<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).





                                       10
<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,





                                       12
<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.





                                       17
<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





                                       18
<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.





                                       19
<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