percentage in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of
Aurora; provided, however, that the shares purchasable pursuant to this Warrant
shall include only shares designated as Common Stock, $.03 par value, of Aurora
on the date hereof, or shares of any class or classes resulting from any
reclassification or reclassifications thereof which are
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<PAGE> 8
not limited to any such fixed sum or percentage and are not subject to
redemption by Aurora and, in case at any time there shall be more than one such
resulting class, the shares of each class then so issuable shall be
substantially in the proportion which the total number of shares of such class
resulting from all such reclassification bears to the total number of shares of
all such classes resulting from all such reclassifications.
14. NOTICES OF RECORD DATES
In the event of (i) any taking by Aurora of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution (other
than cash dividends out of earned surplus), or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or (ii) any capital
reorganization of Aurora, any reclassification or recapitalization of the
capital stock of Aurora or any transfer of all or substantially all the assets
of Aurora to or consolidation or merger of Aurora with or into any other
corporation, or (iii) any voluntary or involuntary dissolution, liquidation or
winding-up of Aurora, then, and in each such event, Aurora will give notice to
the holder of this Warrant specifying (x) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right and stating
the amount and character of such dividend, distribution or right, and (y) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock will be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up. Such notice shall be given at least
twenty (20) days and not more than ninety (90) days prior to the date therein
specified, and such notice shall state that the action in question or the record
date is subject to the effectiveness of a registration statement under the
Securities Act of 1933, as amended, or to a favorable vote of stockholders, if
either is required.
15. INVESTMENT REPRESENTATION AND LEGEND
The holder, by acceptance of the Warrant, represents and
warrants to Aurora that it is acquiring the Warrant and the shares of Common
Stock (or other securities) issuable upon the exercise hereof for investment
purposes only and not with a view towards the resale or other distribution
thereof and agrees that Aurora may affix upon this Warrant the following legend:
"This Warrant has been issued in reliance upon the
representation of the holder that it has been acquired for investment
purposes and not with a view towards the resale or other distribution
thereof. Neither this Warrant nor the shares issuable upon the exercise
of this Warrant have been registered under the Securities Act of 1933,
as amended."
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<PAGE> 9
The holder, by acceptance of this Warrant, further agrees that Aurora may affix
the following legend to certificates for shares of Common Stock issued upon
exercise of this Warrant:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN
REGISTERED UNDER THE ACT OR UNLESS IN THE OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION AN EXEMPTION FROM REGISTRATION IS
AVAILABLE."
16. NO SHAREHOLDER RIGHTS
This Warrant shall not entitle WCAS to any voting rights or
any other rights as a shareholder of Aurora or to any other rights whatsoever
except the rights stated herein; and no dividend or interest shall be payable or
shall accrue in respect of this Warrant or the Common Stock issuable upon
conversion of this Warrant, until and to the extent that this Warrant shall be
exercised. No provision hereof, in the absence of affirmative action by the
holder hereof to purchase shares of Common Stock, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Warrant Exercise Price or as a stockholder of
Aurora, whether such liability is asserted by Aurora or by creditors of Aurora.
17. CONSTRUCTION
THE VALIDITY AND INTERPRETATION OF THE TERMS AND PROVISIONS OF
THIS WARRANT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES
OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF THE LAWS OF ANY
OTHER JURISDICTION. The descriptive headings of the several sections of this
Warrant are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions thereof.
18. LOST WARRANT CERTIFICATE
If this Warrant is lost, stolen, mutilated or destroyed,
Aurora shall issue a new Warrant of like denomination, tenor and date as this
Warrant, subject to Aurora's right to require WCAS to give Aurora a bond or
other satisfactory security sufficient to indemnify Aurora against any claim
that may be made against it (including any expense or liability) on account of
the alleged loss, theft, mutilation or destruction of this Warrant or the
issuance of such new Warrant.
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<PAGE> 10
19. WAIVERS AND AMENDMENTS
This Warrant, or any provision hereof, may be changed, waived,
discharged or terminated only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
20. NOTICES
All notices, requests and other communications required or
permitted to be given or delivered hereunder shall be in writing, and shall be
delivered, or shall be sent by certified or registered mail, postage prepaid and
addressed, if to the holder to such holder at the address shown on such holder's
Warrant or shares of Common Stock issued upon exercise thereof or at such other
address as shall have been furnished to Aurora by notice from such holder. All
notices, requests and other communications required or permitted to be given or
delivered hereunder shall be in writing, and shall be delivered, or shall be
sent by certified or registered mail, postage prepaid and addressed to Aurora at
such address as shall have been furnished to the holder by notice from Aurora.
IN WITNESS WHEREOF, Aurora has executed this Warrant as of the date
first written above.
AURORA ELECTRONICS, INC.
By: ________________________
Name: ________________________
Title: ________________________
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<PAGE> 11
ELECTION TO PURCHASE
To: Aurora Electronics, Inc.
The undersigned hereby irrevocably elects to purchase ________________
shares of Common Stock issuable upon the exercise of this Warrant, and requests
that certificates for such shares shall be issued in the name of and delivered
to the address of the undersigned, at the address stated below, and
____ i) makes cash payment herewith in full therefor at the price per
share provided by such Warrant;
____ ii) surrenders to Aurora promissory notes or other obligations
issued by Aurora, in accordance with Section 3 (ii) of such
Warrant, as payment herewith in full therefor at the price per
share provided by such Warrant;
____ iii) delivers to Aurora other securities issued by the Company, in
accordance with Section 3 (iii) of such Warrant, as payment
herewith in full therefor at the price per share provided by
such Warrant; and/or
____ iv) elects Net Issue Exercise as provided in Section 3(iv) of such
Warrant.
(Check any combination of (i) through (iv) above).
Dated: _____________
Name and signature of holder of Warrant:
Welsh, Carson, Anderson & Stowe VII, L.P.
By: ___________________________
Name: _________________________
Title: ________________________
<PAGE> 1
EXHIBIT 4.9
EXHIBIT B-1(B)
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER
THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS
THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES
ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
WARRANT TO PURCHASE SHARES
ISSUED: September 30, 1996 OF AURORA ELECTRONICS, INC.
VOID AFTER FIVE (5) YEARS COMMON STOCK
AURORA ELECTRONICS, INC.
COMMON STOCK
PURCHASE WARRANT
THIS IS TO CERTIFY that, for value received and subject to the terms
and conditions hereof, WCAS Capital Partners II, L.P. is entitled to purchase up
to the number of shares of the common stock, $.03 par value per share, of Aurora
Electronics, Inc., a Delaware corporation, as set forth in Section 2 of this
Warrant, at the price per share set forth in Section 2 of this Warrant.
This Warrant is subject to the following additional terms and
conditions:
1. DEFINITIONS
a. AEG shall mean Aurora Electronics Group, Inc., a California
corporation and wholly-owned subsidiary of Aurora.
b. Agent shall mean The Chase Manhattan Bank (formerly known
as Chemical Bank), as agent for the lenders named in the Credit Agreement dated
March 29, 1996 between AEG and Agent.
c. Aurora shall mean Aurora Electronics, Inc., a Delaware
corporation.
d. Common Stock shall mean the common stock of Aurora, $.03
par value per share, as more specifically set forth in Section 13 hereof.
e. Exercise Period shall mean from September 30, 1996 until
September 30, 2001.
f. Exercise Price shall mean (i) with respect to the First
Warrant Tranche, the average closing price of the Common Stock as reported by
the American Stock Exchange for the
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five trading days preceding the date of this Warrant and (ii) with respect to
the Second Warrant Tranche, Third Warrant Tranche or Final Warrant Tranche, the
lower of the average closing price of the Common Stock as reported by the
American Stock Exchange for the five trading days preceding (x) the date of this
Warrant or (y) the applicable Warrant Accrual Date.
g. Fair Market Value shall mean the value of the Common Stock
as determined in accordance with Section 5 hereof.
h. First Guarantee shall mean the guarantee issued by WCAS and
its affiliate, Welsh, Carson, Anderson & Stowe VII, L.P., to secure the
indebtedness of AEG under the Tranche A Credit Facility and the Tranche B Credit
Facility, up to a maximum of $3,000,000.
i. Guaranteed Amount shall mean $3,000,000, which is the
maximum principal amount of indebtedness under the First Guarantee.
j. Purchase Price shall mean the Exercise Price multiplied by
the number of shares of Common Stock subject to this Warrant pursuant to Section
2 hereof.
k. Warrant Accrual Date shall mean (i) the date of this
Warrant with respect to the First Warrant Tranche (as hereinafter defined), (ii)
June 1, 1997 with respect to the Second Warrant Tranche (as hereinafter
defined), (iii) March 1, 1998 with respect to the Third Warrant Tranche (as
hereinafter defined), and (iv) the date that the First Guarantee is called with
respect to the Final Warrant Tranche (as hereinafter defined).
l. Warrant Shares shall mean the number of shares of Common
Stock as determined by the following formula:
[(Guaranteed Amount)/(Exercise Price)] x (WCAS
Interest).
m. WCAS shall mean WCAS Capital Partners II, L.P.
n. WCAS Interest shall mean 3.4%, which is the percentage of
the Guaranteed Amount that is guaranteed by WCAS.
2. NUMBER OF SHARES SUBJECT TO WARRANT
The number of shares subject to this Warrant will be calculated as
follows:
a. From September 30, 1996 until May 31, 1997, WCAS shall have
the right to purchase a number of shares of Common Stock equal to twenty percent
(20%) of the Warrant Shares (the "First Warrant Tranche"), exercisable at the
Exercise Price.
b. If as of June 1, 1997 the First Guarantee is still
outstanding, then from June 1, 1997 until February 28, 1998, WCAS shall have the
right to purchase an additional number of shares of Common Stock equal to an
additional twenty percent (20%) of the Warrant
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Shares (or, a total of 40% of the Warrant Shares) (the "Second Warrant
Tranche"), exercisable at the Exercise Price.
c. If as of March 1, 1998 the First Guarantee is still
outstanding, then from March 1, 1998 until September 30, 2001, WCAS shall have
the right to purchase an additional number of shares of Common Stock equal to an
additional twenty percent (20%) of the Warrant Shares (or, a total of 60% of the
Warrant Shares) (the "Third Warrant Tranche"), exercisable at the Exercise
Price.
d. If the WCAS First Guarantee is called at any time by Agent,
WCAS shall have the right to purchase an additional number of shares of Common
Stock equal to the difference between 100% of the Warrant Shares and the
aggregate percentage of Common Stock for which this Warrant is then exercisable
pursuant to Section 2(a), Section 2(b) and Section 2)(c) hereof (or, a total of
100% of the Warrant Shares) (the "Final Warrant Tranche"), exercisable at the
Exercise Price.
3. METHOD OF EXERCISE
The rights represented by this Warrant may be exercised by the
holder hereof, in whole at any time or from time to time in part, but not as to
a fractional share of Common Stock, by the surrender of this Warrant (properly
endorsed) at the office of Aurora as it may designate by notice in writing to
the holder hereof at the address of such holder appearing on the books of
Aurora, and by payment as provided below. The holder may make payment in respect
of the exercise of this Warrant as follows:
i) Cash Exercise. By payment to Aurora of the Exercise price
in cash or by certified or official bank check, for each share being
purchased;
ii) Notes Exercise. By surrender to Aurora of any promissory
notes or other obligations issued by Aurora, with all such notes or
other obligations of Aurora so surrendered being credited against the
Exercise Price in an amount equal to the principal amount thereof plus
the amount of any interest thereon to the date of such surrender;
iii) Securities Exercise. By delivery to Aurora of any other
securities issued by Aurora, with such securities being credited
against the Exercise Price in an amount equal to the fair market value
thereof;
iv) Net Issue Exercise. By an election to receive shares the
aggregate fair market value of which as of the date of exercise is
equal to the fair market value of this Warrant (or the portion thereof
being exercised) on such date, in which event Aurora, upon receipt of
notice of such election, shall issue to the holder hereof a number of
shares of Common stock equal to (A) the number of shares of Common
Stock acquirable upon exercise of all or any portion of this Warrant
being exercised, as at such date, multiplied by (B) the balance
remaining after deducting (x) the Exercise Price, as in effect on such
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date, from (y) the Fair Market Value of one share of Common Stock as at
such date and dividing the result by (c) such Fair Market Value; or
v) Combined Payment Method. By satisfaction of the Exercise
Price for each share being acquired in any combination of the methods
described in clauses (i) through (iv) above.
4. DELIVERY OF STOCK CERTIFICATES
Within ten (10) days after the payment of the Purchase Price
following the exercise of this Warrant, Aurora shall issue in the name of and
deliver to WCAS a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock to which WCAS shall be entitled upon such
exercise and payment. WCAS shall for all purposes be deemed to have become
holder of record of such shares of Common Stock on the date by which this
Warrant was surrendered and payment of the Purchase Price was made, irrespective
of the date of delivery of the certificate or certificates representing the
Common Stock; provided, that if the date by which such surrender and payment is
made is a date when the stock transfer books of Aurora are closed, such person
shall be deemed to have become holder of record of such shares of Common Stock
at the close of business on the next succeeding date on which the stock transfer
books are open.
5. DEFINITION OF FAIR MARKET VALUE
For the purposes of this Warrant, the Fair Market Value of the Common
Stock shall be determined as follows: (i) if the Common stock is listed or
admitted to trading on one or more national securities exchanges, the average of
the last reported sales prices per share regular way or, in case no such
reported sales take place or such day, the average of the last reported bid and
asked prices per share regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
for the five trading days immediately preceding the date of the exercise of this
Warrant (the "Determination Date"); (ii) if the Common Stock is not listed or
admitted to trading on a national securities exchange but is quoted by NASDAQ,
the average of the last reported sales prices per share regular way or, in case
no reported sale takes place on any such day or the last reported sales prices
are not then quoted by NASDAQ, the average of the last reported bid and asked
prices per share, for the five trading days immediately preceding the
Determination Date as furnished by the National Quotation Bureau Incorporated or
any similar successor organization; and (iii) if the Common Stock is not listed
or admitted to trading on a national securities exchange or quoted by NASDAQ or
any other nationally recognized quotation service, the Fair Market Value shall
be the fair value thereof determined jointly by the Board of Directors of Aurora
and the holders of Warrants outstanding representing a majority of the shares of
Common Stock acquirable upon exercise of the Warrants; provided, however, that
if such parties are unable to reach agreement within a reasonable time, the Fair
Market Value shall be determined in good faith by an independent investment
banking firm selected jointly by the Board of Directors of Aurora and the
holders of Warrants outstanding representing a majority of the shares of Common
Stock issuable upon exercise of the Warrants or, if that selection cannot be
made within fifteen (15) days, by an
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independent investment banking firm selected by the American Arbitration
Association in accordance with its rules. Anything in this Section 5 to the
contrary notwithstanding, the Fair Market Value of this Warrant or any portion
thereof as of any Determination Date shall be equal to (A) the Fair Market Value
of the shares of Common Stock issuable upon exercise of this Warrant (or such
portion thereof) (determined in accordance with the foregoing provisions of this
paragraph) minus (B) the aggregate Exercise Price of the Warrant (or such
portion thereof).
6. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE
If any capital reorganization or reclassification of the
capital stock of Aurora or any consolidation or merger of Aurora with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby each holder of the Warrants shall thereafter have the
right to receive upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
receivable upon the exercise of such Warrants, such shares of stock, securities
or assets (including cash) as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provisions shall be made with respect to the
rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the Exercise Price)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of such
exercise rights (including an immediate adjustment, by reason of such
reorganization or reclassification, of the Exercise Price to the value for the
Common Stock reflected by the terms of such reorganization or reclassification
if the value so reflected is less than the Exercise Price in effect immediately
prior to such reorganization or reclassification). In the event of a merger or
consolidation of Aurora as a result of which a greater or lesser number of
shares of common stock of the surviving corporation are issuable to holders of
Common Stock of Aurora outstanding immediately prior to such merger or
consolidation, the Exercise Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of Aurora.
Aurora will not effect any such consolidation, merger or any sale of all or
substantially all of its assets of properties, unless prior to the consummation
thereof the successor corporation (if other than Aurora) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed or delivered to each holder of the
Warrants at the last address of such holder appearing on the books of Aurora,
the obligation to deliver to such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to receive.
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7. ADJUSTMENTS TO EXERCISE PRICE FOR DISTRIBUTIONS, SUBDIVISIONS
AND COMBINATIONS
In the event that Aurora, after the date hereof: (a) pays a
stock dividend with respect to the Common Stock; (b) subdivides its outstanding
shares of Common Stock; (c) combines its outstanding shares of Common Stock into
a smaller number of shares of any class of Common Stock or (d) issues shares of
its capital stock in a reclassification of the Common Stock, including any such
reclassification in connection with a consolidation or merger in which Aurora is
the surviving corporation (any one of which actions is herein referred to as an
"Adjustment Event"), the Exercise Price shall be adjusted by multiplying such
Exercise Price immediately prior to such Adjustment Event by a fraction, the
numerator of which shall be the number of shares of Common Stock issued and
outstanding immediately prior to such Adjustment Event, and the denominator of
which shall be the number of shares of Common Stock issued and outstanding
immediately thereafter.
Whenever the Exercise Price is adjusted in accordance with
this Section 7, WCAS shall be entitled to purchase at the new Exercise Price the
number of shares of Common Stock obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common
Stock purchasable pursuant to the terms of this Warrant immediately prior to
such adjustment and dividing the product thereof by the new Exercise Price.
8. ADJUSTMENTS TO EXERCISE PRICE FOR ISSUANCES BELOW MARKET PRICE
If Aurora issues any shares of Common Stock for a
consideration per share less than the then Fair Market Value, then upon such
issuance the Exercise Price shall be reduced to the price determined by
multiplying the Exercise Price in effect immediately prior to the time of such
issue or sale by a fraction, the numerator of which shall be the sum of (a) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale multiplied by the Fair Market Value of the Common Stock immediately prior
to such issue or sale plus (b) the consideration received by Aurora upon such
issue or sale, and the denominator of which shall be the product of (x) the
total number of shares of Common Stock outstanding immediately after such issue
or sale multiplied by (y) the Fair Market Value of the Common Stock immediately
prior to such issue or sale.
Whenever the Exercise Price is adjusted in accordance with
this Section 8, WCAS shall be entitled to purchase at the new Exercise Price the
number of shares of Common Stock obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common
Stock purchasable pursuant to the terms of this Warrant immediately prior to
such adjustment and dividing the product thereof by the new Exercise Price.
9. FRACTIONAL SHARES
No fractional shares shall be issued upon the exercise of this
Warrant. In lieu of fractional shares, Aurora shall pay WCAS a sum in cash equal
to the Fair Market Value of the fractional shares on the date of exercise.
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10. STOCK TO BE RESERVED
Aurora will at all times reserve and keep available out of its
authorized Common Stock or its treasury shares, solely for the purpose of issue
upon the exercise of this Warrant as herein provided, such number of shares of
Common Stock as shall then be issuable upon the exercise of this Warrant. Aurora
covenants that all shares of Common Stock which shall be so issued shall be duly
and validly issued and fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof, and, without limited the
generality of the foregoing, Aurora covenants that it will from time to time
take all such action as may be requisite to assure that the par value per share
of the Common Stock is at all times equal to or less than the effective Exercise
Price. Aurora will take all such action as may be necessary and within its
control to assure that all such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange upon which the Common Stock of Aurora may be
listed. Aurora will not take any action which results in any adjustment of the
Exercise price if the total number of shares of Common Stock issued and issuable
after such action upon exercise of this Warrant would exceed the total number of
shares of Common Stock then authorized by Aurora's Articles of Incorporation.
Aurora has not granted and will not grant any right of first refusal with
respect to shares issuable upon exercise of this Warrant, and there are no
preemptive rights associated with such shares.
11. ISSUE TAX
The issuance of certificates for shares of Common Stock upon
exercise of the Warrants shall be made without charge to the holders of such
Warrants for any issuance tax in respect thereof provided that Aurora shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of any holder of the Warrants.
12. CLOSING OF BOOKS
Aurora will at no time close its transfer books against the
transfer of the shares of Common Stock issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant.
13. DEFINITION OF COMMON STOCK
As used herein the term "Common Stock" shall mean and include
the Common Stock, $.03 par value, of Aurora as authorized on the date hereof,
and also any capital stock of any class of Aurora hereinafter authorized which
shall not be limited to a fixed sum or percentage in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of
Aurora; provided, however, that the shares purchasable pursuant to this Warrant
shall include only shares designated as Common Stock, $.03 par value, of Aurora
on the date hereof, or shares of any class or classes resulting from any
reclassification or reclassifications thereof which are
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<PAGE> 8
not limited to any such fixed sum or percentage and are not subject to
redemption by Aurora and, in case at any time there shall be more than one such
resulting class, the shares of each class then so issuable shall be
substantially in the proportion which the total number of shares of such class
resulting from all such reclassification bears to the total number of shares of
all such classes resulting from all such reclassifications.
14. NOTICES OF RECORD DATES
In the event of (i) any taking by Aurora of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution (other
than cash dividends out of earned surplus), or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or (ii) any capital
reorganization of Aurora, any reclassification or recapitalization of the
capital stock of Aurora or any transfer of all or substantially all the assets
of Aurora to or consolidation or merger of Aurora with or into any other
corporation, or (iii) any voluntary or involuntary dissolution, liquidation or
winding-up of Aurora, then, and in each such event, Aurora will give notice to
the holder of this Warrant specifying (x) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right and stating
the amount and character of such dividend, distribution or right, and (y) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock will be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up. Such notice shall be given at least
twenty (20) days and not more than ninety (90) days prior to the date therein
specified, and such notice shall state that the action in question or the record
date is subject to the effectiveness of a registration statement under the
Securities Act of 1933, as amended, or to a favorable vote of stockholders, if
either is required.
15. INVESTMENT REPRESENTATION AND LEGEND
The holder, by acceptance of the Warrant, represents and
warrants to Aurora that it is acquiring the Warrant and the shares of Common
Stock (or other securities) issuable upon the exercise hereof for investment
purposes only and not with a view towards the resale or other distribution
thereof and agrees that Aurora may affix upon this Warrant the following legend:
"This Warrant has been issued in reliance upon the
representation of the holder that it has been acquired for investment
purposes and not with a view towards the resale or other distribution
thereof. Neither this Warrant nor the shares issuable upon the exercise
of this Warrant have been registered under the Securities Act of 1933,
as amended."
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The holder, by acceptance of this Warrant, further agrees that Aurora may affix
the following legend to certificates for shares of Common Stock issued upon
exercise of this Warrant:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN
REGISTERED UNDER THE ACT OR UNLESS IN THE OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION AN EXEMPTION FROM REGISTRATION IS
AVAILABLE."
16. NO SHAREHOLDER RIGHTS
This Warrant shall not entitle WCAS to any voting rights or
any other rights as a shareholder of Aurora or to any other rights whatsoever
except the rights stated herein; and no dividend or interest shall be payable or
shall accrue in respect of this Warrant or the Common Stock issuable upon
conversion of this Warrant, until and to the extent that this Warrant shall be
exercised. No provision hereof, in the absence of affirmative action by the
holder hereof to purchase shares of Common Stock, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Warrant Exercise Price or as a stockholder of
Aurora, whether such liability is asserted by Aurora or by creditors of Aurora.
17. CONSTRUCTION
THE VALIDITY AND INTERPRETATION OF THE TERMS AND PROVISIONS OF
THIS WARRANT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES
OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF THE LAWS OF ANY
OTHER JURISDICTION. The descriptive headings of the several sections of this
Warrant are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions thereof.
18. LOST WARRANT CERTIFICATE
If this Warrant is lost, stolen, mutilated or destroyed,
Aurora shall issue a new Warrant of like denomination, tenor and date as this
Warrant, subject to Aurora's right to require WCAS to give Aurora a bond or
other satisfactory security sufficient to indemnify Aurora against any claim
that may be made against it (including any expense or liability) on account of
the alleged loss, theft, mutilation or destruction of this Warrant or the
issuance of such new Warrant.
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19. WAIVERS AND AMENDMENTS
This Warrant, or any provision hereof, may be changed, waived,
discharged or terminated only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
20. NOTICES
All notices, requests and other communications required or
permitted to be given or delivered hereunder shall be in writing, and shall be
delivered, or shall be sent by certified or registered mail, postage prepaid and
addressed, if to the holder to such holder at the address shown on such holder's
Warrant or shares of Common Stock issued upon exercise thereof or at such other
address as shall have been furnished to Aurora by notice from such holder. All
notices, requests and other communications required or permitted to be given or
delivered hereunder shall be in writing, and shall be delivered, or shall be
sent by certified or registered mail, postage prepaid and addressed to Aurora at
such address as shall have been furnished to the holder by notice from Aurora.
IN WITNESS WHEREOF, Aurora has executed this Warrant as of the date
first written above.
AURORA ELECTRONICS, INC.
By: ________________________
Name: ________________________
Title: ________________________
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ELECTION TO PURCHASE
To: Aurora Electronics, Inc.
The undersigned hereby irrevocably elects to purchase ________________
shares of Common Stock issuable upon the exercise of this Warrant, and requests
that certificates for such shares shall be issued in the name of and delivered
to the address of the undersigned, at the address stated below, and
_____ i) makes cash payment herewith in full therefor at the
price per share provided by such Warrant;
_____ ii) surrenders to Aurora promissory notes or other
obligations issued by Aurora, in accordance with
Section 3 (ii) of such Warrant, as payment herewith
in full therefor at the price per share provided by
such Warrant;
_____ iii) delivers to Aurora other securities issued by the
Company, in accordance with Section 3 (iii) of such
Warrant, as payment herewith in full therefor at the
price per share provided by such Warrant; and/or
_____ iv) elects Net Issue Exercise as provided in Section
3(iv) of such Warrant.
(Check any combination of (i) through (iv) above).
Dated: _____________
Name and signature of holder of Warrant:
WCAS Capital Partners II, L.P.
By: ___________________________
Name: _________________________
Title: ________________________
<PAGE> 1
EXHIBIT 4.10
EXHIBIT B-2(A)
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER
THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS
THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES
ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
WARRANT TO PURCHASE SHARES
ISSUED: _________________ OF AURORA ELECTRONICS, INC.
VOID AFTER FIVE (5) YEARS COMMON STOCK
AURORA ELECTRONICS, INC.
COMMON STOCK
PURCHASE WARRANT
THIS IS TO CERTIFY that, for value received and subject to the terms
and conditions hereof, Welsh, Carson, Anderson & Stowe VII, L.P. is entitled to
purchase up to the number of shares of the common stock, $.03 par value per
share, of Aurora Electronics, Inc., a Delaware corporation, as set forth in
Section 2 of this Warrant, at the price per share set forth in Section 2 of this
Warrant.
This Warrant is subject to the following additional terms and
conditions:
1. DEFINITIONS
a. AEG shall mean Aurora Electronics Group, Inc., a California
corporation and wholly-owned subsidiary of Aurora.
b. Agent shall mean The Chase Manhattan Bank (formerly known
as Chemical Bank), as agent for the lenders named in the Credit Agreement dated
March 29, 1996 between AEG and Agent.
c. Aurora shall mean Aurora Electronics, Inc., a Delaware
corporation.
d. Common Stock shall mean the common stock of Aurora, $.03
par value per share, as more specifically set forth in Section 13 hereof.
e. Exercise Period shall mean from [date of issuance] until
[fifth anniversary of date of issuance].
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f. Exercise Price shall mean (i) with respect to the First
Warrant Tranche, the average closing price of the Common Stock as reported by
the American Stock Exchange for the five trading days preceding the date of this
Warrant and (ii) with respect to the Second Warrant Tranche, Third Warrant
Tranche or Final Warrant Tranche, the lower of the average closing price of the
Common Stock as reported by the American Stock Exchange for the five trading
days preceding (x) the date of this Warrant or (y) the applicable Warrant
Accrual Date.
g. Fair Market Value shall mean the value of the Common Stock
as determined in accordance with Section 5 hereof.
h. Second Guarantee shall mean the guarantee issued by WCAS
and its affiliate, WCAS Capital Partners II, L.P., to secure the indebtedness of
AEG under the acquisition credit facility with Agent and certain other banks, up
to a maximum of $9,000,000.
i. Guaranteed Amount shall mean $9,000,000, which is the
maximum principal amount of indebtedness under the Second Guarantee.
j. Purchase Price shall mean the Exercise Price multiplied by
the number of shares of Common Stock subject to this Warrant pursuant to Section
2 hereof.
k. Warrant Accrual Date shall mean (i) the date of this
Warrant with respect to the First Warrant Tranche (as hereinafter defined), (ii)
[nine months following First Warrant Tranche date] with respect to the Second
Warrant Tranche (as hereinafter defined), (iii) [eighteen months following First
Warrant Tranche date] with respect to the Third Warrant Tranche (as hereinafter
defined), and (iv) the date that the Second Guarantee is called with respect to
the Final Warrant Tranche (as hereinafter defined).
l. Warrant Shares shall mean the number of shares of Common
Stock as determined by the following formula:
[(Guaranteed Amount)/(Exercise Price)] x (WCAS Interest).
m. WCAS shall mean Welsh, Carson, Anderson & Stowe VII, L.P.
n. WCAS Interest shall mean 96.6%, which is the percentage of
the Guaranteed Amount that is guaranteed by WCAS.
2. NUMBER OF SHARES SUBJECT TO WARRANT
The number of shares subject to this Warrant will be calculated as
follows:
a. From [date of issuance] until [nine months following date
of issuance], WCAS shall have the right to purchase a number of shares of Common
Stock equal to twenty percent (20%) of the Warrant Shares (the "First Warrant
Tranche"), exercisable at the Exercise Price.
