SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File No. 0-20292
AMPEX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13--3667696
(State of Incorporation) (I.R.S. Employer Identification Number)
500 Broadway
Redwood City, California 94063-3199
(Address of principal executive offices, including zip code)
(415) 367-2011
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of July 15, 1996, the aggregate number of outstanding shares of the
Registrant's Class A Common Stock, $.01 par value, was 45,002,617. There were
no outstanding shares of the Registrant's Class C Common Stock, $0.01 par
value.
385846.5
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AMPEX CORPORATION
FORM 10-Q
Quarter Ended June 30, 1996
INDEX
Page
PART I -- FINANCIAL INFORMATION............................................2
Item 1. Financial Statements.............................................2
Consolidated Balance Sheets (unaudited) at June 30, 1996
and December 31, 1995...........................................3
Consolidated Statements of Operation (unaudited) for the
three months and six months ended June 30, 1996 and 1995........4
Consolidated Statements of Cash Flows (unaudited) for the
six months ended June 30, 1996 and 1995.........................5
Notes to Unaudited Consolidated Financial Statements............6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................9
PART II OTHER INFORMATION..................................................18
Item 1. Legal Proceedings.........................................18
Item 2. Changes in Securities.....................................19
Item 3. Defaults Upon Senior Securities...........................19
Item 4. Submission of Matters to a Vote of Security Holders.......19
Item 5. Other Information.........................................19
Item 6(a). Exhibits..................................................19
Item 6(b). Reports on Form 8-K.......................................19
Signatures............................................................20
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 3-8.
2
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<TABLE>
AMPEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
<CAPTION>
June 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,613 $ 6,765
Short-term investments 24,521 12,885
Notes receivable 8,257 -
Accounts receivable (net of allowances of $2,343 and $2,541) 15,181 15,394
Inventories 16,172 12,512
Other current assets 2,070 2,915
------------- ------------
Total current assets 69,814 50,471
Property, plant and equipment 8,371 37,759
Other assets 7,659 421
------------- ------------
Total assets $ 85,844 $ 88,651
============= ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 1,118 $ 2,246
Accounts payable 9,339 9,745
Income taxes payable 440 1,334
Accrued restructuring costs 2,132 2,464
Other accrued liabilities 21,204 23,940
------------- ------------
Total current liabilities 34,233 39,729
Long-term debt 1,431 31,585
Other liabilities 67,328 65,080
Deferred income taxes 1,379 1,379
Accrued restructuring costs 6,959 8,265
----------- ----------
Total liabilities 111,330 146,038
------------- ------------
Commitments and contingencies (Note 6)
Redeemable nonconvertible preferred stock, $1,000 liquidation value:
Authorized: 69,970 shares 1996 and 1995
Issued and outstanding - 69,970 shares 1996 and 1995 69,970 69,970
Stockholders' deficit:
Preferred stock, $1.00 par value:
Authorized: 842,838 shares 1996 and 1995
Issued and outstanding - none 1996 and 1995 - -
Common stock, $.01 par value:
Class A:
Authorized: 125,000,000 shares 1996 and 1995
Issued and outstanding - 45,002,617 shares 1996;
32,309,662 shares 1995 450 323
Class C:
Authorized: 50,000,000 shares 1996 and 1995
Issued and outstanding - none 1996; 2,107,807 shares 1995 - 21
Other additional capital 379,196 355,172
Note receivable from stockholder (1,779) (2,053)
Accumulated deficit (460,167) (467,612)
Cumulative translation adjustments 497 445
Minimum pension liability adjustment (13,653) (13,653)
------------- ------------
Total stockholders' deficit (95,456) (127,357)
------------- ------------
Total liabilities and stockholders' deficit $ 85,844 $ 88,651
============= ============
</TABLE>
3
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<TABLE>
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
<CAPTION>
Three months ended Six months ended
-------------------------------------------------------------------
June 30, June 30,
-------------------------------------------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 24,420 $ 24,043 $ 48,652 $ 48,158
Cost of sales 13,518 13,445 26,889 27,089
-------------- -------------- -------------- --------------
Gross profit 10,902 10,598 21,763 21,069
Selling and administrative 5,757 5,962 11,818 11,188
Research, development and engineering 3,912 4,079 7,824 8,166
Royalty income (1,631) (6,638) (4,561) (12,659)
-------------- -------------- -------------- --------------
Operating income 2,864 7,195 6,682 14,374
Interest expense 32 944 703 1,878
Amortization of debt financing costs 67 31 85 80
Interest income (825) (309) (1,576) (590)
Other (income) expense, net (635) (73) (638) 48
-------------- -------------- -------------- --------------
Income before income taxes 4,225 6,602 8,108 12,958
Provision for income taxes 253 646 663 1,373
-------------- -------------- -------------- --------------
Net income $ 3,972 $ 5,956 $ 7,445 $ 11,585
============== ============== ============== ==============
Primary income per share:
Income per share $ 0.09 $ 0.16 $ 0.17 $ 0.33
============== ============== ============== ==============
Weighted average number of common
shares outstanding 46,301,875 36,424,134 43,009,614 33,076,050
============== ============== ==============
Fully diluted income per share:
Income per share $ 0.09 $ 0.15 $ 0.17 $ 0.26
============== ============== ============== ==============
Weighted average number of common
shares outstanding 46,302,091 45,012,978 46,099,651 48,841,006
============== ============== ============== ==============
</TABLE>
4
<PAGE>
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the six months ended
--------------------------
June 30, June 30,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,445 $ 11,585
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and accretion 1,822 3,574
Net gain on sale of assets 902 -
Net increase in notes receivable (673) -
Net increase in accounts receivable (327) (1,867)
Net increase in inventories (3,660) (925)
Net increase (decrease) in other assets 871 (61)
Net decrease in accounts payable (264) (909)
Net decrease in accrued liabilities and
income taxes payable (4,036) (2,477)
Net decrease in long-term receivables 67 104
Net decrease in other non-current obligations (2,868) (3,178)
Net decrease in accrued restructuring costs (1,638) (3,513)
----------- -----------
Net cash provided by (used in) operating
activities (2,359) 2,333
----------- -----------
Cash flows from investing activities:
Purchases of short-term investments (34,749) (19,436)
Proceeds received on the maturity of
short-term investments 23,114 7,873
Proceeds from the sale of short-term investments - 3,920
Additions to notes receivable (15,107) -
Additions to property, plant and equipment (544) (184)
Disposals of property, plant and equipment 27,883 120
Deferred gain on sale of assets 5,930 -
----------- -----------
Net cash provided by (used in) investing
activities 6,527 (7,707)
----------- -----------
Cash flows from financing activities:
Borrowings under working capital facilities 26,072 22,149
Repayments under working capital facilities (26,900) (23,035)
Repayment of secured note payable (7,333) (500)
Repayment of notes payable-affiliates (80) (606)
Proceeds from issuance of common stock 974 362
Proceeds from issuance of warrants 17 2
Costs associated with preferred stock exchange - (89)
----------- -----------
Net cash used in financing activities (7,250) (1,717)
----------- -----------
Effect of exchange rates on cash (70) 239
----------- -----------
Net decrease in cash and cash equivalents (3,152) (6,852)
Cash and cash equivalents, beginning of period 6,765 12,058
----------- -----------
Cash and cash equivalents, end of period $ 3,613 $ 5,206
=========== ===========
</TABLE>
5
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Ampex Corporation
Ampex Corporation ("Ampex" or the "Company") is engaged in the design,
development, production and distribution of high-performance mass data storage
systems, instrumentation recorders and professional video recording products.
The Company operates in one industry segment for financial reporting purposes:
the design, development, production and distribution of high-speed,
high-capacity magnetic recording products and systems.
Note 2 -- Basis of Presentation
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission for reporting on Form 10-Q. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In addition,
certain reclassifications have been made to the prior period financial
statements to conform to the current period's presentation. The statements
should be read in conjunction with the Company's report on Form 10-K for the
year ended December 31, 1995 and the Audited Consolidated Financial Statements
included therein.
In the opinion of management, the financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of financial position, results of operations and cash flows
for the interim periods presented. The results of operations for the
three-month and six-month periods ended June 30, 1996 are not necessarily
indicative of the results to be expected for the full year.
Note 3 -- Income Per Common Share
Primary income per common share for the three-month and six-month
periods ended June 30, 1996 and 1995 is calculated by dividing net income, as
adjusted for accretion on the redeemable convertible preferred stock prior to
its redemption in February 1995, by the weighted average common shares
outstanding during the respective periods. The calculation of weighted average
common shares assumes the exercise of common stock equivalent warrants and
stock options in periods when their exercise would be dilutive. Fully diluted
income per common share for the three-month and six-month periods ended June
30, 1996 and 1995 is calculated by dividing net income, as adjusted for
interest on outstanding convertible notes, by the weighted average common
shares outstanding, including shares issuable upon conversion of the
potentially dilutive convertible notes, and the convertible preferred stock in
periods prior to its redemption in February 1995.
Note 4 -- Supplemental Schedule of Cash Flow Information
Cash payments for interest and income taxes (net of refunds received)
from continuing operations were as follows:
Six months ended
June 30, June 30,
1996 1995
(in thousands)
Interest........................... $ 212 $ 614
Income taxes paid.................. 1,556 901
-6-
C/M 11115.0000 389491.1
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AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 -- Inventories
June 30, December 31,
1996 1995
(in thousands)
Raw materials....................... $ 6,863 $ 6,435
Work in process..................... 6,670 4,375
Finished goods...................... 2,639 1,702
--------------- -------------
Total........................... $ 16,172 $ 12,512
============== ============
Note 6 -- Commitments and Contingencies
The Company is currently a defendant in lawsuits that have arisen in
the ordinary course of its business. Management does not believe that any such
lawsuits or unasserted claims will have a material adverse effect on the
Company's financial position, results of operations or cash flows.
The Company currently is involved in various stages of monitoring and
cleanup relative to environmental protection matters, some of which relate to
past disposal practices. Some of these matters are being overseen by state or
federal agencies. Management has provided reserves for certain amounts related
to investigation and cleanup costs and believes that the final disposition of
these matters will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
Note 7 -- Preferred Stock
In February 1995, the Company completed a financing in which all
outstanding 8% Redeemable Cumulative Convertible Preferred Stock (which had an
aggregate book value on the date of exchange of approximately $84.8 million)
was exchanged for shares of a new series of 8% Noncumulative Redeemable
Preferred Stock with an aggregate liquidation value of $70.0 million and 11
million shares of Common Stock. The transaction eliminated the obligation of
the Company to accrue dividends on preferred stock unless dividends are
declared on Common Stock and eliminated the right of the holders of the
preferred stock to convert their shares into up to 27.9 million shares of
Common Stock.
The 8% Noncumulative Redeemable Preferred Stock is subject to optional
redemption by the Company at any time and mandatory redemption on December 31,
1997, out of funds legally available therefor. Mandatory or optional redemption
payments are payable in cash or, at the option of the Company, in shares of
Common Stock, provided that, as a condition to redemption in shares, the
average market price of the Company's Common Stock must have been at least $4
per share during the 10 trading days preceding the notice of redemption. Common
Stock issued to redeem the Preferred Stock shall be valued at 90% of fair
market value. The Company has no current plans to redeem the Preferred Stock
prior to 1997. As of June 30, 1996, the Company did not have sufficient funds
legally available to redeem the Noncumulative Preferred Stock in full. In the
event the Company has insufficient funds legally available to redeem the
Preferred Stock on the scheduled redemption date, the Company would be required
to redeem such shares thereafter to the extent funds become legally available
therefor, and would be precluded from declaring dividends on its Common Stock
until the Preferred Stock has been redeemed in full.
Note 8 -- Income Taxes
The provisions for income taxes for the three-month and six-month
periods ended June 30, 1996 and 1995 consist primarily of foreign income taxes
and withholding taxes on royalty income. The Company was not required
-7-
C/M 11115.0000 389491.1
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AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
to include any provision for U.S. federal taxes in these periods because of
certain timing differences in the recognition of expense for tax and financial
reporting purposes.
As of December 31, 1995, the Company had net operating loss
carryforwards for income tax purposes of $99.9 million, expiring in the years
2005 through 2009. As a result of certain financing transactions that were
completed in April 1994 and February 1995, the Company's ability to utilize its
net operating losses and credit carryforwards against future consolidated
federal income tax liabilities will be restricted in their application, which
will result in a material amount of the net operating loss never being utilized
by the Company.
Note 9 -- Sale of Real Property
On May 15, 1996, the Company completed the sale of approximately 25%
of its real property in Colorado Springs, Colorado for $3.6 million in cash.
The Company realized a gain of approximately $0.9 million. The Company's
Colorado operations are located in a portion of the property not sold.
Note 10 -- Zero-Coupon Notes and Warrants
In February, March and April 1996, holders of all of the Company's
three year convertible zero-coupon notes (with an aggregate face amount at
maturity of $27.3 million) converted such notes into approximately 8.5 million
shares of Common Stock, thereby eliminating future accrual of interest on the
notes. In addition, in the six-month period ended June 30, 1996 all outstanding
warrants were exercised.
Note 11 -- Shelf Registration
In June 1996, the Company filed a shelf registration statement with
the Securities and Exchange Commission covering 1,150,000 shares of Common
Stock which may be offered from time to time by the Company. To date none of
this Common Stock has been issued.
-8-
C/M 11115.0000 389491.1
<PAGE>
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
which involve certain risks and uncertainties. The Company's actual results or
outcomes may differ materially from those anticipated. The forward-looking
statements relate to various aspects of the Company's operations, including but
not limited to: its keepered media development program and other product
development efforts; the development and availability of application software
for its DST products; possible future patent license agreements and royalty
income; the impact of its Redwood City, California relocation on manufacturing
operations and future facility operating costs; future sales levels and net
income; the Company's liquidity; and potential issuances of additional debt or
equity securities. Each forward-looking statement that the Company believes is
material is accompanied by a cautionary statement or statements identifying
important factors that could cause actual results to differ materially from
those described in the forward-looking statement. The cautionary statements are
set forth following the forward-looking statement, and/or elsewhere in this
Form 10-Q and the Company's other documents filed with the Securities and
Exchange Commission, whether or not such documents are incorporated herein by
reference. In assessing the forward-looking statements contained in this Form
10-Q, readers are urged to read carefully all cautionary statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of the results of operations and
financial condition of Ampex Corporation and its subsidiaries (collectively,
"Ampex" or the "Company") should be read in conjunction with the unaudited
Consolidated Financial Statements included elsewhere in this Report, and the
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with
the Securities and Exchange Commission (File No. 0-20292) (the "1995 Form
10-K").
Overview
Ampex is one of the world's leading innovators in the fields of
magnetic recording, digital image processing and high-performance digital
storage for the visual information age. In recent years, the Company has
directed substantial resources to developing products for the emerging
commercial mass data storage market. Ampex provides data storage solutions that
serve a wide range of customer needs, from scientific and technical
applications such as aerospace testing and oil exploration to entertainment and
education applications.
The Company's principal products are its DST(R) tape drives and
robotic library systems for computer mass data storage, its DIS(TM) and
DCRsi(TM) instrumentation recorders, and its DCT(R) professional video
recorders and image processing systems. The Company's DST products for the mass
data storage market offer superior data access times, rapid data transfer rates
and extremely low cost per megabyte of storage. Ampex DIS instrumentation
recorders allow users to record instrumentation data on DST tape cartridges, so
that the data can be used in a computer environment as well as in an
instrumentation environment. Ampex DCRsi instrumentation recorders are designed
for demanding aeronautical applications such as commercial and military flight
testing, as well as other applications involving comparable data-gathering
challenges in extreme environments. The Company's DCT video recording products
have been developed for high-end digital component recording applications in
entertainment and imaging markets.
During its 52-year history, Ampex has developed extensive technical
expertise in the storage, processing and retrieval of digital images. The
Company commits substantial resources to the research, development and
engineering of new products that capitalize on its knowledge, experience and
patent portfolio. As an example of this strategy, since the last quarter of
1994 the Company has been exploring the feasibility of commercializing its
patented "keepered media" technology. This project, which is still in the
research and development stage, has the potential
9
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<PAGE>
to significantly increase the capacity of hard disk drives with nominal
incremental cost. At present, there can be no assurance that the keepered media
program, or any other efforts by the Company to develop new products from its
intellectual property portfolio, will be a commercial or technical success. See
"Keepered Media Research and Development," below.
Product Groups
The Company currently has three product groups: mass data storage and
instrumentation products (including related after-market products);
professional video recording products; and other products, consisting
principally of after-market equipment for the Company's current video products
as well as television products supported but no longer sold by the Company. No
other class of similar products accounted for more than 10% of net sales during
the comparison periods discussed below. The Company operates in one industry
segment for financial reporting purposes: the design, development, production
and distribution of high-speed, high-capacity magnetic recording products and
systems.
Results of Operations for the Three Months and Six Months Ended June 30, 1996
and 1995
Net Sales. Net sales increased slightly to $24.4 million in the second
quarter of 1996, from $24.0 million in the second quarter of 1995, and to $48.7
million in the first six months of 1996 from $48.2 million in the first six
months of 1995. Increased sales of data storage and instrumentation products
more than offset declines in sales of professional video recording products and
other products. The Company expects that sales of its data storage and
instrumentation products, which represented approximately 72% of total net
sales for the second quarter of 1996, will continue to account for the majority
of net sales for current product categories over the next several years.
