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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, XXXXXXXX & XXXXX VII, L.P., a Delaware
limited partnership ("WCAS VII"), and WCAS CAPITAL PARTNERS II, L.P., a Delaware
limited partnership ("WCAS XX XX" 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;
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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
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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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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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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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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
Xxxxxx & Xxxx 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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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 XX XX. WCAS XX XX, 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:
0000 Xxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000-0000
Attention: President
If to the Guarantors to them at:
000 Xxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxx
Xxxxxx X. XxXxxxxxx
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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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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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/ Xxxx X. Xxxxxx
____________________________
Name: Xxxx X. Xxxxxx
Title:Chief Financial Officer
AURORA ELECTRONICS GROUP, INC.
By/s/ Xxxx X. Xxxxxx
____________________________
Name: Xxxx X. Xxxxxx
Title:Chief Financial Officer
WELSH, CARSON, XXXXXXXX &
XXXXX VII, L.P.
By WCAS VII Partners,
General Partner
By/s/
____________________________
General Partner
WCAS CAPITAL PARTNERS II, L.P.
By WCAS XX XX Partners,
General Partner
By/s/
____________________________
General Partner
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SCHEDULE I
Amount of Guarantee
-------------------
WCAS WCAS Acquisition
Guarantor Guarantee (A-1) Guarantee (A-2)
--------- --------------- ---------------
Welsh, Carson, Xxxxxxxx
& Xxxxx VII, L.P. $2,898,000 $8,694,000
WCAS Capital Partners II,
L.P. $ 102,000 $ 306,000
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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.