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b. If as of [nine months plus one day following date of
issuance] the Second Guarantee is still outstanding, then from [nine months plus
one day following date of issuance] until [eighteen months following date of
issuance], WCAS shall have the right to purchase an additional number of shares
of Common Stock equal to an additional twenty percent (20%) of the Warrant
Shares (or, a total of 40% of the Warrant Shares) (the "Second Warrant
Tranche"), exercisable at the Exercise Price.
c. If as of [eighteen months plus one day following date of
issuance] the Second Guarantee is still outstanding, then from [eighteen months
plus one day following date of issuance] until [fifth anniversary date of
issuance], WCAS shall have the right to purchase an additional number of shares
of Common Stock equal to an additional twenty percent (20%) of the Warrant
Shares (or, a total of 60% of the Warrant Shares) (the "Third Warrant Tranche"),
exercisable at the Exercise Price.
d. If the WCAS Second Guarantee is called at any time by
Agent, WCAS shall have the right to purchase an additional number of shares of
Common Stock equal to the difference between 100% of the Warrant Shares and the
aggregate percentage of Common Stock for which this Warrant is then exercisable
pursuant to Section 2(a), Section 2(b) and Section 2)(c) hereof (or, a total of
100% of the Warrant Shares) (the "Final Warrant Tranche"), exercisable at the
Exercise Price.
3. METHOD OF EXERCISE
The rights represented by this Warrant may be exercised by the
holder hereof, in whole at any time or from time to time in part, but not as to
a fractional share of Common Stock, by the surrender of this Warrant (properly
endorsed) at the office of Aurora as it may designate by notice in writing to
the holder hereof at the address of such holder appearing on the books of
Aurora, and by payment as provided below. The holder may make payment in respect
of the exercise of this Warrant as follows:
i) Cash Exercise. By payment to Aurora of the Exercise price
in cash or by certified or official bank check, for each share being
purchased;
ii) Notes Exercise. By surrender to Aurora of any promissory
notes or other obligations issued by Aurora, with all such notes or
other obligations of Aurora so surrendered being credited against the
Exercise Price in an amount equal to the principal amount thereof plus
the amount of any interest thereon to the date of such surrender;
iii) Securities Exercise. By delivery to Aurora of any other
securities issued by Aurora, with such securities being credited
against the Exercise Price in an amount equal to the fair market value
thereof;
iv) Net Issue Exercise. By an election to receive shares the
aggregate fair market value of which as of the date of exercise is
equal to the fair market value of this
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Warrant (or the portion thereof being exercised) on such date, in which
event Aurora, upon receipt of notice of such election, shall issue to
the holder hereof a number of shares of Common stock equal to (A) the
number of shares of Common Stock acquirable upon exercise of all or any
portion of this Warrant being exercised, as at such date, multiplied by
(B) the balance remaining after deducting (x) the Exercise Price, as in
effect on such date, from (y) the Fair Market Value of one share of
Common Stock as at such date and dividing the result by (c) such Fair
Market Value; or
v) Combined Payment Method. By satisfaction of the Exercise
Price for each share being acquired in any combination of the methods
described in clauses (i) through (iv) above.
4. DELIVERY OF STOCK CERTIFICATES
Within ten (10) days after the payment of the Purchase Price
following the exercise of this Warrant, Aurora shall issue in the name of and
deliver to WCAS a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock to which WCAS shall be entitled upon such
exercise and payment. WCAS shall for all purposes be deemed to have become
holder of record of such shares of Common Stock on the date by which this
Warrant was surrendered and payment of the Purchase Price was made, irrespective
of the date of delivery of the certificate or certificates representing the
Common Stock; provided, that if the date by which such surrender and payment is
made is a date when the stock transfer books of Aurora are closed, such person
shall be deemed to have become holder of record of such shares of Common Stock
at the close of business on the next succeeding date on which the stock transfer
books are open.
5. DEFINITION OF FAIR MARKET VALUE
For the purposes of this Warrant, the Fair Market Value of the Common
Stock shall be determined as follows: (i) if the Common stock is listed or
admitted to trading on one or more national securities exchanges, the average of
the last reported sales prices per share regular way or, in case no such
reported sales take place or such day, the average of the last reported bid and
asked prices per share regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
for the five trading days immediately preceding the date of the exercise of this
Warrant (the "Determination Date"); (ii) if the Common Stock is not listed or
admitted to trading on a national securities exchange but is quoted by NASDAQ,
the average of the last reported sales prices per share regular way or, in case
no reported sale takes place on any such day or the last reported sales prices
are not then quoted by NASDAQ, the average of the last reported bid and asked
prices per share, for the five trading days immediately preceding the
Determination Date as furnished by the National Quotation Bureau Incorporated or
any similar successor organization; and (iii) if the Common Stock is not listed
or admitted to trading on a national securities exchange or quoted by NASDAQ or
any other nationally recognized quotation service, the Fair Market Value shall
be the fair value thereof determined jointly by the Board of Directors of Aurora
and the holders of Warrants outstanding representing a majority of the shares of
Common Stock acquirable upon exercise of
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the Warrants; provided, however, that if such parties are unable to reach
agreement within a reasonable time, the Fair Market Value shall be determined in
good faith by an independent investment banking firm selected jointly by the
Board of Directors of Aurora and the holders of Warrants outstanding
representing a majority of the shares of Common Stock issuable upon exercise of
the Warrants or, if that selection cannot be made within fifteen (15) days, by
an independent investment banking firm selected by the American Arbitration
Association in accordance with its rules. Anything in this Section 5 to the
contrary notwithstanding, the Fair Market Value of this Warrant or any portion
thereof as of any Determination Date shall be equal to (A) the Fair Market Value
of the shares of Common Stock issuable upon exercise of this Warrant (or such
portion thereof) (determined in accordance with the foregoing provisions of this
paragraph) minus (B) the aggregate Exercise Price of the Warrant (or such
portion thereof).
6. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE
If any capital reorganization or reclassification of the
capital stock of Aurora or any consolidation or merger of Aurora with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby each holder of the Warrants shall thereafter have the
right to receive upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
receivable upon the exercise of such Warrants, such shares of stock, securities
or assets (including cash) as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provisions shall be made with respect to the
rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the Exercise Price)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of such
exercise rights (including an immediate adjustment, by reason of such
reorganization or reclassification, of the Exercise Price to the value for the
Common Stock reflected by the terms of such reorganization or reclassification
if the value so reflected is less than the Exercise Price in effect immediately
prior to such reorganization or reclassification). In the event of a merger or
consolidation of Aurora as a result of which a greater or lesser number of
shares of common stock of the surviving corporation are issuable to holders of
Common Stock of Aurora outstanding immediately prior to such merger or
consolidation, the Exercise Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of Aurora.
Aurora will not effect any such consolidation, merger or any sale of all or
substantially all of its assets of properties, unless prior to the consummation
thereof the successor corporation (if other than Aurora) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed or delivered to each holder of the
Warrants at the last address of such holder appearing on the books of Aurora,
the
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obligation to deliver to such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to receive.
7. ADJUSTMENTS TO EXERCISE PRICE FOR DISTRIBUTIONS, SUBDIVISIONS AND
COMBINATIONS
In the event that Aurora, after the date hereof: (a) pays a stock
dividend with respect to the Common Stock; (b) subdivides its outstanding shares
of Common Stock; (c) combines its outstanding shares of Common Stock into a
smaller number of shares of any class of Common Stock or (d) issues shares of
its capital stock in a reclassification of the Common Stock, including any such
reclassification in connection with a consolidation or merger in which Aurora is
the surviving corporation (any one of which actions is herein referred to as an
"Adjustment Event"), the Exercise Price shall be adjusted by multiplying such
Exercise Price immediately prior to such Adjustment Event by a fraction, the
numerator of which shall be the number of shares of Common Stock issued and
outstanding immediately prior to such Adjustment Event, and the denominator of
which shall be the number of shares of Common Stock issued and outstanding
immediately thereafter.
Whenever the Exercise Price is adjusted in accordance with this
Section 7, WCAS shall be entitled to purchase at the new Exercise Price the
number of shares of Common Stock obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common
Stock purchasable pursuant to the terms of this Warrant immediately prior to
such adjustment and dividing the product thereof by the new Exercise Price.
8. ADJUSTMENTS TO EXERCISE PRICE FOR ISSUANCES BELOW MARKET PRICE
If Aurora issues any shares of Common Stock for a consideration per
share less than the then Fair Market Value, then upon such issuance the Exercise
Price shall be reduced to the price determined by multiplying the Exercise Price
in effect immediately prior to the time of such issue or sale by a fraction, the
numerator of which shall be the sum of (a) the number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied by the Fair
Market Value of the Common Stock immediately prior to such issue or sale plus
(b) the consideration received by Aurora upon such issue or sale, and the
denominator of which shall be the product of (x) the total number of shares of
Common Stock outstanding immediately after such issue or sale multiplied by (y)
the Fair Market Value of the Common Stock immediately prior to such issue or
sale.
Whenever the Exercise Price is adjusted in accordance with
this Section 8, WCAS shall be entitled to purchase at the new Exercise Price the
number of shares of Common Stock obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common
Stock purchasable pursuant to the terms of this Warrant immediately prior to
such adjustment and dividing the product thereof by the new Exercise Price.
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9. FRACTIONAL SHARES
No fractional shares shall be issued upon the exercise of this
Warrant. In lieu of fractional shares, Aurora shall pay WCAS a sum in cash equal
to the Fair Market Value of the fractional shares on the date of exercise.
10. STOCK TO BE RESERVED
Aurora will at all times reserve and keep available out of its
authorized Common Stock or its treasury shares, solely for the purpose of issue
upon the exercise of this Warrant as herein provided, such number of shares of
Common Stock as shall then be issuable upon the exercise of this Warrant. Aurora
covenants that all shares of Common Stock which shall be so issued shall be duly
and validly issued and fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof, and, without limited the
generality of the foregoing, Aurora covenants that it will from time to time
take all such action as may be requisite to assure that the par value per share
of the Common Stock is at all times equal to or less than the effective Exercise
Price. Aurora will take all such action as may be necessary and within its
control to assure that all such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange upon which the Common Stock of Aurora may be
listed. Aurora will not take any action which results in any adjustment of the
Exercise price if the total number of shares of Common Stock issued and issuable
after such action upon exercise of this Warrant would exceed the total number of
shares of Common Stock then authorized by Aurora's Articles of Incorporation.
Aurora has not granted and will not grant any right of first refusal with
respect to shares issuable upon exercise of this Warrant, and there are no
preemptive rights associated with such shares.
11. ISSUE TAX
The issuance of certificates for shares of Common Stock upon
exercise of the Warrants shall be made without charge to the holders of such
Warrants for any issuance tax in respect thereof provided that Aurora shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of any holder of the Warrants.
12. CLOSING OF BOOKS
Aurora will at no time close its transfer books against the
transfer of the shares of Common Stock issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant.
13. DEFINITION OF COMMON STOCK
As used herein the term "Common Stock" shall mean and include
the Common Stock, $.03 par value, of Aurora as authorized on the date hereof,
and also any capital stock of any class of Aurora hereinafter authorized which
shall not be limited to a fixed sum or
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percentage in respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of Aurora; provided, however, that the
shares purchasable pursuant to this Warrant shall include only shares designated
as Common Stock, $.03 par value, of Aurora on the date hereof, or shares of any
class or classes resulting from any reclassification or reclassifications
thereof which are not limited to any such fixed sum or percentage and are not
subject to redemption by Aurora and, in case at any time there shall be more
than one such resulting class, the shares of each class then so issuable shall
be substantially in the proportion which the total number of shares of such
class resulting from all such reclassification bears to the total number of
shares of all such classes resulting from all such reclassifications.
14. NOTICES OF RECORD DATES
In the event of (i) any taking by Aurora of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution (other
than cash dividends out of earned surplus), or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or (ii) any capital
reorganization of Aurora, any reclassification or recapitalization of the
capital stock of Aurora or any transfer of all or substantially all the assets
of Aurora to or consolidation or merger of Aurora with or into any other
corporation, or (iii) any voluntary or involuntary dissolution, liquidation or
winding-up of Aurora, then, and in each such event, Aurora will give notice to
the holder of this Warrant specifying (x) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right and stating
the amount and character of such dividend, distribution or right, and (y) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock will be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up. Such notice shall be given at least
twenty (20) days and not more than ninety (90) days prior to the date therein
specified, and such notice shall state that the action in question or the record
date is subject to the effectiveness of a registration statement under the
Securities Act of 1933, as amended, or to a favorable vote of stockholders, if
either is required.
15. INVESTMENT REPRESENTATION AND LEGEND
The holder, by acceptance of the Warrant, represents and
warrants to Aurora that it is acquiring the Warrant and the shares of Common
Stock (or other securities) issuable upon the exercise hereof for investment
purposes only and not with a view towards the resale or other distribution
thereof and agrees that Aurora may affix upon this Warrant the following legend:
"This Warrant has been issued in reliance upon the
representation of the holder that it has been acquired for investment
purposes and not with a view towards the resale or other distribution
thereof. Neither this Warrant nor the
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shares issuable upon the exercise of this Warrant have been registered
under the Securities Act of 1933, as amended."
The holder, by acceptance of this Warrant, further agrees that Aurora may affix
the following legend to certificates for shares of Common Stock issued upon
exercise of this Warrant:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN
REGISTERED UNDER THE ACT OR UNLESS IN THE OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION AN EXEMPTION FROM REGISTRATION IS
AVAILABLE."
16. NO SHAREHOLDER RIGHTS
This Warrant shall not entitle WCAS to any voting rights or
any other rights as a shareholder of Aurora or to any other rights whatsoever
except the rights stated herein; and no dividend or interest shall be payable or
shall accrue in respect of this Warrant or the Common Stock issuable upon
conversion of this Warrant, until and to the extent that this Warrant shall be
exercised. No provision hereof, in the absence of affirmative action by the
holder hereof to purchase shares of Common Stock, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Warrant Exercise Price or as a stockholder of
Aurora, whether such liability is asserted by Aurora or by creditors of Aurora.
17. CONSTRUCTION
THE VALIDITY AND INTERPRETATION OF THE TERMS AND PROVISIONS OF
THIS WARRANT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES
OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF THE LAWS OF ANY
OTHER JURISDICTION. The descriptive headings of the several sections of this
Warrant are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions thereof.
18. LOST WARRANT CERTIFICATE
If this Warrant is lost, stolen, mutilated or destroyed,
Aurora shall issue a new Warrant of like denomination, tenor and date as this
Warrant, subject to Aurora's right to require WCAS to give Aurora a bond or
other satisfactory security sufficient to indemnify Aurora against any claim
that may be made against it (including any expense or liability) on account of
the alleged loss, theft, mutilation or destruction of this Warrant or the
issuance of such new Warrant.
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19. WAIVERS AND AMENDMENTS
This Warrant, or any provision hereof, may be changed, waived,
discharged or terminated only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
20. NOTICES
All notices, requests and other communications required or
permitted to be given or delivered hereunder shall be in writing, and shall be
delivered, or shall be sent by certified or registered mail, postage prepaid and
addressed, if to the holder to such holder at the address shown on such holder's
Warrant or shares of Common Stock issued upon exercise thereof or at such other
address as shall have been furnished to Aurora by notice from such holder. All
notices, requests and other communications required or permitted to be given or
delivered hereunder shall be in writing, and shall be delivered, or shall be
sent by certified or registered mail, postage prepaid and addressed to Aurora at
such address as shall have been furnished to the holder by notice from Aurora.
IN WITNESS WHEREOF, Aurora has executed this Warrant as of the date
first written above.
AURORA ELECTRONICS, INC.
By: ________________________
Name: ________________________
Title: ________________________
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ELECTION TO PURCHASE
To: Aurora Electronics, Inc.
The undersigned hereby irrevocably elects to purchase ________________
shares of Common Stock issuable upon the exercise of this Warrant, and requests
that certificates for such shares shall be issued in the name of and delivered
to the address of the undersigned, at the address stated below, and
____ i) makes cash payment herewith in full therefor
at the price per share provided by such Warrant;
____ ii) surrenders to Aurora promissory notes
or other obligations issued by Aurora, in
accordance with Section 3 (ii) of such
Warrant, as payment herewith in full
therefor at the price per share provided by
such Warrant;
____ iii) delivers to Aurora other securities
issued by the Company, in accordance with
Section 3 (iii) of such Warrant, as payment
herewith in full therefor at the price per
share provided by such Warrant; and/or
____ iv) elects Net Issue Exercise as provided in Section
3(iv) of such Warrant.
(Check any combination of (i) through (iv) above).
Dated: _____________
Name and signature of holder of Warrant:
Welsh, Carson, Anderson & Stowe VII, L.P.
By: _________________________
Name: _______________________
Title: ______________________
<PAGE> 1
EXHIBIT 4.11
EXHIBIT B-2(B)
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER
THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS
THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES
ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
WARRANT TO PURCHASE SHARES
ISSUED: _________________ OF AURORA ELECTRONICS, INC.
VOID AFTER FIVE (5) YEARS COMMON STOCK
AURORA ELECTRONICS, INC.
COMMON STOCK
PURCHASE WARRANT
THIS IS TO CERTIFY that, for value received and subject to the terms
and conditions hereof, WCAS Capital Partners II, L.P. is entitled to purchase up
to the number of shares of the common stock, $.03 par value per share, of Aurora
Electronics, Inc., a Delaware corporation, as set forth in Section 2 of this
Warrant, at the price per share set forth in Section 2 of this Warrant.
This Warrant is subject to the following additional terms and
conditions:
1. DEFINITIONS
a. AEG shall mean Aurora Electronics Group, Inc., a California
corporation and wholly-owned subsidiary of Aurora.
b. Agent shall mean The Chase Manhattan Bank (formerly known
as Chemical Bank), as agent for the lenders named in the Credit Agreement dated
March 29, 1996 between AEG and Agent.
c. Aurora shall mean Aurora Electronics, Inc., a Delaware
corporation.
d. Common Stock shall mean the common stock of Aurora, $.03
par value per share, as more specifically set forth in Section 13 hereof.
e. Exercise Period shall mean from [date of issuance] until
[fifth anniversary of date of issuance].
f. Exercise Price shall mean (i) with respect to the First
Warrant Tranche, the average closing price of the Common Stock as reported by
the American Stock Exchange for the
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five trading days preceding the date of this Warrant and (ii) with respect to
the Second Warrant Tranche, Third Warrant Tranche or Final Warrant Tranche, the
lower of the average closing price of the Common Stock as reported by the
American Stock Exchange for the five trading days preceding (x) the date of this
Warrant or (y) the applicable Warrant Accrual Date.
g. Fair Market Value shall mean the value of the Common Stock
as determined in accordance with Section 5 hereof.
h. Second Guarantee shall mean the guarantee issued by WCAS
and its affiliate, Welsh, Carson, Anderson & Stowe VII, L.P., to secure the
indebtedness of AEG under the acquisition credit facility with Agent and certain
other banks, up to a maximum of $9,000,000.
i. Guaranteed Amount shall mean $9,000,000, which is the
maximum principal amount of indebtedness under the Second Guarantee.
j. Purchase Price shall mean the Exercise Price multiplied by
the number of shares of Common Stock subject to this Warrant pursuant to Section
2 hereof.
k. Warrant Accrual Date shall mean (i) the date of this
Warrant with respect to the First Warrant Tranche (as hereinafter defined), (ii)
[nine months following First Warrant Tranche date] with respect to the Second
Warrant Tranche (as hereinafter defined), (iii) [eighteen months following First
Warrant Tranche date] with respect to the Third Warrant Tranche (as hereinafter
defined), and (iv) the date that the Second Guarantee is called with respect to
the Final Warrant Tranche (as hereinafter defined).
l. Warrant Shares shall mean the number of shares of Common
Stock as determined by the following formula:
[(Guaranteed Amount)/(Exercise Price)] x (WCAS Interest).
m. WCAS shall mean WCAS Capital Partners II, L.P.
n. WCAS Interest shall mean 3.4%, which is the percentage of
the Guaranteed Amount that is guaranteed by WCAS.
2. NUMBER OF SHARES SUBJECT TO WARRANT
The number of shares subject to this Warrant will be calculated as
follows:
a. From [date of issuance] until [nine months following date
of issuance], WCAS shall have the right to purchase a number of shares of Common
Stock equal to twenty percent (20%) of the Warrant Shares (the "First Warrant
Tranche"), exercisable at the Exercise Price.
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b. If as of [nine months plus one day following date of
issuance] the Second Guarantee is still outstanding, then from [nine months plus
one day following date of issuance] until [eighteen months following date of
issuance], WCAS shall have the right to purchase an additional number of shares
of Common Stock equal to an additional twenty percent (20%) of the Warrant
Shares (or, a total of 40% of the Warrant Shares) (the "Second Warrant
Tranche"), exercisable at the Exercise Price.
c. If as of [eighteen months plus one day following date of
issuance] the Second Guarantee is still outstanding, then from [eighteen months
plus one day following date of issuance] until [fifth anniversary date of
issuance], WCAS shall have the right to purchase an additional number of shares
of Common Stock equal to an additional twenty percent (20%) of the Warrant
Shares (or, a total of 60% of the Warrant Shares) (the "Third Warrant Tranche"),
exercisable at the Exercise Price.
d. If the WCAS Second Guarantee is called at any time by
Agent, WCAS shall have the right to purchase an additional number of shares of
Common Stock equal to the difference between 100% of the Warrant Shares and the
aggregate percentage of Common Stock for which this Warrant is then exercisable
pursuant to Section 2(a), Section 2(b) and Section 2)(c) hereof (or, a total of
100% of the Warrant Shares) (the "Final Warrant Tranche"), exercisable at the
Exercise Price.
3. METHOD OF EXERCISE
The rights represented by this Warrant may be exercised by the
holder hereof, in whole at any time or from time to time in part, but not as to
a fractional share of Common Stock, by the surrender of this Warrant (properly
endorsed) at the office of Aurora as it may designate by notice in writing to
the holder hereof at the address of such holder appearing on the books of
Aurora, and by payment as provided below. The holder may make payment in respect
of the exercise of this Warrant as follows:
i) Cash Exercise. By payment to Aurora of the Exercise price
in cash or by certified or official bank check, for each share being
purchased;
ii) Notes Exercise. By surrender to Aurora of any promissory
notes or other obligations issued by Aurora, with all such notes or
other obligations of Aurora so surrendered being credited against the
Exercise Price in an amount equal to the principal amount thereof plus
the amount of any interest thereon to the date of such surrender;
iii) Securities Exercise. By delivery to Aurora of any other
securities issued by Aurora, with such securities being credited
against the Exercise Price in an amount equal to the fair market value
thereof;
iv) Net Issue Exercise. By an election to receive shares the
aggregate fair market value of which as of the date of exercise is
equal to the fair market value of this Warrant (or the portion thereof
being exercised) on such date, in which event Aurora,
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upon receipt of notice of such election, shall issue to the holder
hereof a number of shares of Common stock equal to (A) the number of
shares of Common Stock acquirable upon exercise of all or any portion
of this Warrant being exercised, as at such date, multiplied by (B) the
balance remaining after deducting (x) the Exercise Price, as in effect
on such date, from (y) the Fair Market Value of one share of Common
Stock as at such date and dividing the result by (c) such Fair Market
Value; or
v) Combined Payment Method. By satisfaction of the Exercise
Price for each share being acquired in any combination of the methods
described in clauses (i) through (iv) above.
4. DELIVERY OF STOCK CERTIFICATES
Within ten (10) days after the payment of the Purchase Price
following the exercise of this Warrant, Aurora shall issue in the name of and
deliver to WCAS a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock to which WCAS shall be entitled upon such
exercise and payment. WCAS shall for all purposes be deemed to have become
holder of record of such shares of Common Stock on the date by which this
Warrant was surrendered and payment of the Purchase Price was made, irrespective
of the date of delivery of the certificate or certificates representing the
Common Stock; provided, that if the date by which such surrender and payment is
made is a date when the stock transfer books of Aurora are closed, such person
shall be deemed to have become holder of record of such shares of Common Stock
at the close of business on the next succeeding date on which the stock transfer
books are open.
5. DEFINITION OF FAIR MARKET VALUE
For the purposes of this Warrant, the Fair Market Value of the Common
Stock shall be determined as follows: (i) if the Common stock is listed or
admitted to trading on one or more national securities exchanges, the average of
the last reported sales prices per share regular way or, in case no such
reported sales take place or such day, the average of the last reported bid and
asked prices per share regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
for the five trading days immediately preceding the date of the exercise of this
Warrant (the "Determination Date"); (ii) if the Common Stock is not listed or
admitted to trading on a national securities exchange but is quoted by NASDAQ,
the average of the last reported sales prices per share regular way or, in case
no reported sale takes place on any such day or the last reported sales prices
are not then quoted by NASDAQ, the average of the last reported bid and asked
prices per share, for the five trading days immediately preceding the
Determination Date as furnished by the National Quotation Bureau Incorporated or
any similar successor organization; and (iii) if the Common Stock is not listed
or admitted to trading on a national securities exchange or quoted by NASDAQ or
any other nationally recognized quotation service, the Fair Market Value shall
be the fair value thereof determined jointly by the Board of Directors of Aurora
and the holders of Warrants outstanding representing a majority of the shares of
Common Stock acquirable upon exercise of the Warrants; provided, however, that
if such parties are unable to reach agreement within a
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reasonable time, the Fair Market Value shall be determined in good faith by an
independent investment banking firm selected jointly by the Board of Directors
of Aurora and the holders of Warrants outstanding representing a majority of the
shares of Common Stock issuable upon exercise of the Warrants or, if that
selection cannot be made within fifteen (15) days, by an independent investment
banking firm selected by the American Arbitration Association in accordance with
its rules. Anything in this Section 5 to the contrary notwithstanding, the Fair
Market Value of this Warrant or any portion thereof as of any Determination Date
shall be equal to (A) the Fair Market Value of the shares of Common Stock
issuable upon exercise of this Warrant (or such portion thereof) (determined in
accordance with the foregoing provisions of this paragraph) minus (B) the
aggregate Exercise Price of the Warrant (or such portion thereof).
6. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE
If any capital reorganization or reclassification of the
capital stock of Aurora or any consolidation or merger of Aurora with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby each holder of the Warrants shall thereafter have the
right to receive upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
receivable upon the exercise of such Warrants, such shares of stock, securities
or assets (including cash) as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provisions shall be made with respect to the
rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the Exercise Price)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of such
exercise rights (including an immediate adjustment, by reason of such
reorganization or reclassification, of the Exercise Price to the value for the
Common Stock reflected by the terms of such reorganization or reclassification
if the value so reflected is less than the Exercise Price in effect immediately
prior to such reorganization or reclassification). In the event of a merger or
consolidation of Aurora as a result of which a greater or lesser number of
shares of common stock of the surviving corporation are issuable to holders of
Common Stock of Aurora outstanding immediately prior to such merger or
consolidation, the Exercise Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of Aurora.
Aurora will not effect any such consolidation, merger or any sale of all or
substantially all of its assets of properties, unless prior to the consummation
thereof the successor corporation (if other than Aurora) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed or delivered to each holder of the
Warrants at the last address of such holder appearing on the books of Aurora,
the obligation to deliver to such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to receive.
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<PAGE> 6
7. ADJUSTMENTS TO EXERCISE PRICE FOR DISTRIBUTIONS,
SUBDIVISIONS AND COMBINATIONS
In the event that Aurora, after the date hereof: (a) pays a
stock dividend with respect to the Common Stock; (b) subdivides its outstanding
shares of Common Stock; (c) combines its outstanding shares of Common Stock into
a smaller number of shares of any class of Common Stock or (d) issues shares of
its capital stock in a reclassification of the Common Stock, including any such
reclassification in connection with a consolidation or merger in which Aurora is
the surviving corporation (any one of which actions is herein referred to as an
"Adjustment Event"), the Exercise Price shall be adjusted by multiplying such
Exercise Price immediately prior to such Adjustment Event by a fraction, the
numerator of which shall be the number of shares of Common Stock issued and
outstanding immediately prior to such Adjustment Event, and the denominator of
which shall be the number of shares of Common Stock issued and outstanding
immediately thereafter.
Whenever the Exercise Price is adjusted in accordance with
this Section 7, WCAS shall be entitled to purchase at the new Exercise Price the
number of shares of Common Stock obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common
Stock purchasable pursuant to the terms of this Warrant immediately prior to
such adjustment and dividing the product thereof by the new Exercise Price.
8. ADJUSTMENTS TO EXERCISE PRICE FOR ISSUANCES BELOW MARKET
PRICE
If Aurora issues any shares of Common Stock for a
consideration per share less than the then Fair Market Value, then upon such
issuance the Exercise Price shall be reduced to the price determined by
multiplying the Exercise Price in effect immediately prior to the time of such
issue or sale by a fraction, the numerator of which shall be the sum of (a) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale multiplied by the Fair Market Value of the Common Stock immediately prior
to such issue or sale plus (b) the consideration received by Aurora upon such
issue or sale, and the denominator of which shall be the product of (x) the
total number of shares of Common Stock outstanding immediately after such issue
or sale multiplied by (y) the Fair Market Value of the Common Stock immediately
prior to such issue or sale.
Whenever the Exercise Price is adjusted in accordance with
this Section 8, WCAS shall be entitled to purchase at the new Exercise Price the
number of shares of Common Stock obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common
Stock purchasable pursuant to the terms of this Warrant immediately prior to
such adjustment and dividing the product thereof by the new Exercise Price.
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<PAGE> 7
9. FRACTIONAL SHARES
No fractional shares shall be issued upon the exercise of this
Warrant. In lieu of fractional shares, Aurora shall pay WCAS a sum in cash equal
to the Fair Market Value of the fractional shares on the date of exercise.
10. STOCK TO BE RESERVED
Aurora will at all times reserve and keep available out of its
authorized Common Stock or its treasury shares, solely for the purpose of issue
upon the exercise of this Warrant as herein provided, such number of shares of
Common Stock as shall then be issuable upon the exercise of this Warrant. Aurora
covenants that all shares of Common Stock which shall be so issued shall be duly
and validly issued and fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof, and, without limited the
generality of the foregoing, Aurora covenants that it will from time to time
take all such action as may be requisite to assure that the par value per share
of the Common Stock is at all times equal to or less than the effective Exercise
Price. Aurora will take all such action as may be necessary and within its
control to assure that all such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange upon which the Common Stock of Aurora may be
listed. Aurora will not take any action which results in any adjustment of the
Exercise price if the total number of shares of Common Stock issued and issuable
after such action upon exercise of this Warrant would exceed the total number of
shares of Common Stock then authorized by Aurora's Articles of Incorporation.