Mass Data Storage and Instrumentation Products. Sales of mass
data storage and instrumentation products increased to $17.7 million in the
second quarter of 1996 from $16.2 million in the second quarter of 1995 (an
increase of approximately 9.5%), and to $35.1 million in the first six months
of 1996 from $31.8 million in the first six months of 1995 (an increase of
approximately 10.3%). Sales of 19 millimeter data storage products (including
DIS instrumentation versions of DST products) more than doubled in the three
and six month periods ended June 30, 1996. In the first quarter of 1996, the
increase in sales of 19 millimeter products was primarily attributable to a
high level of sales to customers in the oil and gas industry, which has not
continued in the current period. In the second quarter of 1996, the increase in
such sales was primarily attributable to one large order for a government
program. These increases were partially offset by declines in sales of DCRsi
instrumentation recorders, as discussed below.
As indicated in the 1995 Form 10-K, in order for DST product
sales to increase significantly, the Company believes that it will be necessary
for the products to gain broader acceptance in commercial markets, in addition
to specialized technical markets such as the oil and gas industry. In this
regard, the Company currently expects that its DST 810, a large robotic library
system with a storage capacity of up to 6.4 terabytes of data, will be
available for shipment during the fourth quarter of 1996. The Company has also
announced that certain of its DST products are now supported by Computer
Associates' OSM(R) hierarchical storage management software and also by Spectra
Logic's Alexandria(TM) Backup Librarian software for database and UNIX file
system backup. The Company believes that these announcements are important
developments for its DST product line. However, while these software products
currently support the DST 310 tape drive and the DST 410 library, they will not
support the DST 810 library until a beta version of the DST 810 becomes
available to these software providers for integration and testing. As a result,
depending on the exact timing of the availability of the DST 810 library
system, the integration of these software products with DST 810 may not occur
until early 1997, which could adversely affect DST product sales in 1996. In
addition, the third-party software currently runs on only a limited number of
UNIX workstations. There may be technical or other difficulties, some of which
will be outside of Ampex's control, in expanding support to other DST products
and other computer platforms. Accordingly, the Company cannot predict
10
385846.5
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the extent to which such software might result in increased sales of DST
products, or the timing of such increases, if any.
The decline in sales of the Company's DCRsi recorders during
the three and six month periods ended June 30, 1996 primarily reflected lower
direct and indirect sales to the federal government. As indicated in the 1995
Form 10-K, the Company had anticipated that sales of instrumentation products
to government customers might decline. Fluctuations in sales to U.S. and
foreign government customers as a result of declines in defense spending and
other factors could continue to have an adverse impact on sales of
instrumentation products in future periods.
Professional Video Recording Products. Sales of professional
video products decreased to $2.6 million in the second quarter of 1996 from
$3.1 million in the second quarter of 1995 (a decrease of approximately 16.3%),
and to $5.3 million in the first six months of 1996 from $6.3 million in the
first six months of 1995 (a decrease of approximately 16.4%). The Company has
streamlined its video product line to concentrate on its DCT products, which
utilize the Company's proprietary digital compression and image processing
technology. Substantially all sales during the comparison periods consist of
DCT product sales. The Company has closed a significant number of domestic and
international sales offices in recent years as many video products have been
discontinued. This reduced distribution network continues to have a negative
impact on sales of DCT products.
Other Products. Sales of other products (consisting primarily
of television after-market products) decreased to $4.1 million in the second
quarter of 1996 from $4.8 million in the second quarter of 1995 (a decrease of
approximately 13.6%), and to $8.3 million in the first six months of 1996 from
$10.0 million in the first six months of 1995 (a decrease of approximately
17.6%). The decline in net sales for these products reflects the Company's
narrower professional television product line, the shrinking of the installed
base of older equipment still being supported by the Company, and the Company's
reduced distribution network for these products.
Backlog. The Company's backlog of firm orders at June 30,
1996 was $7.5 million, compared to $13.8 million at December 31, 1995. The
Company has experienced a decline in backlog in all product categories, with
the decline in DCRsi instrumentation recorders and data after-market products
accounting for most of that decline. The decline in backlog for DCRsi
instrumentation recorders is attributable to lower sales to government
customers resulting from reduced defense spending, as described above. A
substantial portion of the Company's backlog at any given time is normally
shipped within one or two quarters thereafter. Therefore, sales in any quarter
are heavily dependent on orders received in that quarter and the immediately
preceding quarter. In addition, sales of most of the Company's products have
historically declined in the third quarter of its fiscal year, due to seasonal
procurement practices of its customers. For the foregoing reasons, the Company
expects that sales levels for the third quarter of 1996 may be lower than sales
levels realized in the first half of 1996.
Gross Profit. Gross profit as a percentage of net sales increased to
44.6% in the second quarter of 1996 from 44.1% in the second quarter of 1995,
and to 44.7% in the first six months of 1996 from 43.8% in the first six months
of 1995. The improved gross margin reflects the Company's continuing cost
restraints, which allowed gross margin to improve slightly despite lower sales
of instrumentation recorders, which typically generate relatively high margins.
The Company's DST and DIS products are currently being offered for sale at
lower prices in order to expand their potential market. While the Company has
taken a number of design and other steps to reduce manufacturing costs of these
products, unless sales levels increase significantly, the Company's gross
margins may be negatively impacted by these price reductions. The Company's
sales of its instrumentation recorders in the third and fourth quarters of 1995
were higher than in the first and second quarters of 1996. Sales of these
products generate higher gross margins than those generated by the Company's
DST and DIS products. Because instrumentation sales in the third quarter of
1996 are expected to remain only at levels similar to those in the first half
of 1996, gross profit percentages generated in the second half of 1996 are not
expected to increase in the second half of 1996 as they did in the second half
of 1995.
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Selling and Administrative Expenses. Selling and administrative
expenses decreased to $5.8 million in the second quarter of 1996 (23.6% of net
sales), from $6.0 million in the second quarter of 1995 (24.8% of net sales).
However, selling and administrative expenses increased to $11.8 million in the
first six months of 1996 (24.3% of net sales) from $11.2 million in the first
six months of 1995 (23.2% of net sales). The decline in selling and
administrative expenses during the second quarter of 1996 reflects certain cost
savings (primarily property taxes and insurance costs) realized by the Company
resulting from the sale in January 1996 of its Redwood City, California
property and the relocation of its operations to smaller facilities on the same
site, which is currently in progress. The increase in selling and
administrative expenses during the first six months of 1996 reflects additional
expenses related to the Company's patent infringement litigation with a foreign
manufacturer of VHS video recorders and television receivers (see "Legal
Proceedings," below), increased expenses relating to the Company's expansion of
its direct sales and marketing organization to target specific mass data
storage applications, and additional leasehold and administrative costs
resulting from the termination of certain cost sharing arrangements with the
Company's former magnetic media subsidiaries (collectively, "Media") upon the
sale of Media during the fourth quarter of 1995. In the second quarter of 1996,
the Company's selling and administrative expenses were offset by a $0.4 million
gain from the settlement of a non-patent related lawsuit. See "Legal
Proceedings," below. The Company did not incur any patent infringement
litigation costs during 1995. The Company anticipates that the sale and
lease-back arrangement for its Redwood City, California facilities that was
negotiated in connection with the sale of the property will result in a further
decline in facility operating costs beginning in the third quarter of 1996,
although the move will not be completed and related cost savings will not be
realized in full until sometime in the fourth quarter of 1996. However, a
variety of unanticipated events (such as property tax increases, uninsured
property damage losses, unexpected maintenance problems or other occurrences)
could reduce or eliminate anticipated cost savings. See "Liquidity and Capital
Resources -- Sales of Real Estate," below.
Research, Development and Engineering Expenses. Research, development
and engineering expenses decreased to $3.9 million in the second quarter of
1996 (16.0% of net sales) from $4.1 million in the second quarter of 1995
(17.0% of net sales), and decreased to $7.8 million in the first six months of
1996 (16.1% of net sales) from $8.2 million in the first six months of 1995
(17.0% of net sales). The majority of RD&E expenses during all comparison
periods was used to enhance the price-performance levels of the Company's mass
storage products, as well as to integrate the Company's mass storage systems
with various computer manufacturers' servers, workstations and other computer
systems. As indicated above, the Company's DST products are now supported by
certain third-party software. The Company expects that RD&E expenses will
remain at approximately current levels during the remainder of 1996. In
addition to funding future generations of its mass data storage and
instrumentation recorders, the Company anticipates that a growing percentage of
its research and development budget will be directed toward commercializing its
proprietary keepered media technology (described below) and to researching
other new product opportunities that capitalize on its expertise and patented
technology in magnetic recording, channel electronics and digital image
processing. See "Keepered Media Research and Development," below.
Royalty Income. The Company's royalty income derives from patent
licenses, and the Company receives most of its royalty income from licenses
with companies that manufacture consumer video products (such as VCRs and
camcorders) and, in certain cases, professional video tape recorders. Royalty
income declined to $1.6 million in the second quarter of 1996 from $6.6 million
in the second quarter of 1995, and to $4.6 million in the first six months of
1996 from $12.7 million in the first six months of 1995. However, royalty
income in the second quarter of 1996 did not include any non-recurring royalty
payments received from negotiated settlements relating to prior sales of
products by licensees, whereas in the second quarter of 1995, such amounts
included $5.3 million of such settlements. Similarly, royalty income in the
first six months of 1996 included only $0.8 million of non-recurring royalty
payments compared to $10.4 million for the same period in 1995. Historically,
most royalty income has been attributable to VHS video recorders. However,
during the 1996 and 1995 comparison periods, a substantial portion of royalty
income related to 8 millimeter video recorders and camcorders.
Royalty income has historically fluctuated widely due to a number of
factors that the Company cannot predict, such as the extent of use of the
Company's patented technology by third parties, the extent to which the
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Company must pursue litigation in order to enforce its patents, and the
ultimate success of its licensing and litigation activities. During the fourth
quarter of 1995, the Company initiated a lawsuit against a major foreign
manufacturer of VHS video recorders and television receivers in which the
Company alleges patent infringement. The cost of this lawsuit is expected to be
approximately $3 million, of which approximately $0.8 million was incurred
during the first half of 1996, including approximately $0.5 million incurred
during the second quarter of 1996. See "Legal Proceedings," below. If
additional lawsuits are brought, litigation costs will increase
proportionately. The Company is also attempting to negotiate license agreements
with additional manufacturers of 8 millimeter camcorders. However, there can be
no assurance that such licensing efforts (including any litigation that may be
required) will be successful.
Operating Income. The Company had operating income of $2.9 million in
the second quarter of 1996, compared to $7.2 million in the second quarter of
1995. The non-recurring component of royalty income of $5.3 million accounted
for the higher level of operating income in the second quarter of 1995. The
Company had operating income of $6.7 million in the first six months of 1996,
compared to $14.4 million in the first six months of 1995. The non-recurring
component of royalty income of $0.8 million in the first six months of 1996 and
$10.4 million in the first six months of 1995 accounted for the higher levels
of operating income in the first six months of 1995. See "Royalty Income,"
above.
Interest Expense. Interest expense declined to $0.03 million in the
second quarter of 1996 from $0.9 million in the second quarter of 1995, and to
$0.7 million in the first six months of 1996 from $1.9 million in the first six
months of 1995. The declines reflect lower interest expenses resulting from the
Company's repayment of $7.4 million in mortgage debt in connection with the
sale of its Redwood City, California real estate in January 1996, and the
conversion into common stock of all of the Company's outstanding zero coupon
convertible notes in the first quarter of 1996, as previously reported, and of
the remainder of its outstanding zero coupon convertible notes in the second
quarter of 1996. These events will continue to result in lower interest expense
through the remainder of 1996.
See "Liquidity and Capital Resources," below.
Amortization of Debt Financing Costs. These amounts reflect periodic
amortization of financing costs over the remaining term of the debt. In the
second quarter of 1996, the Company completed the conversion of all of its
outstanding zero coupon convertible notes, and wrote off all unamortized
financing costs that would have continued to be amortized through June 30,
1997.
Interest Income. Interest income increased between the comparison
periods primarily as a result of higher cash balances and imputed interest on
promissory notes received by the Company in connection with the sale of its
Redwood City property in January 1996. See "Liquidity and Capital Resources --
Sales of Real Estate," below.
Other (Income) Expense, Net. Other (income) expense, net, during the
second quarter of 1995 consisted primarily of foreign currency transaction
gains and losses. As the percentage of the Company's total assets represented
by foreign assets has declined, the Company's exposure to fluctuations in
foreign currencies has also declined. For the second quarter of 1996, this line
item consisted primarily of gain on the sale of the Company's Colorado Springs,
Colorado facility, which was offset in part by the cost of moving into the
Company's new facilities in Redwood City, California. The Company expects that
in 1996 it will incur approximately $2.5 million of relocation and other
moving-related expenses, some of which will be capitalized. A significant
percentage of such costs will be incurred in the third quarter of 1996. See
"Liquidity and Capital Resources -- Sales of Real Estate," below. Beginning in
the second quarter of 1996, the Company classified costs associated with patent
litigation as a component of selling and administrative expenses, whereas such
costs were included as a component of other (income) expense, net, in the first
quarter of 1996. The accompanying financial statements have been reclassified
to conform the financial presentation of such costs.
Provision for Income Taxes. The Company derives pretax foreign income
from its international operations, which are conducted principally by its
foreign subsidiaries. In addition, the Company's royalty income is subject,
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in certain cases, to foreign tax withholding. Such income is taxed by foreign
taxing authorities, and the Company's domestic interest and amortization
expenses and operating losses, if any, are not deductible in computing such
foreign taxes. The provisions for income taxes in all comparison periods
consist primarily of foreign income taxes and withholding taxes on royalty
income. The Company was not required to include any provision for U.S. federal
tax in any of the comparison periods because of certain timing differences in
the recognition of expenses for tax and financial reporting purposes. The
Company is restricted in the amount of its net operating loss carryforwards
that are available to offset its future consolidated federal income tax
liabilities. See Note 8 of Notes to Unaudited Consolidated Financial
Statements.
Net Income. The Company reported net income of $4.0 million in the
second quarter of 1996, compared to $6.0 million in the second quarter of 1995,
and net income of $7.4 million in the first six months of 1996, compared to
$11.6 million in the first six months of 1995. The principal factors
contributing to these declines were the decrease in the non-recurring component
of royalty income, offset by lower interest expense, higher interest income and
gains from the sale of real estate during the 1996 periods.
Liquidity and Capital Resources
Cash Flow. At June 30, 1996, the Company had cash and short-term
investments of $28.1 million and working capital of $35.6 million. At December
31, 1995, the Company had cash and short-term investments of $19.7 million and
working capital of $10.7 million. The improvement in working capital primarily
resulted from cash and short-term notes received in January 1996 in connection
with the Company's sale of its Redwood City, California real estate. See "Sale
of Real Property," below. The Company's operating activities used cash of $2.4
million in the first six months of 1996, while operating activities generated
$2.3 million in the first six months of 1995. The result for the first six
months of 1996 was primarily attributable to a net increase in inventories,
resulting from the implementation of the Company's previously announced
strategy of increasing inventories during 1996 in anticipation of increased DST
product sales and to offset possible disruptions in manufacturing and
engineering operations due to the relocation of its Redwood City, California
facilities. In addition, the Company experienced a reduction in income taxes
payable, accrued restructuring costs and other accrued liabilities. The Company
expects that its investment in inventories will continue to increase during the
third quarter of 1996. The Company expects shipments of its DST 810 libraries
to commence in the fourth quarter of 1996, but presently has no material
backlog of orders for this product. These increases in inventories,
particularly with respect to its DST 810 product which has no sales history,
may expose the Company to an increased risk of inventory write-offs. Cash flows
from investing activities and financing activities for the first six months of
1996 reflect the Company's sale of its Redwood City, California real estate in
January 1996 and its Colorado Springs, Colorado real estate in May 1996. See
"Sales of Real Estate," below.
The Company currently has a working capital facility that allows it to
borrow up to $7.0 million through May 1998 based on eligible accounts
receivable. As of June 30, 1996, the Company had no material borrowings
outstanding under this facility. The Company anticipates that it has sufficient
liquidity, when coupled with cash flow budgeted to be generated, to enable it
to fund all anticipated operating expenditures for at least the next twelve
months. However, the Company's cash flows from operations could be less than
budgeted because of lower sales, a shift in product mix toward lower-margin
products, the failure of licensees to pay royalties owed or other reasons.
Operating expenses could be higher as a result of unanticipated relocation or
lease-related expenses, higher-than-expected litigation costs associated with
the Company's patent enforcement program or other reasons. The Company's
liquidity could also be negatively affected during 1996 by any delay in payment
of the portion of the notes received on the sale of the Redwood City property
that is due in December 1996 ($8.7 million).
Financing Activities. During April 1994, the Company issued zero
coupon convertible notes with an aggregate face amount at maturity of $27.4
million, convertible into approximately 8.5 million shares of common stock of
the Company, and warrants to purchase approximately 2.8 million shares of
common stock. At June 30, 1996, all of the convertible notes had been converted
and all of the warrants had been exercised.
