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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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)
(650) 367-2011
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act:
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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of the voting and non-voting common stock held by
non-affiliates of the Registrant as of January 28, 2000 was approximately
$166,667,235, based on a price of $3.50 per share, which was the closing price
of the Registrant's Class A Common Stock on the American Stock Exchange on that
date. The Class A Common Stock is the only class of common stock outstanding.
As of January 28, 2000 there were 56,324,384 outstanding shares of Class A
Common Stock and no outstanding shares of Class C Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement for its 2000 Annual Meeting of Stockholders is
incorporated by reference into Part III (Items 10, 11, 12 and 13) of this Form
10-K.
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AMPEX CORPORATION
FORM 10-K
Year Ended December 31, 1999
INDEX
Page
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PART I 1
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 18
ITEM 3. LEGAL PROCEEDINGS 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT 20
PART II 21
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 21
ITEM 6. SELECTED FINANCIAL DATA 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 29
PART III 29
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 29
ITEM 11. EXECUTIVE COMPENSATION 29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 30
PART IV 30
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 30
SIGNATURES AND POWER OF ATTORNEY 36
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PART I
ITEM 1. BUSINESS
Introduction
Ampex Corporation ("Ampex" or the "Company") is a leading innovator of
visual information technology. The Company has traditionally specialized in the
development and manufacture of high performance recording products used for the
acquisition and processing of data and for the storage of mass computer data,
especially images. Recently, in order to capitalize on its expertise and
technology in digital video, Ampex has been focusing on the development and
expansion of its Internet video businesses, through internal projects,
acquisitions and strategic investments, which in 1999 it consolidated in its
subsidiary, iNEXTV Corporation ("iNEXTV"). Ampex is seeking to leverage its
significant experience in digital video processing to become a major provider of
Internet video programming services and technology.
During its 56-year history, Ampex has developed substantial proprietary
technology relating to the electronic storage, processing and retrieval of data,
particularly images, certain of which it has elected to patent or seek to
patent. Ampex currently holds approximately 1,000 patents and patent
applications covering digital image-processing and recording technology, and has
licensed its patents, primarily for use in videocassette recorders and other
consumer products. In the years 1994 through 1999, the Company's licensing
income averaged $15 million per year. However, royalty income has fluctuated
materially from year to year, and there can be no assurance that the Company
will continue to generate comparable levels of royalty income in future periods.
The Company's Internet video businesses are conducted primarily through
its iNEXTV subsidiary, which manages the Company's Internet operations, and its
Internet Technology Group ("ITG"), which was organized to conduct the research,
development and engineering of products and services for the Internet. The
iNEXTV network currently includes: Alternative Entertainment Network, Inc. ("
AENTV" or "AENTV.com"), a provider of on-demand streaming video sites about the
entertainment industry; EXBTV.com, a producer and netcaster of original Internet
programming, covering the executive branch of the U.S. government; TV onthe WEB,
Inc. ("TV on the WEB" or "TVontheWEB.com"), a leading provider of webcasting and
other Internet video services; and TV1 Internet Television ("TV1" or "TV1.de"),
one of the leading European webcasters. Ampex's Internet operations are at an
early stage of development, and have not yet produced significant revenues.
Accordingly, these operations involve a material risk of loss, and can be
expected to be unprofitable for a substantial period of time. See "Risk Factors
- - Risks Associated with iNEXTV and Internet Video Strategy" and "Risk of
Continuing Losses."
Ampex also owns MicroNet Technology, Inc. ("MicroNet"), which manufactures
disk arrays and related storage products for image-based markets, such as the
video and commercial pre-press markets. MicroNet's principal disk storage
products include its DataDock and Genesis disk array systems.
In February 2000, in order to focus more sharply on its Internet business,
Ampex announced plans to sell Ampex Data Systems Corporation ("Data Systems" or
"ADSC"), a subsidiary engaged in the manufacture and sale of high performance
mass data storage and instrumentation recorders and systems. Data Systems
products are sold primarily for use in the television broadcast and government
markets. The Company has not yet entered into a contract to sell Data Systems,
and there can be no assurance that a contract will be entered into or as to the
terms or timing of any sale. Pending consummation of a sale, and in accordance
with generally accepted accounting principles, the Company has accounted for
ADSC's operations as a discontinued business as of December 31, 1999 and for
each of the years then ended. See "Business Held for Disposition" and "Risk of
Proposed Sale of Data Systems, " below. Following the planned sale of Data
Systems, Ampex's principal products will be the MicroNet products, and its
principal business operations will be conducted by iNEXTV, ITG and MicroNet.