Aurora has not granted and will not grant any right of first refusal with
respect to shares issuable upon exercise of this Warrant, and there are no
preemptive rights associated with such shares.
11. ISSUE TAX
The issuance of certificates for shares of Common Stock upon
exercise of the Warrants shall be made without charge to the holders of such
Warrants for any issuance tax in respect thereof provided that Aurora shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of any holder of the Warrants.
12. CLOSING OF BOOKS
Aurora will at no time close its transfer books against the
transfer of the shares of Common Stock issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant.
13. DEFINITION OF COMMON STOCK
As used herein the term "Common Stock" shall mean and include
the Common Stock, $.03 par value, of Aurora as authorized on the date hereof,
and also any capital stock of any class of Aurora hereinafter authorized which
shall not be limited to a fixed sum or
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<PAGE> 8
percentage in respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of Aurora; provided, however, that the
shares purchasable pursuant to this Warrant shall include only shares designated
as Common Stock, $.03 par value, of Aurora on the date hereof, or shares of any
class or classes resulting from any reclassification or reclassifications
thereof which are not limited to any such fixed sum or percentage and are not
subject to redemption by Aurora and, in case at any time there shall be more
than one such resulting class, the shares of each class then so issuable shall
be substantially in the proportion which the total number of shares of such
class resulting from all such reclassification bears to the total number of
shares of all such classes resulting from all such reclassifications.
14. NOTICES OF RECORD DATES
In the event of (i) any taking by Aurora of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution (other
than cash dividends out of earned surplus), or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or (ii) any capital
reorganization of Aurora, any reclassification or recapitalization of the
capital stock of Aurora or any transfer of all or substantially all the assets
of Aurora to or consolidation or merger of Aurora with or into any other
corporation, or (iii) any voluntary or involuntary dissolution, liquidation or
winding-up of Aurora, then, and in each such event, Aurora will give notice to
the holder of this Warrant specifying (x) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right and stating
the amount and character of such dividend, distribution or right, and (y) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock will be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up. Such notice shall be given at least
twenty (20) days and not more than ninety (90) days prior to the date therein
specified, and such notice shall state that the action in question or the record
date is subject to the effectiveness of a registration statement under the
Securities Act of 1933, as amended, or to a favorable vote of stockholders, if
either is required.
15. INVESTMENT REPRESENTATION AND LEGEND
The holder, by acceptance of the Warrant, represents and
warrants to Aurora that it is acquiring the Warrant and the shares of Common
Stock (or other securities) issuable upon the exercise hereof for investment
purposes only and not with a view towards the resale or other distribution
thereof and agrees that Aurora may affix upon this Warrant the following legend:
"This Warrant has been issued in reliance upon the
representation of the holder that it has been acquired for investment
purposes and not with a view towards the resale or other distribution
thereof. Neither this Warrant nor the
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<PAGE> 9
shares issuable upon the exercise of this Warrant have been registered
under the Securities Act of 1933, as amended."
The holder, by acceptance of this Warrant, further agrees that Aurora may affix
the following legend to certificates for shares of Common Stock issued upon
exercise of this Warrant:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN
REGISTERED UNDER THE ACT OR UNLESS IN THE OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION AN EXEMPTION FROM REGISTRATION IS
AVAILABLE."
16. NO SHAREHOLDER RIGHTS
This Warrant shall not entitle WCAS to any voting rights or
any other rights as a shareholder of Aurora or to any other rights whatsoever
except the rights stated herein; and no dividend or interest shall be payable or
shall accrue in respect of this Warrant or the Common Stock issuable upon
conversion of this Warrant, until and to the extent that this Warrant shall be
exercised. No provision hereof, in the absence of affirmative action by the
holder hereof to purchase shares of Common Stock, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Warrant Exercise Price or as a stockholder of
Aurora, whether such liability is asserted by Aurora or by creditors of Aurora.
17. CONSTRUCTION
THE VALIDITY AND INTERPRETATION OF THE TERMS AND PROVISIONS OF
THIS WARRANT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES
OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF THE LAWS OF ANY
OTHER JURISDICTION. The descriptive headings of the several sections of this
Warrant are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions thereof.
18. LOST WARRANT CERTIFICATE
If this Warrant is lost, stolen, mutilated or destroyed,
Aurora shall issue a new Warrant of like denomination, tenor and date as this
Warrant, subject to Aurora's right to require WCAS to give Aurora a bond or
other satisfactory security sufficient to indemnify Aurora against any claim
that may be made against it (including any expense or liability) on account of
the alleged loss, theft, mutilation or destruction of this Warrant or the
issuance of such new Warrant.
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<PAGE> 10
19. WAIVERS AND AMENDMENTS
This Warrant, or any provision hereof, may be changed, waived,
discharged or terminated only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
20. NOTICES
All notices, requests and other communications required or
permitted to be given or delivered hereunder shall be in writing, and shall be
delivered, or shall be sent by certified or registered mail, postage prepaid and
addressed, if to the holder to such holder at the address shown on such holder's
Warrant or shares of Common Stock issued upon exercise thereof or at such other
address as shall have been furnished to Aurora by notice from such holder. All
notices, requests and other communications required or permitted to be given or
delivered hereunder shall be in writing, and shall be delivered, or shall be
sent by certified or registered mail, postage prepaid and addressed to Aurora at
such address as shall have been furnished to the holder by notice from Aurora.
IN WITNESS WHEREOF, Aurora has executed this Warrant as of the date
first written above.
AURORA ELECTRONICS, INC.
By: ______________________
Name: ______________________
Title: ______________________
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<PAGE> 11
ELECTION TO PURCHASE
To: Aurora Electronics, Inc.
The undersigned hereby irrevocably elects to purchase ________________
shares of Common Stock issuable upon the exercise of this Warrant, and requests
that certificates for such shares shall be issued in the name of and delivered
to the address of the undersigned, at the address stated below, and
____ i) makes cash payment herewith in full therefor at
the price per share provided by such Warrant;
____ ii) surrenders to Aurora promissory notes or other
obligations issued by Aurora, in accordance
with Section 3 (ii) of such Warrant, as payment
herewith in full therefor at the price per
share provided by such Warrant;
____ iii) delivers to Aurora other securities issued by
the Company, in accordance with Section 3 (iii)
of such Warrant, as payment herewith in full
therefor at the price per share provided by
such Warrant; and/or
____ iv) elects Net Issue Exercise as provided in
Section 3(iv) of such Warrant.
(Check any combination of (i) through (iv) above).
Dated: _____________
Name and signature of holder of Warrant:
WCAS Capital Partners II, L.P.
By: _________________________
Name: _______________________
Title: _______________________
<PAGE> 1
EXHIBIT 10.4
October 22,1996
Mr. John P. Grazer
22646 Sacedon
Mission Viejo, CA 92691
Dear John:
This letter covers your position as the President, and Chief Financial Officer
of Aurora Electronics, Inc. and Aurora Electronics Group, Inc.
This letter is effective immediately upon signing. You will report to the Chief
Executive Officer and the Board of Directors of Aurora. Your duties will be,
among other things, to have primary responsibility for the financial and
administrative functions in the Company, including without limitation, (a)
primary responsibility for the operations of the Company; (b) execution of the
Company's strategy and growth of the Company's business; and (c) financial
reporting to the SEC, shareholders, lenders, etc. These duties may be expanded
or modified from time to time by the CEO and/or Board, and you will carry them
out either directly or through other members of the management team as
appropriate. You will be expected to devote your full business time and best
efforts to the performance of your duties and responsibilities for the Company,
and as a corporate officer you will assume the associated fiduciary duties to
shareholders.
The terms of your employment include:
BASE SALARY: $175,000 (annualized rate) subject to adjustment
from time to time.
PROMOTION BONUS: $150,000 one-time bonus upon accepting the position.
PERFORMANCE AND
DISCRETIONARY
BONUSES: You will be eligible for a performance and a
discretionary bonus, initially targeted at 50% of
base salary (annualized rate) to be determined from
time to time by the Compensation Committee of the
Board of Directors. The Performance Measure for each
period of time is determined during the Company's
annual planning cycle, and is approved by the
Compensation Committee of the Board of Directors. To
receive a performance based bonus for a period, you
must be employed by the Company at the end of the
period for which the bonus is payable and on the date
the bonus is payable (provided that your performance
bonus for each period shall be paid on or before the
date the Company files its 10-Q for the quarter or
10-K for the year). The FY97 Incentive Plan is
currently being finalized.
STOCK OPTIONS: The recapitalization completed on March 29, 1996
includes a substantial change in the stock options
for senior executives. As discussed in that plan, you
have been awarded 899,669 options to purchase Aurora
common stock, including 154,987 Tranche A options,
154,987 Tranche A1 options, 294,847 Tranche B options
and 294,847 Tranche C options. Your Tranche A
<PAGE> 2
options were fully be vested upon issuance. Your
Tranche A1 options are vesting ratably on the first
day of each month for the 24 months beginning July
1997. One-eighth of your Tranche B options vested on
September 30, 1996, and will continue vesting each
March 31 and September 30 through March 31, 2000, and
your Tranche C options will vest either with
performance (over years 1-4) or with time (over later
years). All Tranche A options and all vested Tranche
A1 options that you own on leaving the Company will
remain exercisable for 90 days, provided that if your
employment is terminated as a result of death,
disability or termination by the Company which is not
for cause, your Tranche A and vested Tranche A1
Options will remain exercisable for 12 months or the
remaining term of the option (whichever is less). All
vested Tranche B and Tranche C Options that you own
on leaving the Company will remain exercisable for 90
days, provided that if your employment is terminated
as a result of death or disability, your Tranche B
and C Options will remain exercisable for 12 months
or the remaining term of the option (whichever is
less).
PUT ON OPTIONS: On December 31, 1999, you have a right to sell to the
Company for $2.00 per share all stock options
assuming employment as of that date. To exercise this
put, you will need to make an irrevocable notice to
the Company of you intent to do so between November 1
and 15, 1999.
In the event of termination not for cause prior to
December 31, 1999, a one-time right to sell to the
Company for $2.00 per share all stock options vested
to the date of termination or at the end of the
severance period described below, whichever period is
longer.
SEVERANCE: This letter and your response do not constitute a
contract of employment for a stated term. As always
since you joined Aurora, you have the right to
terminate your employment at any time, and Aurora
retains a similar right to terminate your employment
at will. Termination by the Company may be for (1)
cause, or (2) other than for cause. In the event that
you are terminated for cause or you terminate
voluntarily, your compensation will end on the date
of termination. For these purposes, "cause" means
termination by the Company of your relationship as
employee of the Company: (a) for committing an act of
fraud or willful misconduct against the Company; (b)
for conviction of, or entry of a plea by the Optionee
of nolo contendere to, a felony; (c) for breach of
your fiduciary duties to the Company or its
Stockholders; or (d) for committing a material act of
personal dishonesty or willful misconduct. (For
purposes of this agreement, "compensation" includes
salary, bonus, insurance and other employee benefits
and auto-related benefits.) If you are terminated for
any other reason (other than death or disability),
your compensation will continue (as salary and
benefit continuation, and not as a lump-sum payment))
for 15 months. The Company further agrees that if
your duties and compensation are reduced below the
levels of those discussed above, you will have a 30
day period during which you may notify the Company
that such reduction is a constructive termination
which will entitle you to the benefits of this
severance paragraph.
CHANGE OF
CONTROL: A "Change in Control" shall be defined as (i) the
sale, lease or transfer, whether direct or indirect,
of all or substantially all of the assets of the
Company and its subsidiaries, taken as a whole, in
one transaction or a series of related transactions,
to any "person" or "group" (other than the WCAS Group
as defined below), (ii) the liquidation or
dissolution of the Company or the adoption of a plan
of liquidation or dissolution of the Company, (iii)
the acquisition of "beneficial ownership" by any
<PAGE> 3
"person" or "group" (other than the WCAS Group) 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 or
consolidation or otherwise, or (iv) during any period
of two consecutive years, the failure of those
individuals who at the beginning of such period
constituted the Company's Board of Directors
(together with any new directors whose election or
appointment by such Board or whose nomination for
election or appointment by the shareholders of the
Company was approved by a vote of a majority of the
directors then still in office who were either
directors at the beginning of such period or whose
election or nomination for election was previously so
approved) to constitute a majority of the Company's
Board of Directors then in office.
For purposes of this definition, (i) the terms
"person" and "group" shall have the meaning set forth
in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not
applicable, (ii) the term "beneficial owner" shall
have the meaning set forth in Rules 13d-3 and 13d-5
under the Exchange Act, whether or not applicable,
except that a person shall be deemed to have
"beneficial ownership" of all shares that any such
person has the right to acquire, whether such right
is exercisable immediately or only after the passage
of time or upon the occurrence of certain events,
(iii) any "person" or "group" will be deemed to
beneficially own any voting stock of the Company so
long as such person or group beneficially owns,
directly or indirectly, in the aggregate a majority
of the voting stock of a registered holder of the
voting stock of the Company, and (iv) the term "WCAS
Group" shall mean Welsh, Carson, Anderson & Stowe
VII, L.P., WCAS Capital Partners II, L.P. and any
general partners thereof.
In the event of a Change in Control of the Company,
the following will occur:
Stock Options
If the WCAS Group has Compensation Committee Control
(defined below) before the Change in Control, all
options held by you shall vest immediately with the
approval of the Compensation Committee unless it is
the judgment of the Compensation Committee members
who are appointees of the WCAS Group that the
investment by the WCAS Group in the Company through
the date of such Change in Control has been less than
successful. "Compensation Committee Control" exists
if (i) the WCAS Group has the ability to elect at
least one-half of the members of the board of
directors of the Company, (ii) at least one-half of
the Compensation Committee members are WCAS Group
representatives to the board of directors, or (iii)
the WCAS Group owns at least one-half of the voting
stock of the Company.
If the WCAS Group does not have Compensation
Committee Control before the Change in Control of the
Company, all of your outstanding unvested options
shall vest.
Failure to Offer Employment
If within 90 days following a Change of Control you
are not offered employment from the surviving company
under terms and conditions acceptable to you, or you
are terminated by the surviving company within those
90 days, you may elect to terminate your employment
and shall be entitled, following such termination,
(i) to receive the severance benefits described in
the last sentence of the "Severance" clause above and
(ii) to receive a full payout of all earned but
unpaid bonuses and deferred compensation accrued
through the date of each such termination. For
<PAGE> 4
purposes of determining your earned but unpaid
bonuses and deferred compensation, all vested
benefits shall be included. Any unvested benefits
shall be treated as vested on a pro rata basis. For
example, if you are severed on July 1, xxx9, and you
have a bonus plan based on one year's performance
beginning January 1, xxx9 and ending January 1, xx10,
and the performance measure for the period has been
achieved for 102%, one-half of the amount that would
have been payable for a full year's performance of
102% will be payable.
NON-COMPETITION
AND CONFIDENTIALITY: During the course of your employment by the Company,
you will represent the Company and its subsidiaries
and develop contacts and relationships on their
behalf, including customers, suppliers, potential
customers and suppliers, and other employees. To
protect the Company's and its subsidiaries' interests
in these contacts and relationships, you agree that
if you are terminated for cause or you voluntarily
resign, for a period of two years after such
termination or resignation, without the Company's
prior written approval, you will not, in connection
with any business that provides spare parts
distribution or electronics recycling services to
major personal computer manufacturers and field
service organizations, as an employee, consultant,
principal or otherwise, (1) conduct or assist others
in conducting a business that competes with the
Company's or its subsidiaries' businesses of
providing the same services for such customers in the
United States, Canada, the United Kingdom or the
Netherlands, or (2) recruit, hire or assist others in
recruiting or hiring any person who is or within the
preceding 12 months was an employee of the Company or
its subsidiaries.
You agree that the scope of the foregoing agreement
is reasonable as to time, area and persons and is
necessary to protect the legitimate business
interests of the Company and its subsidiaries. You
further agree that such agreement will be regarded as
divisible and will be operative as to time, area and
persons to the extent that it may be so operative,
and if any part of such agreement is declared
invalid, unenforceable, or void as to time, area or
persons, the validity and enforceability of the
remainder will not be affected.
You also agree that the trade secrets, plans,
strategies, and technology and processes of the
Company and its subsidiaries, and information
concerning the products, services, production,
reconditioning, development, technology, and all
technical information, procurement and sales
activities and procedures, customer, supplier, or
distributor lists, promotion and pricing techniques
and credit and financial data concerning customers,
suppliers, and distributors of the Company and its
subsidiaries are valuable, special, and unique assets
of the Company and its subsidiaries (collectively,
the "Confidential Information"). In light of the
competitive nature of the industry in which the
business of the Company and its subsidiaries is
conducted, you agree that all your knowledge and
information about the Confidential Information will
be considered Confidential Information. In
recognition of this, you agree that except as
specifically authorized in writing by the Company,
you will not, in whole or in part, (1) disclose any
Confidential Information to any person, other than
the Company or its subsidiaries, or (2) make use of
any Confidential Information for your own purposes or
for the benefit of any other person, other than the
Company or its subsidiaries.
You also acknowledge and agree that all manuals,
drawings, blueprints, letters, notes, notebooks,
reports, books, procedures, forms, documents,
records, or paper or copies thereof pertaining to the
operations or business of the Company and its
subsidiaries that you have made or received or are
known to you in any
<PAGE> 5
way in connection with your employment and any other
Confidential Information are and will be the
exclusive property of the Company or the relevant
subsidiary. You acknowledge that all such papers and
records will at all times be subject to the control
of the Company or the relevant subsidiary, and you
agree to surrender the same upon request of the
Company, and will surrender such no later than any
termination of your employment with the Company or
the relevant subsidiary, whether voluntary or
involuntary. The Company and each subsidiary may
notify anyone employing you at any time of the
provisions of this Agreement.
HEALTH AND LIFE
INSURANCE: The Company will pay for its standard health and
dental coverage policy for you and your family. You
will also receive the same life and disability
insurance and employee benefits as the other senior
executives of Aurora.
VACATION: You will initially be entitled to approximately 3
weeks vacation per year.
OTHER BENEFITS
AND EXPENSES: You will be compensated for expenses incurred in the
performance of your duties (e.g. travel and
entertainment, car phone, etc.), including an
automobile allowance of $600 per month, and you
will be eligible for all of the benefits for which
other senior executives are eligible.
Payment of all of the above compensation and benefits will, of course, be
subject to (1) normal Company policies, and (2) the various laws and regulations
applicable to the Company and your employment both at present and as they are
changed from time to time. Any post-employment compensation (severance, stock
option ownership, etc.) will be payable to your estate in the event of your
death. In signing this letter, you represent that you have not relied on any
agreements or representations that are not set forth herein, and that any and
all disputes that arise between the parties hereto will be resolved through
binding arbitration rather than litigation.
Best personal regards, Accepted and agreed:
/s/ Jim C. Cowart
Jim C. Cowart /s/ John P. Grazer
Chairman and CEO _______________________
John P. Grazer
_______________________
Date
<PAGE> 1
EXHIBIT 10.31
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
March 29, 1996
To the several persons named
in Schedule I hereto
Ladies and Gentlemen:
This will confirm that with respect to the several individuals
and entities named as Purchasers in the Securities Purchase Agreement dated as
of February 21, 1996 (the "Purchase Agreement"), among Aurora Electronics,
Inc., a Delaware corporation (the "Company"), Welsh, Carson, Anderson & Stowe
VII, L.P., a Delaware limited partnership ("WCAS VII"), WCAS Capital Partners
II, L.P., a Delaware limited partnership ("WCAS CP II"), and the several
persons named therein, in consideration of (i) the purchase by WCAS VII and the
several persons named in Part A of Schedule I hereto (collectively, "the
Preferred Share Purchasers") from the Company of [ ](1) shares (the
"Preferred Shares") of Convertible Preferred Stock, $.01 par value
("Convertible Preferred Stock"), of the Company, and (ii) the purchase by WCAS
CP II of (x) the Company's 10% Senior Subordinated Note due September 30, 2001,
in the principal amount of $10,000,000, and (y) [ ]1 shares (the "Common
Shares") of Common Stock, $.03 par value ("Common Stock"), of the Company, all
on the terms and subject to the conditions set forth in the Purchase Agreement,
and as an inducement to the Purchasers to consummate the transactions
contemplated by the Purchase Agreement, the Company hereby covenants and agrees
with each of you, and with each subsequent holder of Restricted Stock (as
defined herein) as follows:
1. Certain Definitions. As used herein, the following terms
shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
__________________________________
(1) To be determined at Closing.
<PAGE> 2
"Conversion Shares" means the shares of Common Stock issuable
upon conversion of any of the Preferred Shares.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the
time.
"Registration Expenses" means the expenses so described
in Section 8 hereof.
"Restricted Stock" means the shares of capital stock of the
Company, the certificates for which are required to bear the legend set
forth in Section 2 hereof.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" means the expenses so described in Section 8
hereof.
2. Restrictive Legend. Each certificate representing the
Common Shares, each certificate representing the Preferred Shares, each
certificate representing the Conversion Shares and each certificate issued upon
exchange, adjustment or transfer of any of the foregoing, other than in a
public sale or as otherwise permitted by the last paragraph of Section 3
hereof, shall be stamped or otherwise imprinted with a legend substantially in
the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN
REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE."
3. Notice of Proposed Transfer. Prior to any proposed
transfer of any Restricted Stock (other than under the circumstances described
in Sections 4, 5 or 6 hereof), the holder thereof shall give written notice to
the Company of its intention to effect such transfer. Each such notice shall
describe the manner of the proposed transfer and, if requested by the Company,
shall be accompanied by an opinion of counsel reasonably satisfactory to the
Company (it being agreed that Reboul, MacMurray, Hewitt, Maynard & Kristol is
and shall be satisfactory) to the effect that the proposed transfer of the
Restricted Stock may be effected without registration under the Securities Act,
whereupon the holder of such Restricted Stock shall be entitled to transfer
such Restricted Stock in accordance with the terms of its notice. Each
certificate for Restricted
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<PAGE> 3
Stock transferred as above provided shall bear the legend set forth in Section
2, unless (i) such transfer is in accordance with the provisions of Rule 144
(or any other rule permitting public sale without registration under the
Securities Act) or (ii) the opinion of counsel referred to above is to the
further effect that the transferee and any subsequent transferee (other than an
affiliate of the Company) would be entitled to transfer such securities in a
public sale without registration under the Securities Act.
The foregoing restrictions on transferability of Restricted Stock
shall terminate as to any particular shares of Restricted Stock when such
shares shall have been effectively registered under the Securities Act and sold
or otherwise disposed of in accordance with the intended method of disposition
by the seller or sellers thereof set forth in the registration statement
concerning such shares. Whenever a holder of Restricted Stock is able to
demonstrate to the Company (and its counsel) that the provisions of Rule 144(k)
of the Securities Act are available to such holder without limitation, such
holder of Restricted Stock shall be entitled to receive from the Company,
without expense, a new certificate not bearing the restrictive legend set forth
in Section 2.
4. Required Registration.
(a) Subject to the provisions of paragraph (e) below, at any
time the holders of Restricted Stock constituting at least a majority of
the Restricted Stock outstanding at such time may request the Company to
register under the Securities Act all or any portion of the Restricted
Stock held by such requesting holder or holders for sale in the manner
specified in such notice; provided, however, that the only securities
which the Company shall be required to register pursuant hereto shall be
shares of Common Stock. For the purposes of calculating the number of
outstanding shares of Restricted Stock for purposes of this Section 4(a)
and Section 13(d), holders of Convertible Preferred Stock shall be
treated as the holders of the number of shares of Conversion Stock then
issuable upon conversion of such shares.
(b) Promptly following receipt of any notice under this
Section 4, the Company shall notify any holders of Restricted Stock from
whom notice has not been received, and shall use its best efforts to
register under the Securities Act, for public sale in accordance with
the method of disposition specified in such notice from such requesting
holders, the number of shares of Restricted Stock specified in such
notice (and in any notices received from other such holders of
Restricted Stock within 30 days after their receipt of such notice from
the Company); provided, however, that if the proposed method of
disposition specified by the
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<PAGE> 4
requesting holders shall be an underwritten public offering, the number
of shares of Restricted Stock to be included in such an offering may be
reduced (pro rata among the requesting holders of Restricted Stock based
on the number of shares of Restricted Stock so requested to be
registered) if and to the extent that the managing underwriter shall be
of the opinion that such inclusion would adversely affect the marketing
of the Restricted Stock to be sold. If such method of disposition shall
be an underwritten public offering, the Company may designate the
managing underwriter of such offering, subject to the approval of the
selling holders of a majority of the Restricted Stock included in the
offering, which approval shall not be unreasonably withheld.
Notwithstanding anything to the contrary contained herein, the
obligation of the Company under this Section 4 shall be deemed satisfied
only when a registration statement covering all shares of Restricted
Stock specified in notices received as aforesaid, for sale in accordance
with the method of disposition specified by the requesting holder, shall
have become effective and, if such method of disposition is a firm
commitment underwritten public offering, all such shares shall have been
sold pursuant thereto.
(c) In the event that the Board of Directors of the Company
determines in good faith that the filing of a registration statement
pursuant hereto would be detrimental to the Company, the Board of
Directors may defer such filing for a period not to exceed sixty (60)
days. The Board of Directors may not effect more than one such deferral
during any twelve month period. The Board of Directors agrees to
promptly notify all holders of Restricted Stock of any such deferral,
and shall provide to such holders a reasonably complete explanation
therefor.
(d) The Company shall be entitled to include in any
registration statement referred to in this Section 4, for sale in
accordance with the method of disposition specified by the requesting
holders, shares of Common Stock to be sold by the Company for its own
account, except to the extent that, in the opinion of the managing
underwriter (if such method of disposition shall be an underwritten
public offering), such inclusion would adversely affect the marketing of
the Restricted Stock to be sold. Except as provided in this paragraph
(d), the Company will not effect any other registration of its Common
Stock, whether for its own account or that of other holders, from the
date of receipt of a notice from requesting holders pursuant to this
Section 4 until the completion of the period of distribution of the
registration contemplated thereby.
(e) Notwithstanding anything to the contrary contained herein,
the Company shall be obligated to register
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<PAGE> 5
Restricted Stock pursuant to this Section 4 on two occasions only.
5. Form S-3 Registration.
(a) If the Company shall receive from any holder or holders of
Restricted Stock a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to Restricted Stock owned by such holder or holders, the reasonably
anticipated aggregate price to the public of which would exceed $1,000,000, the
Company will:
(i) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other holders of
Restricted Stock; and
(ii) as soon as is reasonably practicable, use its best efforts
to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments,
appropriate qualifications under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations
issued under the Securities Act and any other government requirements or
regulations) as may be so requested and as would permit or facilitate
the sale and distribution of all or such portion of such holder's or
holders' Restricted Stock as is specified in such request, together with
all or such portion of the Restricted Stock of any holder or holders
joining in such request as are specified in a written request given
within 30 days after receipt of such written notice from the Company;
provided, however that the Company shall not be obligated to effect any
such registration, qualification or compliance pursuant to this Section
5 (A) more than once in any 180-day period, or (B) if the Company is not
entitled to use Form S-3; and provided, further, that the only
securities which the Company shall be required to register pursuant
hereto shall be shares of Common Stock. Subject to the foregoing, the
Company shall file a registration statement covering the Restricted
Stock so requested to be registered as soon as is reasonably practicable
after receipt of the request or requests of the holders of the
Restricted Stock.
(b) Notwithstanding anything to the contrary contained herein,
the Company shall be obligated to register Restricted Stock pursuant to this
Section 5 on two occasions only.
6. Incidental Registration. If the Company at any time
(other than pursuant to Section 4 or 5 hereof) proposes to register any of its
Common Stock under the Securities Act for sale to the public, whether for its
own account or for the account of other security holders or both (except with
respect to
5
<PAGE> 6
registration statements on Form S-4 or Form S-8 or another form not available
for registering the Restricted Stock for sale to the public), it will give
written notice at such time to all holders of outstanding Restricted Stock of
its intention to do so. Upon the written request of any such holder, given
within 30 days after receipt of any such notice by the Company, to register any
of its Restricted Stock (which request shall state the intended method of
disposition thereof), the Company will use its best efforts to cause the
Restricted Stock as to which registration shall have been so requested to be
included in the securities to be covered by the registration statement proposed
to be filed by the Company, all to the extent requisite to permit the sale or
other disposition by the holder (in accordance with its written request) of
such Restricted Stock so registered; provided that nothing herein shall prevent
the Company from abandoning or delaying such registration at any time;
provided, further, that the only securities which the Company shall be required
to register shall be shares of Common Stock. In the event that any
registration pursuant to this Section 6 shall be, in whole or in part, an
underwritten public offering of Common Stock, any request by a holder pursuant
to this Section 6 to register Restricted Stock shall specify that either (i)
such Restricted Stock is to be included in the underwriting on the same terms
and conditions as the shares of Common Stock otherwise being sold through
underwriters in connection with such registration or (ii) such Restricted Stock
is to be sold in the open market without any underwriting, on terms and
conditions comparable to those normally applicable to offerings of common stock
in reasonably similar circumstances. The number of shares of Restricted Stock
to be included in an underwriting in accordance with clause (i) above may be
reduced pro rata among the requesting holders of Restricted Stock based upon
the number of shares of Restricted Stock so requested to be registered, if and
to the extent that the managing underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold by
the Company therein; provided, however, that if any shares are to be included
in such underwriting for the account of any person other than the Company, the
shares to be so included shall be subject first to reduction before the shares
of Restricted Stock are reduced pro rata.
Notwithstanding anything to the contrary contained in this
Section 6, in the event that there is a firm commitment underwritten public
offering of securities of the Company pursuant to a registration covering
Restricted Stock and a holder of Restricted Stock does not elect to sell his
Restricted Stock to the underwriters of the Company's securities in connection
with such offering, such holder shall refrain from selling such Restricted
Stock so registered pursuant to this Section 6 during the period of
distribution of the Company's securities by such underwriters and the period in
which the underwriting syndicate participates in the after market; provided,
however, that such
6
<PAGE> 7
holder shall, in any event, be entitled to sell its Restricted Stock commencing
on the 90th day after the effective date of such registration statement or, if
later, on such date (but in no event later than the 180th day after such
effective date) as contractual "lock-up" restrictions imposed by the
underwriters shall expire or be released.