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During February 1995 the Company exchanged its outstanding cumulative
preferred stock for approximately $70.0 million of 8% noncumulative
nonconvertible redeemable preferred stock ("Noncumulative Preferred Stock") and
11 million shares of common stock. In December 1997, the Company is scheduled
to redeem the outstanding Noncumulative Preferred Stock out of funds legally
available therefor (generally, the excess of the value of assets over
liabilities). In certain instances the Company may redeem the Noncumulative
Preferred Stock by issuing common stock at 90% of fair market value. As of June
30, 1996, the Company did not have sufficient funds legally available to redeem
the Noncumulative Preferred Stock in full. In the event the Company does not
have sufficient funds legally available to redeem the Noncumulative Preferred
Stock in full on the redemption date, the Company would remain obligated to
redeem such shares from time to time thereafter to the extent funds become
legally available for redemption, and would generally be precluded from
declaring any cash dividends on, or repurchasing shares of, its common stock,
until the Noncumulative Preferred Stock has been redeemed in full. See Note 7
of Notes to Unaudited Consolidated Financial Statements. There can be no
assurance that the Company will have adequate liquidity or have funds legally
available to redeem the Noncumulative Preferred Stock on the redemption date.
Although the Company has no current plans for redemption of the Noncumulative
Preferred Stock prior to 1997, it will continue to evaluate this possibility in
light of market conditions, its liquidity and other factors. Any such
redemption could include issuance of additional debt or equity securities or
other actions that might result in dilution of current stockholders' equity
interests in the Company.
The Company recently filed a shelf registration statement with the
Securities and Exchange Commission covering 1,150,000 shares of common stock
which may be offered from time to time by the Company, the proceeds of which
would be used for general corporate purposes, including, if required, the
acquisition of specialized production and testing equipment for use in the
Company's keepered media research and development program. See "Keepered Media
Research and Development." The sale of common stock covered by the shelf
registration statement could adversely affect the market price for the common
stock, and would dilute current stockholders' interests by approximately 2.6%
if all such shares were to be issued.
Sales of Real Estate. In January 1996, the Company completed the sale
of its real property in Redwood City, California, for $36 million, consisting
of $18.5 million in cash and $17.5 million face amount of non-interest-bearing
notes secured by liens on the property (the "Secured Notes"). Of the cash
proceeds of sale, $7.4 million was used to repay the balance of a mortgage loan
on the property and the balance will be used for general corporate purposes.
The Company will lease back a portion of the property. The Company expects that
it will incur approximately $2.5 million in 1996 (including $0.3 million, which
was incurred in the second quarter of 1996) for relocation and other
moving-related expenses, some of which will be capitalized. In addition, the
Company will fund up to $4 million of leasehold improvements (primarily during
1996), which will be refunded by the property owner through rent credits. A
significant portion of these expenditures will be incurred in the third quarter
of 1996. After payment of relocation and moving-related expenses (most of which
will occur during 1996), the Company expects that the sale and lease-back
arrangement will result in lower ongoing facility operating costs in the
future. However, a variety of unanticipated events (such as property tax
increases, uninsured property damage losses, unexpected maintenance problems or
other occurrences) could reduce or eliminate anticipated cost savings. See
"Properties" and Note 23 of Notes to Consolidated Financial Statements in the
1995 Form 10-K for a more detailed discussion of this transaction, including
the risks associated with repayment of the Secured Notes.
In May 1996, the Company completed the sale of the smaller of its two
manufacturing facilities on adjacent parcels of property in Colorado Springs,
Colorado for $3.6 million, and realized a gain of $0.9 million on the sale,
which is included as a component of other (income) expense, net. None of the
Company's manufacturing operations were conducted in the smaller facility, and
the Company presently intends to retain ownership of the larger facility and to
sublease a portion of it. Accordingly, the Company's listing agreement to sell
the larger facility, which was previously reported in its Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1995, has been cancelled,
and the Company intends to enter into a new listing agreement to sublease the
property. There can be no assurance that the Company will be able to find a
suitable tenant or tenants to sublease a portion of the larger
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facility, or to agree on the terms of any such sublease. The Company expects
that any such sublease will require certain modifications and/or improvements
to the subleased property, for which the Company will be responsible.
Keepered Media Research and Development
The Company has previously disclosed that it has been engaged since
late 1994 in a research and development program to attempt to commercialize its
"keepered media" technology for use in the hard disk drives that are attached
to most computers. A description of the technology and certain developments and
uncertainties relating to the development program are set forth in the 1995
Form 10-K and the Company's Quarterly Report on Form 10-Q for its fiscal
quarter ended March 31, 1996 (the "March 1996 Form 10-Q"). In order to properly
understand the following information, it is necessary to refer to these
previous reports.
In the March 1996 Form 10-Q, the Company disclosed that two
manufacturers of hard disk drives had executed non-disclosure agreements with
the Company relating to keepered media, and that it was engaged in testing
activities with both companies. It was also disclosed that joint testing
between Ampex and one of those companies had obtained various results,
including a performance improvement of approximately 33% for keepered media
with a "Tri-Pad" pseudo-contact head. The improvement was measured on a
post-channel basis, using test methods that the companies believed to be
representative of actual hard disk drives. During the second quarter of 1996,
Ampex and the other hard disk drive manufacturer referred to above conducted a
similar series of tests using keepered media with a different type of
pseudo-contact head made by another head manufacturer. In this case, joint test
measurements indicated a 38% performance improvement for keepered versus
unkeepered disk platters. Ampex believes that the improved results in the
second set of tests are due to various factors, most significantly, the
inclusion in the measurements of improvements in track density performance as
well as in linear density. The first set of joint tests attempted only to
measure linear density. (Linear density refers to the number of bits of data
that can be recorded and retrieved accurately on a single circular track on a
disk. Track density refers to the total number of tracks that can be recorded
on a disk while still permitting the disk to be read back accurately. The total
capacity of a disk is a function of both linear and track density.) Recently, a
third U.S. owned hard disk drive manufacturer entered into a non-disclosure
agreement with the Company, and the Company held an initial meeting with this
manufacturer to discuss its interest in evaluating keepered media but, to date,
the Company has undertaken no further activity with this manufacturer.
It is still not possible for the Company to predict whether
post-channel improvements of the magnitude indicated above will be sufficient
to cause hard disk drive manufacturers to adopt keepered media. As previously
disclosed, Ampex knows of at least two other technologies that customers might
prefer over keepered media, and there may be other technologies, of which Ampex
is unaware, which are in development or may be developed in the future. Based
on current test results, Ampex now believes that one of these technologies,
contact recording, may, in fact, be complementary to and benefit from use with
keepered media. The other known technology that customers may find to be
preferable to keepered media is magneto-resistive head technology. While Ampex
is conducting research into the use of modified magneto-resistive heads with
keepered media, there can be no assurance that such designs are, in fact,
feasible. In addition, such modified magneto-resistive heads are unlikely to be
available for incorporation into commercial products for at least the next
several years, which would represent a significant deferral of any revenues to
Ampex from the use of keepered media with this technology. There can be no
assurance that any such commercial products combining magneto-resistive heads
with keepered media can be developed, or would be successful.
Ampex's strategy currently assumes that it will be able, at least
initially, to fill any orders for keepered media that it may receive, by
purchasing complete keepered disk platters from existing manufacturers of such
platters. Accordingly, the Company has been actively involved in evaluating and
applying keeper layers to disk platters manufactured by existing commercial
suppliers. One foreign and three U.S. based disk platter manufacturers have
entered into non-disclosure agreements with Ampex, and Ampex has received
sample media from two additional manufacturers, StorMedia Incorporated and IBM
Corporation, on a non-confidential basis. To date, Ampex has
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applied keeper layers to media from three of these manufacturers with generally
similar improvements observed in each case.
At the request of a specific hard disk drive manufacturer, Ampex
intends to prepare a number of keepered media platters to be tested for
long-term stability and durability. The Company may seek to have such platters,
including the keeper layers, made by one of the disk platter manufacturers
referred to above. At present, the Company does not have the agreement of any
of them to make such platters available. In addition, while Ampex believes that
durability should be acceptable, based on the materials and methods employed in
the manufacture of keepered media, Ampex has not previously subjected keepered
platters to these tests and there can be no assurance that they will prove to
be satisfactory.
The Company believes that in order for it to generate any revenue from
keepered media during 1997, it will be necessary for a hard disk drive
manufacturer to commence a product development program incorporating keepered
disk platters by approximately the end of 1996. This belief is based on Ampex's
current understanding as to the time typically required to develop a new hard
disk drive and introduce it to the market in volume. It is not possible for
Ampex to forecast when, or if, keepered media may be included in any such
program. While the Company believes that various tests of keepered media will
continue to be required, it may elect to focus more of its resources on testing
with companies that indicate interest in early development of commercial
products and to reduce its efforts with any that do not.
As disclosed in the Company's March 1996 Form 10-Q, the Company has
not yet had substantive discussions with any hard disk drive maker relating to
potential purchases of keepered media, or other commercial arrangements.
Additionally, the Company at present has no assurance that existing disk
platter suppliers would make product available if so requested. The Company may
also be required to incur significant expenditures or commitments for the
further development of keepered media, with no assurance of financial return.
These expenditures could negatively affect the Company's liquidity or require
it to issue debt or equity securities, which would increase the Company's
financial leverage, or dilute the earnings attributable to current stockholders
of the Company.
The Company has become aware of publicly available information
concerning a possible deterioration in business conditions in the disk drive
and disk drive component industries. It is not possible for the Company to
forecast what effect, if any, a negative trend in disk drive industry
profitability may have on the commercial prospects for keepered media. It has
also been publicly announced that Hewlett Packard, which Ampex believes to be
one of the eight largest disk drive manufacturers, intends to close its disk
drive manufacturing operations. Ampex has not been in contact with Hewlett
Packard Company regarding keepered media.
While the Company believes that keepered media has the potential to
expand its business, in view of the uncertainties associated with its
development (some of which are described above), as stated in the 1995 Form
10-K and the March 1996 Form 10-Q, it is impossible to forecast when, or if,
any commercial benefit will be realized by the Company. Since the prospects for
keepered media are highly speculative, there is a risk that the market price of
the Company's securities may experience increased volatility, in addition to
the volatility that may result from other factors affecting the Company, such
as changes in financial performance, analysts' estimates, or product or
technology announcements by the Company or its competitors.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to routine litigation incidental to its
businesses. In the opinion of management, no such current or pending lawsuits,
either individually or in the aggregate, are likely to have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
The Company's facilities are subject to numerous federal, state and
local laws and regulations designed to protect the environment from waste
emissions and hazardous substances. The Company is also subject to the federal
Occupational Safety and Health Act and other laws and regulations affecting the
safety and health of employees in its facilities. Management believes that the
Company is generally in compliance in all material respects with all applicable
environmental and occupational safety laws and regulations or has a plan to
bring operations into compliance.
Owners and occupiers of sites containing hazardous substances, as well
as generators and transporters of hazardous substances, are subject to broad
liability under various federal and state environmental laws and regulations.
See the 1995 Form 10-K for a more detailed discussion. The Company has been
named as a potentially responsible party by the United States Environmental
Protection Agency with respect to seven contaminated sites that have been
designated as "Superfund" sites, and the Company is engaged in various
environmental remediation and/or monitoring activities at several sites located
both on and off Company facilities. Six sites involved with these activities
(including five of the Superfund sites) are associated with the operations of
Media. Although the Company sold Media in November 1995, the Company may have
continuing liability with respect to environmental contamination at certain of
these sites.
Because of the inherent uncertainty as to various aspects of
environmental matters, including the extent of environmental damage, the most
desirable remediation techniques and the time period during which cleanup costs
may be incurred, it is not possible for the Company to estimate with any degree
of certainty the ultimate costs that it may incur with respect to the currently
pending environmental matters referred to above. However, based on facts
currently known to management, management believes it is only remotely likely
that the liability of the Company in connection with such pending matters,
either individually or in the aggregate, will be material to the Company's
financial condition or results of operations or material to investors, or that
the Company's liability will materially exceed the amounts already accrued for
potential environmental liabilities.
While the Company believes that it is generally in compliance with all
applicable environmental laws and regulations or has a plan to bring operations
into compliance, it is possible that the Company will be named as a potentially
responsible party in the future with respect to additional Superfund or other
sites. Furthermore, because the Company conducts its business in foreign
countries as well as in the U.S., it is not possible to predict the effect that
future domestic or foreign regulation could have on the Company's business,
operating results or cash flow.
As reported in the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 30, 1996, on September 22, 1995, the Company filed a
lawsuit against Mitsubishi Electric Corporation and Mitsubishi Electric America
Inc. in the U.S. District Court for the District of Delaware, alleging patent
infringement and breach of a license agreement in connection with the
manufacturing of VHS video recorders and television receivers. The Company is
seeking damages and injunctive relief. In response to the Company's lawsuit, on
December 12, 1995, Mitsubishi filed a lawsuit against Ampex in the U.S.
District Court for the Central District of California, alleging patent
infringement and seeking unspecified damages and injunctive relief. Both
lawsuits are expected to go to trial during late 1996 or early 1997 unless a
negotiated settlement is reached. The Company expects that its legal fees in
connection with the lawsuit it filed will be approximately $3 million, most of
which will be incurred during late 1996 and early 1997. If lawsuits are brought
against manufacturers of 8 millimeter recorders, litigation costs would
increase. See also "Management's Discussion and Analysis of Financial Condition
and Results of Operations --
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Results of Operations for the Three Months and Six Months Ended June 30, 1996
and 1995-- Royalty Income," above.
On June 5, 1996, the Company settled a class action lawsuit originally
brought on October 24, 1991 in the U.S. District Court for the District of
Colorado, seeking back pay for employees laid off in Colorado Springs,
allegedly in violation of the Worker Adjustment and Retraining Notification Act
of 1988. The settlement required the Company to pay $0.3 million, in the
aggregate, to the class, which amount included attorneys' fees and costs. The
settlement proceeds were paid from an escrow account previously established by
the Company, and the balance of approximately $0.4 million remaining in the
escrow account was returned to the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Selling and
Administrative Expenses," above.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On June 7, 1996, the Company held its Annual Meeting of Stockholders.
The stockholders elected Douglas T. McClure, Jr. as the Class II director. Mr.
McClure received 37,397,969 votes in favor of his election, with 260,747 votes
opposed, no votes withheld or abstaining, and no broker nonvotes. The
stockholders also approved the amendment of the Company's 1992 Stock Incentive
Plan to increase the number of shares of the Company's Class A Common Stock
available for issuance thereunder by 2,000,000 shares (from 2,250,000 shares to
4,250,000 shares), with 35,323,348 votes in favor, 2,110,316 votes opposed,
225,052 votes withheld or abstaining, and no broker nonvotes. In addition, the
stockholders ratified the appointment of Coopers & Lybrand L.L.P. as the
Company's independent public accountants for fiscal 1996, with 37,439,308 votes
in favor, 92,581 votes opposed, 126,827 votes withheld or abstaining, and no
broker nonvotes.
Item 5. Other Information
Not applicable.
Item 6(a). Exhibits
The Exhibits to this Quarterly Report on Form 10-Q are listed in the
Exhibit Index which appears elsewhere herein and is incorporated herein by
reference.
Item 6(b). Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during its
fiscal quarter ended June 30, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMPEX CORPORATION
Date: July 26, 1996 /s/ EDWARD J. BRAMSON
---------------------
Edward J. Bramson
Chairman and Chief Executive Officer
Date: July 26, 1996 /s/ CRAIG L. McKIBBEN
---------------------
Craig L. McKibben
Vice President, Chief Financial Officer and
Treasurer
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AMPEX CORPORATION
FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 1996
EXHIBIT INDEX
Exhibit
Number Description
10.1 Real Estate Purchase Agreement dated as of April 16, 1996, between
U.S. Filter/Ionpure Inc. and the Registrant, together with amendments
thereto dated as of April 29, 1996 and May 3, 1996, relating to the
sale of the Registrant's Colorado Springs, Colorado facility.
10.2 Ampex Corporation 1992 Stock Incentive Plan, as amended through June
7, 1996.
11.1 Statement re Computation of Earnings.
27.1 Financial Data Schedule.
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EXHIBIT 10.1
SECOND AMENDMENT TO REAL ESTATE PURCHASE AGREEMENT
This amendment is entered into as of May 3, 1996, between U.S. Filter/Ionpure
Inc. ("Purchaser") and Ampex Corporation ("Seller").
Recitals.
Seller and Purchaser entered into that certain real estate purchase agreement
dated April 16, 1996, relating to the real property located at 725 Wooten Road,
which agreement was amended April 29, 1996 (such agreement, as amended,
hereinafter being referred to as the "Purchase Agreement"). After completing
its review of the Property (as defined in the Purchase Agreement) and the
Property's condition, Purchaser has decided that it will not proceed with the
transaction unless the Purchase Price is reduced by $14,000. Seller is
agreeable to such price reduction.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and each intending to be legally bound hereby, Seller and
Purchaser agree as follows:
1. Amendment.
For valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Seller and Purchaser hereby agree that the Purchase Price
described in the Purchase Agreement is US$3,561,000, and all references to the
Purchase Price are amended to mean such amended price. The first portion of the
second sentence of Section 1 is hereby amended to read as follows: "The
aggregate purchase price for the Property shall be US$3,561,000 which shall be
paid as follows:"
2. No Other Modifications.
The terms of the Purchase Agreement shall remain in full force and effect and
unmodified, except as specifically set forth in this amendment.