The Company was incorporated in Delaware in January 1992 as the successor
to a business originally organized in 1944. References to "Ampex" or the
"Company" include subsidiaries and predecessors of Ampex Corporation, unless the
context indicates otherwise. The principal executive offices of the Company are
located at 500 Broadway, Redwood City, California 94063, and its telephone
number is (650) 367-2011. The Company's Class A Common Stock is traded on the
American Stock Exchange under the symbol "AXC".
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Forward-Looking Statements
This Form 10-K contains predictions, projections and other statements
about the future that are intended to be "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others, those described under "Risk Factors," below.
These forward-looking statements speak only as of the date of this Report. The
Company disclaims any obligation or undertaking to disseminate updates or
revisions of any forward-looking statements contained or incorporated herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based. IN ASSESSING FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-K,
READERS ARE URGED TO READ CAREFULLY ALL SUCH CAUTIONARY STATEMENTS.
Risk Factors
Risk of Continuing Losses
Ampex has incurred significant operating and net losses in its 1999 fiscal
year, primarily due to its Internet video programming activities, promotional
expenses and amortization of goodwill of acquired businesses. The Company also
incurred certain interest expenses and additional losses from its discontinued
operations. Total revenues were not sufficient to offset these items. Although
the Company expects that its Internet video revenues will grow in future
periods, there can be no assurance that such revenues will be sufficient to
offset similar expenses and/or losses that may be incurred in such periods, or
that such items will not increase. The Company may be required to incur
additional indebtedness in connection with future acquisitions or its Internet
expansion plans, which could increase future interest expenses, and may be
unable to consummate the sale of Data Systems, which has experienced and is
expected to continue to experience declining product sales. In addition, the
Company cannot predict the amount of licensing royalties that it may recognize
in future periods. Accordingly, the Company expects operating and net losses to
continue at least for the near future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations, " below, and the other Risk
Factors included in this section.
Risks Associated with iNEXTV and Internet Video Strategy
The Company's Internet subsidiary, iNEXTV, was formed in mid-1999, and has
not yet generated any material advertising or sales revenues. The business and
prospects of iNEXTV, and the Company's Internet video strategy in general, are
subject to the risks and uncertainties typical of companies in the early stages
of development, particularly in new and rapidly evolving markets such as those
for Internet content, advertising and electronic commerce (e-commerce). The
development of iNEXTV and the implementation of the Company's strategy to expand
its Internet video businesses involve special risks and uncertainties, including
but not limited to the following:
. the ability of iNEXTV and its affiliates to identify, produce or
acquire and deliver compelling, quality video programming over the
Internet that appeals to its target audiences;
. the ability of iNEXTV and its affiliates to obtain and manage key
employees and other resources for growth from their present size and
to become profitable;
. market acceptance of streaming media technology, which is currently
of lower quality than television or radio broadcasts, is subject to
congestion and interruptions on the Internet, and requires
specialized software, technical expertise and increased bandwidth;
. dependence upon the continued acceptance and growth of the Internet
as a significant medium for advertising and e-commerce, and upon
iNEXTV's ability to generate advertising revenues and, in future
periods, to sell goods and services over the Internet;
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. the ability of iNEXTV and its affiliates to attract and retain
sponsors and advertisers, content developers and other key partners
necessary to make its websites viable;
. dependence upon timely delivery and integration of website software
and hardware purchased from third parties used in its EXBTV.com and
iSTYLETV.com websites;
. vulnerability of Internet content delivery to system failures and
interruptions for a variety of reasons (including telecommunications
problems and natural disasters), computer viruses and other breaches
of security;
. dependence upon Internet service providers, web browsers, providers
of streaming media products and others to provide Internet access to
iNEXTV's websites and programming;
. the ability of Ampex to innovate, upgrade and transfer to iNEXTV and
its affiliates audio or video technology for Internet-based
applications;
. competition among Internet broadcasters and providers of products
and services for users, advertisers, content and new products and
services;
. uncertainty about the adoption and application of new laws, proposed
taxation and government regulations relating to Internet businesses,
which could slow Internet growth, adversely affect the viability of
e-commerce, expose iNEXTV to potential liabilities or negative
criticism for mishandling customer security or user privacy concerns
or otherwise adversely affect its Internet businesses;
. the ability to obtain licenses of intellectual property developed by
others that affect Internet usage. Intellectual property claims
against the Company could be costly and could result in the loss of
significant rights;
. the ability to expand successfully in the European or other foreign
markets, which is likely to be subject to cultural and language
barriers, different regulatory environments, currency exchange rate
fluctuations and other difficulties relating to managing foreign
operations; and
. likelihood of continued and significant expenses resulting in
material losses in future periods, which could negatively affect the
price of the Company's securities and require it to seek additional
capital which may not be available on satisfactory terms, or at all.