7. Registration Procedures. If and whenever the Company is
required by the provisions of Section 4, 5 or 6 hereof to use its best efforts
to effect the registration of any of the Restricted Stock under the Securities
Act, the Company will, as expeditiously as possible:
(a) prepare (and afford counsel for the selling holders
reasonable opportunity to review and comment thereon) and file with the
Commission a registration statement on the most appropriate form
adequate for the purposes thereof with respect to such securities and
use its best efforts to cause such registration statement to become and
remain effective for the period of the distribution contemplated thereby
(to be determined as hereinafter provided);
(b) prepare (and afford counsel for the selling holders
reasonable opportunity to review and comment thereon) and file with the
Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for the period
specified in paragraph (a) above and to comply with the provisions of
the Securities Act with respect to the disposition of all Restricted
Stock covered by such registration statement in accordance with the
sellers' intended method of disposition set forth in such registration
statement for such period;
(c) furnish to each seller and to each underwriter such number
of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons may
reasonably request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration
statement;
(d) use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under the securities or
blue sky laws of such jurisdictions as the sellers of Restricted Stock
or, in the case of an underwritten public offering, the managing
underwriter, shall reasonably request (provided that the Company will
not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this paragraph (d), (ii) subject itself to
7
<PAGE> 8
taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(e) immediately notify each seller under such registration
statement and each underwriter, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus contained in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing
(following which notification the sellers agree to discontinue sales of
their Restricted Stock covered by such registration statement until such
misstatement or omission shall have been remedied);
(f) use all reasonable efforts (if the offering is
underwritten) to furnish, at the request of any seller, on the date that
Restricted Stock is delivered to the underwriters for sale pursuant to
such registration: (i) an opinion of counsel representing the Company
for the purposes of such registration, addressed to the underwriters and
to such seller and dated such date, stating that such registration
statement has become effective under the Securities Act and that (A) to
the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the
Securities Act, (B) the registration statement, the related prospectus,
and each amendment or supplement thereof comply as to form in all
material respects with the requirements of the Securities Act and the
applicable rules and regulations of the Commission thereunder (except
that such counsel need express no opinion as to financial statements,
the notes thereto, and the financial schedules and other financial and
statistical data contained therein) and (C) to such other effects as may
reasonably be requested by counsel for the underwriters or by such
seller or its counsel and which are customary in underwritings of the
type being undertaken, and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters, stating that they are independent public accountants
within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in
the registration statement or the prospectus, or any amendment or
supplement thereof, comply as to form in all material respects with the
applicable accounting requirements of the Securities Act, and such
letter shall additionally cover such other financial matters (including
information as to the period ending no more than five business days
prior to the date of such
8
<PAGE> 9
letter) with respect to the registration in respect of which such letter
is being given as such underwriters or seller may reasonably request;
and
(g) make available for inspection by each seller, any
underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration
statement and permit such seller, attorney, accountant or agent to
participate in the preparation of such registration statement.
For purposes of paragraphs (a) and (b) above and of Section 4(d) hereof, the
period of distribution of Restricted Stock in a firm commitment underwritten
public offering shall be deemed to extend until each underwriter has completed
the distribution of all securities purchased by it, and the period of
distribution of Restricted Stock in any other registration shall be deemed to
extend until the earlier of the sale of all Restricted Stock covered thereby or
six months after the effective date thereof.
In connection with each registration hereunder, the selling
holders of Restricted Stock will furnish to the Company in writing such
information with respect to themselves and the proposed distribution by them as
shall be reasonably necessary in order to assure compliance with federal and
applicable state securities laws.
In connection with each registration pursuant to Sections 4, 5
and 6 hereof covering an underwritten public offering, the Company agrees to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between major
underwriters and companies of the Company's size and investment stature;
provided, however, that such agreement shall not contain any such provision
applicable to the Company which is inconsistent with the provisions hereof, and
provided, further, that the time and place of the closing under said agreement
shall be as mutually agreed upon among the Company, such managing underwriter
and the selling holders of Restricted Stock.
8. Expenses. All expenses incurred by the Company in
complying with Sections 4, 5 and 6 hereof, including without limitation all
registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents
9
<PAGE> 10
and registrars and fees and expenses of one counsel for the sellers of
Restricted Stock, but excluding any Selling Expenses, are herein called
"Registration Expenses". All underwriting discounts and selling commissions
applicable to the sale of Restricted Stock are herein called "Selling
Expenses".
The Company will pay all Registration Expenses in connection with
each registration statement filed pursuant to Section 4, 5 or 6 hereof. All
Selling Expenses in connection with any registration statement filed pursuant
to Section 4, 5 or 6 hereof shall be borne by the participating sellers in
proportion to the number of shares sold by each, or by such persons other than
the Company (except to the extent the Company shall be a seller) as they may
agree.
9. Indemnification. In the event of a registration of any of
the Restricted Stock under the Securities Act pursuant to Section 4, 5 or 6
hereof, the Company will indemnify and hold harmless each seller of such
Restricted Stock thereunder and each underwriter of Restricted Stock thereunder
and each other person, if any, who controls such seller or underwriter within
the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such seller or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Restricted Stock was registered under the Securities Act pursuant to
Section 4, 5 or 6, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each such seller, each such underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case if and to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by such seller, such underwriter or such controlling
person in writing specifically for use in such registration statement or
prospectus.
In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Section 4, 5 or 6 hereof, each seller of
such Restricted Stock thereunder, severally and not jointly, will indemnify and
hold harmless the Company and each person, if any, who controls the Company
within the meaning of the Securities Act, each officer of the Company
10
<PAGE> 11
who signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning of
the Securities Act, against all losses, claims, damages or liabilities, joint
or several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Restricted Stock was registered under the Securities Act pursuant to
Section 4, 5 or 6, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and each such officer, director,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that such seller will be
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with information pertaining to such seller, as such,
furnished in writing to the Company by such seller specifically for use in such
registration statement or prospectus; and provided, further, that the liability
of each seller hereunder shall be limited to the proceeds (net of underwriting
discounts and commissions) received by such seller from the sale of Restricted
Stock covered by such registration statement.
Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing thereof, but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party other than under this Section 9. In
case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected; provided,
however, that if the defendants in any
11
<PAGE> 12
such action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the indemnifying party, or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by
the indemnifying party as incurred.
Notwithstanding the foregoing, any indemnified party shall have
the right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for the
indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel.
It is understood that the indemnifying party shall not, in connection with any
action or related actions in the same jurisdiction, be liable for the fees and
disbursements of more than one separate firm qualified in such jurisdiction to
act as counsel for the indemnified party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by
reason of such settlement.
If the indemnification provided for in the first two paragraphs
of this Section 9 is unavailable or insufficient to hold harmless an
indemnified party under such paragraphs in respect of any losses, claims,
damages or liabilities or actions in respect thereof referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or actions in such proportion as
appropriate to reflect the relative fault of the Company, on the one hand, and
the underwriters and the sellers of such Restricted Stock, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or actions as well as any other relevant equitable
considerations, including the failure to give any notice under the third
paragraph of this Section 9. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact relates to information supplied by the Company, on
the one hand, or the underwriters and the sellers of such Restricted Stock, on
the other, and to the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and
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<PAGE> 13
each of you agree that it would not be just and equitable if contributions
pursuant to this paragraph were determined by pro rata allocation (even if all
of the sellers of such Restricted Stock were treated as one entity for such
purpose) or by any other method of allocation which did not take account of the
equitable considerations referred to above in this paragraph. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities or action in respect thereof, referred to above in this paragraph,
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this paragraph, the sellers
of such Restricted Stock shall not be required to contribute any amount in
excess of the amount, if any, by which the total price at which the Common
Stock sold by each of them was offered to the public exceeds the amount of any
damages which they would have otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Securities Act),
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
The indemnification of underwriters provided for in this Section
9 shall be on such other terms and conditions as are at the time customary and
reasonably required by such underwriters. In that event, the indemnification
of the sellers of Restricted Stock in such underwriting shall at the sellers'
request be modified to conform to such terms and conditions.
10. Changes in Common Stock. If, and as often as, there are
any changes in the Common Stock by way of stock split, stock dividend,
combination or reclassification, or through merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof, as may be required, so that
the rights and privileges granted hereby shall continue with respect to the
Common Stock as so changed.
11. Representations and Warranties of the Company. The Company
represents and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement
by the Company have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court
or other agency of government, the Restated Certificate of Incorporation
or By-laws of the Company, or any provision of any indenture, agreement
or other instrument to which it or any of its properties or assets is
bound, or conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition
of any lien,
13
<PAGE> 14
charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to
considerations of public policy in the case of the indemnification
provisions hereof.
12. Rule 144 Reporting. The Company agrees with you as
follows:
(a) The Company shall make and keep public information
available, as those terms are understood and defined in Rule 144(c)(1)
or (c)(2), whichever is applicable, under the Securities Act, at all
times from and after the date it is first required to do so.
(b) The Company shall file with the Commission in a timely
manner all reports and other documents as the Commission may prescribe
under Section 13(a) or 15(d) of the Exchange Act at all times during
which the Company is subject to such reporting requirements of the
Exchange Act.
(c) The Company shall furnish to such holder of Restricted
Stock forthwith upon request (i) a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any
time from and after the date it first becomes subject to such reporting
requirements) and of the Securities Act and the Exchange Act (at any
time during which it is subject to such reporting requirements), (ii) a
copy of the most recent annual or quarterly report of the Company and
(iii) such other reports and documents so filed as a holder may
reasonably request to avail itself of any rule or regulation of the
Commission allowing a holder of Restricted Stock to sell any such
securities without registration.
13. Miscellaneous.
(a) All covenants and agreements contained in this Agreement
by or on behalf of any of the parties hereto shall bind and inure to the
benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. Without limiting the generality of the
foregoing, the registration rights conferred herein on the holders of
Restricted Stock shall inure to the benefit of any and all subsequent
holders from time to time of the Restricted Stock for so long as the
certificates representing the Restricted Stock shall be required to bear
the legend specified in Section 2 hereof.
14
<PAGE> 15
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by first class
registered mail, postage prepaid, addressed as follows:
if to the Company, to it at:
Aurora Electronics, Inc.
2030 Main Street
Suite 1120
Irvine, California 92714-7241
Attention: David Lahar, President
with a copy to:
Hughes & Luce L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attention: Alan J. Bogdanow, Esq.
Kenneth G. Hawari, Esq.
if to any holder of Restricted Stock, to such holder at the
address as set forth under such holder's name in Annex I to the Purchase
Agreement;
if to any subsequent holder of Restricted Stock, to such holder
at such address as may have been furnished to the Company in writing by
such holder;
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder of
Restricted Stock) or to the holders of Restricted Stock (in the case of
the Company).
(c) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(d) This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof. This Agreement may
not be modified or amended except in a writing signed by the Company and
the holders of not less than a majority of the Restricted Stock then
outstanding, provided that no modification or amendment shall deprive
any holder of Restricted Stock of any material right under this
Agreement without such holder's consent. The Company will not grant any
registration rights to any other person without the written consent of
the holders of a majority of the Restricted Stock then outstanding if
such rights could reasonably be expected to conflict with, or be on a
parity with, the rights of holders of Restricted Stock granted under
this Agreement.
15
<PAGE> 16
(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
16
<PAGE> 17
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this letter
(herein sometimes called "this Agreement") shall be a binding agreement between
the Company and you.
Very truly yours,
AURORA ELECTRONICS, INC.
By
---------------------------------
AGREED TO AND ACCEPTED
as of the date first
above written.
THE PURCHASERS:
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII Partners, L.P., General Partner
By:
-----------------------------
WCAS CAPITAL PARTNERS II, L.P.
By WCAS CP II Partners, General Partner
By:
-----------------------------
WCAS INFORMATION PARTNERS, L.P.
By:
-----------------------------
THE HARVEY CASH TRUST
By:
-----------------------------
Trustee
<PAGE> 18
- --------------------------------
Jim C. Cowart
CHEMICAL EQUITY ASSOCIATES,
A California Limited Partnership
By Chemical Venture Partners,
General Partner
By:
-----------------------------
- --------------------------------
Bruce K. Anderson
- --------------------------------
Russell L. Carson
- --------------------------------
Anthony J. de Nicola
- --------------------------------
James B. Hoover
- --------------------------------
Thomas E. McInerney
- --------------------------------
Robert A. Minicucci
- --------------------------------
Andrew M. Paul
<PAGE> 19
- --------------------------------
Paul B. Queally
- --------------------------------
Richard H. Stowe
- --------------------------------
Laura M. VanBuren
- --------------------------------
Patrick J. Welsh
<PAGE> 1
EXHIBIT 10.32
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THAT ACT
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID")
AS DEFINED BY SECTION 1273(a)(1) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE FOLLOWING INFORMATION IS
PROVIDED PURSUANT TO THE INFORMATION REPORTING REQUIREMENTS
SET FORTH IN TREASURY REGULATION 1.1275-3.
THE ISSUE PRICE OF THIS DEBT INSTRUMENT IS $8,254,268.
THE AMOUNT OF OID ON THIS DEBT INSTRUMENT IS $1,745,732.
THE ISSUE DATE OF THIS DEBT INSTRUMENT IS MARCH 29, 1996
THE PER ANNUM YIELD TO MATURITY OF THIS DEBT INSTRUMENT IS 14.76%
COMPOUNDED SEMI-ANNUALLY.
AURORA ELECTRONICS, INC.
10% Senior Subordinated Note
Due September 30, 2001
$10,000,000 March 29, 1996
AURORA ELECTRONICS, INC., a Delaware corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to WCAS
CAPITAL PARTNERS II, L.P. ("WCAS CP II"), or registered assigns, the principal
sum of TEN MILLION DOLLARS ($10,000,000), on September 30, 2001 and to pay
interest (computed on the basis of a 360-day year consisting of twelve 30-day
months) from the date hereof on the unpaid principal amount hereof at the rate
of 10% per annum semi-annually in arrears on September 30 and March 31 of each
year (each said day being an "Interest Payment Date"), commencing on September
30, 1996, until the principal amount hereof shall have become due and payable,
whether at maturity or by acceleration or otherwise, and thereafter at the rate
of 12% per annum on any overdue principal amount and (to the extent permitted
by applicable law) on any overdue interest until paid.
All payments of principal and interest on this Note shall be in such
coin or currency of the United States of America as at the time of payment
shall be legal tender for payment of public and private debts.
<PAGE> 2
On any Interest Payment Date on or after March 29, 2001, the
Company shall pay any amount of accrued original issue discount on this Note as
shall be necessary to ensure that this Note shall not be considered an
"applicable high yield discount obligation" within the meaning of Section
163(i) of the Internal Revenue Code of 1986, as amended (the "Code"), or any
successor provision. The amount of principal payable on this Note shall be
reduced by the amount of any accrued original issue discount that is paid
pursuant to this paragraph.
If any payment on this Note is due on a day which is not a
Business Day, it shall be due on the next succeeding Business Day. For
purposes of this Note, "Business Day" shall mean any day other than a Saturday,
Sunday or a legal holiday or day on which banks are authorized or required to
be closed in Chicago or New York.
1. The Note. This Note is issued pursuant to and is
subject to the terms and provisions of the Securities Purchase Agreement dated
as of February 21, 1996 (the "Purchase Agreement"), among the Company, Welsh,
Carson, Anderson & Stowe VII, L.P., a Delaware limited partnership ("WCAS
VII"), WCAS CP II and the several purchasers named on Schedule I thereto and
the terms of this Note include those stated in the Purchase Agreement. As used
herein, the term "Note" or "Notes" includes the 10% Senior Subordinated Note
due September 30, 2001 of the Company originally so issued and any 10% Senior
Subordinated Note or Notes due September 30, 2001 subsequently issued upon
exchange or transfer thereof.
2. Transfer, Etc. of Notes. The Company shall keep at
its office or agency maintained as provided in paragraph (a) of Section 7 a
register in which the Company shall provide for the registration of this Note
and for the registration of transfer and exchange of this Note. The holder of
this Note may, at its option, and either in person or by its duly authorized
attorney, surrender the same for registration of transfer or exchange at the
office or agency of the Company maintained as provided in Section 7 and,
without expense to such holder (except for taxes or governmental charges
imposed in connection therewith), receive in exchange therefor a Note or Notes
each in such denomination or denominations (in integral multiples of $100,000)
as such holder may request, dated as of the date to which interest has been
paid on the Note or Notes so surrendered for transfer or exchange, for the same
aggregate principal amount as the then unpaid principal amount of the Note or
Notes so surrendered for transfer or exchange, and registered in the name of
such person or persons as may be designated by such holder. Every Note
presented or surrendered for registration of transfer or exchange shall be duly
endorsed, or shall be accompanied by a written instrument of transfer,
satisfactory in form to the Company, duly executed by the holder of such Note
or its attorney duly authorized in writing. Every Note so made and delivered
in exchange for such Note shall in all other
2
<PAGE> 3
respects be in the same form and have the same terms as such Note. No transfer
or exchange of any Note shall be valid (x) unless made in the foregoing manner
at such office or agency and (y) unless registered under the Securities Act of
1933, as amended, or any applicable state securities laws or unless an
exemption from such registration is available.
3. Loss, Theft, Destruction or Mutilation of Note. Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note, and, in the case of any such loss, theft or
destruction, upon receipt of an affidavit of loss and an indemnity reasonably
acceptable in form and substance to the Company from the holder thereof, or, in
the case of any such mutilation, upon surrender and cancellation of this Note,
the Company will make and deliver, in lieu of this Note, a new Note of like
tenor and unpaid principal amount and dated as of the date to which interest
has been paid on this Note.
4. Persons Deemed Owners; Holders. The Company may deem
and treat the person in whose name this Note is registered as the owner and
holder of this Note for the purpose of receiving payment of principal of and
interest on this Note and for all other purposes whatsoever, whether or not
this Note shall be overdue. With respect to any Note at any time outstanding,
the term "holder", as used herein, shall be deemed to mean the person in whose
name such Note is registered as aforesaid at such time.
5. Prepayments.
(a) Optional Prepayment. Subject to any applicable
restrictions contained in the Credit Agreement (as hereinafter defined), upon
notice given as provided in Section 5(b), the Company may, at its option,
prepay this Note, as a whole at any time or in part from time to time in
amounts which shall be integral multiples of $100,000, at the prepayment prices
(expressed as percentages of the principal amount so to be prepaid) set forth
below with respect to the periods indicated below, in each case, together with
any accrued and unpaid interest thereon through the date of such prepayment:
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
Prepayment between March 29, 1996
and September 30, 1998 105.0%
Prepayment between October 1, 1998
and September 30, 1999 102.5%
Prepayment after September 30, 1999 100.0%.
</TABLE>
3
<PAGE> 4
(b) Notice of Prepayment. The Company shall give written
notice of any prepayment of this Note or any portion hereof pursuant to Section
5(a) not less than 20 nor more than 60 days prior to the date fixed for such
prepayment. Such notice of prepayment and all other notices to be given to the
holder of this Note shall be given by registered or certified mail to the
person in whose name this Note is registered at its address designated on the
register maintained by the Company on the date of mailing such notice of
prepayment or other notice. Upon notice of prepayment being given as
aforesaid, the Company covenants and agrees that it will prepay, on the date
therein fixed for prepayment, this Note or the portion hereof, as the case may
be, so called for prepayment, at the prepayment price determined in accordance
with Section 5(a) hereof. A prepayment of less than all of the outstanding
principal amount of this Note shall not relieve the Company of its obligation
to make scheduled payments of interest payable in respect of the principal
remaining outstanding on the Interest Payment Dates.
(c) Allocation of All Payments. In the event of any
partial payment of less than all of the interest then due on the Notes then
outstanding or any prepayment, purchase, redemption or retirement of less than
all of the outstanding Notes, the Company will allocate the amount of interest
so to be paid and the principal amount so to be prepaid, purchased, redeemed or
retired to each Note in proportion, as nearly as may be, to the aggregate
principal amount of all Notes then outstanding.
(d) Interest After Date Fixed for Prepayment. If this
Note or a portion hereof is called for prepayment as herein provided, this Note
or such portion shall cease to bear interest on and after the date fixed for
such prepayment unless, upon presentation for such purpose, the Company shall
fail to pay this Note or such portion, as the case may be, in which event this
Note or such portion, as the case may be, and, so far as may be lawful, any
overdue installment of interest, shall bear interest on and after the date
fixed for such prepayment and until paid at the rate per annum provided herein.
(e) Surrender of Note; Notation Thereon. Upon any
prepayment of a portion of the principal amount of this Note, the holder
hereof, at its option, may require the Company to execute and deliver at the
expense of the Company (other than for transfer taxes, if any), upon surrender
of this Note, a new Note registered in the name of such person or persons as
may be designated by such holder for the principal amount of this Note then
remaining unpaid, dated as of the date to which the interest has been paid on
the principal amount of this Note then remaining unpaid, or may present this
Note to the Company for notation hereon of the payment of the portion of the
principal amount of this Note so prepaid.
4
<PAGE> 5
6. Offer to Repurchase Upon a Change of Control.
Subject to any applicable restrictions in the Credit Agreement with respect to
paragraph (a) below:
(a) Upon the occurrence of a Change of Control (as
hereinafter defined), the holder of this Note shall have the right, at such
holder's option, to require the Company to repurchase all or any part of such
holder's Note in amounts which shall be in integral multiples of $100,000
pursuant to the offer described below, at a purchase price equal to 101% of the
principal amount thereof so to be repurchased, plus accrued and unpaid
interest, if any, to the date of purchase (a "Change of Control Payment").
Within 10 Business Days after the Company knows, or reasonably should know, of
the occurrence of any Change of Control, the Company shall make an irrevocable,
unconditional offer (except that such offer may be conditioned upon the closing
of the transaction constituting the Change of Control) (a "Change of Control
Offer") to all holders of the Notes to purchase all of the Notes for cash in an
amount equal to the Change of Control Payment by sending written notice (the
"Change of Control Notice") of such Change of Control Offer to each holder by
registered or certified mail to the person in whose name the Note is registered
at its address maintained by the Company on the date of the mailing of such
notice. The Change of Control Notice shall contain all instructions and
materials required by applicable law and shall contain or make available to the
holder other information material to such holder's decision to tender this Note
pursuant to the Change of Control Offer. The Change of Control Notice, which
shall govern the terms of the Change in Control Offer, shall state:
(i) that the Change of Control Offer is being made
pursuant to this Section 6, and that all Notes validly tendered will
be accepted for payment;
(ii) the Change of Control Payment (including the amount
of accrued and unpaid interest) and the purchase date, which will be
no later than 30 days from the date such notice is mailed (the "Change
of Control Payment Date");
(iii) that any Note not validly tendered will continue to
accrue interest;
(iv) that, unless the Company defaults in the payment of
the Change of Control Payment, any Note accepted for payment pursuant
to the Change of Control Offer shall cease to accrue interest after
the Change of Control Payment Date;
(v) that holders electing to have a Note, or portion
thereof, purchased pursuant to a Change of Control Offer will be
required to surrender the Note to the Company at the address specified
in the notice not later than the close of
5
<PAGE> 6
business on the Business Day prior to the Change of Control Payment
Date;
(vi) that holders will be entitled to withdraw their
election if the Company receives, not later than the close of business
on the second Business Day prior to the Change of Control Payment
Date, a telegram, facsimile transmission or letter setting forth the
name of the holder, the principal amount of the Note delivered for
purchase and a statement that such holder is withdrawing its election
to have such principal amount of Note purchased; and
(vii) that holders whose Notes are being purchased only in
part will be issued a new Note equal in principal amount to the
unpurchased portion of the Note surrendered, which unpurchased portion
must be equal to $100,000 in principal amount or an integral multiple
thereof.
On or before the Change of Control Payment Date, the Company
shall (i) accept for payment the Notes or portions thereof validly tendered
pursuant to the Change of Control Offer prior to the close of business on the
Change of Control Payment Date, (ii) promptly mail to the holders of Notes so
accepted payment in an amount equal to the Change of Control Payment (including
accrued and unpaid interest) for such Notes, and the Company shall promptly
mail or deliver to such holders a new Note equal in principal amount to any
unpurchased portion of the Note surrendered; provided, that each such new Note
will be in a principal amount of $100,000 or an integral multiple thereof. Any
Notes not so accepted shall be promptly mailed or delivered by the Company to
the holder thereof.
(b) In the event of a Change of Control, the Company will
promptly, in good faith, (i) seek to obtain any required consent of the holders
of any Senior Indebtedness (as defined herein) to permit the Change of Control
Offer and the Change of Control Payment contemplated by this Section 6, or (ii)
repay some or all of such Senior Indebtedness to the extent necessary
(including, if necessary, payment in full of such Senior Indebtedness and
payment of any prepayment premiums, fees, expenses or penalties) to permit the
Change of Control Offer and the Change of Control Payment contemplated hereby
without such consent. Failure to comply with the foregoing shall not relieve
the Company from its obligations pursuant to paragraph (a) above.
(c) For purposes of this Note "Change of Control" means
(i) the sale, lease or transfer, whether direct or indirect, of all or
substantially all of the assets of the Company and its subsidiaries, taken as a
whole, in one transaction or a series of related transactions, to any "person"
or "group" (other than the WCAS Group), (ii) the liquidation or dissolution of
the Company or the adoption of a plan of liquidation or dissolution of the
Company,
6
<PAGE> 7
(iii) the acquisition of "beneficial ownership" by any "person" or "group"
(other than the WCAS Group) 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 or consolidation or otherwise, or (iv) during any
period of two consecutive years, the failure of those individuals who at the
beginning of such period constituted the Company's Board of Directors (together
with any new directors whose election or appointment by such Board or whose
nomination for election or appointment by the shareholders of the Company was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) to constitute a majority of
the Company's Board of Directors then in office; provided, however, that in no
event shall a foreclosure on any collateral pledged by the Company in respect
of obligations arising under or in connection with the Credit Agreement
constitute a Change of Control.
For purposes of this definition, (i) the terms "person" and
"group" shall have the meaning set forth in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
applicable, (ii) the term "beneficial owner" shall have the meaning set forth
in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable,
except that a person shall be deemed to have "beneficial ownership" of all
shares that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time or upon the
occurrence of certain events, (iii) any "person" or "group" will be deemed to
beneficially own any voting stock of the Company so long as such person or
group beneficially owns, directly or indirectly, in the aggregate a majority of
the voting stock of a registered holder of the voting stock of the Company, and
(iv) the term "WCAS Group" shall mean WCAS VII, WCAS CP II and any general
partners thereof.
7. Covenants Relating to the Note. The Company
covenants and agrees that so long as the Note shall be outstanding and, in the
case of paragraphs (k) through (n) below, so long as one million dollars
($1,000,000) of aggregate principal amount of the Notes is outstanding:
(a) Maintenance of Office. The Company will maintain an
office or agency in such place in the United States of America as the Company
may designate in writing to the registered holder of this Note, where this Note
may be presented for registration of transfer and for exchange as herein
provided, where notices and demands to or upon the Company in respect of this
Note may be served and where this Note may be presented for payment. Until the
Company otherwise notifies the holder hereof, said office shall be the
principal office of the Company located at 2101 Bush Street, San Francisco,
California 94115.
7
<PAGE> 8
(b) Payment of Taxes. The Company will promptly pay and
discharge or cause to be paid and discharged, before the same shall become in
default, all material lawful taxes and assessments imposed upon the Company or
any of its subsidiaries or upon the income and profits of the Company or any of
its subsidiaries, or upon any property, real, personal or mixed, belonging to
the Company or any of its subsidiaries, or upon any part thereof by the United
States or any State thereof, as well as all material lawful claims for labor,
materials and supplies which, if unpaid, would become a lien or charge upon
such property or any part thereof; provided, however, that neither the Company
nor any of its subsidiaries shall be required to pay and discharge or to cause
to be paid and discharged any such tax, assessment, charge, levy or claim so
long as both (x) the Company has established adequate reserves for such tax,
assessment, charge, levy or claim and (y)(i) the Company or a subsidiary shall
be contesting the validity thereof in good faith by appropriate proceedings or
(ii) the Company shall, in its good faith judgment, deem the validity thereof
to be questionable and the party to whom such tax, assessment, charge, levy or
claim is allegedly owed shall not have made written demand for the payment
thereof.
(c) Corporate Existence. The Company will do or cause to
be done all things necessary and lawful to preserve and keep in full force and
effect (i) its corporate existence and the corporate existence of each of its
subsidiaries and (ii) the material rights and franchises of the Company and
each of its subsidiaries under the laws of the United States or any state
thereof, or, in the case of subsidiaries organized and existing outside the
United States, under the laws of the applicable jurisdiction; provided,
however, that nothing in this paragraph (c) shall prevent the abandonment or
termination of any rights or franchises of the Company, or the liquidation or
dissolution of, or a sale, transfer or disposition (whether through merger,
consolidation, sale or otherwise) of all or any substantial part of the
property and assets of, any subsidiary or the abandonment or termination of the
corporate existence, rights and franchises of any subsidiary if such
abandonment, termination, liquidation, dissolution, sale, transfer or
disposition is, in the good faith business judgment of the Company, in the best
interests of the Company and not disadvantageous to the holder of this Note.
(d) Maintenance of Property. The Company will at all
times maintain and keep, or cause to be maintained and kept, in good repair,
working order and condition (reasonable wear and tear excepted) all significant
properties of the Company and its subsidiaries used in the conduct of the
Business, and will from time to time make or cause to be made all needful and
proper repairs, renewals, replacements, betterments and improvements thereto,
so that the Business may be conducted at all times in the ordinary course
consistent with past practice.
8
<PAGE> 9
(e) Insurance. The Company will, and will cause each of
its subsidiaries to, (i) keep adequately insured, by financially sound and
reputable insurers, all property of a character usually insured by corporations
engaged in the same or a similar business similarly situated against loss or
damage of the kinds customarily insured against by such corporations and (ii)
carry, with financially sound and reputable insurers, such other insurance
(including without limitation liability insurance) in such amounts as are
available at reasonable expense and to the extent believed advisable in the
good faith business judgment of the Company.