3. Counterparts. This amendment may be executed in any number of
counterparts, and each counterpart shall be deemed to be an original
instrument.
AMPEX CORPORATION U.S. FILTER/IONPURE INC.
by: /s/ Richard J. Jacquet by: /s/ Michael E. Hulme
its: Vice President its: Vice President
<PAGE>
AMENDMENT TO REAL ESTATE PURCHASE AGREEMENT
This amendment is entered into as of April 29, 1996 between U.S. Filter/Ionpure
Inc. ("Purchaser") and Ampex Corporation ("Seller").
1. Recitals.
1.1 Seller and Purchaser entered into that certain real estate purchase
agreement dated April 16, 1996 relating to the real property located at 725
Wooten Road (the "Purchase Agreement").
1.2 Pursuant to Purchaser's review of the Property (as defined in the Purchase
Agreement), Purchaser does not agree with the allocations set forth on Exhibit
D to the Purchase Agreement. Since the parties cannot reach an agreement with
respect to such allocations, and the parties do not desire to terminate the
Purchase Agreement based on such disagreement, the parties now desire to amend
the Purchase Agreement and delete Exhibit D from the Purchase Agreement as set
forth herein.
2. Amendment.
The parties acknowledge that they have not agreed on the allocations which are
the subject of Section 13 and Exhibit D of the Purchase Agreement, but that
such failure to agree with respect to such matter will not affect the
enforceability of the remaining provisions of the Purchase Agreement. For
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree that, without affecting the other terms
of, or enforceability of, the Purchase Agreement, Section 13 and Exhibit D are
hereby deleted from the Purchase Agreement.
3. No Other Modifications.
The terms of the Purchase Agreement shall remain in full force and effect and
unmodified, except as specifically set forth this amendment.
4. Counterparts. This amendment may be executed in any number of
counterparts, and each counterpart shall be deemed to be an original
instrument.
AMPEX CORPORATION U.S. FILTER/IONPURE INC.
by: /s/ Richard J. Jacquet by: /s/ Michael E. Hulme
its: Vice President its: Vice President
<PAGE>
REAL ESTATE PURCHASE AGREEMENT
THIS REAL ESTATE PURCHASE AGREEMENT (this "Agreement") is made and
entered in to as of this 16th day of April, 1996 ("Effective Date"), by and
between U.S. Filter/Ionpure Inc. ("Purchaser") and Ampex Corporation
("Seller").
W I T N E S S E T H :
WHEREAS, Seller desires to sell and convey to Purchaser all of Seller's
right title and interest in and to the following:
A. That certain real property located in the City of Colorado
Springs, County of El Paso, State of Colorado, located at 725 Wooten Road,
consisting of approximately 6.3 acres of land, which is depicted on Exhibit A
attached hereto (the "Land") and more particularly described on Exhibit B
attached hereto, together with the building located thereon, containing in the
aggregate approximately 77,000 square feet of space (the "Building") and all
associated parking areas, and all other improvements located thereon including
without limitation the warehouse racking system ("Racking System") located in
the Building (the Building and such other improvements are referred to herein
collectively as the "Improvements");
B. All rights, privileges, easements and appurtenances owned or
controlled by Seller benefiting the Land and/or the Improvements, including,
without limitation, all mineral and water rights and all easements,
rights-of-way and other appurtenances used or connected with the beneficial use
or enjoyment of the Land and/or the Improvements (the Land, the Improvements
and all such rights, privileges, easements and appurtenances owned or
controlled by Seller are sometimes collectively hereinafter referred to as the
"Real Property");
C. All personal property, equipment, supplies and fixtures as
set forth in Exhibit F (collectively, the "Personal Property");
D. All of Seller's interest in any intangible property as set
forth in Exhibit G (the "Intangible Personal Property"). The Real Property,
Personal Property, and Intangible Personal Property are sometimes collectively
referred to as the "Property"; and
WHEREAS, Purchaser desires to purchase the Property from Seller, and
Seller desires to sell, convey, and transfer the Property to Purchaser;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and each intending to be legally bound hereby, Seller and
Purchaser agree as follows:
<PAGE>
1. SALE AND PURCHASE OF PROPERTY; PURCHASE PRICE
Upon the terms and subject to the conditions of this Agreement,
Seller will sell to Purchaser, and Purchaser will purchase from Seller, the
Property at the Closing (defined below). The aggregate purchase price for the
Property shall be US$3,575,000 which shall be paid as follows:
(i) $50,000 (the "Deposit") shall be delivered to Lawyers
Title Insurance Corporation ("Title Company") within 3 days after the Effective
Date; and
(ii) the balance of the purchase shall be paid at Closing
(defined below).
Notwithstanding any term in this Agreement to the contrary,
except Section 11.1 pertaining to a default by Purchaser hereunder, if
Purchaser terminates this Agreement pursuant to the terms of the Agreement
prior to the expiration of the Contingency Period, or decides not to proceed
with the transaction, or any conditions precedent, including without limitation
those set forth in Section 6, are not fulfilled and satisfied, or the
transaction contemplated by this Agreement is not consummated, unless Seller is
entitled to retain the Deposit pursuant to Section 11.1, the Deposit shall be
returned to Purchaser within 3 days after Purchaser's request, and Seller shall
take all action necessary, including signing documentation requested by
Purchaser, to cause the Deposit to be returned to Purchaser.
2. COSTS AND PRORATIONS
2.1 Title Insurance Premiums, Taxes and Assessments. The cost
of the title examination (if any), title insurance (with gap coverage) with
such endorsements as may reasonably be required by Purchaser (which
endorsements shall include, without limitation, zoning, mechanics' lien,
subdivision and mining), the cost of preparing and recording the deed, and the
aggregate amount of any recording or transfer or similar or any other taxes
imposed with respect to this transaction shall be paid solely by Seller,
provided that Purchaser shall be responsible for the documentary fee. Purchaser
shall pay the Colorado Documentary Fee arising out of this transaction.
Purchaser and Seller shall each be responsible for one-half (1/2) of the Title
Company escrow or closing fee, if any, and shall pay its own legal fees in
connection with the preparation of this Agreement and all documents required
for the Closing. All real estate taxes and assessments on the Property which
are currently due and payable shall be Seller's responsibility and shall be
applied as a credit against the purchase price at the Closing (if not already
paid by Seller prior to Closing), provided that taxes and assessments for the
year 1996 shall be prorated between Purchaser and Seller at Closing. If the
amount of such taxes and assessments is not known as of the Closing Date
(defined hereinbelow), the proration shall be at the last available tax rate
and valuation as of the Closing.
2.2 Manner of Payment. All prorations for Seller's account
shall be made as of the Closing Date, such prorated matters to be Purchaser's
sole responsibility thereafter.
2.3 Commissions. Seller shall pay a real estate broker's
commission to Gary L. Bradley, Highland LLC in connection with the closing of
this transaction. Except for such broker, each party represents to the other
that there is no broker or other person entitled to a commission or similar fee
in connection with this transaction. Each party covenants and agrees to defend,
indemnify and save harmless the other from and against any other claim for
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<PAGE>
brokerage or other commission or similar fee or compensation for any service
rendered at its instance in connection with the transactions contemplated
hereby.
2.4 No Liability as Purchaser.
(a) Except for Purchaser's pro rata share of real estate taxes
and assessments, Purchaser does not and will not assume or become obligated,
nor will Purchaser be deemed to have assumed or to have become obligated, to
pay or perform any debts, liabilities, contracts or other obligations
whatsoever of Seller, or of any other person acting for, under, through, or on
behalf of, Seller, whether such debts, liabilities, contracts or other
obligations exist on the Closing Date or arise thereafter.
(b) Except for Purchaser's pro rata share of real estate taxes
and assessments, Purchaser shall not be liable for or in respect of (i) the
condition of the Property prior to and at Closing, (ii) the costs of any labor
on, or materials furnished for, the Property at Seller's request or direction,
(iii) compliance with any legal requirements or insurance requirements
(arising, owing or accruing prior to Closing), including, without limitation,
subdivision of the Property, (iv) any taxes, or any other charges or expenses
of Seller whatsoever pertaining to the ownership, title, possession, use or
occupancy of the Property prior to Closing.
(c) Seller hereby indemnifies Purchaser and will save Purchaser
harmless from any such liability under Subparagraphs (a) or (b) above for a
period of 3 years after Closing.
2.5 Parties to Bear Own Expense. Except as otherwise
specifically provided herein, each of the parties hereto shall pay all costs,
respective attorneys' fees and expenses incurred or to be incurred by them in
negotiating and preparing this Agreement and in carrying out the transactions
contemplated hereby.
3. TITLE
3.1 Title Exceptions. Title to the Property shall be conveyed
by Seller to Purchaser by special warranty deed, subject to no liens,
encumbrances or other matter affecting title except those approved by Purchaser
pursuant to paragraph 3.2 ("Permitted Title Exceptions").
3.2 Title Insurance. On the Effective Date, Seller shall cause
Title Company to issue to Purchaser a commitment for an ALTA owner's policy of
title insurance (with gap coverage) pertaining to the Property with all
endorsements reasonably required by Purchaser (including those described above
in Section 2.1 (the "Commitment"). The Commitment shall insure Purchaser's
interest in the Property, shall be in the amount of the purchase price and
shall insure title in Purchaser at standard rates or less. All easements,
rights-of-way and similar exceptions shall be plotted on a map attached to the
Commitment. Purchaser shall have until the expiration of the Contingency Period
(defined below) in which to notify Seller in writing of Purchaser's disapproval
of any exceptions in the Commitment. The exceptions approved by Purchaser
pursuant to this Section shall be referred to as the "Permitted Title
Exceptions". Prior to the Closing Date, Seller shall reasonably (i) remove all
exceptions in the Commitment (including without limitation the survey
exception) other than the Permitted Title Exceptions,
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<PAGE>
(ii) satisfy all conditions in the Commitment, and (iii) perform and cure all
requirements on the Commitment or encumbrances which are not Permitted
Exceptions. If Seller fails to obtain such removal or written assurance on or
before the expiration of the Contingency Period, Purchaser may at its option
give Seller additional time, waive its objection to such exception or
condition, or terminate this Agreement. If Purchaser does not notify Seller of
any such objections within the time period provided above, Purchaser shall be
deemed to have approved the condition of title in the Commitment.
3.4 Survey. Upon the Effective Date, Seller shall order a
survey and legal description of the Property by a registered surveyor
acceptable to Title Company (and which shall be certified to have been made in
accordance with ALTA/ACSM standards), and Seller shall cause such survey to be
delivered to Purchaser within 21 days after the Effective Date. The cost and
expense in connection with the preparation of such survey shall be paid by
Seller. If acceptable to the parties, the metes and bounds description obtained
from such survey shall be incorporated into the special warranty deed to be
delivered by Seller to Purchaser at the Closing pursuant to the terms of this
Agreement. If such survey shall reveal any matters which Purchaser shall
reasonably consider materially adverse, Purchaser shall give written notice
thereof to Seller within 5 business days of its receipt of said survey. Seller
shall promptly respond thereto in writing setting forth whether Seller has
decided to cure such adverse survey matters (in which event Seller shall have 5
business days to do so); provided, however, in the event such cure is
reasonably estimated at notification by Purchaser to take longer than thirty
(30) days from Purchaser's written notice, Purchaser shall have the option of
terminating this Agreement by written notice to Seller and thereafter neither
party shall have any further liability to the other.
4. ENVIRONMENTAL MATTERS
4.1 Hazardous Materials. In order to assist Purchaser in making
the determination more particularly described in paragraph 4.3 hereof, and to
induce Purchaser to purchase the Property, Seller hereby warrants and
represents to Purchaser that, to the best of Seller's knowledge, except as set
forth on Exhibit H, : (1) the Land is not contaminated with any Hazardous
Substances and no Hazardous Conditions currently exist on the Property: (2)
Seller has not caused and will not cause prior to Closing the release of any
Hazardous Substances on the Land; (3) the Property is not subject to any
federal, state or local "Superfund" lien, proceedings, claim, liability or
action, or the threat or likelihood thereof, for the cleanup, removal, or
remediation of any Hazardous Substances from the Property; (4) there is no
asbestos on the Property; (5) there are no underground storage tanks on the
Property; (6) all permits necessary or required by Applicable Environmental
Laws in connection with the operations currently conducted on the Property have
been obtained by Seller; and (7) Seller has provided to Purchaser a copy of the
Phase I investigation of the Property performed by ATEC Associates, Inc., dated
August 10, 1995 ("Seller Phase I"); Seller hereby representing and warranting
to Purchaser that no other reports or information exist which are in Seller's
possession or control which related to the environmental condition of the
Property.
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<PAGE>
4.2 Environmental Definitions.
(a) For purposes of this Agreement, the term "Hazardous
Substance" shall mean any substance, chemical or waste that is or shall be
listed or defined as hazardous, toxic, or dangerous under Applicable
Environmental Law, and any petroleum products.
(b) For purposes of this Agreement, the term "Applicable
Environmental Law" shall include the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. sections 9601 et seq.; the
Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. sections 6901, et
seq.; the Federal Water Pollution Control Act, 33 U.S.C. sections 1251 et seq.;
the Clean Air Act, 42 U.S.C. sections 7401 et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. sections 1471 et seq.; the Toxic Substances
Control Act, l5 U.S.C. sections 2601 through 2629; and the Safe Drinking Water
Act, 42 U.S.C. sections 300f through 300J; as have been amended from time to
time; any similar state and local laws and ordinances and the regulations
implementing such statutes; and any law of any governmental body relating to
Hazardous Substances.
4.3 Environmental Inspection.
(a) Due Diligence: Seller shall permit Purchaser or its
representatives, at all reasonable times prior to the Closing Date, if
Purchaser shall so elect, to enter upon any and all of the Property for the
purposes of inspecting same, making tests, taking samples and soil borings,
and/or conducting groundwater studies and such other investigations as
Purchaser shall deem appropriate, in order to determine (i) if any Hazardous
Substances exist in, on, under, or about the Property (including groundwater
on, in, under, or about the Property), or (ii) if any condition ("Hazardous
Condition") exists on the Property (including groundwater on, in, under, or
about the Property) about which a government agency would, under Applicable
Environmental Law, require corrective action.
(b) Further Investigation: In the event that any potential
Hazardous Condition or Hazardous Substance is disclosed by Purchaser's
investigation of the Property, then Purchaser may, but shall not be obliged to,
conduct reasonable further investigation of the Property, in order to confirm
the existence of such Hazardous Substance or Hazardous Condition. The Purchaser
shall have no obligation to conduct any investigation under this Subparagraph
4.3(b) but if it elects to do so, the scope and depth of such investigation
shall be determined by Purchaser in its sole discretion.
(c) Confidentiality: Purchaser shall retain the results of all
environmental inspections in confidence and shall only provide copies of such
results to its counsel and lenders and counsel for the Seller absent the
written consent of Seller. Purchaser shall notify Seller of any law, rule,
regulation, court order or subpoena requiring disclosure of any such results
and shall cooperate with Seller in the notification pursuant to such law, rule
or regulation and/or appeal or challenge of any such court order or subpoena.
Purchaser may disclose such results required to be disclosed pursuant to such
law, rule, regulation, court order or subpoena, but only after Seller has
exhausted any lawful or timely appeal or challenge Seller elects to file or
make in connection with the same. Purchaser shall cause any environmental
consultant retained by it to comply with this Section 4.3(c).
4.4 Payment of Investigative Costs. Purchaser shall bear all
costs of environmental investigation as described in this Paragraph 4.
5
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4.5 Termination. Purchaser shall have the right to terminate
this Agreement if it disapproves of the Property based on the investigation
described herein. In the event of such termination, or if the transaction
contemplated by this Agreement is not consummated, the Deposit shall be
returned to Purchaser and Purchaser shall return all copies of any
environmental reports to Seller.
