Pledge Agreement

EXECUTION COPY


PLEDGE AGREEMENT


PLEDGE AGREEMENT dated as of March 29, 1996 among AURORA ELECTRONICS GROUP, INC., a California corporation (the "Borrower"), AURORA ELECTRONICS, INC., a Delaware corporation ("Holdings"; Borrower and Holdings are each sometimes referred to herein as a "Grantor" and collectively as the "Grantors") and CHEMICAL BANK, a New York banking corporation, as agent (the "Agent") for (i) the lenders (the "Lenders") named in Schedules 2.01(a) and 2.01(b) of the Credit Agreement dated as of the date hereof, among the Grantors, the guarantors named therein (the "Guarantors"), the Lenders and the Agent (as amended, modified or supplemented from time to time in accordance with its terms, the "Credit Agreement") and (ii) for itself as issuer of the Letters of Credit.


A. The Agent and the Lenders have agreed to extend Loans and certain other financial accommodations including, without limitation, the issuance of Letters of Credit to the Borrower pursuant to, and subject to the terms and conditions of, the Credit Agreement. The obligation of the Lenders to extend such Loans and of the Agent to issue Letters of Credit under the Credit Agreement is conditioned on the execution and delivery by the Grantors of a pledge agreement in the form hereof to secure the following: (i) the Obligations (including, without limitation, the due and punctual payment and performance of (a) the principal of and interest on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (b) Indebtedness at any time and from time to time under the Letters of Credit), (ii) all obligations of the Grantors at any time and from time to time under this Pledge Agreement and (iii) all other obligations of the Grantors and the Guarantors at any time and from time to time under the Credit Agreement and the other Loan Documents (the foregoing being herein referred to as the "Secured Obligations").


B. Capitalized terms used herein and not defined herein shall have the respective meanings assigned to such terms in the Credit Agreement.


Accordingly, the Grantors and the Agent hereby agree as follows:


1. Pledge. As security for the payment and performance in full of the Secured Obligations, each Grantor hereby transfers, grants, bargains, sells, conveys, hypothecates, pledges, sets over, endorses over, and delivers unto the Agent, and grants to the Agent, for its own benefit and for the benefit of the Lenders, a security interest in, (a) the shares of capital stock listed in Schedule I annexed hereto next to such Grantor's name (the "Initial Pledged Stock") and any additional shares of issued


2 and outstanding common stock of the issuers listed in Schedule I annexed hereto obtained in the future by the Grantors (collectively, the Initial Pledged Stock together with all such additional shares pledged in the future, the "Pledged Stock"), provided, however, in no event shall the Grantors pledge and deliver to the Secured Party additional shares of stock of any issuer not incorporated in the United States if, after giving effect to such pledge and delivery, the Pledged Stock consisting of stock of such issuer will constitute more than 65% of the issued and outstanding stock of such issuer, (b) all instruments of indebtedness (whether now existing or hereinafter arising) by any of the issuers listed in Schedule I annexed hereto which name any Grantor as payee thereunder (the "Pledged Debt") and (c) subject to Section 5 below, all proceeds of the Pledged Stock and Pledged Debt, including, without limitation, all cash, securities or other property at any time and from time to time receivable or otherwise distributed in respect of or in exchange for any of or all such Pledged Stock or Pledged Debt (the items referred to in clauses (a) through (c) being collectively called the "Collateral"). Upon delivery to the Agent, any securities now or hereafter included in the Collateral including, without limitation, the Pledged Stock (the "Pledged Securities") shall be accompanied by undated stock powers duly executed in blank or other instruments of transfer satisfactory to the Agent and by such other instruments and documents as the Agent may reasonably request. Each delivery of Pledged Securities shall be accompanied by a schedule showing a description of the securities theretofore and then being pledged hereunder, which schedule shall be attached hereto as Schedule I and made a part hereof. Each schedule so delivered shall supersede any prior schedules so delivered.


2. Delivery of Collateral. Each Grantor agrees to deliver promptly or cause to be delivered to the Agent any and all Pledged Securities, and any and all certificates or other instruments or documents representing any of the Collateral (together with any necessary stock power or note power, as the case may be).