(f) Keeping of Books. The Company will at all times
keep, and cause each of its subsidiaries to keep, proper books of record and
account in which proper entries will be made of its transactions in accordance
with generally accepted accounting principles consistently applied.
(g) Transactions with Affiliates. The Company shall not
enter into, or permit any of its subsidiaries to enter into, any transaction
with any of its or any subsidiary's officers, directors, employees or any
person related by blood or marriage to any such person or any entity in which
any such person owns any beneficial interest, except for (i) normal employment
arrangements, benefit programs and employee incentive option programs on
reasonable terms, (ii) any transaction approved by the Board of Directors of
the Company in accordance with the provisions of Section 144 of the Delaware
General Corporation Law, or otherwise permitted by such Section, (iii) customer
transactions in the ordinary course of business and on arm's length terms and
(iv) the transactions contemplated by the Purchase Agreement.
(h) Notice of Certain Events. The Company shall,
immediately after it becomes aware of the occurrence of (i) any Event of
Default (as hereinafter defined) or any event which, upon notice or lapse of
time or both, would constitute such an Event of Default, or (ii) any action,
suit or proceeding at law or in equity or by or before any governmental
instrumentality or agency which, if adversely determined, would materially
impair the right of the Company to carry on its business substantially as now
or then conducted, or would have a material adverse effect on the properties,
assets, financial condition, prospects, operating results or business of the
Company and its subsidiaries taken as a whole, give notice to the holder of
this Note, specifying the nature of such event.
(i) Payment of Principal and Interest on the Note. The
Company will use its best efforts, subject to the provisions of applicable
credit arrangements (including the Credit Agreement), contractual obligations
of the Company and/or its subsidiaries and any applicable law restricting the
same, to provide funds from its subsidiaries to the Company, by dividend,
advance or otherwise, sufficient to permit payment by the Company of the
principal of and
9
<PAGE> 10
interest on this Note in accordance with its terms. Subject to any applicable
provisions in the Credit Agreement and documents executed and delivered in
connection therewith, the Company will not, and will not permit any subsidiary
to, directly or indirectly create or otherwise cause to exist any encumbrance
or restriction on the ability of any subsidiary to pay dividends or make any
other distributions to the Company or any wholly-owned subsidiary of the
Company in respect of its capital stock.
(j) Consolidation, Merger and Sale. The Company will not
consolidate or merge with or into, or sell or otherwise dispose of all or
substantially all of its property in one or more related transactions to, any
other corporation or other entity, unless:
(i) the Company is the surviving corporation or the
entity formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale or other disposition
shall have been made is a corporation organized or existing under the
laws of the United States of any state thereof or the District of
Columbia;
(ii) the surviving corporation or other entity (if other
than the Company) shall expressly and effectively assume in writing
the due and punctual payment of the principal of and interest on this
Note, according to its tenor, and the due and punctual performance and
observance of all the terms, covenants, agreements and conditions of
this Note to be performed or observed by the Company to the same
extent as if such surviving corporation had been the original maker of
this Note;
(iii) the Company or such other corporation or other entity
shall not otherwise be in default in the performance or observance of
any covenant, agreement or condition of this Note or the Purchase
Agreement; and
(iv) the holder of this Note shall have received, in
connection therewith, an opinion of counsel for the Company (or other
counsel satisfactory to the holder), in form and substance
satisfactory to the holder, to the effect that any such consolidation,
merger, sale or conveyance and any such assumption complies with the
provisions of this paragraph (j).
Notwithstanding anything to the contrary herein, in no event shall a
foreclosure on any collateral pledged by the Company in respect of obligations
arising under or in connection with the Credit Agreement be deemed to
constitute a violation of the Company's obligations pursuant to this paragraph
(j).
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<PAGE> 11
(k) Limitation on Indebtedness and Disqualified Stock.
The Company will not, and will not permit any of its subsidiaries to, (i) incur
or permit to remain outstanding any indebtedness for money borrowed
("Indebtedness"), except (A) Senior Indebtedness (as defined in Section 13),
(B) Indebtedness existing on the date of original issuance of this Note, (C)
Indebtedness permitted to be incurred under the Credit Agreement as in effect
from time to time after the original issuance of this Note (other than
Indebtedness that is subordinate or junior in right of payment (to any extent)
to any Senior Indebtedness and senior or pari passu in right of payment (to any
extent) to the Notes), or (D) in the event that the Credit Agreement has
terminated, Indebtedness permitted to be incurred under any successor credit
agreement of the Company with respect to Senior Indebtedness, or if there
exists no such credit agreement, such Indebtedness as may be mutually agreed
upon by the Company and the holders of a majority of the aggregate principal
amount of the Notes then outstanding, or (ii) issue any capital stock
("Disqualified Stock") of the Company or any of its subsidiaries (other than
the Convertible Preferred Stock (as hereinafter defined)) which by its terms
(or by the terms of any security into which it is convertible or for which it
is exchangeable), or upon the happening of any event, matures, or is
mandatorily redeemable, whether pursuant to a sinking fund obligation or
otherwise, or redeemable at the option of the holder thereof, in whole or in
part, on or prior to December 31, 2001.
(l) Restricted Payments. The Company will not, and will
not permit any of its subsidiaries to: (i) declare or pay any dividends on, or
make any other distribution or payment on account of, or redeem, retire,
purchase or otherwise acquire, directly or indirectly, any shares of any class
of stock of the Company, whether now or hereafter outstanding, or make any
other distribution in respect thereof, either directly or indirectly, whether
in cash, property or in obligations of the Company or any of its subsidiaries,
except for (X) distributions of shares of the same class or of a different
class of stock pro rata to all holders of shares of a class of stock, (Y) the
payment of cash dividends on account of the Company's Convertible Preferred
Stock, $.01 par value (the "Convertible Preferred Stock"), or (Z) dividends,
distributions or payments by any subsidiary to the Company or to any
wholly-owned subsidiary of the Company, or (ii), except as permitted under the
Credit Agreement, make any payments of principal of, or retire, redeem,
purchase or otherwise acquire any Indebtedness other than any Senior
Indebtedness or the Notes (such declarations, payments, purchases, redemptions,
retirements, acquisitions or distributions being herein called "Restricted
Payments").
(m) Limitation on Liens. The Company shall not, and
shall not permit any of its subsidiaries to, directly or indirectly, create,
incur, assume or otherwise cause or suffer to exist any lien, pledge , charge,
security interest or encumbrance (collectively,
11
<PAGE> 12
"Liens") on any asset now owned or hereafter acquired, or on any income or
profits therefrom or assign or convey any right to receive income therefrom,
except for (i) Liens permitted under the Credit Agreement, (ii) liens for
current taxes not yet due, (iii) landlord's liens, (iv) purchase money liens
and (v) workman's, materialman's, warehouseman's and similar liens arising by
law or statute.
(n) Inspection of Property. The Company will permit the
holder hereof to visit and inspect any of the properties of the Company and any
other subsidiaries and their books and records and to discuss the affairs,
finances and accounts of any of such corporations with the principal officers
of the Company and such subsidiaries and their independent public accountants,
all at such reasonable times and as often as such holders may reasonably
request.
8. Modification by Holders; Waiver. The Company may,
with the written consent of the holders of not less than a majority in
principal amount of the Notes then outstanding, modify the terms and provisions
of this Note or the rights of the holders of this Note or the obligations of
the Company hereunder, and the observance by the Company of any term or
provision of this Note may be waived with the written consent of the holders of
not less than a majority in principal amount of the Notes then outstanding;
provided, however, that no such modification or waiver shall:
(i) change the maturity of any Note or reduce the
principal amount thereof or reduce the rate or extend the time of
payment of interest thereon without the consent of the holder of each
Note so affected; or
(ii) give any Note any preference over any other Note,
including, without limitation, by amending the allocation provisions
of Section 5(c) hereof; or
(iii) reduce the percentage of principal amount outstanding
under any Note, the consent of the holder of which is required for any
such modification; or
(iv) amend the provisions of Section 13 hereof in any
manner adverse to the interests of the holder of this Note,
without the consent of the holder of each Note so affected.
Any such modification or waiver shall apply equally to each
holder of the Notes and shall be binding upon them, upon each future holder of
any Note and upon the Company, whether or not such Note shall have been marked
to indicate such modification or waiver, but any Note issued thereafter shall
bear a notation referring to any such modification or waiver. Promptly after
obtaining the written consent of the holders as herein provided,
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<PAGE> 13
the Company shall transmit a copy of such modification or waiver to the holders
of the Notes at the time outstanding.
9. Events of Default. If any one or more of the
following events, herein called "Events of Default," shall occur (for any
reason whatsoever, and whether such occurrence shall, on the part of the
Company or any of its subsidiaries, be voluntary or involuntary or come about
or be effected by operation of law or pursuant to or in compliance with any
judgment, decree or order of a court of competent jurisdiction or any order,
rule or regulation of any administrative or other governmental authority) and
such Event of Default shall be continuing:
(i) default shall be made in the payment of the principal
of this Note when and as the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or repurchase
(including default of any optional prepayment in accordance with the
requirements of Section 5 or any Change of Control Payment in
accordance with the requirements of Section 6, as the case may be) or
by acceleration or otherwise; or
(ii) default shall be made in the payment of any
installment of interest on this Note according to its terms when and
as the same shall become due and payable; or
(iii) default shall be made in the due observance or
performance of any covenant, condition or agreement on the part of the
Company contained herein Section 7(j); or
(iv) default shall be made in the due observance or
performance of any other covenant, condition or agreement on the part
of the Company to be observed or performed pursuant to the terms
hereof or of the Purchase Agreement, and such default shall continue
for 10 days after written notice thereof, specifying such default and
requesting that the same be remedied; or
(v) any representation or warranty made by or on behalf
of the Company herein or in the Purchase Agreement shall prove to have
been false or incorrect in any material respect on the date on or as
of which made; or
(vi) the entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Company or any
of its subsidiaries in any involuntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar
laws, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Company or any of
its subsidiaries for any substantial part of any of their property or
ordering the winding-up or liquidation of any of their affairs and the
13
<PAGE> 14
continuance of any such decree or order unstayed and in effect for a
period of 30 consecutive days; or
(vii) the commencement by the Company or any of its
subsidiaries of a voluntary case under the federal bankruptcy laws, as
now constituted or hereafter amended, or any other applicable federal
or state bankruptcy, insolvency or other similar laws, or the consent
by any of them to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or
other similar official) of the Company or any of its subsidiaries for
any substantial part of any of their property, or the making by any of
them of any general assignment for the benefit of creditors, or the
failure of the Company or of any of its subsidiaries generally to pay
its debts as such debts become due, or the taking of corporate action
by the Company or any of its subsidiaries in furtherance of or which
might reasonably be expected to result in any of the foregoing; or
(viii) a default or an event of default as defined in any
instrument evidencing or under which the Company or any of its
subsidiaries has outstanding at the time any Indebtedness in excess of
$500,000 in aggregate principal amount shall occur and as a result
thereof the maturity of any such Indebtedness shall have been
accelerated so that the same shall have become due and payable prior
to the date on which the same would otherwise have become due and
payable and such acceleration shall not have been rescinded or
annulled within 20 days; or
(ix) final judgment (not reimbursed by insurance policies
of the Company or any of its subsidiaries) for the payment of money in
excess of $500,000 shall be rendered against the Company or any of its
subsidiaries and the same shall remain undischarged for a period of 30
days during which execution shall not be effectively stayed;
then the holders of at least 33-1/3% in aggregate principal amount of the Notes
at the time outstanding may, at their option, by a notice in writing to the
Company declare this Note to be, and this Note shall thereupon be and become
immediately due and payable together with interest accrued thereon, without
diligence, presentment, demand, protest or further notice of any kind, all of
which are expressly waived by the Company to the extent permitted by law.
At any time after any declaration of acceleration has been
made as provided in this Section 9, the holders of a majority in principal
amount of the Notes then outstanding may, by notice to the Company, rescind
such declaration and its consequences, provided, however, that no such
rescission shall extend to or affect any subsequent default or Event of Default
or impair any right consequent thereon.
14
<PAGE> 15
Without limiting the foregoing, the Company hereby waives any
right to trial by jury in any legal proceeding related in any way to this Note
and agrees that any such proceeding may, if the holder so elects, be brought
and enforced in the Supreme Court of the State of New York for New York County
or the United States District Court for the Southern District of New York and
the Company hereby waives any objection to jurisdiction or venue in any such
proceeding commenced in such court. The Company further agrees that any
process required to be served on it for purposes of any such proceeding may be
served on it, with the same effect as personal service on it within the State
of New York, by registered mail addressed to it at its office or agency set
forth in paragraph (a) of Section 7 for purposes of notices hereunder.
10. Suits for Enforcement. Subject to the provisions of
Section 13 of this Note, in case any one or more of the Events of Default
specified in Section 9 of this Note shall happen and be continuing (subject to
any applicable cure period expressly set forth herein), the holder of this Note
may proceed to protect and enforce its rights by suit in equity, action at law
and/or by other appropriate proceeding, whether for the specific performance of
any covenant or agreement contained in this Note or in aid of the exercise of
any power granted in this Note, or may proceed to enforce the payment of this
Note or to enforce any other legal or equitable right of the holder of this
Note.
In case of any default under this Note, the Company will pay
to the holder hereof reasonable collection costs and reasonable attorneys'
fees, to the extent actually incurred.
11. Remedies Cumulative. No remedy herein conferred upon
the holder of this Note is intended to be exclusive of any other remedy and
each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.
12. Remedies Not Waived. No course of dealing between
the Company and the holder of this Note or any delay on the part of the holder
hereof in exercising any rights hereunder shall operate as a waiver of any
right of the holder of this Note.
13. Subordination. (a) Anything contained in this Note
to the contrary notwithstanding, the indebtedness evidenced by the Notes shall
be subordinate and junior, to the extent set forth in the following paragraphs
(A), (B), (C) and (D), to all Senior Indebtedness of the Company. "Senior
Indebtedness" shall mean the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on, and
all reasonable fees, reimbursement and indemnity
15
<PAGE> 16
obligations, and all other obligations arising in connection with, any
indebtedness for borrowed money of the Company, contingent or otherwise, now
outstanding or created, incurred, issued, assumed or guaranteed in the future,
for which, in the case of any particular indebtedness, the instrument creating
or evidencing the same or pursuant to which the same is outstanding expressly
provides that such indebtedness shall not be subordinate in right of payment to
any other indebtedness of the Company. Without limiting the generality of the
foregoing, Senior Indebtedness shall include all Obligations (under and as
defined in the Credit Agreement); notwithstanding the foregoing, Senior
Indebtedness shall include only such Obligations until such time as the same
are paid in full in cash and all obligations to provide financial
accommodations under the Credit Agreement have terminated. For purposes of
this Note, "Credit Agreement" shall mean the Credit Agreement, dated as of
March 29, 1996 among Aurora Electronics Group, Inc., the Company and other
Guarantors named therein, the Lenders named therein and Chemical Bank, as Agent
(the "Agent"), together with any agreement entered into in connection with the
restatement, renewal, extension, restructuring, refunding or refinancing of the
Obligations (under and as defined in such Credit Agreement).
(A) In the event of any insolvency, bankruptcy,
liquidation, reorganization or other similar proceedings, or any
receivership proceedings in connection therewith, relative to the
Company or its creditors or its property, and in the event of any
proceedings for voluntary liquidation, dissolution or other winding up
of the Company, whether or not involving insolvency or bankruptcy
proceedings, then all Senior Indebtedness shall first be paid in full
in cash, before any payment, whether on account of principal, interest
or otherwise, is made upon the Notes.
(B) In any of the proceedings referred to in paragraph
(A) above, any payment or distribution of any kind or character,
whether in cash, property, stock or obligations which may be payable
or deliverable in respect of the Notes shall be paid or delivered
directly to the holders of Senior Indebtedness for application in
payment thereof, unless and until all Senior Indebtedness shall have
been paid in full in cash.
(C) No payment shall be made, directly or indirectly, on
account of the Notes (i) upon maturity of any Senior Indebtedness
obligation, by lapse of time, acceleration (unless waived), or
otherwise, unless and until all principal thereof and interest thereon
and all other obligations in respect thereof shall first be paid in
full in cash and all obligations to provide financial accommodations
under the Credit Agreement have terminated, or (ii) upon the happening
of any default in payment of any principal of, premium, if any, or
interest on or any other amounts payable in respect of Senior
Indebtedness when the same becomes due and payable whether at
16
<PAGE> 17
maturity or at a date fixed for prepayment or by declaration or
otherwise (a "Senior Payment Default"), unless and until such Senior
Payment Default shall have been cured or waived or shall have ceased
to exist.
(D) Upon the happening of an event of default with
respect to any Senior Indebtedness permitting (after notice or lapse
of time or both) one or more holders of such Senior Indebtedness (or,
in the case of the Credit Agreement, the Agent) to declare such Senior
Indebtedness due and payable prior to the date on which it is
otherwise due and payable (a "Nonmonetary Default"), upon the
occurrence of (i) receipt by the holders of the Notes of written
notice from the holders of said Senior Indebtedness (or, in the case
of the Credit Agreement, the Agent) of a Nonmonetary Default (any such
notice, a "Blockage Notice"), or (ii) if such Nonmonetary Default
results from the acceleration of the Notes, the date of such
acceleration; then (x) the Company will not make, directly or
indirectly, to the holder of the Notes any payment of any kind of or
on account of all or any part of the Notes; (y) the holders of the
Notes will not accept from the Company any payment of any kind of or
on account of all or any part of the Notes and (z) the holders of the
Notes may not take, demand, receive, sue for, accelerate or commence
any remedial proceedings with respect to any amount payable under the
Notes, unless and until in each case described in clauses (x), (y) and
(z) all such Senior Indebtedness shall have been paid in full in cash;
provided, however, that if such Nonmonetary Default shall have
occurred and be continuing for a period (a "Blockage Period")
commencing on the earlier of the date of receipt of such Blockage
Notice or the date of the acceleration of the Notes and ending 179
days thereafter (it being understood that not more than one Blockage
Period may be commenced with respect to the Notes during any period of
360 consecutive days), and during such Blockage Period (i) such
Nonmonetary Default shall not have been cured or waived, (ii) the
holder of such Senior Indebtedness (or, in the case of the Credit
Agreement, the Agent) shall not have made a demand for payment and
commenced an action, suit or other proceeding against the Company and
(iii) none of the events described in subsection (A) above shall have
occurred, then (to the extent not otherwise prohibited by subsections
(A), (B) or (C) above) the Company may, not less than 10 days after
receipt by the holders of such Senior Indebtedness or the Agent, as
the case may be, of written notice to such effect from the holders of
the Notes, make and the holders of the Notes may accept from the
Company all past due and current payments of any kind of or on account
of the Notes, and such holder may demand, receive, retain, sue for or
otherwise seek enforcement or collection of all amounts payable on
account of principal of or interest on the Notes.
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<PAGE> 18
(b) Subject to the payment in full in cash of all Senior
Indebtedness as aforesaid, the holders of the Notes shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of any kind or character, whether in cash, property, stock or
obligations, which may be payable or deliverable to the holders of Senior
Indebtedness, until the principal of, and interest on, the Notes shall be paid
in full in cash, and, as between the Company, its creditors other than the
holders of Senior Indebtedness, and the holders of the Notes, no such payment
or distribution made to the holders of Senior Indebtedness by virtue of this
Section 13 which otherwise would have been made to the holder of the Notes
shall be deemed a payment by the Company on account of the Senior Indebtedness,
it being understood that the provisions of this Section 13 are and are intended
solely for the purposes of defining the relative rights of the holders of the
Notes, on the one hand, and the holder of the Senior Indebtedness, on the other
hand. Subject to the rights, if any, under this Section 13 of holders of
Senior Indebtedness to receive cash, property, stock or obligations otherwise
payable or deliverable to the holders of the Notes, nothing herein shall either
impair, as between the Company and the holder of the Notes, the obligation of
the Company, which is unconditional and absolute, to pay to the holder thereof
the principal thereof and interest thereon in accordance with its terms or
prevent (except as otherwise specified therein) the holders of the Notes from
exercising all remedies otherwise permitted by applicable law or hereunder upon
default hereunder.
(c) If any payment or distribution of any character or
any security, whether in cash, securities or other property, shall be received
by any holders of the Notes in contravention of any of the terms hereof or
before all the Senior Indebtedness obligations have been paid in full in cash
and all obligations to provide financial accommodations under the Credit
Agreement have terminated, such payment or distribution or security shall be
received in trust for the benefit of, and shall be paid over or delivered and
transferred to, the holders of the Senior Indebtedness at the time outstanding
in accordance with the priorities then existing among such holders for
application to the payment of all Senior Indebtedness remaining unpaid, to the
extent necessary to pay all such Senior Indebtedness in full in cash. In the
event of the failure of any such holder to endorse or assign any such payment,
distribution or security, each holder of any Senior Indebtedness is hereby
irrevocably authorized to endorse or assign the name.
(d) The rights under these subordination provisions of
the holders of any Senior Indebtedness as against any holders of the Notes
shall remain in full force and effect without regard to, and shall not be
impaired or affected by:
(i) any act or failure to act on the part of the
Company; or
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<PAGE> 19
(ii) any extension or indulgence in respect of any payment
or prepayment of any Senior Indebtedness or any part thereof or in
respect of any other amount payable to any holder of any Senior
Indebtedness; or
(iii) any amendment, modification or waiver of, or addition
or supplement to, or deletion from, or compromise, release, consent or
other action in respect of, any of the terms of any Senior
Indebtedness or any other agreement which may be made relating to any
Senior Indebtedness; or
(iv) any exercise or non-exercise by the holder of any
Senior Indebtedness of any right, power, privilege or remedy under or
in respect of such Senior Indebtedness or these subordination
provisions or any waiver of any such right, power, privilege or remedy
or of any default in respect of such Senior Indebtedness or these
subordination provisions or any receipt by the holder of any Senior
Indebtedness of any security, or any failure by such holder to perfect
a security interest in, or any release by such holder of, any security
for the payment of such Senior Indebtedness; or
(v) any merger or consolidation of the Company or any of
its subsidiaries into or with any other person, or any sale, lease or
transfer of any or all of the assets of the Company or any of its
subsidiaries to any other person; or
(vi) absence of any notice to, or knowledge by, any holder
of any claim hereunder of the existence or occurrence of any of the
matters or events set forth in the foregoing clauses (i) through (v);
or
(vii) any other circumstance.
(e) The holders of the Notes unconditionally waive (i)
notice of any of the matters referred to in Section 13(d); (ii) all notices
which may be required, whether by statute, rule of law or otherwise, to
preserve intact any rights of any holder of any Senior Indebtedness, including,
without limitation, any demand, presentment and protest, proof of notice of
nonpayment under any Senior Indebtedness or the Credit Agreement, and notice of
any failure on the part of the Company to perform and comply with any covenant,
agreement, term or condition of any Senior Indebtedness, (iii) any right to the
enforcement, assertion or exercise by any holder of any Senior Indebtedness of
any right, power, privilege or remedy conferred in such Senior Indebtedness or
otherwise, (iv) any requirements of diligence on the part of any holder of any
of the Senior Indebtedness, (v) any requirement on the part of any holder of
any Senior Indebtedness to mitigate damages resulting from any default under
such Senior Indebtedness and (vi) any notice of any sale, transfer or other
disposition of any Senior Indebtedness by any holder thereof.
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<PAGE> 20
(f) The obligations of the holder under these
subordination provisions shall continue to be effective, or be reinstated, as
the case may be, if at any time any payment in respect of any Senior
Indebtedness, or any other payment to any holder of any Senior Indebtedness in
its capacity as such, is rescinded or must otherwise be restored or returned by
the holder of such Senior Indebtedness upon the occurrence of any proceeding
referred to in paragraph 13(a)(A) or upon or as a result of the appoint of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Company or any substantial part of its property or otherwise, all as though
such payment had not been made.
(g) Notwithstanding anything to the contrary herein, the
Company shall not at any time offer (and the holder hereof shall not at any
time accept) (i) any pledge of collateral or (ii) any guaranty by any parent or
subsidiary of the Company, in each case with respect to the obligations of the
Company under this Note.
14. Covenants Bind Successors and Assigns. All the
covenants, stipulations, promises and agreements in this Note contained by or
on behalf of the Company shall bind its successors and assigns, whether so
expressed or not.
15. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of New York.
16. Headings. The headings of the sections and
paragraphs of this Note are inserted for convenience only and do not constitute
a part of this Note.
17. Third Party Beneficiaries. The provisions of Section
13 are intended to be for the benefit of, and shall be enforceable directly by
each holder of, the Senior Indebtedness.
20
<PAGE> 21
IN WITNESS WHEREOF, Aurora Electronics, Inc. has caused this Note to
be signed in its corporate name by one of its officers thereunto duly
authorized and to be dated as of the day and year first above written.
AURORA ELECTRONICS, INC.
By:
--------------------------
Jim C. Cowart
Chairman and Chief
Executive Officer
21
<PAGE> 1
EXHIBIT 10.33
FINANCIAL SUPPORT AGREEMENT
FINANCIAL SUPPORT AGREEMENT, dated as of September 30, 1996, among
AURORA ELECTRONICS, INC., a Delaware corporation (the "Company"), AURORA
ELECTRONICS GROUP, INC., a California corporation and wholly owned subsidiary of
the Company ("AEG"), WELSH, CARSON, ANDERSON & STOWE VII, L.P., a Delaware
limited partnership ("WCAS VII"), and WCAS CAPITAL PARTNERS II, L.P., a Delaware
limited partnership ("WCAS CP II" and together with WCAS VII being hereinafter
collectively referred to as the "Guarantors").
WHEREAS, pursuant to the Credit Agreement, dated as of March 29,
1996 (the "Credit Agreement"), among AEG, the guarantors named therein, the
lenders named therein (collectively, the "Lenders"), and The Chase Manhattan
Bank (formerly known as Chemical Bank, N.A.) as a Lender and as agent for the
Lenders (in such capacity, "Agent"), AEG is indebted to the Lenders;
WHEREAS, the Company is a guarantor of the obligations of AEG to the
Lenders pursuant to the Credit Agreement;
WHEREAS, various defaults exist under the Credit Agreement, which
defaults give the Lenders the right to accelerate the maturity of AEG's
indebtedness thereunder;
WHEREAS, the Lenders are willing to waive such defaults and amend
certain provisions of the Credit Agreement in various respects beneficial to the
Company in accordance with the Waiver and Amendment Agreement No. 3 dated as of
September 30, 1996 (the "Waiver and Amendment Agreement") among AEG, the
Company, the Lenders and the Agent, in consideration of the execution and
delivery of the Guarantees (as hereinafter defined) by the Guarantors as
contemplated by this Agreement;
WHEREAS, the Guarantors are substantial shareholders of the Company
and have determined that the amendment and waiver of such provisions of the
Credit Agreement by the Lenders will enhance the value of the Guarantors' equity
investments in the Company;
WHEREAS, in order to enhance and protect their existing substantial
investments in the Company and to facilitate the amendment and waiver of such
provisions of the Credit Agreement, the Guarantors are willing to assume
additional financial risk in their roles as shareholders by issuing the
Guarantees;
WHEREAS, in giving the Guarantees, the Guarantors are
making additional contributions to the capital of the Company;
<PAGE> 2
WHEREAS, in recognition of the additional financial risk that each
of the Guarantors is assuming by giving its respective Guarantees (and not as
compensation or a payment (x) for any services or (y) otherwise in connection
with the carrying on of a trade or business) and for the other consideration set
forth herein, the Company is willing to issue Warrants (as hereinafter defined)
to each of the Guarantors;
WHEREAS, AEG is willing to issue Notes (as hereinafter defined) to
each Guarantor in the event that such Guarantor shall be required to make any
payment on its respective Guarantees; and
WHEREAS, the Boards of Directors of the Company and AEG, including a
majority of disinterested directors in accordance with Section 144 of the
General Corporation Law of the State of Delaware, have determined that the
transactions contemplated by this Agreement are in the best interests of the
Company and AEG, respectively, and their respective shareholders and creditors;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereby agree as follows:
I.
ISSUANCE OF WARRANTS AND NOTES
SECTION 1.01 Issuance of Warrants. Upon execution and delivery by
each of the Guarantors of its respective Guarantees substantially in the form of
Exhibits A-1 and A-2 hereto (the "Guarantees") in the respective amounts set
forth opposite the name of such Guarantor on Schedule I attached hereto under
the heading "Amount of Guarantee" and upon delivery to the Company by the
Guarantors of an aggregate $6,000 representing the aggregate purchase price for
the Warrants, the Company shall issue and deliver warrants to each Guarantor
substantially in the form attached as Exhibits B-1 and B-2 hereto (the
"Warrants") to purchase up to the number of shares of Common Stock, $.03 par
value ("Common Stock") of the Company set forth in each Warrant, it being
understood and agreed that the number of shares of Common Stock into which the
Warrants are exercisable shall be allocated among the Guarantors in accordance
with each Guarantor's "Fractional Share" as determined in accordance with the
Guarantees.
SECTION 1.02 Issuance of Notes. Subject to Article IV hereof, in the
event that at any time either Guarantor shall make a payment on its respective
Guarantee pursuant to a demand by the Agent, AEG shall concurrently with such
Guarantor's payment to the Agent issue and deliver to such Guarantor one or more
10% Senior Subordinated Notes of AEG due 2001 substantially in the
2
<PAGE> 3
form of Exhibit C hereto (the "Notes"), in an aggregate principal amount equal
to the amount paid by such Guarantor to the Agent.
SECTION 1.03 Tax and Accounting Treatment. The Company, AEG and the
Guarantors agree that for federal, state and local income tax purposes, as well
as for financial accounting purposes: (i) they will treat the Guarantors as
having paid (x) $6,000 for the Warrants and (y) an amount equal to the amount
paid by the Guarantors pursuant to Section 1.02 of this Agreement for the Notes;
(ii) the issuance of the Warrants and the Notes and the issuance of any shares
of Common Stock of the Company upon the exercise of the Warrants (the "Warrant
Shares" and collectively with the Warrants and the Notes, the "Securities") is
and shall be in the nature of a capital transaction; and (iii) in no event will
they treat the issuance of any of the Securities as compensation or a payment
(x) for any services or (y) otherwise in connection with the carrying on of a
trade or business, and in no event shall the Company claim any tax deduction
with respect to such issuance, exercise or conversion.