4.6 Environmental Indemnification. The terms and provisions of
this Agreement to the contrary notwithstanding, in the event that any Hazardous
Substance or Hazardous Condition is found to exist in, on, under, or about the
Property from and after delivery of possession to the Property by Seller to
Purchaser, and if and only if such Hazardous Condition or Hazardous Substance
is not disclosed on attached Exhibit H [which shall include Seller Phase I and
any written phase I or subsequent report prepared by Purchaser's environmental
consultant in connection with its review of the Property under this Agreement
("Purchaser's Environmental Reports")], and the same was deposited by Seller or
Seller's representatives, officers, shareholders, directors, employees, agents,
guests or invitees on the Property during ownership or possession of the
Property by Seller or its currently or previously existing affiliates, and was
not deposited by Purchaser, Seller hereby agrees to indemnify Purchaser, its
agents, representatives, officers, shareholders, directors and employees and
its successors and assigns (collectively, the "Purchaser Indemnitees") and
agrees to hold the Purchaser Indemnitees, and each of them, free and harmless
from and against any and all liabilities, losses, foreseeable and unforeseeable
consequential damages, obligations, liens, indebtedness, accounts, actions,
causes of action, costs, reasonable fees of attorneys, consultants and experts
and other reasonable expenses (collectively, "Purchaser Loss") which the
Purchaser Indemnitees, or any of them, may sustain, suffer or incur or which
may be claimed or asserted against any of the Purchaser Indemnitees, on account
of any grounds whatsoever in law or in equity, by reason of, or in consequence
of, any claim of any nature, including without limitation, any suit,
administrative proceeding, citation, remediation demand, or judgments by any
person or entity whether private, administrative or governmental, arising out
of any such Hazardous Condition, Hazardous Substance, or other environmental
contamination present in, on, under, or about the Property prior to delivery of
possession of the Property by Seller to Purchaser. The foregoing
indemnification shall survive Closing for a period of 3 years.
5. PURCHASER'S INSPECTION OF THE PROPERTY; REVIEW OF DOCUMENTS AND
MATERIALS
5.1 In addition to the rights granted to Purchaser pursuant to
Paragraph 4 hereof, upon execution of this Agreement and before Closing,
Purchaser and Purchaser's consultants, agents, inspectors, contractors, and
employees may enter the Property during regular business hours as Purchaser
deems necessary to inspect the Property and to plan any improvements on the
Property. Purchaser shall provide proof of liability insurance and workers
compensation insurance prior to such entry. No inspections shall be conducted
which will likely materially damage, alter or impair the Property without
Seller's prior written approval, which approval shall not be unreasonably
withheld. Provided that the transaction contemplated by this
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Agreement is not consummated, all damage to the Property resulting from
Purchaser's or its agents activities thereon shall be repaired by Purchaser.
Purchaser shall give oral notice to Seller at least twenty-four (24) hours in
advance of any intended entry for inspection. Purchaser shall indemnify, defend
with counsel of Purchaser's choice and hold Seller harmless from all expense,
loss, damage and claims, including Seller's attorney's fees, if necessary,
arising out of the negligence or misconduct of Purchaser or Purchaser's agents
on the Property and not due to the negligence of Seller.
5.2 Seller shall deliver to Purchaser within 5 business days
after the Effective Date the documents and materials respecting the Property
set forth below which are in Seller's possession or control (the "Documents and
Materials"). From the Effective Date until that date which is 15 days
thereafter, Purchaser shall have the right to review and approve or disapprove,
in its sole, absolute and subjective discretion, any or all of the Documents
and Materials.
(A) Evidence that the Property complies with any and all applicable
governmental ordinances, rules and regulations, including, but not limited to,
zoning and building regulations, any and all other governmental approvals (such
as approved building permits, building inspection approvals and certificates of
occupancy) and/or authorizations pertaining to the Property;
(B) Complete "as-built" plans, drawings and specifications relating to
all of the Improvements ("Improvement Plans");
(C) Copies of any and all insurance policies, construction contracts,
management contracts, maintenance contracts, service contracts, reciprocal
easement agreements, if any, utility will-serve letters and any other contracts
or agreements affecting or relating to the ownership, operation, maintenance,
construction or development of the Property, including, without limitation,
copies of all warranties with respect thereto (collectively, the "Contracts");
(D) A copy of all warranties and guaranties relating to the Property.
Seller shall cause, at Seller's sole cost and expense, the Personal Property to
be released from any security interest affecting such property prior to or
contemporaneously with Closing;
(E) Copies of the bills for all real property taxes and all personal
property taxes payable with respect to the Property for the past 2 years;
(F) All existing and available soils, environmental and building
reports and engineering data pertaining to the Property, or any portion thereof
any and all architectural studies grading plans, topographical maps and similar
data respecting the Property;
(G) Any maps and any other governmentally approved or processed
documents relative to the subdivision of the Land ("Maps"); and
(H) Such other documents in Seller's possession or control which relate
to the Property which Purchaser shall request.
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5.3 Purchaser and Seller hereby agree that May 6, 1996, is
hereby established as the date upon which the "Contingency Period" expires. The
Contingency Period shall begin on the Effective Date. If Purchaser fails to
terminate, in Purchaser's sole discretion, the Agreement on or before the
expiration of the Contingency Period, Purchaser shall become obligated to close
the transaction evidenced by the Agreement (unless Seller has defaulted
hereunder or this Agreement is terminated pursuant to Section 3.4) or be
subject to the default/remedies provisions of this Agreement. On or before the
expiration of the Contingency Period, Purchaser shall have the right to approve
or disapprove, in Purchaser's sole discretion, the Property, their condition,
or the results of any and all inspections, investigations, tests and studies or
Documents and Materials.
If, on or before the expiration of the Contingency Period, Purchaser
disapproves of any of same, or otherwise disapproves of the Property for any
reason whatsoever, in its sole discretion, Purchaser shall have the right to
terminate this Agreement, whereupon the Deposit shall immediately be returned
to Purchaser. If Purchaser terminates this Agreement pursuant to its review and
inspection hereunder, or under any other section of this Agreement relating to
its review and inspection of the Property, Purchaser shall pay Seller a $100
termination fee which shall be the consideration for Purchaser's right to
terminate this Agreement.
5.4 Purchaser, at Purchaser's expense, shall have the
opportunity to have the Property inspected by a licensed pest control inspector
and obtain from the inspector a report on any damage to the Property caused by
pests, fungus or water. The cost to repair any damage disclosed by the
inspection shall be paid by Seller. Such work shall be completed prior to the
Closing Date.
6. CONDITIONS TO AGREEMENT
6.1 Purchaser's Conditions Precedent. Purchaser's obligation to
purchase the Property is expressly conditioned upon the fulfillment at the time
of the Closing of each of the following conditions precedent:
(a) Title. Transfer of title to the Property to Purchaser in
accordance with and subject to the provisions of Paragraph 3 above.
(b) Covenants and Obligations. The performance by Seller (or
waiver by Purchaser in writing) of all covenants and obligations of Seller set
forth in this Agreement to be performed by Seller prior to the Closing. Closing
shall be deemed to be a waiver of all such covenants and obligations of Seller.
(c) Representations and Warranties. The truth and accuracy of
Seller's representations and warranties contained in this Agreement as of the
Closing.
(d) Environmental Matters. Satisfaction of all items in
Paragraph 4 above relating to the environmental condition of the Property.
(e) No Tenants. No person shall be occupying nor have any right
to occupy the Property.
(f) Condemnation. No portion of the Property shall have been
condemned or taken by a governmental authority or otherwise acquired pursuant
to eminent domain authority,
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nor to the knowledge of Seller or Purchaser shall such acquisition or taking be
threatened or contemplated.
(g) Subdivision. If required by law or ordinance, the Property
shall have been subdivided in accordance with local laws, regulations and
ordinances and the same shall have been acceptable to Purchaser.
(h) Other Due Diligence Review. Purchaser's being satisfied
with the condition of the Property and other matters relating to the Property
as described in sections 5 and 9.
(i) INTENTIONALLY DELETED
(j) Utilities. Purchaser's obtaining, prior to the expiration
of the Contingency Period, from utility companies written assurance of the
availability of sewer, water, wastewater, electrical, gas, and telephone
services for the proposed use of the Property, and Purchaser's obtaining, prior
to the expiration of the Contingency Period, confirmation a utilities that such
utilities are adequate to meet Purchaser's proposed use of the Property.
(k) Other Contracts. Purchaser's review and approval, prior to
the expiration of the Contingency Period, of all Documents and Materials.
(l) Title Commitment. The delivery to Purchaser of the
Commitment with such endorsements as required by Purchaser, which shows the
Permitted Title Exceptions only as exceptions to title to the Property.
(m) Zoning. Purchaser's obtaining written confirmation, prior
to the expiration of the Contingency Period, from the City of Colorado Springs
that existing zoning is PIP-1, and that the Property may be used for a
manufacturing facility and as otherwise contemplated by Purchaser.
6.2 Seller's Conditions Precedent. Seller's obligation to sell
the Property is expressly conditioned upon fulfillment of each of the following
conditions precedent:
(a) Covenants. The performance by Purchaser (or waiver by
Seller in writing) of all covenants of Purchaser set forth in this Agreement to
be performed by Purchaser prior to the Closing.
(b) Representations and Warranties. The truth and accuracy of
Purchaser's representations and warranties contained in Paragraph 7.2 as of
Closing except as otherwise disclosed in writing.
(c) Payment. Payment of the Purchase Price in accordance with
Paragraph 1 hereinabove.
7. WARRANTIES AND REPRESENTATIONS
7.1 Seller's Warranties and Representations. In addition to
other warranties and representations of Seller herein contained, Seller hereby
warrants and represents as of the date hereof and as of the Closing Date that:
(a) Organization and Authority. Seller is a corporation and the
sole owner of the Property.
(b) Authorization of Agreement. This Agreement has been (and
all documents to be delivered by Seller to Purchaser at Closing will be): (i)
duly executed, and
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delivered by Seller, (ii) legal, valid, and binding obligations of Seller, and
(iii) enforceable in accordance with their respective terms.
(c) Not a Foreign Person. Seller is not a foreign person and is
a "United States Person" as such term is defined in Section 7701(a)(3) of the
Internal Revenue Code of 1986, as amended (the "Code"). Seller shall duly
deliver a similar FIRPTA assurance at the Closing reasonably consistent with
the Code's requirements for United States taxpayers.
(d) Compliance with Existing Laws. Seller has not received any
notice or threatened notice that the Property and their existing uses are in
violation of any and all applicable building, fire, environmental or other
ordinances, statutes, codes, regulations and orders of any governmental agency
or any requirements of any building permits, use permits subdivision approvals
or zoning laws and regulations or covenants, conditions and restrictions
affecting the Property, including without limitation the Americans with
Disabilities Act of 1990.
(e) INTENTIONALLY DELETED
(f) Tenancies. There are no leases or tenancies for any portion
of the Property which shall remain in effect on the Closing Date, nor shall any
person have any rights to the purchase, use or possession of any part or all of
the Property on or as of the Closing Date.
(g) Condemnation Proceedings; Land Use Changes. Seller has made
no commitments and has received no notice of the desire of any public authority
or other entity to take or use the Property, or any part thereof, whether
temporarily or permanently, for easements, rights-of-way, or other public or
quasi-public purposes, or for any other purposes whatsoever, and Seller has
received no notice of any proceedings, pending, threatened, or contemplated,
which would adversely affect, as to any portion of the Property, the applicable
zoning or land use classification, in effect on the date of Purchaser's
execution of this Agreement or the Closing Date.
(h) Undisclosed Liabilities and Obligations. To the best of
Seller's knowledge, Seller has no liability or obligation of any nature which
in any way affects or is related to the Property, whether now due or to become
due, absolute, contingent or otherwise, known to Seller, including liabilities
for taxes (or any interest or penalties relating thereto), except for real
estate taxes and assessments and for income taxes resulting from the
transactions contemplated herein.
(i) Title to Property. Seller owns an undivided fee simple
interest in the Property, subject to no mortgage, pledge, lien, restriction,
claim, security interest or other encumbrance (except for the Permitted Title
Exceptions), and Seller has the power and authority to transfer, assign and
convey to Purchaser such title of Seller pursuant to the terms of this
Agreement. Title to the Property will be conveyed in fee simple, subject only
to the Permitted Title Exceptions.
(j) Real Property. The Property to be purchased and sold
pursuant to this Agreement is owned by Seller.
(k) Pending Litigation, Proceedings or Investigation. There is
no litigation, proceeding, foreclosure or investigation pending, or threatened,
against or affecting Seller that might affect or relate to the validity of this
Agreement, the instruments to be delivered at the Closing, any action taken or
to be taken pursuant hereto or thereto, or the Property or the operation
thereof, whether or not fully covered by insurance.
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<PAGE>
(l) Absence of Restriction. Seller is not subject to any
judgment, order, writ, injunction or decree which, to the best of Seller's
knowledge, will affect the ability of Seller to convey the Property to
Purchaser in accordance herewith.
(m) Validity of Contemplated Transactions. Neither the
execution of this Agreement nor the performance of the transactions
contemplated hereby has resulted or will result in any violation of, or be in
conflict with, or result in the creation of, any mortgage, lien, encumbrance or
charge (other than those contemplated hereby) upon any portion or all of the
Property pursuant to, or constitute a default under, any certificate of
incorporation, by-law, agreement, or mortgage, indenture, contract, agreement,
instrument, franchise, permit, judgment, decree, order, statute, rule, or
regulation applicable to Seller or the Property.
(n) Approvals. No consent by, approval or authorization of, or
filing, registration or qualification with, any federal, state or local
authority, or any corporation, person or other entity is required either for
the execution, delivery, or performance of this Agreement by Seller, or in
connection with the consummation of the transactions contemplated by this
Agreement.
(o) Mechanic's Liens. There exists no mechanic's or
materialmen's liens on the Property, and no party has the right to record same
with respect to the Property. A "No Lien" affidavit will be provided to
Purchaser at the Closing.
(p) Contracts. There are no current service or maintenance
contracts, management agreements or other agreements which will affect
Purchaser or the Property after Closing.
(q) Permits; Licenses. All required permits and approvals,
including building and use permits and certificates of occupancy, were obtained
for the construction, use, occupancy and subdivision of the Property. The
Improvements have been constructed in accordance with all such approvals,
licenses, permits and certificates, accepted standards of good materials and
workmanship, all covenants, conditions, restrictions, easements and agreements
of any kind or nature affecting the Property, and the Improvement Plans. Seller
has obtained all easements and rights-of-way required from all governmental
authorities having jurisdiction over the Property or from private parties for
the present use and operation of the Property and to assure vehicular and
pedestrian ingress to and egress from the Property at all access points
currently being used.
( r) Defects. To the best of Seller's knowledge, Seller is not
aware of any material defects in the Property including the Improvements and,
to the best of Seller's knowledge, Seller is not aware of any material adverse
conditions relating to the Property which have not been specifically disclosed
in writing to Purchaser.
(s) Representations. No representation, warranty or statement
of Seller in this Agreement or in any document, instrument, certificate or
schedule furnished or to be furnished to Purchaser contains or will contain, to
the best of Seller's knowledge, any untrue statement of a material fact, or
omits or will omit to state a material fact necessary to make the statements or
facts not misleading.
(t) Documents True. To the best of Seller's knowledge, all
documents delivered by Seller to Purchaser pursuant to this Agreement are true,
accurate, correct and complete copies of originals and any and all information
prepared by Seller or at Seller's direction and supplied to Purchaser by Seller
in accordance with this Agreement are true, accurate, correct and complete.
11
<PAGE>
(u) No Other Documents. To the best of Seller's knowledge, the
documents delivered by Seller to Purchaser pursuant to this Agreement are all
of the documents known by Seller to exist relative to the use, ownership,
maintenance, management and construction on or under the Property. Seller has
not assigned its rights thereunder to any other person or entity and no further
consent is necessary or required to make an assignment thereof and the bill of
sale described below effective.
(v) No Notices. To the best of Seller's knowledge, Seller has
received no notice of (i) any change contemplated in any applicable laws,
ordinances or restrictions, (ii) any judicial or administrative action, (iii)
any action by adjacent landowners, or (iv) natural or artificial conditions
upon the Property which would prevent, impede, limit or render more costly
Purchaser's contemplated use of the Property.
(w) Taxes. Seller has no knowledge, and Seller has received no
notice to the contrary, of any special assessments or charges which have been
levied against the Property or which will result from work, activities or
improvements done to the Property by Seller.
(x) Utilities. To the best of Seller's knowledge, the
Improvements are connected to and served by utilities installed and connected
pursuant to valid permits, and such utilities are in full compliance with all
governmental authorities with jurisdiction. To the best of Seller's knowledge,
no fact or condition exists which would result in the termination or impairment
in the furnishing of utility services to the Improvements.
(y) INTENTIONALLY DELETED
(z) No Prior Transfer. Except pursuant to this Agreement,
Seller has not previously sold, transferred or conveyed the Property and Seller
has not entered into any executory contracts for the sale of the Property, nor
do there exist any rights of first refusal or options to purchase the Property.
(aa) Insurance Notices. Seller has not received any notice from
any of Seller's insurance carriers of any defects or inadequacies in the
Property, or any portion thereof, which would adversely affect the insurability
of the Property or the cost of any such insurance.
(bb) Representations and Warranties at Closing. The
representations and warranties of Seller set forth in the Agreement shall be
deemed to be remade and restated by Seller on and as of the Closing.
7.2 Purchaser's Warranty and Representation. Purchaser hereby
warrants and represents as of the date hereof and as of the Closing Date that
this Agreement has been, and all the documents to be delivered by Purchaser to
Seller at the Closing will be duly authorized, executed, and delivered and will
be legal, valid, and binding obligations enforceable of Purchaser in accordance
with their respective terms.
This Section 7 shall survive the Closing and the consummation
of the transaction contemplated hereby for a period of three years.
