10% Senior Subordinated Bridge 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, INC.


10% Senior Subordinated Bridge Note


$3,200,000 January 30, 1998


AURORA ELECTRONICS, INC., a Delaware corporation (hereinafter called the "Company"), for value received, hereby promises to pay to WELSH, CARSON ANDERSON & STOWE VII, L.P. ("WCAS VII") or registered assigns, the principal sum of THREE MILLION TWO HUNDRED THOUSAND DOLLARS ($3,200,000) ON ANY DATE ON OR AFTER JULY 1, 1998 ON DEMAND (subject to applicable restrictions set forth in Section 14 hereof), 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 June 30 and December 31 of each year (each said day being an "Interest Payment Date"), commencing on June 30, 1998, until the principal amount hereof shall have become due and payable, whether on demand 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.


1. The Note. This Note is issued pursuant to and is subject to the terms and provisions of the Securities Purchase and Exchange Agreement dated as of January 30, 1998 (the "Purchase Agreement"), among the Company, WCAS VII, WCAS Capital Partners II, L.P.("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 this 10% Senior Subordinated Bridge Note of the Company, any additional 10% Senior Subordinated Bridge Note or Notes issued 2 pursuant to the Purchase Agreement and any 10% Senior Subordinated Bridge Note or Notes subsequently issued upon exchange or transfer hereof or thereof.


2. Transfer, Etc. of Notes. The Company shall keep at its office or agency maintained as provided in paragraph (a) of Section 8 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 8 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 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


2 3 "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 premium or penalty, as a whole at any time or in part from time to time in principal amounts which shall be integral multiples of $100,000, together with any accrued and unpaid interest thereon through the date of such prepayment.


(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.


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(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 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 multiples of $100,000 (pursuant to the offer described below) of the Notes outstanding, in any such event, 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 of 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");


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(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 $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 but in no event later than 30 days after the Change of Control, in good faith, (i) 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


5 6 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, (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 Section 6 and Section 7, (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, any general partners thereof and any other investment limited partnerships or other investment entities under common control therewith.


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7. Special Mandatory Prepayments.


(a) Subject to any applicable restrictions contained in the Credit Agreement, within 5 days after the consummation of:


(i) any sale, transfer, lease, sale and leaseback or
other disposition by the Company to any person of all or any part of
its property or assets, in any case in a single transaction or a
series of related transactions (other than any of the foregoing for
fair value of property that (x) is of inventory in the ordinary course
of business or (y) is of worn-out or obsolete assets); or


(ii) the issuance (other than by dividend) of any capital
stock or other ownership interest of the Company pursuant to offerings
registered under the Securities Act of 1933, as amended (the
"Securities Act");


the Company shall be required to prepay the indebtedness outstanding under the Notes in an amount equal to 100% of the gross cash proceeds received by the Company from such transaction less all legal expenses, customary commissions and other fees and expenses incurred and all federal, state, local and foreign taxes assessed in connection therewith.


(b) Subject to any applicable restrictions contained in the Credit Agreement, if there shall exist any Excess Cash Flow (as defined in paragraph (c) hereof) for any fiscal year, a mandatory prepayment (an "Excess Cash Flow Prepayment") of the indebtedness outstanding under the Notes shall be made on the date (the "Excess Cash Flow Prepayment Date") which is 105 days after the end of such fiscal year, in an amount equal to one hundred percent (100%) of such Excess Cash Flow.


(c) "Excess Cash Flow" means, for any fiscal period of the Company, an amount which, on a combined basis in conformity with GAAP, is equal to:


(i) the excess of


the sum (without duplication) of the following
amounts:


(A) net income for such fiscal period;


(B) expenses for such fiscal period for
depreciation, amortization and other similar non- cash
charges, to the extent that the same are deducted from net
revenues in determining net income for such fiscal period;


(C) the difference between (1) the amount of
taxes imposed on the Company deducted from net revenues to


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determine net income for such fiscal period and (2) the amount
of taxes actually paid by the Company during such fiscal
period; and


(D) the difference between (1) any extraordinary
or non-recurring items of expense deducted from net revenues
to determine net income for such fiscal period and (2) the
aggregate amount of all cash payments made by the Company
during such period on account of extraordinary or non-
recurring items of expense, whether or not accrued in such
period;


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