II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND AEG
The Company and AEG represent and warrant to the Guarantors as
follows:
SECTION 2.01 Organization. Each of the Company and AEG is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and the State of California, respectively, and is
duly licensed or qualified to do business as a foreign corporation and is in
good standing in each of the jurisdictions in which it owns or leases any real
property or in which the nature of business transacted by it makes such
licensing or qualification necessary except where the failure to be so licensed
or qualified would not have a material adverse affect on the business,
operations or financial condition of the Company or AEG. Each of the Company and
AEG has the corporate power and authority to own and hold its properties and to
carry on its business as currently conducted, to execute, deliver and perform
this Agreement and to issue, sell and deliver its respective Securities.
SECTION 2.02 Authorization of Agreement, Etc. (a) Each of (i) the
execution, delivery and performance by the Company and AEG of this Agreement,
the Warrants and the Notes, (ii) the performance by the Company and AEG of their
respective obligations hereunder and thereunder, and (iii) the issuance and
delivery by the Company of the Warrant Shares upon exercise of the Warrants has
been duly authorized by all requisite corporate action and will not violate any
provision of law, any order of
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<PAGE> 4
any court or other agency of government, the Certificate of Incorporation or
By-laws of the Company or AEG, as the case may be, or any provision of any
indenture, agreement or other instrument by which the Company, AEG, or any of
their subsidiaries or any of their respective properties or assets is bound or
affected, or conflict with, result in a breach of or constitute (with due notice
or lapse of time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge or
encumbrance of any nature upon any of the properties or assets of the Company,
AEG, or any of their subsidiaries.
(b) The Warrant Shares have been duly reserved by the Company for
issuance upon exercise of the Warrants and, when so issued and delivered, will
be duly authorized, validly issued and outstanding, fully paid and nonassessable
shares of the Common Stock of the Company. The issuance and delivery of the
Warrant Shares upon exercise of the Warrants are not subject to any preemptive
rights of stockholders of the Company or any subsidiary of the Company or to any
right of first refusal or other similar right in favor of any person.
SECTION 2.03 Validity. This Agreement has been duly executed and
delivered by the Company and AEG and constitutes the legal, valid and binding
obligation of the Company and AEG, enforceable in accordance with its terms.
SECTION 2.04 Authorized Capital Stock. (a) The authorized capital
stock of the Company consists of 50,000,000 shares of Common Stock and 1,000,000
shares of Preferred Stock (of which 400,000 shares have been designated as
Convertible Preferred Stock), par value $.01 per share (the "Preferred Stock"),
of the Company. As of the date hereof, 10,485,370 shares of Common Stock are
validly issued and outstanding, fully paid and nonassessable (of which 4,742,847
shares constitute treasury shares), and 400,000 shares of Preferred Stock are
issued and outstanding.
(b) Except as set forth on Schedule 2.04 hereto, (i) no
subscription, warrant, option, convertible security or other right (contingent
or other) to purchase or acquire any shares of any class of capital stock of the
Company is authorized or outstanding, (ii) there is no commitment of the Company
to issue any shares, warrants, options or other such rights or to distribute to
holders of any class of its capital stock any evidences of indebtedness or
assets, and (iii) the Company has no obligation (contingent or other) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
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<PAGE> 5
III.
REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS
The Guarantors represent and warrant to the Company that they are
acquiring the Securities for their own respective accounts for purposes of
investment and not with a view to or for sale in connection with any
distribution thereof. The Guarantors further represent that they understand (i)
that the Securities have not been registered under the Securities Act by reason
of their issuance in transactions exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) thereof, (ii) the Securities must be
held indefinitely unless a subsequent disposition thereof is registered under
the Securities Act or is otherwise exempt from such registration, (iii) the
Securities will bear a legend to such effect, and (iv) the Company will make a
notation on its transfer books to such effect. The Guarantors further understand
that the exemption from registration afforded by Rule 144 under the Securities
Act depends on the satisfaction of various conditions and that, if applicable,
affords the basis of sales of the Securities in limited amounts under certain
conditions. The Guarantors acknowledge that they have had a full opportunity to
request from the Company to review, and have received, all information deemed
relevant in making a decision to enter into this Agreement and consummate the
transactions contemplated hereby. The Guarantors are "Accredited Investors"
within the meaning of Rule 501(a) of the Securities Act.
IV.
COVENANTS OF THE COMPANY AND AEG
SECTION 4.01 Convertible Preferred Stock. The Company and AEG
covenant and agree that the Notes or any right to payment received by the
Guarantors in respect of the loans made under the Credit Agreement and their
Guarantees thereof, whether by way of purchase, subrogation or otherwise, and
regardless whether and to what extent the same shall be subordinated to other
indebtedness to the Lenders or shall have been waived pending certain events,
may be applied, both as to principal and accrued and unpaid interest, dollar for
dollar, by the Guarantors as the purchase price at the option of the Guarantors
for Convertible Preferred Stock of the Company, substantially in the form of the
Company's Convertible Preferred Stock, $.01 par value (the "Convertible
Preferred Stock"), outstanding on the date hereof. In addition, in the event
that the Company or AEG shall be unable to make a payment under the Credit
Agreement, the Guarantors shall have the right (but not the obligation) (i) to
purchase additional Convertible Preferred Stock and (ii) to require the Company
to use the net proceeds of such purchase to make such payment of its or
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<PAGE> 6
AEG's obligations under the Credit Agreement. Each share of Convertible
Preferred Stock so purchased at $100 per share shall be convertible into a
number of shares of Common Stock at a conversion price equal to the lower of
Fair Market Value of the Common Stock as of the date hereof or Fair Market Value
of the Common Stock as of the date of the issuance of the Notes. The Company and
AEG shall use their best efforts to provide the Guarantors with sufficient
notice in advance of a payment default under the Credit Agreement to enable the
Guarantors to exercise their respective rights under this Article IV.
SECTION 4.02 Further Assurances. Subject to the prior written
consent of the Agent on behalf of the Lenders, upon the making of a payment by
the Guarantors on any of the Guarantees, AEG agrees to take all reasonable
actions necessary to grant a security interest in its assets to the Guarantors
(which security interest will be subordinate to the security interest of the
Agent) as collateral security for the payments that are made by the Guarantors
with respect to the Guarantees, including without limitation the execution and
delivery of a security agreement, financing statements and such other documents
as the Guarantors may reasonably request, and the making of all filings to
perfect such security interest as may be required under the provisions of the
Uniform Commercial Code or other applicable law or regulation in effect in each
state and Canadian province in which assets of AEG are located.
V.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE GUARANTORS
The obligations of the Guarantors hereunder are, at the option of
the Guarantors, subject to the satisfaction, on or before the date hereof, of
the following conditions:
(a) Opinion of Counsel. The Guarantors shall have received from
Hughes & Luce L.L.P., counsel for the Company, an opinion dated the date hereof,
substantially in the form of Annex I attached hereto.
(b) Amendment of the Registration Rights Agreement. Each party
hereto shall have executed and delivered the Amendment No. 1 to the Registration
Rights Agreement substantially in the form attached hereto as Exhibit D.
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<PAGE> 7
VI.
MISCELLANEOUS
SECTION 6.01 Expenses. Each party hereto will pay its own expenses
in connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated.
SECTION 6.02 Survival of Agreements. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the Warrants and the issuance, sale and delivery
of the Notes, if any.
SECTION 6.03 Parties in Interest. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not.
SECTION 6.04 Consent of WCAS CP II. WCAS CP II, in its capacity as
the holder of the 10% Senior Subordinated Note Due September 30, 2001 of the
Company in the principal amount of $10,000,000, hereby consents to the issuance
of the Notes as contemplated by this Agreement.
SECTION 6.05 Notices. All notices, requests, consent and other
communications hereunder shall be in writing and shall be mailed by first class
registered mail, postage prepaid, or sent by a recognized courier service
addressed as follows:
If to the Company to it at:
2030 Main Street
Irvine, California 92714-7241
Attention: President
If to the Guarantors to them at:
320 Park Avenue
Suite 2500
New York, New York 10022
Attention: Richard H. Stowe
Thomas E. McInerney
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other.
SECTION 6.06 Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
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<PAGE> 8
SECTION 6.07 Entire Agreement. This Agreement together with the
exhibits hereto and the Waiver and Amendment Agreement constitutes the entire
Agreement of the parties with respect to the subject matter hereof and may not
be modified or amended except in writing.
SECTION 6.08 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one in and the same instrument.
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<PAGE> 9
IN WITNESS WHEREOF, the Company and the Guarantors have executed
this Agreement as of this 30th day of September, 1996.
AURORA ELECTRONICS, INC.
By/s/ John P. Grazer
____________________________
Name: John P. Grazer
Title:Chief Financial Officer
AURORA ELECTRONICS GROUP, INC.
By/s/ John P. Grazer
____________________________
Name: John P. Grazer
Title:Chief Financial Officer
WELSH, CARSON, ANDERSON &
STOWE VII, L.P.
By WCAS VII Partners,
General Partner
By/s/
____________________________
General Partner
WCAS CAPITAL PARTNERS II, L.P.
By WCAS CP II Partners,
General Partner
By/s/
____________________________
General Partner
<PAGE> 10
SCHEDULE I
<TABLE>
<CAPTION>
Amount of Guarantee
-------------------
WCAS WCAS Acquisition
Guarantor Guarantee (A-1) Guarantee (A-2)
- --------- --------------- ---------------
<S> <C> <C>
Welsh, Carson, Anderson
& Stowe VII, L.P. $2,898,000 $8,694,000
WCAS Capital Partners II,
L.P. $ 102,000 $ 306,000
</TABLE>
<PAGE> 11
SCHEDULE 2.04
None, except as disclosed in any forms, reports and documents required to be
filed by the Company with the Securities and Exchange Commission ("SEC"),
including (i) the Annual Report of the Company on Form 10-K for the year ended
September 30, 1995, and (ii) all other reports, statements and registration
statements (including Current Reports on Form 8-K) filed by the Company with
the SEC since September 30, 1992, in each case including all amendments and
supplements.
<PAGE> 1
EXHIBIT 10.34
EXHIBIT A-1
LIMITED (OVERADVANCE) GUARANTEE
LIMITED (OVERADVANCE) GUARANTEE dated as of September __, 1996 made
by WELSH, CARSON, ANDERSON & STOWE VII, L.P. ("WCAS VII") and WCAS CAPITAL
PARTNERS II, L.P ("WCAS CP II") (each a "Guarantor", and collectively, the
"Guarantors") in favor of THE CHASE MANHATTAN BANK (formerly known as Chemical
Bank), a New York banking corporation, as agent (the "Agent") for (i) the
lenders (the "Lenders") named in the Credit Agreement dated as of March 29, 1996
among Aurora Electronics Group, Inc. (the "Borrower"), the guarantors named
therein, the Agent and the Lenders (as amended, modified, restated or
supplemented from time to time in accordance with its terms, the "Credit
Agreement"; capitalized terms used herein and not otherwise defined herein shall
have the meanings attributed thereto in the Credit Agreement) and (ii) itself as
issuer of the Letters of Credit.
The Required Lenders have agreed to amend and waive certain
provisions of the Credit Agreement pursuant to, and subject to the terms and
conditions of, a Waiver and Amendment Agreement dated the date hereof. The
obligation of the Required Lenders to waive certain provisions of the Credit
Agreement and to amend certain provisions of the Credit Agreement is
conditioned, inter alia, on the execution and delivery by the Guarantors of a
guarantee in the form hereof to secure the due and punctual payment by the
Borrower of all Overadvance Loans, when and as due, whether at maturity, by
acceleration, upon one or more dates set for prepayment or otherwise.
Accordingly, each of the Guarantors hereby agrees with the Agent as
follows:
SECTION 1. Guarantee of Overadvance Loans. Each Guarantor
absolutely, irrevocably and unconditionally guarantees, severally and not
jointly, the due and punctual payment, when due, whether at maturity, by
acceleration, by notice of prepayment or otherwise, the due and punctual
performance of all Overadvance Loans; provided, however, that, notwithstanding
the foregoing, the maximum liability of the Guarantors hereunder shall not
exceed $3,000,000; provided, further, that, notwithstanding the foregoing, each
Guarantor's maximum individual liability hereunder, as at any day of
determination, shall not exceed an amount equal to such Guarantor's Fractional
Share (as hereinafter defined) of $3,000,000. Each Guarantor further agrees that
the Obligations may be amended, extended or renewed, in whole or in part,
without notice or further assent from it, and that it will remain bound upon
this Guarantee notwithstanding any amendment, extension or renewal of any
Obligation; provided, however, that no such amendment, extension or renewal
shall be deemed to increase the maximum liability hereunder of the Guarantors to
an amount in excess of $3,000,000. "Fractional Share" shall mean (i) with
respect to WCAS VII, 96.6%, and (ii) with respect to WCAS CP II, 3.4%.
<PAGE> 2
Each Guarantor waives, upon the failure of the Borrower to pay any
Overadvance Loan when and as the same shall become due (whether at maturity, by
acceleration, after notice of prepayment or otherwise), presentation to, demand
of payment from, and protest to, the Borrower of any of the Obligations, and
also waives notice of acceptance of this Guarantee and notice of protest for
nonpayment. The obligations of each Guarantor hereunder shall not be affected by
(a) the failure of any Lender or the Agent to assert any claim or demand or to
enforce any right or remedy against the Borrower under the provisions of the
Notes, the Credit Agreement or any of the Security Documents or otherwise; (b)
any extension or renewal of any thereof; (c) any rescission, waiver, amendment
or modification of any of the terms or provisions under the Notes, the Credit
Agreement, any of the Security Documents, any guarantee or any other agreement;
(d) the release of any of the security held by the Agent for the benefit of the
Lenders for the Obligations or any of them; (e) the failure of any Lender or the
Agent to exercise any right or remedy against any other guarantor of the
Obligations; or (f) any bankruptcy, receivership or other insolvency proceeding
of the Borrower or any subsidiary thereof (and each Guarantor specifically
acknowledges that for purposes of such Guarantor's obligations under this
Guarantee interest shall continue to accrue on the Obligations in accordance
with the Credit Agreement notwithstanding any cessation of such interest
accruals imposed in any such insolvency proceeding for the benefit of the
Borrower).
Each Guarantor further agrees that this Guarantee constitutes a
guarantee of payment when due and not of collection, and waives any right to
require that, upon the failure of the Borrower to pay any Overadvance Loan when
and as the same shall become due (whether at maturity, by acceleration, after
notice of prepayment or otherwise), any resort be had by the Agent or any Lender
to any security held for payment of Obligations which constitute all or a
portion of any Overadvance Loan or to any balance of any deposit account of
credit on the books of the Agent or any Lender in favor of the Borrower or any
other person.
Except as expressly provided herein, the obligations of each
Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason, including, without limitation, any
claim of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense of setoff, counterclaim, recoupment or termination
whatsoever by reason of invalidity, illegality or unenforceability of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Guarantor hereunder shall not be discharged or impaired or
otherwise affected by the failure of the Agent or any Lender to assert, upon the
failure of the Borrower to pay any Overadvance Loan when and as the same shall
become due (whether at maturity, by acceleration, after notice of prepayment or
otherwise), any claim or demand or to enforce any remedy under the Notes, the
Credit Agreement, or under any Security Document, any guarantee or any other
agreement, by any waiver or modification of any thereof, by any default, failure
or delay, willful or otherwise, in the performance of the Obligations, or by any
other act or thing or omission or delay to do any other act or thing
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<PAGE> 3
which may or might in any manner or to any extent vary the risk of either
Guarantor or would otherwise operate as a discharge of either Guarantor as a
matter of law or equity.
Each Guarantor further agrees that, unless this Guarantee shall have
been theretofore terminated pursuant to the express provisions hereof, this
Guarantee shall continue to be effective or be reinstated, as the case may be,
if at any time payment, or any part thereof, of principal of or interest on any
Obligation which constitutes all or a portion of any Overadvance Loan is
rescinded or must otherwise be restored by the Agent or any Lender upon the
bankruptcy or reorganization of the Borrower or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Lender or the Agent may have at law or in equity against the
Guarantor by virtue hereof, upon the failure of the Borrower to pay any
Obligation which constitutes all or a portion of any Overadvance Loan when and
as the same shall become due, whether at maturity, by acceleration, after notice
of prepayment or otherwise, the Guarantors, severally and not jointly, hereby
each promise to and will, upon receipt of written demand by the Agent, forthwith
pay, or cause to be paid, to the Agent for the ratable benefit of the Lenders in
cash such Guarantor's Fractional Share of the amount of such unpaid Obligations.
Each Guarantor assumes all responsibility for being and keeping
itself informed of the financial condition and assets of Borrower and its
subsidiaries, and of all other circumstances bearing upon the risk of nonpayment
of the Overadvance Loans and the nature, scope and extent of the risks which
each Guarantor assumes hereunder, and agrees that neither the Agent nor any
Lender will have any duty to advise either Guarantor of information known to it
or any of them regarding such circumstances or risks.
SECTION 2. Representations and Warranties. Each Guarantor represents
and warrants to the Agent that:
(a) Organization, Powers, etc. Each Guarantor (i) is a
limited partnership duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, (ii) has the partnership power
to execute, deliver and perform this Guarantee and (iii) has made all requisite
filings with governmental authorities in all jurisdictions in which the
character of its properties or the nature of its business makes such filing
necessary.
(b) Authorization of Guarantee, etc. The execution,
delivery and performance by each Guarantor of this Guarantee and all actions
contemplated hereby (i) are duly authorized, (ii) will not violate (a) any
provision of law, of the rules or regulations thereunder, any order of any court
or other agency of government or the partnership agreement of such Guarantor or
(b) any provision of any indenture, agreement or other instrument to which such
Guarantor is a party, or by which such Guarantor or any of its properties is or
may be bound, and (iii) will not be in conflict with, result in a breach
3
<PAGE> 4
of or constitute (with due notice, lapse of time or both) a default under, any
such indenture, agreement or other instrument, or result in the creation or
imposition of any lien upon any of the property or assets of the Guarantor,
except as contemplated hereby.
(c) Legal, Valid and Binding Obligations, etc. This
Guarantee is a legal, valid and binding obligation of each Guarantor,
enforceable in accordance with its terms, subject to bankruptcy, reorganization,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally and the exercise of judicial discretion in
accordance with general principles of equity.
(d) Status of Guarantee. The obligations of each
Guarantor hereunder will, upon demand for payment by the Agent pursuant to
Section 1 hereof, constitute direct, unconditional and general obligations of
each Guarantor and rank in right of payment pari passu with all indebtedness and
liabilities for borrowed money, or other obligations arising out of an extension
of credit, of either Guarantor. Neither Guarantor has issued any such
indebtedness or incurred any such liability or obligation which is subordinated
to any other such indebtedness, liability or obligation but which will not be
subordinated to the payment in full of any and all amounts payable hereunder.
(e) Governmental Approvals. No consent, approval,
authorization, permit or license of any Federal, state or local regulatory
authority is required in connection with the making or performance by the
Guarantors of this Guarantee and the transactions contemplated hereby.
SECTION Subrogation. Upon (i) the indefeasible payment in full, in
cash, of all Obligations, (ii) the Lenders having no further commitment to make
any Loans under the Credit Agreement and (iii) the Agent having no further
obligation to issue any Letters of Credit, the Guarantors shall be subrogated to
the rights of the Agent and the Lenders to receive payments or distributions of
assets of the Borrower applicable to the Obligations until all amounts paid by
the Guarantors in respect of this Guarantee shall be paid in full; and, for the
purposes of such subrogation, no payment or distributions to the Agent of the
Lenders of any cash, property or securities to which the Guarantors would be
entitled except for the provisions of this Section 3 shall, as between the
Borrower, its creditors (other than the Agent and the Lenders) and the
Guarantors, be deemed a payment to or on account of the amounts paid by the
Guarantors hereunder.
SECTION 3. Supporting Documents. In connection with the execution
and delivery of this Guarantee, each Guarantor shall deliver or cause to be
delivered to the Agent on or prior to the date hereof: (i) the favorable written
opinion of counsel for the Guarantors addressed to the Lenders and in form and
substance satisfactory to the Agent, (ii) a certificate dated the date hereof of
a general partner of its sole general partner as to the incumbency and
signatures of the general partner of such sole general partner executing this
Guarantee and any certificate or letter delivered pursuant to this Guarantee,
(iii) a certification by another general partner of the sole general partner of
each of the
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<PAGE> 5
Guarantors as to the incumbency and signature of the general partner executing
such certificate and (iv) such additional supporting documents as the Agent may
reasonably request.
SECTION 4. Notices. All notices, demands, requests, consents or
approvals required under this Guarantee shall be in writing and shall
conclusively be deemed to have been received and to be effective on the day on
which hand delivered to the Agent at 633 Third Avenue, New York, New York, 10017
or to each Guarantor at the address set forth on the signature pages hereof, as
the case may be, or on the day which received, if sent by mail to each Guarantor
or the Agent, as the case may be, at said address.
SECTION 5. Scope and Survival of Agreement. This Guarantee, together
with the related instruments and transactions to which reference is expressly
made herein, constitutes the entire agreement of the parties and supersedes all
prior written and oral agreements and understandings with respect hereto among
the Guarantors, the Borrower and the Agent. All covenants, agreements,
representations and warranties made herein and in the certificates or other
instruments or documents delivered pursuant hereto shall continue in full force
and effect so long as any Obligation which constitutes all or a part of any
Overadvance Loan is outstanding and unpaid; provided, however, that the
representation and warranty set forth in subparagraph (d) of Section 2 hereof
shall be deemed to be repeated on each successive day so long as any Obligation
which constitutes all or a part of any Overadvance Loan is outstanding and
unpaid. Whenever in this Guarantee reference is made to either Guarantor, the
Borrower or the Agent, such reference shall be deemed to include the successors
and assigns of such party; and all covenants, promises and agreements by or on
behalf of either Guarantor which are contained in this Guarantee shall inure to
the benefit of the successors and assigns of the Borrower and each of the
Lenders.
SECTION 6. Setoff. In addition to and not in limitation of any
rights which the Agent may have under applicable law or otherwise, each
Guarantor authorizes the Agent to apply any credit balance of the Agent from the
Guarantor hereunder and, in the name of each Guarantor or the Agent, do all such
acts and execute all such documents as may be necessary or expedient for any
such purpose.
SECTION 7. Modification of Agreement. No modification, amendment or
waiver of any provision of, nor any consent required by, this Guarantee, nor any
consent to any departure by either Guarantor therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Agent and the
Guarantors and then such modification, amendment, waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on either Guarantor in any case shall entitle such Guarantor
to any other or further notice or demand in the same, similar or other
circumstances. The holder of the Notes shall be bound by any modification,
waiver or consent authorized by this Section 8, regardless of whether the Notes
shall have been marked to indicate such consent.
5
<PAGE> 6
SECTION 8. Remedies Cumulative, etc. No right, power or remedy
herein conferred upon or reserved to the Agent is intended to be exclusive of
any right, power or remedy or remedies, and each and every right, power and
remedy of the Agent pursuant to this Guarantee or the Notes or now or hereafter
existing at law or in equity or by statute or otherwise shall, to the extent
permitted by law, be cumulative and concurrent and shall be in addition to every
other right, power or remedy pursuant to this Guarantee or the Notes or now or
hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by the Agent of any one or more of such
rights, powers or remedies shall not preclude the simultaneous or later exercise
by the Agent of any or all such other rights, powers or remedies.
SECTION 9. No Waiver, etc. No failure or delay by the Agent to
insist upon the strict performance of any term, condition, covenant or agreement
of this Guarantee or of the Notes, or to exercise any right, power or remedy
hereunder or thereunder or consequent upon a breach hereof or thereof, shall
constitute a waiver of any such term, condition, covenant, agreement, right,
power or remedy of any such breach, or preclude the Agent from exercising any
such right, power or remedy at any later time or times.
SECTION 10. Severability. In case any one or more of the provisions
contained in this Guarantee should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby, and the
parties hereto agree to negotiate in good faith to replace any such invalid,
illegal or unenforceable provision with a new valid, legal and enforceable
provision that, to the extent possible, will preserve the financial bargain of
this Guarantee or to otherwise amend this Guarantee, including Section 12
hereof, to obtain such effect.
SECTION 11. APPLICABLE LAW. THIS GUARANTEE SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK (OTHER THAN
CONFLICT OF LAWS PRINCIPLES THEREOF) AND ANY APPLICABLE LAW OF THE UNITED STATES
OF AMERICA.
SECTION 12. Termination. This Guarantee shall terminate upon the
earlier to occur of (i) such time as the Agent shall have received financial
statements of the Borrower pursuant to Section 6.05(a) of the Credit Agreement
that demonstrate to the satisfaction of the Agent that the Loan Parties are in
compliance with the provisions of Sections 7.08, 7.09, 7.09A and 7.10 of the
Credit Agreement in effect as of the Closing Date or (ii) such time as (x) all
Obligations have been indefeasibly paid in full, in cash, (y) the Lenders have
no further commitment to make any Loans under the Credit Agreement and (z) the
Agent shall have no further obligation to issue any Letters of Credit.
SECTION 13. Collection Expenses. Each Guarantor agrees to pay all
reasonable out-of-pocket expenses incurred by the Agent or any of the Lenders in
connection with the enforcement or protection of its rights in connection with
this
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<PAGE> 7
Guarantee, or in connection with any pending or threatened action, proceeding,
or investigation relating to the foregoing, including but not limited to the
reasonable fees and disbursements of counsel for the Agent and the Lenders.
SECTION 14. Counterparts. This Guarantee may be executed in
counterparts, each of which shall constitute an original, but all of which shall
together constitute one and the same agreement.
IN WITNESS WHEREOF, each Guarantor has caused this Guarantee to be
duly executed, as indicated below, by its general partner, all as of the day and
year first above written.
WELSH, CARSON, ANDERSON &
STOWE VII, L.P.
By: WCAS VII PARTNERS, its general partner
By: ________________________, a
general partner
Name:
Address: 320 Park Avenue
New York, New York 10022
Attention: Richard M. Stowe
Thomas E. McInerney
WCAS CAPITAL PARTNERS II, L.P.
By: WCAS CP II PARTNERS, its general partner
By: ________________________, a
general partner
Name:
Address: 320 Park Avenue
New York, New York 10022
Attention: Richard M. Stowe
Thomas E. McInerney
7
<PAGE> 8
ACCEPTED:
THE CHASE MANHATTAN BANK, as Agent
By:_________________________________
Name:
Title:
8
<PAGE> 1
EXHIBIT 10.35
EXHIBIT A-2
LIMITED (ACQUISITION) GUARANTEE
LIMITED (ACQUISITION) GUARANTEE dated as of _________ __, ____ made
by WELSH, CARSON, ANDERSON & STOWE VII, L.P. ("WCAS VII") and WCAS CAPITAL
PARTNERS II, L.P. ("WCAS CP II") (each a "Guarantor", and collectively, the
"Guarantors") in favor of THE CHASE MANHATTAN BANK (formerly known as Chemical
Bank), a New York banking corporation, as agent (the "Agent") for (i) the
lenders (the "Lenders") named in the Credit Agreement dated as of March 29, 1996
among Aurora Electronics Group, Inc. (the "Borrower"), the guarantors named
therein, the Agent and the Lenders (as amended, modified, restated or
supplemented from time to time in accordance with its terms, the "Credit
Agreement"; capitalized terms used herein and not otherwise defined herein shall
have the meanings attributed thereto in the Credit Agreement) and (ii) itself as
issuer of the Letters of Credit.
The Lenders have consented to the acquisiton by the Borrower of
[name of French corporation engaged in the same business as the Borrower, which
corporation has been identified to the Agent and the Lenders prior to the
execution and delivery of the WCAS Overadvance Guarantee]. The obligation of the
Required Lenders to consent to such acquisition is conditioned, inter alia, on
the execution and delivery by the Guarantors of a guarantee in the form hereof
to secure the due and punctual payment by the Borrower of the French Acquisition
Loan, when and as due, whether at maturity, by acceleration, upon one or more
dates set for prepayment or otherwise.
Accordingly, each of the Guarantors hereby agrees with the Agent as
follows:
SECTION 1. Guarantee of French Acquisition Loan. Each Guarantor
absolutely, irrevocably and unconditionally guarantees, severally and not
jointly, the due and punctual payment, when due, whether at maturity, by
acceleration, by notice of prepayment or otherwise, the due and punctual
performance of the French Acquisition Loan; provided, however, that,
notwithstanding the foregoing, the maximum liability of the Guarantors hereunder
shall not exceed $9,000,000; provided, further, that, notwithstanding the
foregoing, each Guarantor's maximum individual liability hereunder, as at any
day of determination, shall not exceed an amount equal to such Guarantor's
Fractional Share (as hereinafter defined) of $9,000,000. Each Guarantor further
agrees that the Obligations may be amended, extended or renewed, in whole or in
part, without notice or further assent from it, and that it will remain bound
upon this Guarantee notwithstanding any amendment, extension or renewal of any
Obligation; provided, however, that no such amendment, extension or renewal
shall be deemed to increase the maximum liability hereunder of the Guarantors to
an amount in excess of $9,000,000. "Fractional Share" shall mean (i) with
respect to WCAS VII, 96.6%, and (ii) with respect to WCAS CP II, 3.4%.