8. ADDITIONAL COVENANTS OF SELLER; INDEMNIFICATION; RIGHT OF FIRST
REFUSAL
12
<PAGE>
8.1 From and after the date of execution of this Agreement
until the Closing, Seller covenants and agrees that it shall:
(a) maintain the Property in its present order and condition
and deliver the Property at the Closing in substantially the condition it is in
on the date of execution of this Agreement;
(b) not mortgage or encumber all or any part of the Property;
(c) not enter into any leases, leases or agreements affecting
all or any part of the Property;
(d) except as contemplated herein, not place or consent to the
placement by others of any easements, covenants, or restrictions in respect of
the Property or any portion thereof;
(e) not cause or permit any action to be taken and shall
refrain from taking any action which would cause any of the representations or
warranties set forth herein to be untrue as of the Closing Date;
(f) remove the Property from the market (provided that
Purchaser understands that Seller shall have the right to receive "back up"
offers) and shall not convey, transfer, assign, hypothecate, or otherwise
encumber the Property in any manner whatsoever; and
(g) maintain all insurance policies carried by Seller with
respect to the Property as of the Effective Date through Closing.
8.2 Seller shall indemnify, defend, and hold Purchaser harmless
from and against all obligations, claims, losses, liabilities, costs and
expenses, including reasonable attorneys' fees, arising out of (i) nonpayment
of any amounts owed to persons or entities under contract with Seller, any of
Seller's subsidiaries or affiliates or contractors or subcontractors, for labor
or materials supplied in connection with the Property (including any liens
asserted) before Closing, (ii) the Property or the ownership or operation
thereof on or before Closing, or any activities or events occurring on or with
respect to the Property, or claims of third parties with respect to the
Property, arising before Closing, (iii) all taxes, license fees, charges and
other fees arising in connection with Seller's sale of the Property (except
that Purchaser shall be responsible for the special warranty deed recording
fee, Colorado documentary fee, and one-half of the Title Company closing fee
owing in connection with this transaction), (iv) the material breach of any of
Seller's representations and warranties or obligations hereunder, (v) the use
on or before Closing of the Property by any third party, and (vi) the violation
of any federal, state or local law, ordinance or regulation, occurring with
respect to the Property prior to Closing.
This indemnity and other indemnity agreements by Seller set
forth in the Agreement shall survive Closing and the recordation of the Deed
for a period of 3 years, unless otherwise specified.
8.3 Purchaser shall have a right of first refusal (which it may
exercise in its sole discretion) to purchase that certain real property
described on attached Exhibit E (the "RFR Property") prior to any proposed
"Transfer" (as defined below) of the RFR Property by Seller of any of Seller's
right, title or interest in or to the RFR Property, or any portion thereof. At
least 10 days prior to any proposed Transfer by Seller described above, Seller
shall deliver a written sale notice ("Sale Notice") to Purchaser which shall
include a copy of the purchase and
13
<PAGE>
sale agreement and shall set forth the name of the proposed third party
purchaser, the interest in the RFR Property proposed to be Transferred, and all
other provisions and conditions of the proposed Transfer by Seller including,
without limitation, the purchase price thereof. Upon receipt of the Sale
Notice, Purchaser shall have 10 days in which to notify Seller in writing of
its election to exercise the right of first refusal to purchase the RFR
Property granted herein. Upon exercise of its right of first refusal, Purchaser
shall be obligated to purchase, acquire or otherwise obtain upon the same terms
and conditions as set forth in the Sale Notice, the interest in the RFR
Property proposed to be Transferred. In the event any delays caused by Seller
prevent a closing within the period set forth in the Sale Notice, Purchaser
shall have the right to terminate the transaction, and thereafter Seller shall
not have the right to Transfer such interest to any other party without again
giving Purchaser the right of first refusal herein provided. If Purchaser does
not, within such 10-day period, notify Seller in writing of its election to
exercise its right of first refusal, Seller may Transfer such interest in the
RFR Property to the third party purchaser upon the same conditions and
provisions identified in the Sale Notice. If such interest in the RFR Property
has not been Transferred within 180 days after the expiration of the 10-day
period during which Purchaser may exercise its right of first refusal, or if
Seller and the third party purchaser have not closed such Transfer within such
180-day period, the RFR Property shall become subject to all of the provisions
and conditions of this Section and thereafter may not be Transferred except in
the manner and on the provisions and conditions set forth in this Section.
For purposes of this Section, "Transfer" means that Seller has
received an offer from a third party unaffiliated with Seller, and the offer is
acceptable to Seller.
Notwithstanding any term in this Agreement to the contrary,
Seller agrees that it shall not have the right to Transfer a portion of the RFR
Property, but shall instead be required to Transfer the entire RFR Property in
connection with any Transfer; in addition, Seller shall not have the right to
Transfer less than its entire interest in the RFR Property, but shall instead
Transfer all of its right, title and interest in and to the RFR Property in
connection with any Transfer. Seller shall cause a memorandum of right of first
refusal ("Memorandum of Right of First Refusal") to be recorded at Closing
which shall set forth the terms of this Section 8 and other appropriate
provisions. The terms of this Section 8.3 shall survive the Closing and the
recordation of the deed.
The right of first refusal granted to Purchaser in this
paragraph 8.3 shall be personal to Purchaser only and may not be assigned,
conveyed, sold, or otherwise transferred by Purchaser. If Purchaser attempts to
assign, convey, sell or otherwise transfer the right of first refusal granted
herein, such right of first refusal shall be void and of no further effect.
9. ZONING AND LAND USE ORDINANCES
Purchaser shall have until expiration of the Contingency Period
to establish to its satisfaction that (1) Seller's use or the use by any person
or entity in possession of the Property and Purchaser's intended use of the
Property will not be in violation of any applicable zoning and land use
ordinances, subdivision laws, building or similar laws, codes, ordinances,
orders, or regulations; (2) if required for the transfer of title, there is a
certificate of occupancy for the
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<PAGE>
Property; and (3) reasonable access to the Property from adjoining public roads
is not dependent upon easements, rights-of-way or licenses across lands or
premises not included within the Property.
In the event that Purchaser shall not be able to establish all
of the foregoing, then Purchaser shall have the option of terminating this
Agreement by giving written notice thereof to Seller prior to the expiration of
the aforementioned thirty-day period and thereupon neither party shall have any
further liability hereunder. Upon any such termination, the Deposit shall be
returned to Purchaser, unless Purchaser shall have given notice prior to the
expiration of the thirty-day period, Purchaser shall be deemed to have waived
its rights under this Paragraph 9 as of the Closing.
10. ESCROW AND CLOSING
10.1 Closing.
(a) Subject to the mutual agreement of the parties to the
contrary and subject to the provisions of Paragraph 6 hereof, Purchaser and
Seller shall consummate the purchase and sale of the Property on or before May
15, 1996. Time is of the essence of this transaction.
(b) The purchase and sale contemplated herein shall be
consummated at the "Closing", and shall be held in the offices of Title Company
unless the parties shall otherwise mutually agree. The Closing shall be held at
a mutually agreeable time on the Closing Date. The date upon which the Closing
takes place is referred to in this Agreement as the "Closing Date".
(c) The Title Company shall close the transaction.
10.2 Obligations of Purchaser at Closing. On the Closing Date,
Purchaser shall deliver or cause to be delivered to Title Company (in
immediately available funds) all of the sums constituting the purchase price,
which sums shall not be released to Seller until Title Company is
unconditionally obligated to issue the title insurance (including gap coverage)
and endorsements relating to the Property as described and required in this
Agreement and is unconditionally required to record the Memorandum of Right of
First Refusal and deed in the real property records of El Paso County,
Colorado.
10.3 Possession. Seller shall retain possession of the Property
until the Closing and shall deliver possession to Purchaser upon the Closing.
10.4 Transfers and Conveyances. Seller will execute and deliver
all instruments of transfer and conveyance ("Instruments of Conveyance") (which
shall be fully executed) as in the reasonable opinion of Purchaser will be
appropriate to carry out the purpose and intent of this Agreement and as will
be sufficient in the opinion of Purchaser to convey and transfer to Purchaser
the Property and all right, title and interest of Seller therein, thereby
15
<PAGE>
effectively vesting Purchaser with good and marketable title thereto free and
clear of all liabilities, security interests, liens and encumbrances
whatsoever, excepting only the Permitted Exceptions. Such Instruments of
Conveyance shall include, without limitation, the following:
(i) a fully executed and notarized special warranty deed
transferring and conveying unto Purchaser the Property in fee simple absolute
subject only to the Permitted Exceptions (which deed shall be recorded in the
real property records of El Paso County at, or as soon as practicable after,
Closing);
(ii) an affidavit of an authorized officer of Seller, sworn to
under penalty of perjury, setting forth the Seller's United States Tax
Identification No., address and stating that the Seller is not a foreign person
and is a United States Person as defined in the Code;
(iii) such other items and instruments as shall be reasonably
required by the Title Company in connection with the issuance of its title
insurance policy to Purchaser as stated in Paragraph 3 hereof or as shall be
reasonably required by counsel to Purchaser for consummation of the
transaction;
(iv) a survey of the Property, certified to Purchaser by a
licensed surveyor acceptable to Purchaser and Title Company and issued pursuant
to Paragraph 3.4 hereof;
(v) such other additional documents of transfer and conveyance
as may be necessary to transfer and convey to Purchaser all of the right, title
and interest of Seller in and to the Property;
(vi) INTENTIONALLY DELETED
(vii) a certificate stating that Seller's representations and
warranties contained herein and in Section 7 are true, correct, and complete as
of the Closing Date;
(viii) any and all original contracts relating to the Property
which Purchaser desires to assume and assignments thereof and consents thereto
executed by appropriate parties.
(ix) A bill of sale duly executed by Seller in a form approved
by Purchaser conveying all of Seller's right, title and interest in and to the
Personal Property;
(x) Originals of any and all building permits, certificates of
occupancy, utility will-serve letters, use permits and other governmental
approvals and/or entitlements relative to the Property in Seller's possession
or control;
(xi) A general assignment duly executed by Seller, in a form
approved by Purchaser conveying all of Seller's right, title and interest in
and to the Intangible Personal Property;
(xii) The Memorandum of Right of First Refusal executed by
Seller (which memorandum shall be recorded in the real property records of El
Paso County at, or as soon as practicable after, Closing); and
(xiii) Such other instruments and documents as reasonably
requested by Purchaser to carry out the purposes of this Agreement.
11. DEFAULT
11.1 Breach by Purchaser. If the Closing fails to occur by
reason of default of Purchaser under the terms of this Agreement, which default
is not cured within thirty (30) days (but in any event prior to the Closing)
after written notice is given by Seller to Purchaser, this Agreement and the
rights and obligations of the parties shall terminate and the sum of
16
<PAGE>
US$50,000 shall constitute liquidated damages for Purchaser's nonperformance as
Seller's sole and exclusive remedy against Purchaser. The parties expressly
agree that due to the nature of the transactions, it is impracticable and
extremely difficult to fix the actual damages that Seller would sustain, should
Purchaser breach any of its obligations. The impracticability and difficulty of
fixing actual damages is caused by, without limitation, the fact that (i) the
Property included unique real property, and (ii) that pursuant to the
Agreement, Seller is holding the Property off the market and restricting its
ability to negotiate with other Purchasers. GIVEN THE FOREGOING FACTORS, AMONG
OTHERS, PURCHASER AND SELLER AGREE THAT LIQUIDATED DAMAGES ARE PARTICULARLY
APPROPRIATE FOR THIS TRANSACTION AND AGREE THAT SAID LIQUIDATED DAMAGES SHALL
BE PAID IN THE EVENT OF BREACH BY PURCHASER, NOTWITHSTANDING ANY WORDS OR
CHARACTERIZATIONS PREVIOUSLY USED OR IMPLYING A CONTRARY INTENT.
11.2 Breach by Seller. If the Closing fails to occur by reason
of default of Seller under the terms of this Agreement, which default is not
cured within thirty (30) days (but in any event prior to the Closing) after
written notice is given by Purchaser to Seller, Purchaser shall, in addition to
exercising any other rights available hereunder or under applicable law, have
the right to:
(i) waive the default and complete the purchase as provided
herein; or
(ii) terminate this Agreement and the rights and obligations of
Purchaser and Seller hereunder; or
(iii) seek specific performance of this Agreement where
permitted at law or in equity.
12. DAMAGE OR CONDEMNATION
12.1 If the Improvements or Personal Property is damaged and
the cost to repair same exceeds $50,000, Purchaser may terminate this agreement
without liability. If Purchaser does not so terminate, or the damage is less
than $50,000, Purchaser shall receive the insurance proceeds collected as a
result of the damage or destruction, such proceeds to be assigned to Purchaser
at Closing.
If Seller has not repaired the damage before the closing date
referenced above, and the insurance proceeds are not adequate to repair the
damage, the amount of the shortage shall be credited to Purchaser at Closing,
reducing the amount of additional cash due from Purchaser. The Closing Date may
be extended as required to obtain repair estimates and determine insurance
proceeds, and for a period not to exceed 90 days, in Seller's sole discretion,
to complete repair of the Property. If the Closing does not occur by such
extended date, either party may terminate this Agreement without liability.
12.2 In the event that prior to the Closing, all or any
material portion of the Real Property is subject to a taking by a public or
governmental authority, Purchaser shall have the right to terminate this
agreement or accept the Property in its then condition and receive an
assignment of all of Seller's rights to any condemnation award or proceeds
payable by reason of such taking.
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13. ALLOCATION OF PURCHASE PRICE
The total Purchase Price shall be allocated as provided in
attached Exhibit D.
14. MISCELLANEOUS
14.1 Nature and Survival of Representations. All statements
contained in any certificate or other instrument delivered by or on behalf of
Seller pursuant to this Agreement or in connection with the transactions
contemplated hereby will be deemed representations and warranties by Seller
hereunder, and all statements contained in any certificate or other instrument
delivered by or on behalf of Purchaser pursuant to this Agreement, will be
deemed representations and warranties by Purchaser hereunder. All
representations, warranties, indemnities and agreements made by Purchaser will
survive the Closing hereunder for three years.
14.2 Binding Effect and Prohibition of Assignment. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Any assignment of
this Agreement by either party shall require the prior written consent of the
other party; provided, however, that Purchaser shall be permitted to assign its
interest in this Agreement to one or more parent, subsidiary or affiliated
entities; provided further that any such assignment shall not relieve Purchaser
of its obligations hereunder.
14.3 Severability. It is agreed that if any term, covenant,
provision, Paragraph or condition of this Agreement shall be illegal, such
illegality shall not invalidate the whole agreement, but this Agreement shall
be construed as if not containing the illegal part and the rights and
obligations of the parties shall be construed and enforced accordingly.
14.4 Entire Understanding. This Agreement represents the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior or oral agreements or representations; no amendment or
modification of this Agreement may be made except by an instrument in writing
signed by both parties.
14.5 Applicable Law. The interpretation and performance of this
Agreement shall be governed by the law of the state where the Real Property is
located.
14.6 Waiver. The waiver by either party of any breach of any
term, covenant or condition of this Agreement shall not be deemed a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition of this Agreement.
14.7 Notices. Any notice or other writing required or permitted
to be given to a party under this Agreement shall be mailed by certified United
States mail, postage prepaid, return receipt requested, or by facsimile
addressed as follows:
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If to Seller: John E. Dods
Director, Facilities and Administration
Ampex Corporation
401 Broadway
Redwood City, CA 94063
Facsimile: 415-367-3536
If to Purchaser: c/o United States Filter Corporation
40-004 Cook Street
Palm Desert, California 92211
Attention: Michael E. Hulme, Jr.
Vice President, General Counsel
and Secretary
Facsimile: (619) 341-9368
Either party may change such address or number by written
notice to the other. Any notice deposited in the United States mail as provided
above shall be conclusively deemed to have been received by the party to whom
the same is addressed at the latest of (l) within 48 hours if deposited in the
same state as the addressee, (b) within 96 hours if deposited in a state other
than the addressee, or (c) on the delivery date shown on the return receipt
prepared in connection therewith. Any notice personally delivered shall be
deemed received on the date of personal delivery.
14.8 Captions. The captions inserted herein are inserted only
as a matter of convenience and for reference and in no way define, limit or
describe the scope of this Agreement or the intent of any of the provisions
hereof.
14.9 Exhibits. All exhibits referred to herein are incorporated
by reference as though fully set forth herein.
14.10 Additional Documents in Cooperation. Seller and Purchaser
agree to execute such additional documents as may be reasonably necessary to
carry out the provisions of this Agreement.
14.11 Attorneys' Fees. If either party commences or is made a
party to any action or proceeding to enforce or interpret this Agreement, the
prevailing party in such action or proceeding shall be entitled to recover from
the other party all attorneys' fees, costs and expenses incurred in connection
with such action or proceeding or any appeal or enforcement of any judgment
obtained in any such action or proceeding.
14.12 Counterparts. This Agreement may be executed in any
number of counterparts, and each counterpart shall be deemed to be an original
instrument.
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<PAGE>
14.13 No Third Party Beneficiaries. This Agreement is made and
entered into for the sole benefit of the parties hereto, and no broker or other
person or entity shall have any cause of action or claim in connection with the
terms set forth in this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives in duplicate on the date
first above written.