3. Representations, Warranties and Covenants. Each Grantor hereby represents, warrants and covenants to and with the Agent that, excluding the effect of the laws of the jurisdiction of incorporation or formation of issuers not incorporated in the United States:


(a) except for (x) the security interest granted to the Agent hereunder and (y) Liens of a type described in Section 7.01(c) of the Credit Agreement, each Grantor (i) is and, subject to the provisions of the Credit Agreement, will at all times continue to be the direct owner, beneficially and of record, of the Pledged Securities that it is pledging hereunder and is and will continue to be the holder of the Pledged Debt that it is pledging (subject to the payment in full of all amounts owed thereunder) hereunder except for the delivery and endorsement over of such Pledged Debt to the Agent as contemplated hereunder, (ii) holds the Collateral that it is pledging hereunder


2 3 free and clear of all Liens, charges, encumbrances and security interests of every kind and nature, and the Pledged Stock is subject to no options to purchase or any similar or other rights of any person, (iii) will make no assignment, pledge, hypothecation or, subject to the provisions of the Credit Agreement, transfer of, or create any security interest in, the Collateral that it is pledging hereunder including, without limitation, by virtue of becoming bound by any agreement which restricts in any manner the rights of any present or future holder of any Pledged Stock with respect thereto, and (iv) subject to Section 5 below, will cause any and all Collateral, whether for value paid by a Grantor or otherwise, to be forthwith deposited with the Agent and pledged or assigned hereunder;


(b) each Grantor (i) has good right and legal authority to pledge the Collateral it is pledging hereunder in the manner hereby done or contemplated, (ii) will not amend, modify or supplement any Pledged Security (including, without limitation, any Pledged Debt) without the prior written consent of the Agent, nor forgive any Indebtedness evidenced by any Pledged Security, except to the extent permitted by Section 7.16 of the Credit Agreement and (iii) will take all actions reasonably necessary to defend its title or interest thereto or therein against any Liens or other impediments of any nature, however arising, of all persons whomsoever;


(c) no consent or approval of any domestic governmental body or regulatory authority or any securities exchange was or is necessary to the validity of the pledge effected hereby;


(d) by virtue of the execution and delivery by each Grantor of this Agreement, when the certificates, instruments or other documents representing or evidencing the Collateral are delivered to the Agent in accordance with this Agreement, the Agent will obtain a valid and perfected first Lien upon and security interest in such Collateral as security for the repayment of the Secured Obligations, prior to all other Liens and encumbrances thereon and security interests therein, subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally;


(e) the pledge effected hereby is effective to vest in the Agent the rights of the Agent in the Collateral as set forth herein; and


(f) all of the Pledged Stock has been duly authorized and validly issued and as at the date hereof, the Initial Pledged Stock consisting of stock of the Borrower constitutes all of the issued and outstanding shares of capital stock of the Borrower and the Initial Pledged Stock consisting of stock of issuers not incorporated in the United States constitutes 65% of the issued and outstanding shares of capital stock of such issuers.


3 4 All representations, warranties and covenants of the Grantors contained in this Agreement shall survive the execution, delivery and performance of this Agreement until the termination of this Agreement pursuant to Section 15 hereof.


4. Registration in Nominee Name; Denominations. Upon the occurrence and during the continuance of an Event of Default, the Agent shall have the right (in its sole and absolute discretion with subsequent notice to the Grantors) to transfer to or to register the Pledged Securities in its own name or the name of its nominee. In addition, the Agent shall at all times have the right to exchange the certificates representing Pledged Securities for certificates of smaller or larger denominations for any purpose consistent with this Agreement.


5. Voting Rights; Dividends; etc. (a) Unless and until an Event of Default hereunder shall have occurred and be continuing:


(i) Each Grantor shall be entitled to exercise any and all voting and/or consensual rights and powers accruing to an owner of Pledged Securities or any part thereof for any purpose not inconsistent with the terms of this Agreement and the Credit Agreement provided that such action would not materially adversely affect the rights inuring to the Agent or the Lenders under this Agreement or the Credit Agreement or materially adversely affect the rights and remedies of the Agent or the Lenders under this Agreement or the Credit Agreement or the ability of the Agent or the Lenders to exercise the same.


(ii) The Agent shall execute and deliver to the Grantors, or cause to be executed and delivered to the Grantors, all such proxies, powers of attorney, and other instruments as the Grantors may reasonably request for the purpose of enabling the Grantors to exercise the voting and/or consensual rights and powers which they are entitled to exercise pursuant to subparagraph (i) above.


(iii) The Grantors shall be entitled to receive and retain any and all (a) cash dividends paid on the Pledged Stock only to the extent that such cash dividends are permitted by, and otherwise paid in accordance with the terms and conditions of, the Credit Agreement and applicable laws and (b) payments of any kind whatsoever on the Pledged Debt. Any and all


a. noncash dividends,


b. stock or dividends paid or payable in cash or otherwise in connection with a partial or total liquidation or dissolution, and


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c. instruments, securities, other distributions in property, return of capital, capital surplus or paid-in surplus or other distributions made on or in respect of Pledged Securities (other than dividends permitted by this Section 5(a)(iii)), whether paid or payable in cash or otherwise, whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of the issuer of any Pledged Securities or received in exchange for Pledged Securities or any part thereof, or in redemption thereof, as a result of any merger, consolidation, acquisition o ...