<PAGE> 2
Each Guarantor waives, upon the failure of the Borrower to pay the
French Acquisition Loan when and as the same shall become due (whether at
maturity, by acceleration, after notice of prepayment or otherwise),
presentation to, demand of payment from, and protest to, the Borrower of any of
the Obligations, and also waives notice of acceptance of this Guarantee and
notice of protest for nonpayment. The obligations of each Guarantor hereunder
shall not be affected by (a) the failure of any Lender or the Agent to assert
any claim or demand or to enforce any right or remedy against the Borrower under
the provisions of the Notes, the Credit Agreement or any of the Security
Documents or otherwise; (b) any extension or renewal of any thereof; (c) any
rescission, waiver, amendment or modification of any of the terms or provisions
under the Notes, the Credit Agreement, any of the Security Documents, any
guarantee or any other agreement; (d) the release of any of the security held by
the Agent for the benefit of the Lenders for the Obligations or any of them; (e)
the failure of any Lender or the Agent to exercise any right or remedy against
any other guarantor of the Obligations; or (f) any bankruptcy, receivership or
other insolvency proceeding of the Borrower or any subsidiary thereof (and each
Guarantor specifically acknowledges that for purposes of such Guarantor's
obligations under this Guarantee interest shall continue to accrue on the
Obligations in accordance with the Credit Agreement notwithstanding any
cessation of such interest accruals imposed in any such insolvency proceeding
for the benefit of the Borrower).
Each Guarantor further agrees that this Guarantee constitutes a
guarantee of payment when due and not of collection, and waives any right to
require that, upon the failure of the Borrower to pay the French Acquisition
Loan when and as the same shall become due (whether at maturity, by
acceleration, after notice of prepayment or otherwise), any resort be had by the
Agent or any Lender to any security held for payment of Obligations which
constitute all or a portion of the French Acquisition Loan or to any balance of
any deposit account of credit on the books of the Agent or any Lender in favor
of the Borrower or any other person.
Except as expressly provided herein, the obligations of each
Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason, including, without limitation, any
claim of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense of setoff, counterclaim, recoupment or termination
whatsoever by reason of invalidity, illegality or unenforceability of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Guarantor hereunder shall not be discharged or impaired or
otherwise affected by the failure of the Agent or any Lender to assert, upon the
failure of the Borrower to pay the French Acquisition Loan when and as the same
shall become due (whether at maturity, by acceleration, after notice of
prepayment or otherwise), any claim or demand or to enforce any remedy under the
Notes, the Credit Agreement, or under any Security Document, any guarantee or
any other agreement, by any waiver or modification of any thereof, by any
default, failure or delay, willful or otherwise, in the performance of the
Obligations, or by any other act or thing or omission or delay to do any other
act or
2
<PAGE> 3
thing which may or might in any manner or to any extent vary the risk of either
Guarantor or would otherwise operate as a discharge of either Guarantor as a
matter of law or equity.
Each Guarantor further agrees that, unless this Guarantee shall have
been theretofore terminated pursuant to the express provisions hereof, this
Guarantee shall continue to be effective or be reinstated, as the case may be,
if at any time payment, or any part thereof, of principal of or interest on any
Obligation which constitutes all or a portion of the French Acquisition Loan is
rescinded or must otherwise be restored by the Agent or any Lender upon the
bankruptcy or reorganization of the Borrower or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Lender or the Agent may have at law or in equity against the
Guarantor by virtue hereof, upon the failure of the Borrower to pay any
Obligation which constitutes all or a portion of the French Acquisition Loan
when and as the same shall become due, whether at maturity, by acceleration,
after notice of prepayment or otherwise, the Guarantors, severally and not
jointly, hereby each promise to and will, upon receipt of written demand by the
Agent, forthwith pay, or cause to be paid, to the Agent for the ratable benefit
of the Lenders in cash such Guarantor's Fractional Share of the amount of such
unpaid Obligations.
Each Guarantor assumes all responsibility for being and keeping
itself informed of the financial condition and assets of Borrower and its
subsidiaries, and of all other circumstances bearing upon the risk of nonpayment
of the French Acquisition Loan and the nature, scope and extent of the risks
which each Guarantor assumes hereunder, and agrees that neither the Agent nor
any Lender will have any duty to advise either Guarantor of information known to
it or any of them regarding such circumstances or risks.
SECTION 2. Representations and Warranties. Each Guarantor represents
and warrants to the Agent that:
(a) Organization, Powers, etc. Each Guarantor (i) is a
limited partnership duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, (ii) has the partnership power
to execute, deliver and perform this Guarantee and (iii) has made all requisite
filings with governmental authorities in all jurisdictions in which the
character of its properties or the nature of its business makes such filing
necessary.
(b) Authorization of Guarantee, etc. The execution,
delivery and performance by each Guarantor of this Guarantee and all actions
contemplated hereby (i) are duly authorized, (ii) will not violate (a) any
provision of law, of the rules or regulations thereunder, any order of any court
or other agency of government or the partnership agreement of such Guarantor or
(b) any provision of any indenture, agreement or other instrument to which such
Guarantor is a party, or by which such Guarantor or any of its properties is or
may be bound, and (iii) will not be in conflict with, result in a breach
3
<PAGE> 4
of or constitute (with due notice, lapse of time or both) a default under, any
such indenture, agreement or other instrument, or result in the creation or
imposition of any lien upon any of the property or assets of the Guarantor,
except as contemplated hereby.
(c) Legal, Valid and Binding Obligations, etc. This
Guarantee is a legal, valid and binding obligation of each Guarantor,
enforceable in accordance with its terms, subject to bankruptcy, reorganization,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally and the exercise of judicial discretion in
accordance with general principles of equity.
(d) Status of Guarantee. The obligations of each
Guarantor hereunder will, upon demand for payment by the Agent pursuant to
Section 1 hereof, constitute direct, unconditional and general obligations of
each Guarantor and rank in right of payment pari passu with all indebtedness and
liabilities for borrowed money, or other obligations arising out of an extension
of credit, of either Guarantor. Neither Guarantor has issued any such
indebtedness or incurred any such liability or obligation which is subordinated
to any other such indebtedness, liability or obligation but which will not be
subordinated to the payment in full of any and all amounts payable hereunder.
(e) Governmental Approvals. No consent, approval,
authorization, permit or license of any Federal, state or local regulatory
authority is required in connection with the making or performance by the
Guarantors of this Guarantee and the transactions contemplated hereby.
SECTION Subrogation. Upon (i) the indefeasible payment in full, in
cash, of all Obligations, (ii) the Lenders having no further commitment to make
any Loans under the Credit Agreement and (iii) the Agent having no further
obligation to issue any Letters of Credit, the Guarantors shall be subrogated to
the rights of the Agent and the Lenders to receive payments or distributions of
assets of the Borrower applicable to the Obligations until all amounts paid by
the Guarantors in respect of this Guarantee shall be paid in full; and, for the
purposes of such subrogation, no payment or distributions to the Agent of the
Lenders of any cash, property or securities to which the Guarantors would be
entitled except for the provisions of this Section 3 shall, as between the
Borrower, its creditors (other than the Agent and the Lenders) and the
Guarantors, be deemed a payment to or on account of the amounts paid by the
Guarantors hereunder.
SECTION 3. Supporting Documents. In connection with the execution
and delivery of this Guarantee, each Guarantor shall deliver or cause to be
delivered to the Agent on or prior to the date hereof: (i) the favorable written
opinion of counsel for the Guarantors addressed to the Lenders and in form and
substance satisfactory to the Agent, (ii) a certificate dated the date hereof of
a general partner of its sole general partner as to the incumbency and
signatures of the general partner of such sole general partner executing this
Guarantee and any certificate or letter delivered pursuant to this Guarantee,
(iii) a certification by another general partner of the sole general partner of
each of the
4
<PAGE> 5
Guarantors as to the incumbency and signature of the general partner
executing such certificate and (iv) such additional supporting documents as the
Agent may reasonably request.
SECTION 4. Notices. All notices, demands, requests, consents or
approvals required under this Guarantee shall be in writing and shall
conclusively be deemed to have been received and to be effective on the day on
which hand delivered to the Agent at 633 Third Avenue, New York, New York, 10017
or to each Guarantor at the address set forth on the signature pages hereof, as
the case may be, or on the day which received, if sent by mail to each Guarantor
or the Agent, as the case may be, at said address.
SECTION 5. Scope and Survival of Agreement. This Guarantee, together
with the related instruments and transactions to which reference is expressly
made herein, constitutes the entire agreement of the parties and supersedes all
prior written and oral agreements and understandings with respect hereto among
the Guarantors, the Borrower and the Agent. All covenants, agreements,
representations and warranties made herein and in the certificates or other
instruments or documents delivered pursuant hereto shall continue in full force
and effect so long as any Obligation which constitutes all or a part of the
French Acquisition Loan is outstanding and unpaid; provided, however, that the
representation and warranty set forth in subparagraph (d) of Section 2 hereof
shall be deemed to be repeated on each successive day so long as any Obligation
which constitutes all or a part of the French Acquisition Loan is outstanding
and unpaid. Whenever in this Guarantee reference is made to either Guarantor,
the Borrower or the Agent, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and agreements
by or on behalf of either Guarantor which are contained in this Guarantee shall
inure to the benefit of the successors and assigns of the Borrower and each of
the Lenders.
SECTION 6. Setoff. In addition to and not in limitation of any
rights which the Agent may have under applicable law or otherwise, each
Guarantor authorizes the Agent to apply any credit balance of the Agent from the
Guarantor hereunder and, in the name of each Guarantor or the Agent, do all such
acts and execute all such documents as may be necessary or expedient for any
such purpose.
SECTION 7. Modification of Agreement. No modification, amendment or
waiver of any provision of, nor any consent required by, this Guarantee, nor any
consent to any departure by either Guarantor therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Agent and the
Guarantors and then such modification, amendment, waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on either Guarantor in any case shall entitle such Guarantor
to any other or further notice or demand in the same, similar or other
circumstances. The holder of the Notes shall be bound by any modification,
waiver or consent authorized by this Section 8, regardless of whether the Notes
shall have been marked to indicate such consent.
5
<PAGE> 6
SECTION 8. Remedies Cumulative, etc. No right, power or remedy
herein conferred upon or reserved to the Agent is intended to be exclusive of
any right, power or remedy or remedies, and each and every right, power and
remedy of the Agent pursuant to this Guarantee or the Notes or now or hereafter
existing at law or in equity or by statute or otherwise shall, to the extent
permitted by law, be cumulative and concurrent and shall be in addition to every
other right, power or remedy pursuant to this Guarantee or the Notes or now or
hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by the Agent of any one or more of such
rights, powers or remedies shall not preclude the simultaneous or later exercise
by the Agent of any or all such other rights, powers or remedies.
SECTION 9. No Waiver, etc. No failure or delay by the Agent to
insist upon the strict performance of any term, condition, covenant or agreement
of this Guarantee or of the Notes, or to exercise any right, power or remedy
hereunder or thereunder or consequent upon a breach hereof or thereof, shall
constitute a waiver of any such term, condition, covenant, agreement, right,
power or remedy of any such breach, or preclude the Agent from exercising any
such right, power or remedy at any later time or times.
SECTION 10. Severability. In case any one or more of the provisions
contained in this Guarantee should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby, and the
parties hereto agree to negotiate in good faith to replace any such invalid,
illegal or unenforceable provision with a new valid, legal and enforceable
provision that, to the extent possible, will preserve the financial bargain of
this Guarantee or to otherwise amend this Guarantee, including Section 12
hereof, to obtain such effect.
SECTION 11. APPLICABLE LAW. THIS GUARANTEE SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK (OTHER THAN
CONFLICT OF LAWS PRINCIPLES THEREOF) AND ANY APPLICABLE LAW OF THE UNITED STATES
OF AMERICA.
SECTION 12. Termination. This Guarantee shall terminate upon the
earlier to occur of (i) such time as the Agent shall have received financial
statements of the Borrower pursuant to Section 6.05(a) of the Credit Agreement
that demonstrate to the satisfaction of the Agent that the Loan Parties are in
compliance with the provisions of Sections 7.08, 7.09, 7.09A and 7.10 of the
Credit Agreement in effect as of the Closing Date or (ii) such time as (x) all
Obligations have been indefeasibly paid in full, in cash, (y) the Lenders have
no further commitment to make any Loans under the Credit Agreement and (z) the
Agent shall have no further obligation to issue any Letters of Credit.
SECTION 13. Collection Expenses. Each Guarantor agrees to pay all
reasonable out-of-pocket expenses incurred by the Agent or any of the Lenders in
connection with the enforcement or protection of its rights in connection with
this
6
<PAGE> 7
Guarantee, or in connection with any pending or threatened action, proceeding,
or investigation relating to the foregoing, including but not limited to the
reasonable fees and disbursements of counsel for the Agent and the Lenders.
SECTION 14. Counterparts. This Guarantee may be executed in
counterparts, each of which shall constitute an original, but all of which shall
together constitute one and the same agreement.
IN WITNESS WHEREOF, each Guarantor has caused this Guarantee to be
duly executed, as indicated below, by its general partner, all as of the day and
year first above written.
WELSH, CARSON, ANDERSON &
STOWE VII, L.P.
By: WCAS VII PARTNERS, its general partner
By: ________________________, a
general partner
Name:
Address: 320 Park Avenue
New York, New York 10022
Attention: Richard M. Stowe
Thomas E. McInerney
WCAS CAPITAL PARTNERS II, L.P.
By: WCAS CP II PARTNERS, its general partner
By: ________________________, a
general partner
Name:
Address: 320 Park Avenue
New York, New York 10022
Attention: Richard M. Stowe
Thomas E. McInerney
7
<PAGE> 8
ACCEPTED:
THE CHASE MANHATTAN BANK, as Agent
By:_________________________________
Name:
Title:
8
<PAGE> 1
EXHIBIT 10.36
Exhibit C
FORM OF NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THAT ACT
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
AURORA ELECTRONICS GROUP, INC.
10% Senior Subordinated Note
Due September 30, 2001
$ , 199
AURORA ELECTRONICS GROUP, INC., a California corporation
(hereinafter called the "Company"), for value received, hereby promises to pay
to (" "), or registered assigns, the principal sum
of DOLLARS ($ ), on September 30,
2001 and, subject to the provisions of Section 13 hereof, to pay interest
(computed on the basis of a 360-day year consisting of twelve 30-day months)
from the date hereof on the unpaid principal amount hereof at the rate of 10%
per annum semi-annually in arrears on September 30 and March 31 of each year
(each said day being an "Interest Payment Date"), commencing on ,
199 , until the principal amount hereof shall have become due and payable,
whether at maturity or by acceleration or otherwise, and thereafter at the rate
of 12% per annum on any overdue principal amount and (to the extent permitted by
applicable law) on any overdue interest until paid.
All payments of principal and interest on this Note shall be in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for payment of public and private debts.
If any payment on this Note is due on a day which is not a
Business Day, it shall be due on the next succeeding Business Day. For purposes
of this Note, "Business Day" shall mean any day other than a Saturday, Sunday or
a legal holiday or day on which banks are authorized or required to be closed in
Chicago or New York.
<PAGE> 2
1. The Note. This Note is one of the Notes in the aggregate
principal amount of up to $12,000,000 issued pursuant to and subject to the
terms and provisions of the Financial Support Agreement dated as of September
20, 1996 (the "Financial Support Agreement"), among Aurora Electronics, Inc., a
Delaware corporation ("Aurora"), the Company, Welsh, Carson, Anderson & Stowe
VII, L.P., a Delaware limited partnership ("WCAS VII"), and WCAS Capital
Partners II, L.P., a Delaware limited partnership ("WCAS CP II") and the terms
of this Note include those stated in the Financial Support Agreement. As used
herein, the term "Note" or "Notes" includes the 10% Senior Subordinated Note due
Septem- ber 30, 2001 of the Company originally so issued pursuant to the
Financial Support Agreement and any 10% Senior Subordinated Note or Notes due
September 30, 2001 subsequently issued upon exchange or transfer thereof.
2. Transfer, Etc. of Notes. The Company shall keep at its
office or agency maintained as provided in paragraph (a) of Section 7 a register
in which the Company shall provide for the registration of this Note and for the
registration of transfer and exchange of this Note. The holder of this Note may,
at its option, and either in person or by its duly authorized attorney,
surrender the same for registration of transfer or exchange at the office or
agency of the Company maintained as provided in Section 7 and, without expense
to such holder (except for taxes or governmental charges imposed in connection
therewith), receive in exchange therefor a Note or Notes each in such
denomination or denominations (in integral multiples of $10,000) as such holder
may request, dated as of the date to which interest has been paid on the Note or
Notes so surrendered for transfer or exchange, for the same aggregate principal
amount as the then unpaid principal amount of the Note or Notes so surrendered
for transfer or exchange, and registered in the name of such person or persons
as may be designated by such holder. Every Note presented or surrendered for
registration of transfer or exchange shall be duly endorsed, or shall be
accompanied by a written instrument of transfer, satisfactory in form to the
Company, duly executed by the holder of such Note or its attorney duly
authorized in writing. Every Note so made and delivered in exchange for such
Note shall in all other respects be in the same form and have the same terms as
such Note. No transfer or exchange of any Note shall be valid (x) unless made in
the foregoing manner at such office or agency and (y) unless registered under
the Securities Act of 1933, as amended, or any applicable state securities laws
or unless an exemption from such registration is available.
3. Loss, Theft, Destruction or Mutilation of Note. Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note, and, in the case of any such loss, theft or
destruction, upon receipt of an affidavit of loss and an indemnity reasonably
acceptable in form
<PAGE> 3
and substance to the Company from the holder thereof, or, in the case of any
such mutilation, upon surrender and cancellation of this Note, the Company will
make and deliver, in lieu of this Note, a new Note of like tenor and unpaid
principal amount and dated as of the date to which interest has been paid on
this Note.
4. Persons Deemed Owners; Holders. The Company may deem and
treat the person in whose name this Note is registered as the owner and holder
of this Note for the purpose of receiving payment of principal of and interest
on this Note and for all other purposes whatsoever, whether or not this Note
shall be overdue. With respect to any Note at any time outstanding, the term
"holder", as used herein, shall be deemed to mean the person in whose name such
Note is registered as aforesaid at such time.
5. Prepayments.
(a) Optional Prepayment. Subject to any applicable
restrictions contained in the Credit Agreement (as hereinafter defined), upon
notice given as provided in Section 5(b), the Company may, at its option, prepay
this Note without penalty, as a whole at any time or in part from time to time
in amounts which shall be integral multiples of $10,000.
(b) Notice of Prepayment. The Company shall give written
notice of any prepayment of this Note or any portion hereof pursuant to Section
5(a) not less than 20 nor more than 60 days prior to the date fixed for such
prepayment. Such notice of prepayment and all other notices to be given to the
holder of this Note shall be given by registered or certified mail to the person
in whose name this Note is registered at its address designated on the register
maintained by the Company on the date of mailing such notice of prepayment or
other notice. Subject to any applicable restrictions contained in the Credit
Agreement (as hereinafter defined), upon notice of prepayment being given as
aforesaid, the Company covenants and agrees that it will prepay, on the date
therein fixed for prepayment, this Note or the portion hereof, as the case may
be, so called for prepayment, at the prepayment price determined in accordance
with Section 5(a) hereof. A prepayment of less than all of the outstanding
principal amount of this Note shall not relieve the Company of its obligation to
make scheduled payments of interest payable in respect of the principal
remaining outstanding on the Interest Payment Dates.
(c) Allocation of All Payments. In the event of any partial
payment of less than all of the interest then due on the Notes then outstanding
or any prepayment, purchase, redemption or retirement of less than all of the
outstanding Notes, the Company will allocate the amount of interest so to be
paid and the principal amount so to be prepaid, purchased, redeemed or retired
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<PAGE> 4
to each Note in proportion, as nearly as may be, to the aggregate principal
amount of all Notes then outstanding.
(d) Interest After Date Fixed for Prepayment. If this Note or
a portion hereof is called for prepayment as herein provided, this Note or such
portion shall cease to bear interest on and after the date fixed for such
prepayment unless, upon presentation for such purpose, the Company shall fail to
pay this Note or such portion, as the case may be, in which event this Note or
such portion, as the case may be, and, so far as may be lawful, any overdue
installment of interest, shall bear interest on and after the date fixed for
such prepayment and until paid at the rate per annum provided herein.
(e) Surrender of Note; Notation Thereon. Upon any prepayment
of a portion of the principal amount of this Note, the holder hereof, at its
option, may require the Company to execute and deliver at the expense of the
Company (other than for transfer taxes, if any), upon surrender of this Note, a
new Note registered in the name of such person or persons as may be designated
by such holder for the principal amount of this Note then remaining unpaid,
dated as of the date to which the interest has been paid on the principal amount
of this Note then remaining unpaid, or may present this Note to the Company for
notation hereon of the payment of the portion of the principal amount of this
Note so prepaid.
6. Offer to Repurchase Upon a Change of Control. Subject to
any applicable restrictions in the Credit Agreement with respect to the
Company's ability to redeem, repurchase or otherwise make payments or
prepayments under or in respect of this Note:
(a) Upon the occurrence of a Change of Control (as hereinafter
defined), the holder of this Note shall have the right, at such holder's option,
to require the Company to repurchase all or any part of such holder's Note in
amounts which shall be in integral multiples of $10,000 pursuant to the offer
described below, at a purchase price equal to 100% of the principal amount
thereof so to be repurchased, plus accrued and unpaid interest, if any, to the
date of purchase (a "Change of Control Payment"). Within 10 Business Days after
the Company knows, or reasonably should know, of the occurrence of any Change of
Control, the Company shall make an irrevocable, unconditional offer (except that
such offer may be conditioned upon the closing of the transaction constituting
the Change of Control) (a "Change of Control Offer") to all holders of the Notes
to purchase all of the Notes for cash in an amount equal to the Change of
Control Payment by sending written notice (the "Change of Control Notice") of
such Change of Control Offer to each holder by registered or certified mail to
the person in whose name the Note is registered at its address maintained by the
Company on the date
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<PAGE> 5
of the mailing of such notice. The Change of Control Notice shall contain all
instructions and materials required by applicable law and shall contain or make
available to the holder other information material to such holder's decision to
tender this Note pursuant to the Change of Control Offer. The Change of Control
Notice, which shall govern the terms of the Change in Control Offer, shall
state:
(i) that the Change of Control Offer is being made pursuant to
this Section 6, and that all Notes validly tendered will be accepted
for payment;
(ii) the Change of Control Payment (including the amount of accrued
and unpaid interest) and the purchase date, which will be no later than
30 days from the date such notice is mailed (the "Change of Control
Payment Date");
(iii) that any Note not validly tendered will continue
to accrue interest;
(iv) that, unless the Company defaults in the payment of the Change
of Control Payment, any Note accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change
of Control Payment Date;
(v) that holders electing to have a Note, or portion thereof,
purchased pursuant to a Change of Control Offer will be required to
surrender the Note to the Company at the address specified in the
notice not later than the close of business on the Business Day prior
to the Change of Control Payment Date;
(vi) that holders will be entitled to withdraw their election if
the Company receives, not later than the close of business on the
second Business Day prior to the Change of Control Payment Date, a
telegram, facsimile transmission or letter setting forth the name of
the holder, the principal amount of the Note delivered for purchase and
a statement that such holder is withdrawing its election to have such
principal amount of Note purchased; and
(vii) that holders whose Notes are being purchased only in part will
be issued a new Note equal in principal amount to the unpurchased
portion of the Note surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or a multiple thereof.
On or before the Change of Control Payment Date, the Company
shall (i) accept for payment the Notes or portions thereof validly tendered
pursuant to the Change of Control Offer prior to the close of business on the
Change of Control Payment Date, (ii) promptly mail to the holders of Notes so
accepted
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<PAGE> 6
payment in an amount equal to the Change of Control Payment (including accrued
and unpaid interest) for such Notes, and the Company shall promptly mail or
deliver to such holders a new Note equal in principal amount to any unpurchased
portion of the Note surrendered; provided, that each such new Note will be in a
principal amount of $10,000 or an integral multiple thereof. Any Notes not so
accepted shall be promptly mailed or delivered by the Company to the holder
thereof.
(b) In the event of a Change of Control, the Company will
promptly, in good faith, (i) seek to obtain any required consent of the holders
of any Senior Indebtedness (as defined herein) to permit the Change of Control
Offer and the Change of Control Payment contemplated by this Section 6, or (ii)
repay some or all of such Senior Indebtedness to the extent necessary
(including, if necessary, payment in full of such Senior Indebtedness and
payment of any prepayment premiums, fees, expenses or penalties) to permit the
Change of Control Offer and the Change of Control Payment contemplated hereby
without such consent. Failure to comply with the foregoing shall not relieve the
Company from its obligations pursuant to paragraph (a) above.
(c) For purposes of this Note "Change of Control" means (i)
the sale, lease or transfer, whether direct or indirect, of all or substantially
all of the assets of the Company and its subsidiaries, taken as a whole, in one
transaction or a series of related transactions, to any "person" or "group"
(other than the WCAS Group, as hereinafter defined), (ii) the liquidation or
dissolution of the Company or the adoption of a plan of liquidation or
dissolution of the Company, (iii) the acquisition of "beneficial ownership" by
any "person" or "group" (other than the WCAS Group) of voting stock of Aurora or
the Company representing more than 50% of the voting power of all outstanding
shares of such voting stock, whether by way of merger or consolidation or
otherwise, or (iv) during any period of two consecutive years, the failure of
those individuals who at the beginning of such period constituted Aurora's or
the Company's Board of Directors (together with any new directors whose election
or appointment by such Board or whose nomination for election or appointment by
the shareholders of Aurora or the Company, as the case may be, was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) to constitute a majority of Aurora's or the
Company's, as the case may be, Board of Directors then in office; provided,
however, that in no event shall a foreclosure on any collateral pledged by the
Company in respect of obligations arising under or in connection with the Credit
Agreement constitute a Change of Control.
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<PAGE> 7
For purposes of this definition, (i) the terms "person" and
"group" shall have the meaning set forth in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
applicable, (ii) the term "beneficial owner" shall have the meaning set forth in
Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable, except
that a person shall be deemed to have "beneficial ownership" of all shares that
any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time or upon the occurrence of certain
events, (iii) any "person" or "group" will be deemed to beneficially own any
voting stock of Aurora or the Company so long as such person or group
beneficially owns, directly or indirectly, in the aggregate a majority of the
voting stock of a registered holder of the voting stock of Aurora or the
Company, and (iv) the term "WCAS Group" shall mean WCAS VII, WCAS CP II and any
general partners thereof.
7. Covenants Relating to the Note. The Company covenants and
agrees that so long as the Note shall be outstanding and, in the case of
paragraphs (k) through (n) below, so long as one million dollars ($1,000,000) of
aggregate principal amount of the Notes is outstanding:
(a) Maintenance of Office. The Company will maintain an office
or agency in such place in the United States of America as the Company may
designate in writing to the registered holder of this Note, where this Note may
be presented for registration of transfer and for exchange as herein provided,
where notices and demands to or upon the Company in respect of this Note may be
served and where this Note may be presented for payment. Until the Company
otherwise notifies the holder hereof, said office shall be the principal office
of the Company located at 2030 Main Street, Irvine, California 92714-7241.
(b) Payment of Taxes. The Company will promptly pay and
discharge or cause to be paid and discharged, before the same shall become in
default, all material lawful taxes and assessments imposed upon the Company or
any of its subsidiaries or upon the income and profits of the Company or any of
its subsidiaries, or upon any property, real, personal or mixed, belonging to
the Company or any of its subsidiaries, or upon any part thereof by the United
States or any State thereof, as well as all material lawful claims for labor,
materials and supplies which, if unpaid, would become a lien or charge upon such
property or any part thereof; provided, however, that neither the Company nor
any of its subsidiaries shall be required to pay and discharge or to cause to be
paid and discharged any such tax, assessment, charge, levy or claim so long as
both (x) the Company has established adequate reserves for such tax, assessment,
charge, levy or claim and (y)(i) the Company or a subsidiary shall be contesting
the validity thereof in good faith by appropriate proceedings or (ii) the
Company shall, in its good faith judgment, deem the
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<PAGE> 8
validity thereof to be questionable and the party to whom such tax, assessment,
charge, levy or claim is allegedly owed shall not have made written demand for
the payment thereof.
(c) Corporate Existence. The Company will do or cause to be
done all things necessary and lawful to preserve and keep in full force and
effect (i) its corporate existence and the corporate existence of each of its
subsidiaries and (ii) the material rights and franchises of the Company and each
of its subsidiaries under the laws of the United States or any state thereof,
or, in the case of subsidiaries organized and existing outside the United
States, under the laws of the applicable jurisdiction; provided, however, that
nothing in this paragraph (c) shall prevent the abandonment or termination of
any rights or franchises of the Company, or the liquidation or dissolution of,
or a sale, transfer or disposition (whether through merger, consolidation, sale
or otherwise) of all or any substantial part of the property and assets of, any
subsidiary or the abandonment or termination of the corporate existence, rights
and franchises of any subsidiary if such abandonment, termination, liquidation,
dissolution, sale, transfer or disposition is, in the good faith business
judgment of the Company, in the best interests of the Company and not
disadvantageous to the holder of this Note.
(d) Maintenance of Property. The Company will at all times
maintain and keep, or cause to be maintained and kept, in good repair, working
order and condition (reasonable wear and tear excepted) all significant
properties of the Company and its subsidiaries used in the conduct of the
Business, and will from time to time make or cause to be made all needful and
proper repairs, renewals, replacements, betterments and improvements thereto, so
that the Business may be conducted at all times in the ordinary course
consistent with past practice.
(e) Insurance. The Company will, and will cause each of its
subsidiaries to, (i) keep adequately insured, by financially sound and reputable
insurers, all property of a character usually insured by corporations engaged in
the same or a similar business similarly situated against loss or damage of the
kinds customarily insured against by such corporations and (ii) carry, with
financially sound and reputable insurers, such other insurance (including
without limitation liability insurance) in such amounts as are available at
reasonable expense and to the extent believed advisable in the good faith
business judgment of the Company.
(f) Keeping of Books. The Company will at all times keep, and
cause each of its subsidiaries to keep, proper books of record and account in
which proper entries will be made of its transactions in accordance with
generally accepted accounting principles consistently applied.