Seller:
AMPEX CORPORATION,
a Delaware corporation
by: /s/ Richard J. Jacquet
its: Vice President
Purchaser:
U. S. FILTER/IONPURE INC.,
a Massachusetts corporation
by: /s/Michael E. Hulme
its: Vice President
<PAGE>
EXHIBIT LIST
A--depiction of land (Recital A)
B--legal description (Recital B)
C--INTENTIONALLY DELETED
D--allocations (Section 13)
E--RFR Property (Section 8.3)
F--personal property (Recital C)
G--intangible property (Recital D)
H--environmental disclosure (Section 4.1)
<PAGE>
EXHIBIT A
U.S. Filter/Ionpure Inc. -- Ampex Corporation
Depiction of Land
[Diagram omitted -- see legal description in Exhibit B.]
<PAGE>
EXHIBIT B
U.S. Filter/Ionpure Inc. -- Ampex Corporation
Legal Description
Lot 1, Block 1, Ampex Corporation Subdivision, City of Colorado Springs, County
of El Paso, State of Colorado, together with all improvements located thereon
and all fixtures attached thereto.
Property Tax Schedule Number 64123-02-011
<PAGE>
EXHIBIT D
ALLOCATION OF PURCHASE PRICE
Improvements: $3,090,000
Land: $410,000
Personal Property: $75,000
<PAGE>
EXHIBIT E
U.S. Filter/Ionpure Inc. -- Ampex Corporation
Real Property on which RFR Property is Located
That certain three (3) acres in the northwest corner of Lot 2, Block 1, Ampex
Corporation Subdivision, City of Colorado Springs, County of El Paso, State of
Colorado, and further depicted as follows:
[diagram omitted].
<PAGE>
EXHIBIT F
725 Wooten Road Facility
(Revised 04/09/96; ASW)
All currently assembled shelves, racking and fencing located throughout
the facility including the second floor of the mezzanine.
Various keys for internal/external doors (located in the key cabinet in
the guard office).
Miscellaneous maintenance supplies located in the roof access room at the
northeast corner of the building (to include: various cans of paint, spare
celing tiles, extra floor tiles, overhead lighting, several cases of air
filters, and base floor molding).
Any and all equipment located in the cafeteria relating to the cafeteria.
The NOVAR Energy Management System, and all associated prints/diagrams
relating to its operation.
Various fire extinguishers located throughout the facility.
Emergency lighting system.
Lockers in the changing rooms on the main production floor.
Compressor and dryer in the maintenance shed outside on the north side of
the facility.
All electrical panels in the main and small production areas.
Fume hood located in the small room off of the main production floor on
the south side of the facility.
<PAGE>
EXHIBIT G
All warranties, guaranties, licenses, permits, entitlements, governmental
approvals and certificates of occupancy which benefit the Real Property and/or
Personal Property
<PAGE>
EXHIBIT H
Seller Phase I (as defined in this Agreement)
Purchaser's Environmental Reports (as defined in this Agreement) (to be
attached)
<PAGE>
EXHIBIT 10.2
AMPEX CORPORATION
1992 STOCK INCENTIVE PLAN
as amended through June 7, 1996
1. Purpose
The purpose of this plan (the "Plan") is to secure for Ampex
Corporation (the "Company") and its stockholders the benefits arising from the
ownership of stock options and stock appreciation rights by directors and key
employees of the Company and its parent and subsidiary corporations, who are
expected to contribute to the Company's future growth and success. 2. Types of
Plan Benefits
(a) Types of Awards. Subject to Section 3(a), the Company may in its
sole discretion grant, with respect to the Company's Class A Common Stock
("Common Stock"), options ("Options") and/or stock appreciation rights
("Rights") to eligible persons, as authorized by action of the Board of
Directors of the Company (or a Committee designated by the Board of Directors).
As used in the Plan, an "Award" shall mean an Option or a Right or both and an
"Award Owner" shall mean the owner of an Option or a Right or both.
(i) Types of Options. Options granted pursuant to the Plan
may be either incentive stock options ("Incentive Stock Options") meeting the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or non-statutory options ("Non-Statutory Stock Options"), which
are not intended to or do not meet the requirements of Code Section 422.
(ii) Types of Rights. Rights granted pursuant to the Plan
shall entitle the Rights holder to receive cash or Common Stock equal to the
appreciation in the value of the shares of the Common Stock of the Company as
provided in Section 7. Rights may be either an alternative to or in tandem with
the exercise of all or any portion of an Option granted to a Rights holder
("Tandem Rights") or independent of any Options granted hereunder ("Non-Tandem
Rights").
3. Administration
(a) General Provisions. The Plan will be administered by the Board of
Directors of the Company (the "Board"), whose construction and interpretation
of the terms and provisions of the Plan shall be final and conclusive. Except
for all decisions with respect to Awards for officers and directors subject to
Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
which shall be made only by a committee meeting the requirements set forth in
Section 3(b), the Board may in its sole discretion grant Options to purchase
shares of the Company's Common Stock, issue Rights to the appreciation in the
value of such shares, and issue shares upon exercise of such Options and
Rights, and/or distribute cash upon exercise of such Options and Rights, as
provided in the Plan. The Board shall have authority, subject to the express
provisions of the Plan, to construe the respective Awards agreements and the
Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of the respective Award agreements,
which need not be identical; to advance the lapse of any waiting or installment
periods and exercise dates; and to make all other determinations in the
judgment of the Board of Directors necessary or desirable for the
administration of the Plan. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Award agreement
in the manner and to the extent it shall deem expedient to carry the Plan into
effect and it shall be the sole and final judge of such expediency. No director
shall be liable for any action or determination taken or made under or with
respect to the Plan or any Award in good faith. The Board may, to the full
extent permitted by law, delegate any or all of its powers under the Plan to a
committee (the "Committee") appointed by the Board, and if the Committee is so
appointed all references to the Board in the Plan shall mean and relate to such
Committee unless the context requires otherwise.
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(b) Disinterested Committee under Rule 16b-3. None of the members of
the Committee shall receive, while serving on the Committee, or during the
one-year period preceding appointment to the Committee, a grant or award of
equity securities of the Company under (i) the Plan or (ii) any other plan of
the Company or its affiliates under which the participants are entitled to
acquired stock, stock options, stock bonuses, related rights or stock
appreciation rights of the Company or any of its affiliates, other than
pursuant to transactions in any such other plan that do not disqualify a
director from being a disinterested person under Rule 16b-3 (as defined in
Section 17(d)). The limitations set forth in this Section 3(b) shall
automatically incorporate any additional requirements that may in the future be
necessary for the Plan to comply with Rule 16b-3.
4. Eligibility
(a) Generally
(i) Except as provided in Section 4(b), Awards shall be
granted only to persons who are, at the time of grant, officers, employees,
directors, consultants, advisors or other service providers of the Company or
of any Parent Corporation or Subsidiary (as defined in Sections 17(c) and
17(e)); provided that any consultant, advisor or service provider must render
bona fide services not in connection with the offer and sale of securities in a
capital-raising transaction.
(ii) An eligible individual may be granted Incentive Stock
Options, Non-Statutory Stock Options, Tandem Rights and/or Non-Tandem Rights. A
person who has been granted an Award may, if he or she is otherwise eligible,
be granted one or more additional Awards if the Board shall so determine.
(b) Incentive Stock Options. No person shall be granted any Incentive
Stock Option under the Plan unless at the time such Option is granted, such
person is an employee of the Company, or of any Parent Corporation or
Subsidiary, and does not own, directly or indirectly, Common Stock of the
Company possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of any Parent Corporation or Subsidiary (a
"10% Stockholder"), unless the requirements of Section 6(d)(i) are satisfied.
(c) Limit on Awards. Notwithstanding any other provisions of the Plan,
the maximum number of shares with respect to which Awards may be granted to any
individual during any single fiscal year (the "Individual Award Limit") shall
be 1,663,645 shares (subject to adjustment as provided in Sections 13 and 14),
which represents five percent of the Common Stock of the Company that was
outstanding on May 19, 1995. To the extent required by Section 162(m) of the
Code or the regulations thereunder, in applying the Individual Award Limit with
respect to a participant, (i) if an Award is cancelled, the cancelled Award
shall continue to count against the Individual Award Limit; and (ii) if, after
grant, the exercise price of an Award is reduced, the transaction shall be
treated as the cancellation of the Award and a grant of a new Award, and both
the Award that is deemed cancelled and the new Award shall count against the
Individual Award Limit.
5. Stock Subject to Plan
Subject to adjustment as provided in Sections 13 and 14 below, the
maximum number of shares of Common Stock of the Company that may be issued
pursuant to Awards granted under the Plan is 4,250,000 shares. Shares issued
pursuant to the Plan may be treasury shares of the Company. The Company shall
have no obligation to issue unauthorized shares in respect of Awards. If Awards
granted under the Plan shall expire or terminate for any reason without having
been exercised in full, the shares subject to the unexercised portions of such
Awards shall again be available for subsequent Awards grants under the Plan.
Stock issuable upon exercise of Awards granted under the Plan may be subject to
such restrictions on transfer, repurchase rights or other restrictions as shall
be determined by the Board.
6. Options
(a) Forms of Option Agreements. As a condition to the grant of an
Option under the Plan, each recipient of an Option shall execute an Option
Agreement, substantially in the form of Exhibit A to the Plan (in the case of
Incentive Stock Options) or Exhibit B to the Plan (in the case of Non-Statutory
Stock Options). The Option
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Agreement may be in such other form not inconsistent with the Plan as shall be
specified by the Board of Directors at the time such Option is granted.
(b) Purchase Price. No consideration is to be paid for the grant of an
Option. The purchase price per share of stock deliverable upon the exercise of
an Option shall be determined by the Board on the date such Option is granted;
provided, however, that (i) in the case of an Incentive Stock Option, the
exercise price shall not be less than 100% of the Fair Value (as defined in
Section 17(b)) of such stock, as determined by the Board at the grant of such
Option, (ii) in the case of a Non-Statutory Stock Option, the exercise price
shall not be less than 85% of the Fair Value, and (iii) in the case of any
Option granted to a 10% Stockholder, the exercise price shall not be less than
110% of the Fair Value.
(c) Payment of Exercise Price. Payment of the exercise price of an
Option shall be in cash (by check) or, in the sole discretion of the Board and
to the extent authorized in the Option Agreement, in any of the following
methods or any combination thereof: (i) by surrender of shares of fully paid
Common Stock of the Company with a Fair Value equal to the aggregate exercise
price; (ii) by waiver of compensation owed by the Company to the Option holder;
(iii) through a "same-day sale" commitment from the Option holder and an NASD
broker; (iv) through a "margin" commitment from the Option holder and an NASD
broker; (v) by the surrender of other Options held by the Option holder (other
than Incentive Stock Options) to purchase Common Stock of the Company, to the
extent of the "spread" on the surrendered Options (the "spread" being the
amount by which the Fair Value of the shares covered by the surrendered Options
on the exercise date exceeds the aggregate exercise price of the surrendered
Options); (vi) by tender of a full-recourse promissory note bearing interest at
a rate and coming due in installments as determined by the Board; or (vii) by
any other lawful means.
(d) Incentive Stock Options. Options granted under the Plan that are
intended to be Incentive Stock Options shall be specifically designated as
intending to be Incentive Stock Options and shall be subject to the following
additional terms and conditions:
(i) 10% Stockholder. If any employee to whom an Incentive
Stock Option is to be granted under the Plan is at the time of the grant of
such Option a 10% Stockholder, then the following special provisions shall be
applicable to the Incentive Stock Option granted to such individual: (x) the
exercise price per share of the Common Stock subject to such Incentive Stock
Option shall not be less than 110% of the Fair Value of one share of Common
Stock at the time of grant; and (y) the option exercise period shall not exceed
five years from the date of grant.
(ii) Dollar Limitation. Common Stock of the Company that is
acquired pursuant to the exercise of an Incentive Stock Option granted to an
employee under the Plan shall be deemed to be acquired pursuant to the exercise
of an incentive stock option under Code Section 422, only to the extent that
the aggregate Fair Value (determined as of the respective date or dates of
grant) of the Common Stock with respect to which such Incentive Stock Option,
and all other incentive stock options that are granted to such employee under
the Plan (and under any other incentive stock option plans of the Company, and
any Parent Corporation and any Subsidiary) are exercisable for the first time
by such employee in any one calendar year, does not exceed $100,000. To
effectuate the provisions of this Section 6(d)(ii), the Board may designate the
shares of Common Stock that are treated as acquired pursuant to the exercise of
an Incentive Stock Option by issuing a separate certificate for such shares and
identifying such certificates as Incentive Stock Option stock in its stock
transfer records. Except as modified by the preceding provisions of this
Section 6(d) all the provisions of the Plan applicable to Options shall be
applicable to Incentive Stock Options granted hereunder.
(e) Non-Statutory Stock Options. Upon the exercise by an Award Owner
of a Non-Statutory Stock Option, the Board may, in its discretion, make a
payment in cash, in lieu of delivery of one or more shares of Common Stock, in
an amount per share equal to the Fair Value, on the effective date of exercise,
of such share or shares. If, upon exercise, the Board has determined to pay
cash in lieu of one or more shares, any portion of the purchase price of such
shares that has not previously been paid by the Award Owner shall be offset
against the amount payable by the Company.
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7. Rights
(a) Forms of Rights Agreement. As a condition to the grant of Rights
under the Plan, each Rights holder shall execute a Rights Agreement,
substantially in the form of Exhibit C to the Plan (in the case of Tandem
Rights) or Exhibit D to the Plan (in the case of Non-Tandem Rights), or in such
other form not inconsistent with the Plan, as shall be specified by the Board
at the time such Rights are granted.
(b) Purchase Price. No consideration is to be paid for the grant of
a Right.
(c) Entitlement Under Each Right. To the extent the holder of a
Right is vested in such Right (as provided in the Rights Agreement), each Right
granted shall entitle the Right holder upon exercise of the Right to a lump sum
payment in cash, for each share covered by the Right, equal to the excess, if
any, of (i) the Fair Value, on the effective date of exercise, of one share of
Common Stock over (ii) the Fair Value, on the date of grant, of such share;
provided, however, in the sole discretion of the Board, at any time prior to
settlement of the Right, (A) up to 100% of the payment may be made in shares of
Common Stock based on the Fair Value on the exercise date of such shares of
Common Stock, and (B) the remainder in a lump sum cash payment. Any lump sum
cash payments may be made in installments with interest, at a rate and over a
period determined by the Board.
8. Exercise Period
(a) Generally. Each Award shall expire on such date as the Board shall
determine on the date such Award is granted, but in no event after the
expiration of ten years from the date on which such Award is granted (or five
years in the case of Incentive Stock Options described in Section 6(d)(i)), and
in all cases each Award shall be subject to earlier termination as provided in
the Plan.
(b) Effect of Termination of Status as Eligible Participant. No Award
may be exercised unless, at the time of such exercise, the Award Owner is, and
continuously since the date of grant of his or her Award, has been an employee,
director, consultant, advisor or other eligible service provider of one or more
of the Company, a Parent Corporation or a Subsidiary (in each case, an
"Eligible Participant"), except that subject to Section 10 and if and to the
extent the Award agreement so provides:
(i) the Award may be exercised within the period of three
months after the date the Award Owner ceases to be an Eligible Participant of
any of the foregoing entities (or within such lesser period as may be specified
in the Award agreement);
(ii) if the Award Owner dies while an Eligible Participant or
within three months after the Award Owner ceases to be an Eligible Participant,
the Award may be exercised by the administrator of the Award Owner's estate, or
by person to whom the Award is transferred by will or the laws of descent and
distribution, within the period of one year after the date of death (or within
such lesser period as may be specified in the Award agreement); and
(iii) if the Award Owner becomes disabled (within the meaning
of Section 22(e)(3) of the Code) while an Eligible Participant, the Award may
be exercised within the period of one year after the date the Award Owner
ceases to be an Eligible Participant because of such disability (or within such
lesser period as may be specified in the Award agreement);
provided, however, that in no event may any Award be
exercised after the expiration date of the Award. Any Award or portion thereof
that is vested on or before the date on which the Award Owner ceases to be an
Eligible Participant (the "Termination Date"), but not exercised during the
applicable time period specified above (or any shorter period specified in the
Award agreement) shall be deemed terminated at the end of the applicable time
period for purposes of Section 5. Any Award or portion thereof that is not
vested, and will not become vested based on the applicable vesting schedule, on
or before the Termination Date shall be deemed terminated for purposes of
Section 5 on the earlier of (i) the Termination Date or (ii) the date of the
Award Owner's last day of active work at the Company (which, in the case of a
lay-off, shall be the effective date of the lay-off).
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(c) Effective Date of Exercise. Subject to the provisions of Sections
8(a), 8(b) and 10, the exercise of an Award by an Award Owner shall take effect
on the date of receipt by the Company of written notice of exercise by the
Award Owner, provided such receipt is followed promptly by receipt of any
required payment for such exercise. Notwithstanding the foregoing, if (i) such
Award is a Right owned by an officer or director of the Company and is being
settled partially or fully in cash, (ii) such date of receipt of the exercise
notice occurs outside of the period beginning on the third business day
following the date of release of the financial data specified in paragraph
(e)(1)(ii) of Rule 16b-3 and ending on the twelfth business day following such
date, and (iii) the Company has not received a no-action letter from the
Securities and Exchange Commission (and has not otherwise concluded) that such
Award or class of Awards is exempt from the exercise period requirements of
paragraph (e)(3) of Rule 16b-3, the exercise of the Award shall take effect as
of the first day of the period described in subparagraph (ii) next following
the date of such receipt.
