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February 21, 1996
Board of Directors
Aurora Electronics, Inc.
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Dear Sirs:
We understand that Aurora Electronics, Inc. ("Aurora") and Xxxxx,
Xxxxxx, Xxxxxxxx & Xxxxx VII, L.P. ("WCAS VII"), WCAS Capital Partners II, L.P.
("WCAS XX XX") and certain other purchasers (such purchasers, together with
WCAS VII, being the "Purchasers") propose to enter into a Securities Purchase
Agreement (the "Agreement"), pursuant to which the Purchasers will purchase
between $35,000,000 and $40,000,000 of 7% Convertible Preferred Stock,
convertible at a price of $2.125 (the "Preferred Stock"), of the Company and
WCAS XX XX will purchase $10,000,000 of 10% Senior Subordinated Notes (the
"Notes") and a number of shares of the Common Stock, $.03 par value per share
("Common Stock"), of Aurora based on the number of outstanding shares of Common
Stock. In addition, the Company will agree to (i) enter into a revolver credit
facility with a bank or bank group with an initial availability of up to
$35,000,000, (ii) commence a tender offer to purchase up to 6,500,000 of the
outstanding shares of Common Stock for $2.875 per share, conditioned on, among
other things, tenders by the holders of not less than 2,000,000 of the
outstanding shares of Common Stock (the "Tender Offer"), (iii) terminate its
existing Senior Secured Credit Agreement, (iv) provide for the redemption of
its 9 1/4% Senior Subordinated Notes due 1996 and (v) adopt and implement a new
stock option plan. The purchase and sale of the Preferred Stock, the Notes and
the Common Stock pursuant to the Agreement taken together with the transactions
described in clauses (i) through (v) of the previous sentence being hereinafter
collectively called, the "Transaction." You have requested our opinion as to
whether the Transaction is fair, from a financial point of view, to the holders
of Common Stock (other than WCAS XX XX and its affiliates).
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Board of Directors
Aurora Electronics, Inc.
February 21, 1996
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Xxxx. Xxxxx & Sons Incorporated ("Xxxx. Xxxxx"), as a customary part
of its investment banking business, is engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and
other purposes. We have acted as financial advisor to Aurora in connection
with the Transaction and will receive a fee for our services, a portion of
which is contingent upon the consummation of the Transaction. Xxxx. Xxxxx
regularly publishes research reports regarding the semiconductor and enabling
components industries and the businesses and securities of publicly owned
companies in these industries.
In connection with our opinion, we have reviewed certain publicly
available financial information concerning Aurora and certain internal
financial analyses and other information furnished to us by Xxxxxx. We have
also held discussions with members of the senior management of Aurora regarding
the business and prospects of the Company. In addition, we have (i) reviewed
the reported price and trading activity for the Common Stock of Aurora, (ii)
compared certain financial and stock market information for Aurora with similar
information for certain companies whose securities are publicly traded, (iii)
reviewed the financial terms of certain business combinations and acquisitions
of less than 100% of target companies which we deemed comparable in whole or in
part, (iv) reviewed the terms of the Agreement in a draft dated February 20,
1996 and draft copies of certain related documents and (v) performed such other
studies and analyses and considered such other factors as we deemed
appropriate.
We have not independently verified the information described above and
for purposes of this opinion have assumed the accuracy, completeness and
fairness thereof. With respect to information relating to the prospects of
Aurora, we have assumed that such information reflects the best currently
available estimates and judgments of management of Xxxxxx as to the likely
future financial performance of Xxxxxx. In addition, we have not made an
independent evaluation or appraisal of the assets of Aurora (nor have we been
furnished with any such evaluation or appraisal), nor have we made any physical
inspection of the properties or assets of the Company. In arriving at our
opinion, we were not authorized to solicit, and did not solicit, interest from
any party with respect to the acquisition of the Company or any of its assets,
nor were we authorized to participate, and we did not participate in, any
negotiations with any parties in connection with the Transaction. In arriving
at our opinion, we also assumed that the terms of the Tender Offer and
Transaction will not deviate in any material respects from the terms set forth
in the draft documents that we reviewed. The valuation of the Aurora
securities to be outstanding after completion of the Tender Offer is subject to
uncertainties and contingencies, including, without limitation, the liquidity
of the market, if any, for such securities, prevailing interest rates, market
conditions and the condition and prospects of the Company, all of which are
difficult to predict. Our opinion is based on market, economic and other
conditions as they exist and can be evaluated as of the date of this letter.
We express no opinion as to the price at which Aurora Common Stock will trade
subsequent to the consummation of the Transaction.
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Board of Directors
Aurora Electronics, Inc.
February 21, 1996
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It is understood that this letter is for the information of the Board
of Directors of the Company and may not be used for any other purpose without
our prior written consent, except that this opinion may be included in its
entirety in any filing made by the Company with the Securities and Exchange
Commission with respect to the Tender Offer and the Transaction. In addition,
we express no opinion as to whether the stockholders of the Company should
tender their shares of Common Stock in the Tender Offer or how such
stockholders should vote at any stockholders' meeting held in connection with
the Transaction. We express no opinion as to the fairness or adequacy of any
consideration received in the Transaction by the Purchasers or WCAS XX XX.
Based upon and subject to the foregoing, it is our opinion that, as of
the date of this letter, the Transaction is fair, from a financial point of
view, to the holders of Common Stock (other than WCAS XX XX and its
affiliates).
Very truly yours,
XXXX. BROWN & SONS INCORPORATED