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<PAGE> 9
(g) Transactions with Affiliates. The Company shall not enter
into, or permit any of its subsidiaries to enter into, any transaction with any
of its or any subsidiary's officers, directors, employees or any person related
by blood or marriage to any such person or any entity in which any such person
owns any beneficial interest, except for (i) normal employment arrangements,
benefit programs and employee incentive option programs on reasonable terms,
(ii) any transaction approved by the Board of Directors of the Company in
accordance with the provisions of Section 310 of the General Corporation Law of
the State of California, or otherwise permitted by such Section , (iii) customer
transactions in the ordinary course of business and on arm's length terms and
(iv) the transactions contemplated by the Financial Support Agreement.
(h) Notice of Certain Events. The Company shall, immediately
after it becomes aware of the occurrence of (i) any Event of Default (as
hereinafter defined) or any event which, upon notice or lapse of time or both,
would constitute such an Event of Default, or (ii) any action, suit or
proceeding at law or in equity or by or before any governmental instrumentality
or agency which, if adversely determined, would materially impair the right of
the Company to carry on its business substantially as now or then conducted, or
would have a material adverse effect on the properties, assets, financial
condition, prospects, operating results or business of the Company and its
subsidiaries taken as a whole, give notice to the holder of this Note,
specifying the nature of such event.
(i) Payment of Principal and Interest on the Note. The Company
will use its best efforts, subject to the provisions of applicable credit
arrangements (including the Credit Agreement), contractual obligations of the
Company and/or its subsidiaries and any applicable law restricting the same, to
provide funds from its subsidiaries to the Company, by dividend, advance or
otherwise, sufficient to permit payment by the Company of the principal of and
interest on this Note in accordance with its terms. Subject to any applicable
provisions in the Credit Agreement and documents executed and delivered in
connection therewith, the Company will not, and will not permit any subsidiary
to, directly or indirectly create or otherwise cause to exist any encumbrance or
restriction on the ability of any subsidiary to pay dividends or make any other
distributions to the Company or any wholly-owned subsidiary of the Company in
respect of its capital stock.
(j) Consolidation, Merger and Sale. The Company will not
consolidate or merge with or into, or sell or otherwise dispose of all or
substantially all of its property in one or more related transactions to, any
other corporation or other entity, unless:
9
<PAGE> 10
(i) the Company is the surviving corporation or the entity
formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale or other disposition shall have been
made is a corporation organized or existing under the laws of the
United States of any state thereof or the District of Columbia;
(ii) the surviving corporation or other entity (if other than the
Company) shall expressly and effectively assume in writing the due and
punctual payment of the principal of and interest on this Note,
according to its tenor, and the due and punctual performance and
observance of all the terms, covenants, agreements and conditions of
this Note to be performed or observed by the Company to the same extent
as if such surviving corporation had been the original maker of this
Note;
(iii) the Company or such other corporation or other entity shall
not otherwise be in default in the performance or observance of any
covenant, agreement or condition of this Note or the Financial Support
Agreement; and
(iv) the holder of this Note shall have received, in connection
therewith, an opinion of counsel for the Company (or other counsel
satisfactory to the holder), in form and substance satisfactory to the
holder, to the effect that any such consolidation, merger, sale or
conveyance and any such assumption complies with the provisions of this
paragraph (j).
Notwithstanding anything to the contrary herein, in no event shall a foreclosure
on any collateral pledged by the Company in respect of obligations arising under
or in connection with the Credit Agreement be deemed to constitute a violation
of the Company's obligations pursuant to this paragraph (j).
(k) Limitation on Indebtedness and Disqualified Stock. The
Company will not, and will not permit any of its subsidiaries to, (i) incur or
permit to remain outstanding any indebtedness for money borrowed
("Indebtedness"), except (A) Senior Indebtedness (as defined in Section 13), (B)
Indebtedness existing on the date of original issuance of this Note, (C)
Indebtedness permitted to be incurred under the Credit Agreement as in effect
from time to time after the original issuance of this Note (other than
Indebtedness that is subordinate or junior in right of payment (to any extent)
to any Senior Indebtedness and senior or pari passu in right of payment (to any
extent) to the Notes), or (D) in the event that the Credit Agreement has
terminated, Indebtedness permitted to be incurred under any successor credit
agreement of the Company with respect to Senior Indebtedness, or if there exists
no such credit agreement, such Indebtedness as may be mutually agreed upon by
the Company and the holders of a
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<PAGE> 11
majority of the aggregate principal amount of the Notes then outstanding, or
(ii) issue any capital stock ("Disqualified Stock") of the Company or any of its
subsidiaries (other than the Convertible Preferred Stock (as hereinafter
defined)) which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures, or is mandatorily redeemable, whether pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to December 31, 2001.
(l) Restricted Payments. The Company will not, and will not
permit any of its subsidiaries to: (i) declare or pay any dividends on, or make
any other distribution or payment on account of, or redeem, retire, purchase or
otherwise acquire, directly or indirectly, any shares of any class of stock of
the Company, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether in cash,
property or in obligations of the Company or any of its subsidiaries, except for
(W) distributions permitted by the Credit Agreement, (X) distributions of shares
of the same class or of a different class of stock pro rata to all holders of
shares of a class of stock, (Y) the payment of cash dividends to Aurora for the
purpose of enabling Aurora to pay (I) dividends on account of Aurora's
Convertible Preferred Stock, $.01 par value (the "Convertible Preferred Stock")
or (II) interest on account of Aurora's 10% Senior Subordinated Notes due 2001
in the principal amount of $10,000,000 (the "Aurora Subordinated Notes"), or (Z)
dividends, distributions or payments by any subsidiary to the Company or to any
wholly-owned subsidiary of the Company, or (ii), except as permitted under the
Credit Agreement, make any payments of principal of, or retire, redeem, purchase
or otherwise acquire any Indebtedness other than any Senior Indebtedness or the
Notes (such declarations, payments, purchases, redemptions, retirements,
acquisitions or distributions being herein called "Restricted Payments").
(m) Limitation on Liens. The Company shall not, and shall not
permit any of its subsidiaries to, directly or indirectly, create, incur, assume
or otherwise cause or suffer to exist any lien, pledge , charge, security
interest or encumbrance (collectively, "Liens") on any asset now owned or
hereafter acquired, or on any income or profits therefrom or assign or convey
any right to receive income therefrom, except for (i) Liens permitted under the
Credit Agreement, (ii) liens for current taxes not yet due, (iii) landlord's
liens, (iv) purchase money liens and (v) workman's, materialman's,
warehouseman's and similar liens arising by law or statute.
(n) Inspection of Property. The Company will permit
the holder hereof to visit and inspect any of the properties of
the Company and any other subsidiaries and their books and
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<PAGE> 12
records and to discuss the affairs, finances and accounts of any of such
corporations with the principal officers of the Company and such subsidiaries
and their independent public accountants, all at such reasonable times and as
often as such holders may reasonably request.
8. Modification by Holders; Waiver. The Company may, with the
written consent of the holders of not less than a majority in principal amount
of the Notes then outstanding, modify the terms and provisions of this Note or
the rights of the holders of this Note or the obligations of the Company
hereunder, and the observance by the Company of any term or provision of this
Note may be waived with the written consent of the holders of not less than a
majority in principal amount of the Notes then outstanding; provided, however,
that no such modification or waiver shall:
(i) change the maturity of any Note or reduce the principal
amount thereof or reduce the rate or extend the time of payment of
interest thereon without the consent of the holder of each Note so
affected; or
(ii) give any Note any preference over any other Note, including,
without limitation, by amending the allocation provisions of Section
5(c) hereof; or
(iii) reduce the percentage of principal amount outstanding under
any Note, the consent of the holder of which is required for any such
modification; or
(iv) amend the provisions of Section 13 hereof in any
manner adverse to the interests of the holder of this Note,
without the consent of the holder of each Note so affected.
Any such modification or waiver shall apply equally to each
holder of the Notes and shall be binding upon them, upon each future holder of
any Note and upon the Company, whether or not such Note shall have been marked
to indicate such modification or waiver, but any Note issued thereafter shall
bear a notation referring to any such modification or waiver. Promptly after
obtaining the written consent of the holders as herein provided, the Company
shall transmit a copy of such modification or waiver to the holders of the Notes
at the time outstanding.
9. Events of Default. If any one or more of the following
events, herein called "Events of Default," shall occur (for any reason
whatsoever, and whether such occurrence shall, on the part of the Company or any
of its subsidiaries, be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of a court of competent jurisdiction or any order, rule or
12
<PAGE> 13
regulation of any administrative or other governmental authority) and such Event
of Default shall be continuing:
(i) default shall be made in the payment of the principal of
this Note when and as the same shall become due and payable, whether at
maturity or at a date fixed for prepayment or repurchase (including
default of any optional prepayment in accordance with the requirements
of Section 5 or any Change of Control Payment in accordance with the
requirements of Section 6, as the case may be) or by acceleration or
otherwise; or
(ii) default shall be made in the payment of any installment of
interest on this Note according to its terms when and as the same shall
become due and payable; or
(iii) default shall be made in the due observance or performance of
any covenant, condition or agreement on the part of the Company
contained in Section 7(j) hereof; or
(iv) default shall be made in the due observance or performance of
any other covenant, condition or agreement on the part of the Company
to be observed or performed pursuant to the terms hereof or of the
Financial Support Agreement, and such default shall continue for 10
days after written notice thereof, specifying such default and
requesting that the same be remedied; or
(v) any representation or warranty made by or on behalf of the
Company herein or in the Financial Support Agreement shall prove to
have been false or incorrect in any material respect on the date on or
as of which made; or
(vi) the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of Aurora, the Company or any
of its subsidiaries in any involuntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar
laws, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of Aurora, the Company or
any of its subsidiaries for any substantial part of any of their
property or ordering the winding-up or liquidation of any of their
affairs and the continuance of any such decree or order unstayed and in
effect for a period of 30 consecutive days; or
(vii) the commencement by Aurora, the Company or any of its
subsidiaries of a voluntary case under the federal bankruptcy laws, as
now constituted or hereafter amended, or any other applicable federal
or state bankruptcy, insolvency or other similar laws, or the consent
by any of them to the
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<PAGE> 14
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official)
of Aurora, the Company or any of its subsidiaries for any substantial
part of any of their property, or the making by any of them of any
general assignment for the benefit of creditors, or the failure of
Aurora, the Company or of any of its subsidiaries generally to pay its
debts as such debts become due, or the taking of corporate action by
Aurora, the Company or any of its subsidiaries in furtherance of or
which might reasonably be expected to result in any of the foregoing;
or
(viii) a default or an event of default as defined in any instrument
evidencing or under which Aurora, the Company or any of its
subsidiaries has outstanding at the time any Indebtedness in excess of
$500,000 in aggregate principal amount shall occur and as a result
thereof the maturity of any such Indebtedness shall have been
accelerated so that the same shall have become due and payable prior to
the date on which the same would otherwise have become due and payable
and such acceleration shall not have been rescinded or annulled within
20 days; or
(ix) final judgment (not reimbursed by insurance policies of
Aurora, the Company or any of its subsidiaries) for the payment of
money in excess of $500,000 shall be rendered against Aurora, the
Company or any of its subsidiaries and the same shall remain
undischarged for a period of 30 days during which execution shall not
be effectively stayed;
then, subject to any applicable restrictions contained in Section 13 hereof, the
holders of at least 33-1/3% in aggregate principal amount of the Notes at the
time outstanding may, at their option, by a notice in writing to the Company
declare this Note to be, and this Note shall thereupon be and become immediately
due and payable together with interest accrued thereon, without diligence,
presentment, demand, protest or further notice of any kind, all of which are
expressly waived by the Company to the extent permitted by law.
At any time after any declaration of acceleration has been
made as provided in this Section 9, the holders of a majority in principal
amount of the Notes then outstanding may, by notice to the Company, rescind such
declaration and its consequences, provided, however, that no such rescission
shall extend to or affect any subsequent default or Event of Default or impair
any right consequent thereon.
Without limiting the foregoing, the Company hereby waives any
right to trial by jury in any legal proceeding related in any way to this Note
and agrees that any such proceeding may, if the holder so elects, be brought and
enforced in the Supreme
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<PAGE> 15
Court of the State of New York for New York County or the United States District
Court for the Southern District of New York and the Company hereby waives any
objection to jurisdiction or venue in any such proceeding commenced in such
court. The Company further agrees that any process required to be served on it
for purposes of any such proceeding may be served on it, with the same effect as
personal service on it within the State of New York, by registered mail
addressed to it at its office or agency set forth in paragraph (a) of Section 7
for purposes of notices hereunder.
10. Suits for Enforcement. Subject to the provisions of
Section 13 of this Note, in case any one or more of the Events of Default
specified in Section 9 of this Note shall happen and be continuing (subject to
any applicable cure period expressly set forth herein), the holder of this Note
may proceed to protect and enforce its rights by suit in equity, action at law
and/or by other appropriate proceeding, whether for the specific performance of
any covenant or agreement contained in this Note or in aid of the exercise of
any power granted in this Note, or may proceed to enforce the payment of this
Note or to enforce any other legal or equitable right of the holder of this
Note.
In case of any default under this Note, the Company will pay
to the holder hereof reasonable collection costs and reasonable attorneys' fees,
to the extent actually incurred.
11. Remedies Cumulative. No remedy herein conferred upon the
holder of this Note is intended to be exclusive of any other remedy and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise.
12. Remedies Not Waived. No course of dealing between
the Company and the holder of this Note or any delay on the part
of the holder hereof in exercising any rights hereunder shall
operate as a waiver of any right of the holder of this Note.
13. Subordination. (a) Anything contained in this Note to the
contrary notwithstanding, the indebtedness evidenced by the Notes shall be
subordinate and junior, to the extent set forth in the following paragraphs (A),
(B) and (C), to all Senior Indebtedness of the Company. "Senior Indebtedness"
shall mean the principal of, premium, if any, and interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all reasonable fees,
reimbursement and indemnity obligations, and all other obligations arising in
connection with, any indebtedness for borrowed money of the Company, contingent
or otherwise, now outstanding or created,
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<PAGE> 16
incurred, issued, assumed or guaranteed in the future, for which, in the case of
any particular indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
indebtedness shall not be subordinate in right of payment to any other
indebtedness of the Company. Without limiting the generality of the foregoing,
Senior Indebtedness shall include all Obligations (under and as defined in the
Credit Agreement); notwithstanding the foregoing, Senior Indebtedness shall
include only such Obligations until such time as the same are paid in full in
cash and all obligations to provide financial accommodations under the Credit
Agreement have terminated. For purposes of this Note, "Credit Agreement" shall
mean the Credit Agreement, dated as of March 29, 1996 among the Company, Aurora
and other Guarantors named therein, the Lenders named therein and The Chase
Manhattan Bank (formerly known as Chemical Bank), as Agent (the "Agent"),
together with any agreement entered into in connection with the restatement,
renewal, extension, restructuring, refunding or refinancing of the Obligations
(under and as defined in such Credit Agreement).
(A) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership
proceedings in connection therewith, relative to the Company or its
creditors or its property, and in the event of any proceedings for
voluntary liquidation, dissolution or other winding up of the Company,
whether or not involving insolvency or bankruptcy proceedings, then all
Senior Indebtedness shall first be paid in full in cash, before any
payment, whether on account of principal, interest or otherwise, is
made upon the Notes.
(B) In any of the proceedings referred to in paragraph (A)
above, any payment or distribution of any kind or character, whether in
cash, property, stock or obligations which may be payable or
deliverable in respect of the Notes shall be paid or delivered directly
to the holders of Senior Indebtedness for application in payment
thereof, unless and until all Senior Indebtedness shall have been paid
in full in cash.
(C) Unless and until all Senior Indebtedness and all other
Obligations in respect thereof shall first be paid in full in cash and
all obligations to provide financial accommodations under the Credit
Agreement have terminated, (i) no payment shall be made, directly or
indirectly, on account of the Notes, (ii) no holder of the Notes may
accept or receive (in cash, property, stock or obligations or by
setoff, exercise of contractual or statutory rights or otherwise) from
the Company or any other source any payment of any kind of or on
account of the Notes and (iii) no holder of the Notes may take, demand,
sue for, accelerate or commence any
16
<PAGE> 17
remedial proceedings with respect to any amount payable on account of
the Notes or any Event of Default or other default under any provision
of this Note.
(b) Subject to the payment in full in cash of all Senior
Indebtedness as aforesaid, the holders of the Notes shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of any kind or character, whether in cash, property, stock or
obligations, which may be payable or deliverable to the holders of Senior
Indebtedness, until the principal of, and interest on, the Notes shall be paid
in full in cash, and, as between the Company, its creditors other than the
holders of Senior Indebtedness, and the holders of the Notes, no such payment or
distribution made to the holders of Senior Indebtedness by virtue of this
Section 13 which otherwise would have been made to the holder of the Notes shall
be deemed a payment by the Company on account of the Senior Indebtedness, it
being understood that the provisions of this Section 13 are and are intended
solely for the purposes of defining the relative rights of the holders of the
Notes, on the one hand, and the holder of the Senior Indebtedness, on the other
hand. Subject to the rights, if any, under this Section 13 of holders of Senior
Indebtedness to receive cash, property, stock or obligations otherwise payable
or deliverable to the holders of the Notes, nothing herein shall either impair,
as between the Company and the holder of the Notes, the obligation of the
Company, which is unconditional and absolute, to pay to the holder thereof the
principal thereof and interest thereon in accordance with its terms or prevent
(except as otherwise specified therein) the holders of the Notes from exercising
all remedies otherwise permitted by applicable law or hereunder upon default
hereunder.
(c) If any payment or distribution of any character or any
security, whether in cash, securities or other property, shall be received by
any holders of the Notes in contravention of any of the terms hereof or before
all the Senior Indebtedness obligations have been paid in full in cash and all
obligations to provide financial accommodations under the Credit Agreement have
terminated, such payment or distribution or security shall be received in trust
for the benefit of, and shall be paid over or delivered and transferred to, the
holders of the Senior Indebtedness at the time outstanding in accordance with
the priorities then existing among such holders for application to the payment
of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all
such Senior Indebtedness in full in cash. In the event of the failure of any
such holder to endorse or assign any such payment, distribution or security,
each holder of any Senior Indebtedness is hereby irrevocably authorized to
endorse or assign the name.
(d) The rights under these subordination provisions of
the holders of any Senior Indebtedness as against any holders of
17
<PAGE> 18
the Notes shall remain in full force and effect without regard to, and shall not
be impaired or affected by:
(i) any act or failure to act on the part of the Company; or
(ii) any extension or indulgence in respect of any payment or
prepayment of any Senior Indebtedness or any part thereof or in respect
of any other amount payable to any holder of any Senior Indebtedness;
or
(iii) any amendment, modification or waiver of, or addition or
supplement to, or deletion from, or compromise, release, consent or
other action in respect of, any of the terms of any Senior Indebtedness
or any other agreement which may be made relating to any Senior
Indebtedness; or
(iv) any exercise or non-exercise by the holder of any Senior
Indebtedness of any right, power, privilege or remedy under or in
respect of such Senior Indebtedness or these subordination provisions
or any waiver of any such right, power, privilege or remedy or of any
default in respect of such Senior Indebtedness or these subordination
provisions or any receipt by the holder of any Senior Indebtedness of
any security, or any failure by such holder to perfect a security
interest in, or any release by such holder of, any security for the
payment of such Senior Indebtedness; or
(v) any merger or consolidation of the Company or any of its
subsidiaries into or with any other person, or any sale, lease or
transfer of any or all of the assets of the Company or any of its
subsidiaries to any other person; or
(vi) absence of any notice to, or knowledge by, any holder of any
claim hereunder of the existence or occurrence of any of the matters or
events set forth in the foregoing clauses (i) through (v); or
(vii) any other circumstance.
(e) The holders of the Notes unconditionally waive (i) notice
of any of the matters referred to in Section 13(d); (ii) all notices which may
be required, whether by statute, rule of law or otherwise, to preserve intact
any rights of any holder of any Senior Indebtedness, including, without
limitation, any demand, presentment and protest, proof of notice of nonpayment
under any Senior Indebtedness or the Credit Agreement, and notice of any failure
on the part of the Company to perform and comply with any covenant, agreement,
term or condition of any Senior Indebtedness, (iii) any right to the
enforcement, assertion or exercise by any holder of any Senior Indebtedness of
any right, power, privilege or remedy conferred in such Senior Indebtedness
18
<PAGE> 19
or otherwise, (iv) any requirements of diligence on the part of any holder of
any of the Senior Indebtedness, (v) any requirement on the part of any holder of
any Senior Indebtedness to mitigate damages resulting from any default under
such Senior Indebtedness and (vi) any notice of any sale, transfer or other
disposition of any Senior Indebtedness by any holder thereof.
(f) The obligations of the holder under these subordination
provisions shall continue to be effective, or be reinstated, as the case may be,
if at any time any payment in respect of any Senior Indebtedness, or any other
payment to any holder of any Senior Indebtedness in its capacity as such, is
rescinded or must otherwise be restored or returned by the holder of such Senior
Indebtedness upon the occurrence of any proceeding referred to in paragraph
13(a)(A) or upon or as a result of the appoint of a receiver, intervenor or
conservator of, or trustee or similar officer for, the Company or any
substantial part of its property or otherwise, all as though such payment had
not been made.
14. Covenants Bind Successors and Assigns. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Company shall bind its successors and assigns, whether so expressed or not.
15. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of New York.
16. Headings. The headings of the sections and paragraphs of
this Note are inserted for convenience only and do not constitute a part of this
Note.
17. Third Party Beneficiaries. The provisions of
Section 13 are intended to be for the benefit of, and shall be
enforceable directly by each holder of, the Senior Indebtedness.
18. Assignment and Amendment. Unless and until all Senior
Indebtedness and all other Obligations in respect thereof shall first be paid in
full in cash and all obligations to provide financial accommodations under the
Credit Agreement have terminated, (i) the holder of this Note shall not assign
this Note (other than to any member of the WCAS Group) without the prior written
consent of the Agent and the Lenders, and (ii) this Note shall not be amended or
otherwise modified without the prior written consent of the Agent and the
Lenders.
19
<PAGE> 20
IN WITNESS WHEREOF, Aurora Electronics Group, Inc. has caused this
Note to be signed in its corporate name by one of its officers thereunto duly
authorized and to be dated as of the day and year first above written.
AURORA ELECTRONICS GROUP, INC.
By:____________________
20
<PAGE> 1
EXHIBIT 10.37
Exhibit D
AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT
AMENDMENT NO. 1 dated as of September 30, 1996 to the
REGISTRATION RIGHTS AGREEMENT, dated March 29, 1996 among AURORA ELECTRONICS,
INC., a Delaware corporation (the "Company"), and the parties listed on Schedule
I thereto (collectively, the "Purchasers").
WHEREAS, the Company and two of the Purchasers, Welsh, Carson,
Anderson & Stowe VII, L.P. ("WCAS VII") and WCAS Capital Partners II, L.P.
("WCAS CP II"), have entered into a Financial Support Agreement dated as of the
date hereof (the "Financial Support Agreement"), pursuant to which, upon the
terms and subject to the conditions contained therein, the Company has agreed to
issue and deliver to WCAS VII and WCAS CP II warrants to purchase up to the
aggregate number of shares of Common Stock, $.03 par value, of the Company (the
"Warrants") calculated in the manner set forth therein;
WHEREAS, in consideration of the additional investment being
made by WCAS VII and WCAS CP II and in order to induce them to consummate the
transactions contemplated by the Financial Support Agreement, the Company and
the Purchasers desire to amend the terms of the Registration Rights Agreement to
provide WCAS VII and WCAS CP II with registration rights with respect to the
Common Stock issuable upon exercise of the Warrants; and
WHEREAS the Purchasers signatory hereto are the holders of not
less than a majority of the Restricted Stock (as defined in the Registration
Rights Agreement) currently outstanding, as required by Section 13(d) of the
Registration Rights Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained and for certain other good and valuable
consideration the sufficiency and receipt of which is hereby acknowledged, the
parties hereby agree as follows:
SECTION 1. Amendment to Introductory Paragraph.
The introductory paragraph of the Registration Rights Agreement
is hereby amended and restated in its entirety to read as fol-
lows:
"This will confirm that (1) with respect to the several
individuals and entities named as Purchasers in the Securities Purchase
Agreement dated as of February 21, 1996, as amended (the "Purchase
Agreement"), among Aurora Electron-
<PAGE> 2
ics, Inc., a Delaware corporation (the "Company"), Welsh, Carson,
Anderson & Stowe VII, L.P., a Delaware limited partnership ("WCAS
VII"), WCAS Capital Partners II, L.P., a Delaware limited partnership
("WCAS CP II"), and the several persons named therein, in consideration
of (i) the purchase by WCAS VII and the several persons (other than
WCAS CP II) named in Schedule I hereto (collectively, "the Preferred
Share Purchasers") from the Company of 400,000 shares (the "Preferred
Shares") of Convertible Preferred Stock, $.01 par value ("Convertible
Preferred Stock"), of the Company, and (ii) the purchase by WCAS CP II
of (x) the Company's 10% Senior Subordinated Note due September 30,
2001, in the principal amount of $10,000,000, and (y) 607,211 shares
(the "Common Shares") of Common Stock, $.03 par value ("Common Stock"),
of the Company, all on the terms and subject to the conditions set
forth in the Purchase Agreement, and as an inducement to the Purchasers
to consummate the transactions contemplated by the Purchase Agreement,
and (2) with respect to each of WCAS VII and WCAS CP II, in
consideration of the additional financial risk that each of them is
assuming by virtue of the issuance of the "Guarantees" (as defined in
the Financial Support Agreement dated as of the date hereof among the
Company, Aurora Electronics Group, Inc., WCAS VII and WCAS CP II (the
"Financial Support Agreement"), and as an inducement to WCAS VII and
WCAS CP II to consummate the transactions contemplated by the Financial
Support Agreement, the Company hereby covenants and agrees with each of
you, and with each subsequent holder of Restricted Stock (as defined
herein) as follows:"
SECTION 2. Amendment to Section 2. Section 2 is
hereby amended and restated to read in its entirety as follows:
"Each certificate representing the Common Shares, each
certificate representing the Preferred Shares, each certificate
representing the Conversion Shares, each certificate representing
shares of Common Stock issued upon exercise of the warrants issued
pursuant to the Financial Support Agreement (the "Warrants") and each
certificate issued upon exchange, adjustment or transfer of any of the
foregoing, other than in a public sale or as otherwise permitted by the
last paragraph of Section 3 hereof, shall be stamped or otherwise
imprinted with a legend substantially in the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE."
<PAGE> 3
SECTION 3. Amendment to Section 4(a). The following proviso
shall be added to the end of the first sentence of Section 4(a):
"; and provided, further, however, that, in any underwritten public
offering contemplated by Section 4, 5 or 6 hereof, the holders of
Warrants shall be entitled to sell such Warrants to the underwriters
for exercise and the sale of the shares of Common Stock issued upon
such exercise."
SECTION 4. Miscellaneous.
(a) The Registration Rights Agreement, as amended by this
Amendment, is hereby in all respects confirmed.
(b) This Amendment shall be governed by and construed in
accordance with the laws of the State of New York, without regard to
its conflicts of law rules.
(c) This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Amendment
No. 1 to Registration Rights Agreement as of the date first above written.
AURORA ELECTRONICS, INC.
By_____________________________
THE PURCHASERS:
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII Partners, L.P., General Partner
By:________________________________________
WCAS CAPITAL PARTNERS II, L.P.
By WCAS CP II Partners, General Partner
By:________________________________________
WCAS INFORMATION PARTNERS, L.P.
By:________________________________________
THE HARVEY CASH TRUST
By:________________________________________
Trustee
___________________________________________
Jim C. Cowart
<PAGE> 5
CHEMICAL EQUITY ASSOCIATES,
A California Limited Partnership
By Chemical Venture Partners,
General Partner
By:_____________________________
________________________________
Bruce K. Anderson
________________________________
Russell L. Carson
________________________________
Anthony J. de Nicola
________________________________
James B. Hoover
________________________________
Thomas E. McInerney
________________________________
Robert A. Minicucci
________________________________
Andrew M. Paul
________________________________
Paul B. Queally
________________________________
Richard H. Stowe
<PAGE> 6
________________________________
Laura M. VanBuren
________________________________
Patrick J. Welsh
<PAGE> 1
AURORA ELECTRICONS, INC. AND SUBSIDIARIES EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended Year ended
September 30, 1996 September 30, 1995
------------------------------ ------------------------------
Primary Fully Diluted Primary Fully Diluted
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ (31,753) $ (31,753) $ (15,030) $ (15,030)
============= ============= ============= =============
ADJUSTED NUMBER OF COMMON SHARES
Weighted average shares outstanding 6,629 6,629 7,445 7,445
Incremental shares for exercise of stock
options and warrants and common stock
issuable 530 530 934 934
Weighted average shares issuable upon
conversion of Debenture due 2001
and Promissory Notes due 1997 - - - -
------------- ------------- ------------- -------------
Adjusted number of common shares 7,159 7,159 8,379 8,379
============= ============= ============= =============
Net earnings (loss) per common shares $ (4.44) $ (4.44) $ (1.79) $ (1.79)
============= ============= ============= =============
</TABLE>
44
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 File No. 33-62102, Form S-8 File No.
33-62104, Form S-8 File No. 33-79426 and Form S-3 File No. 33-73758.
Orange County, California
December 30, 1996
ARTHUR ANDERSEN LLP
45
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,537
<SECURITIES> 0
<RECEIVABLES> 8,629
<ALLOWANCES> 1,209
<INVENTORY> 4,098
<CURRENT-ASSETS> 15,480
<PP&E> 8,099
<DEPRECIATION> 3,288
<TOTAL-ASSETS> 52,788
<CURRENT-LIABILITIES> 14,870
<BONDS> 10,326
41,400
0
<COMMON> 315
<OTHER-SE> 10,755
<TOTAL-LIABILITY-AND-EQUITY> 52,788
<SALES> 98,019
<TOTAL-REVENUES> 98,019
<CGS> 73,576
<TOTAL-COSTS> 73,576
<OTHER-EXPENSES> 43,985
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,221
<INCOME-PRETAX> (27,047)
<INCOME-TAX> 3,306
<INCOME-CONTINUING> (30,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,353)
<EPS-PRIMARY> (4.44)
<EPS-DILUTED> (4.44)
</TABLE>