9. Assignability of Awards
To the extent required by Rule 16b-3, or for registration on Form S-8
under the Securities Act of 1933, as amended (the "1933 Act"), no Award granted
under the Plan shall be assignable or transferable by the person to whom it is
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution; provided that if Rule 16b-3 and the requirements
for registration on Form S-8 are subsequently amended to permit broader
transferability of Options, Awards shall be transferable to the extent provided
in the Award agreement covering the Award, and the Board shall have discretion
to amend any such outstanding Award to provide for broader transferability of
the Award as the Board may authorize within the limitations of Rule 16b-3 and
the requirements for registration on Form S-8. Notwithstanding the foregoing,
if required by the Code, each Incentive Stock Option under the Plan shall be
transferable by the holder thereof only by will or the laws of descent and
distribution and, during the Option holder's lifetime, shall be exercisable
only the Option holder. In the event of any transfer of an Award hereunder that
is permitted by Rule 16b-3 and the requirements for registration on Form S-8,
the transferee shall be entitled to exercise the Award in the same manner and
only to the same extent as the Award holder (or his or her personal
representative or the person who would have acquired the right to exercise the
Award by bequest or intestate succession) would have been entitled to exercise
the Award under Sections 6, 7 and 8 had the Award not been transferred.
10. Vesting of Awards
An Option or Right may be exercised, and payment shall be made upon
exercise of such Award, only to the extent that such Award has vested. Unless
otherwise specified by the Board at the time an Award is granted, an Award
shall vest based on the collective number of years of service with or for the
Company, the Parent Corporation and Subsidiaries, in accordance with the
schedule or terms set forth in the Award agreement executed by the Award Owner
and a duly authorized officer of the Company. Notwithstanding the foregoing,
unless the Board specifically authorizes a different vesting schedule with
respect to an Award, an Award shall become exercisable based on the number of
full years of service that such Award Owner has completed since the Award's
date of grant, in accordance with the following schedule:
Percentage of
Number of Years of Award Available for
Service Since Date of Grant Exercise (Cumulative)
1 year 25%
2 years 50%
3 years 75%
4 or more years 100%
The Board, in its discretion, may establish a different vesting
schedule at the time an Award is granted.
Notwithstanding anything to the contrary in this Section 10, upon
the exercise of an Award by a director or officer of the Company who is subject
to Section 16 of the 1934 Act, the Company shall determine if such exercise
complies with Rule 16b-3(c)(1). If such exercise does not so comply, such
exercise shall not be given effect unless (i) the Company, within 5 days of
receipt of the notice of exercise, notifies the Award Owner, in writing, of such
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non-compliance and (ii) the Award Owner responds in writing, in substance
and form satisfactory to the Company, within 5 days of receipt of the Company's
notification, that such exercise is to remain effective.
11. General Restrictions
(a) Award Owner Representations. The Company may require any person to
whom a Award is granted, as a condition of exercising such Award, to give such
written assurances, in substance and form satisfactory to the Company, as the
Company deems necessary or appropriate in order to comply with applicable
federal and state securities laws. If the Award Owner is a director or officer
who is subject to Section 16 of the 1934 Act, the Company may require that such
Award owner give written assurances, in substance and form satisfactory to the
Company, that such person has consulted with competent counsel as to the
application of Section 16(b) of the 1934 Act to such exercise.
(b) Stock Certificate Legends. Certificates representing
shares issued upon exercise of the Award shall bear such legends as are deemed
appropriate by legal counsel to the Company, unless the Award Owner provides a
written opinion of legal counsel, satisfactory to the Company, that any such
legend is not required.
(c) Compliance With Securities Laws
(i) Each Award shall be subject to the requirement that, if
at any time counsel to the Company shall determine that the listing,
registration or qualification of such Award or the shares subject to such Award
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, is necessary as a condition
of, or in connection with the grant or exercise of such Award or the issuance
or purchase of shares thereunder, such Award shall not be effective or may not
be accepted or exercised in whole or in part (as applicable) unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained on conditions acceptable to the Board. Nothing herein
shall be deemed to require the Company to apply for or to obtain such listing,
registration or qualification.
(ii) The Company shall provide each Award Owner with such
information, statements, discussions and analyses with respect to the Company
in such manner and at such times as may be required under state or federal
securities laws.
12. Rights as a Stockholder
The Award Owner shall have no rights as a stockholder with respect to
any shares covered by the Award until the date on the stock certificate issued
to him or her for such shares. Except as otherwise expressly provided in the
Plan, no adjustment shall be made for dividends or other rights for which the
record date is prior to the date on such stock certificate
13. Recapitalization
In the event that the outstanding shares of Common Stock of the
Company are changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of any recapitalization,
reclassification, stock split, stock dividend, combination or subdivision,
appropriate adjustment shall be made in the number and kind of shares available
under the Plan and under any Awards granted under the Plan (including
appropriate adjustment to applicable exercise prices). Such adjustment to
outstanding Awards shall be made without change in the total value applicable
to the unexercised portion of such Awards as of the date of the adjustment. No
such adjustment shall be made with respect to an Incentive Stock Option that
would, within the meaning of any applicable provisions of the Code, constitute
a modification, extension or renewal of any Option or a grant of additional
benefits to the holder of an Option.
14. Reorganization
In the event (i) the Company is merged or consolidated with another
corporation other than an Affiliate, and the Company is not the surviving
corporation, or (ii) all or substantially all of the assets or more than 50% of
the outstanding voting stock of the Company is acquired by any other
corporation other than an Affiliate, or (iii) there is
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a reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company, shall, as to all outstanding Awards, either (x) in the case of
a merger, consolidation or reorganization of the Company, make appropriate
provision for the protection of any such outstanding Awards by the substitution
on an equitable basis of appropriate stock of the Company, or of the merged,
consolidated or otherwise reorganized corporation that will be issuable in
respect of the shares of Common Stock of the Company (provided that no
additional benefits shall be conferred upon Award Owners as a result of such
substitution), or (y) upon written notice to the Award Owners, provide that all
vested unexercised Awards must be exercised within a specified number of days
of the date of such notice or they will be terminated, or (z) upon written
notice to the Award Owners, provide that all vested unexercised Awards shall be
purchased by the Company or successor within a specified number of days of the
date of such notice at a price equal to the value the Award Owners would have
received if they then exercised all their vested Awards and immediately
received full payment in respect of such exercise, as determined in good faith
by the Board. In any such case, the Board may, in its discretion, accelerate
the exercise dates of all or any individual outstanding Awards; provided,
however, the Company may not accelerate the exercise dates of any outstanding
Awards to an Award Owner to the extent such acceleration will cause the
disallowance of a deduction under the "golden parachute payment" rules under
Section 280G of the Code with respect to any payment to the Award Owner under
this Plan or otherwise.
15. No Special Rights as an Eligible Participant
Nothing contained in the Plan or in any Award granted under the Plan
shall confer upon any Award Owner any right with respect to the continuation of
his or her employment or other status as an Eligible Participant or interfere
in any way with the right of the Company (or any Parent Corporation or
Subsidiary), subject to the terms of any separate agreement to the contrary, at
any time to terminate such employment or other relationship or to increase or
decrease the compensation of the Award Owner from the rate in existence at the
time of the grant of an Award. Whether an authorized leave of absence, or
absence in military or government service, shall constitute termination or
cessation of services for purposes of this Plan shall be determined by the
Board.
16. Other Employee Benefits
The amount of any income deemed to be received by an Award Owner as a
result of the exercise of an Award or the sale of shares received upon such
exercise will not constitute "compensation" or "earnings" with respect to which
any other benefits of such person are determined, including without limitation
benefits under any pension, profit sharing, life insurance or salary
continuation plan.
17. Definitions
(a) Affiliate. The term "Affiliate" shall mean a corporation or
other person that, at the time of reference, directly or indirectly through one
or more intermediaries, controls, is controlled by, or is under common control
with, the Company.
(b) Fair Value. The term "Fair Value" of a share of Common Stock shall
mean (i) if the Common Stock is not traded on a national securities exchange or
"over the counter," the fair value, as determined in good faith by the Board
using any reasonable valuation method without application of a discount to
reflect illiquidity; (ii) if the Common Stock is traded on a national
securities exchange, the closing price for such stock on the day immediately
preceding the date of determination or if there is no closing price on such
date, the last preceding closing price, or (iii) if the Common Stock is traded
"over-the-counter," the closing price on the business day immediately preceding
the date of determination, or if a closing price is not available, the average
of the highest bid and the lowest offer reported on the business day
immediately preceding the date of determination.
(c) Parent Corporation. The term "Parent Corporation" shall mean any
corporation (other than the Company) in an unbroken chain of corporations
ending with the Company if each of the corporations other than the Company owns
stock possessing 50% or more of the combined voting power of all classes of
stock in one of the other corporations in such chain. The status of a
corporation as a Parent Corporation shall be determined as set forth above at
the time of: (1) the grant of the Award, for purposes of Sections 4, 6(d)(i)
and 6(d)(ii); (2) the exercise of the Award, for purposes of Sections 8(b) and
8(b)(i); (3) the Award Owner's death or disability, as applicable, for purposes
of Sections 8(b)(ii) and (iii); and (4) the vesting date, for purposes of
Section 10.
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(d) Rule 16b-3. The term "Rule 16b-3" shall mean Rule 16b-3
promulgated by the Securities and Exchange Commission pursuant to Section 16 of
the 1934 Act, or any successor rule.
(e) Subsidiary. The term "Subsidiary" shall mean any corporation in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. The status of a
corporation as a Subsidiary shall be determined as set forth above at the time
of: (1) the grant of the Award, for purposes of Sections 4, 6(d)(i) and
6(d)(ii); (2) the exercise of the Award, for purposes of Sections 8(b) and
8(b)(i); (3) the Award Owner's death or disability, as applicable, for purposes
of Sections 8(b)(ii) and (iii); and (4) the vesting date, for purposes of
Section 10.
18. Amendment of the Plan
(a) General. The Board may at any time and from time to time modify or
amend the Plan in any respect, except that without the approval of the
stockholders of the Company, the Board may not make any amendments that require
approval of the stockholders under Rule 16b-3. As of June 1996, Rule 16b-3
required stockholder approval of amendments that (i) materially increase the
benefits accruing to individuals who participate in the Plan, (ii) materially
increase the maximum number of shares that may be issued under the Plan (except
for permissible adjustments provided in the Plan), or (iii) materially modify
the requirements as to eligibility for participation in the Plan. In addition,
the Board shall not modify or amend the Plan in a manner that would require
stockholder approval under Section 422 of the Code, without obtaining such
stockholder approval, if such amendment would affect the status of any
outstanding Incentive Stock Option as an incentive stock option under Section
422 of the Code. As of June 1996, Section 422 of the Code required stockholder
approval of amendments that (A) increase the aggregate number of shares that
may be issued pursuant to Incentive Stock Options (except for permissible
adjustments provided in the Plan), or (B) change the designation of employees
or the class of employees eligible to receive Incentive Stock Options. The
termination or any modification or amendment of the Plan shall not, without the
consent of an Award Owner, affect his or her rights under an Award previously
granted to him or her. With the consent of the Award Owners affected, the Board
may amend outstanding Award agreements in a manner not inconsistent with the
Plan.
(b) Amendments to Comply with Tax and Securities Laws.
Notwithstanding the provisions of Section 18(a), the Board shall have the
right, but not the obligation, without the consent of the Company's
stockholders, to (i) amend or modify the terms and provisions of the Plan and
of any outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such options for such favorable federal income
tax treatment (including deferral of taxation upon exercise), as may be
afforded incentive stock options under Section 422 of the Code; and (ii) amend
or modify the terms and provisions of the Plan and of any outstanding Award
granted under the Plan to the extent necessary to comply with any securities
law to which, in the opinion of counsel to the Company, the Plan or Award is
subject.
19. Withholding
The Company shall have the right to deduct from any distribution of
cash to an Award Holder, any amount equal to the federal, state and local
income taxes and other amounts as may be required by law to be withheld (the
"Withholding Taxes") with respect to any Award. If an Award Holder is to
experience a taxable event in connection with the receipt of shares upon
exercise of an Award, the Award Holder shall pay the Withholding Taxes to the
Company prior to such issuance. The Committee, in its sole discretion, may
authorize the Company to permit an Award Holder to satisfy the obligation to
pay Withholding Taxes by having the Company withhold a portion of the shares
otherwise issuable to the Award Holder having a Fair Value, on the date
preceding the date of issuance, equal to the Withholding Taxes; provided that
any such withholding with respect to an Award Holder that is subject to Section
16(b) of the 1934 Act shall comply with all requirements necessary to make such
withholding an exempt transaction under Section 16(b).
20. Effective Date and Duration of the Plan
(a) Effective Date. The effective date of the Plan is July 16, 1992
(the "Effective Date"), which was the date on which the Board and the
stockholders of the Company approved the adoption of the Plan. Awards may be
8
<PAGE>
granted under the Plan at any time after the Effective Date and before the date
fixed for termination of the Plan, as provided in Section 20(b).
(b) Termination. The Plan shall terminate upon the earlier of (i) the
close of business on the day next preceding the tenth anniversary of the date
of its adoption by the Board, or (ii) the date on which all shares available
for issuance under the Plan shall have been issued pursuant to the exercise of
Awards granted under the Plan. If the date of termination is determined under
(i) above, then Awards outstanding on such date shall continue to have force
and effect in accordance with the provisions of the instruments evidencing such
Awards. 21. Rule 16b-3 Compliance
Transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3. To the extent any provision of the Plan or
action by the Board fails to so comply, it shall be deemed null and void, to
the extent permitted by law and deemed advisable by the Board.
<PAGE>
EXHIBIT 11.1
<TABLE>
Ampex Corporation
Computation of Per Share Earnings
(Unaudited)
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Weighted average common stock 44,909,250 33,272,915 41,434,976 30,066,282
Plus: Common stock equivalent warrants 85,800 2,822,468 368,330 2,845,393
Plus: Common stock equivalent stock options 1,306,825 328,751 1,206,308 164,375
--------------- --------------- --------------- --------------
Adjusted weighted average common stock 46,301,875 36,424,134 43,009,614 33,076,050
--------------- --------------- --------------- --------------
Net income 3,972,000 5,956,000 7,445,000 11,585,000
Less: Redeemable convertible preferred stock accretion - - - (783,248)
--------------- --------------- --------------- --------------
Adjusted net income 3,972,000 5,956,000 7,445,000 10,801,752
--------------- --------------- --------------- --------------
Primary income per share $0.09 $0.16 $0.17 $0.33
=============== =============== =============== ==============
Weighted average common stock 44,909,250 33,272,915 41,434,976 30,066,282
Plus: Common stock equivalent warrants 85,800 2,823,498 368,746 2,849,826
Plus: Common stock equivalent stock options 1,306,825 393,967 1,286,983 196,983
Plus: Weighted average shares on conversion of notes 216 8,522,598 3,008,946 8,522,598
Plus: Weighted average shares on conversion of preferred stock - - - 7,205,317
--------------- --------------- --------------- --------------
Adjusted weighted average common stock 46,302,091 45,012,978 46,099,651 48,841,006
--------------- --------------- --------------- --------------
Net income 3,972,000 5,956,000 7,445,000 11,585,000
Add: Interest on notes - 618,758 491,618 1,237,516
--------------- --------------- --------------- --------------
Adjusted net income 3,972,000 6,574,758 7,936,618 12,822,516
--------------- --------------- --------------- --------------
Fully diluted income per share $0.09 $0.15 $0.17 $0.26
=============== =============== =============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED JUNE 30,1996 AND IS QUAUFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,613
<SECURITIES> 24,521
<RECEIVABLES> 25,781
<ALLOWANCES> (2,343)
<INVENTORY> 16,172
<CURRENT-ASSETS> 69,814
<PP&E> 59,122
<DEPRECIATION> (50,751)
<TOTAL-ASSETS> 85,844
<CURRENT-LIABILITIES> 34,233
<BONDS> 0
69,970
0
<COMMON> 450
<OTHER-SE> (95,906)
<TOTAL-LIABILITY-AND-EQUITY> 85,844
<SALES> 24,420
<TOTAL-REVENUES> 24,420
<CGS> 13,518
<TOTAL-COSTS> 23,187<F1>
<OTHER-EXPENSES> (2,199)<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (793)<F3>
<INCOME-PRETAX> 4,225
<INCOME-TAX> 253
<INCOME-CONTINUING> 3,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,972
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
<FN>
<F1> INCLUDES S&A AND RD&E OF
5,757 AND 3,912
RESPECTIVELY
<F2> INCLUDES ROYALTY INCOME OF
1,631
<F3> NETS INTEREST INCOME OF 825
AND INTEREST EXPENSE OF 32
</FN>
</TABLE>