Risks Associated with Acquisition Strategy
In order to expand Ampex's products and services, Ampex has made, and may
continue to make, acquisitions of, and/or investments in, other business
entities, including businesses involved in both producing and distributing
Internet video programming. Ampex may not be able to identify or acquire
additional acquisition candidates in the future, or complete any further
acquisitions or investments on satisfactory terms. In order to pay for future
acquisitions or investments, Ampex may have to:
. issue additional equity securities of the Company or a subsidiary,
which would dilute the ownership interest of existing Ampex
stockholders;
. incur additional debt; and/or
. amortize goodwill and other intangibles or incur other
acquisition-related charges, which could materially impact earnings.
Acquisitions and investments involve numerous additional risks, including
difficulties in the management of operations, services and personnel of the
acquired companies, and of integrating acquired companies with Ampex and/or each
other's operations. Ampex may also encounter problems in entering markets and
businesses in which it
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has limited or no experience. Acquisitions can also divert management's
attention from other business concerns. Ampex may make investments in companies
in which it has less than a 100% interest. Such investments involve additional
risks, including the risk that Ampex may not be in a position to control the
management or policies of such entities, and risks of potential conflicts with
other investors. Ampex has invested in companies that are in the early stage of
development and may be expected to incur substantial losses. Ampex's financial
resources may not be sufficient to fund the operations of such companies.
Accordingly, there can be no assurance that any acquisitions or investments that
Ampex has made, or may make in the future, will result in any return, or as to
the timing of any return and Ampex could lose all or a substantial portion of
its investments.
Risk of Proposed Sale of Data Systems
The Company recently announced its intention to sell Data Systems, which
manufactures the Company's high performance mass data storage and
instrumentation products for entertainment and government applications, and the
Company has accounted for this subsidiary's operations as a discontinued
business effective with its fiscal 1999 financial statements. Although the
Company has engaged a financial advisory firm and has had preliminary
discussions related to the proposed sale, at the date of this Report the Company
had not entered into any definitive agreement of sale, and there can be no
assurance that the Company will be able to consummate a sale, or as to the terms
or timing of any sale, if consummated. Ampex intends to use the proceeds of the
proposed sale to expand its Internet video operations through its iNEXTV
subsidiary and other Internet activities, and to retire debt. However, there can
be no assurance that any such proceeds will be sufficient to do so, or to offset
any potential losses that may be attributable to iNEXTV or other Company
operations. See "Risks Associated with iNEXTV and Internet Video Strategy,"
above. In addition, if the proposed sale is consummated, Ampex may retain
certain liabilities associated with Data Systems' prior operations, including
pension benefit obligations, environmental liabilities and indemnification
obligations customarily contained in sale agreements.
Risk of Leverage
As of December 31, 1999, Ampex had outstanding approximately $45.3 million
of total borrowings, which included $44.0 million principal amount of 12% Senior
Notes due 2003 and $1.3 million of subsidiary indebtedness. The Company has
invested a portion of the proceeds from the Senior Notes in its MicroNet and
iNEXTV subsidiaries and for general corporate purposes. The Company has invested
a portion of the balance of these proceeds in government securities and, in
order to realize yields approaching the interest rate on the Senior Notes, from
time to time has invested in high-yield mutual funds and corporate securities,
some of which have longer terms and lower credit quality than U.S. government
securities. The Company may also engage in various transactions in derivative
securities although it has not done so to date. As discussed above, the Company
hopes to use a portion of the proceeds from the planned sale of Data Systems to
reduce its indebtedness. However, there can be no assurance that the Company
will be able to consummate the sale or, if consummated, that the Company will
realize proceeds that it determines are available for such repayment.
The Company may incur additional indebtedness from time to time to finance
acquisitions or capital expenditures or for other purposes, subject to the
restrictions in the indenture governing the Senior Notes. The degree to which
the Company is leveraged, and the types of investments it selects, could have
important consequences to investors, including the following:
. a substantial portion of the Company's consolidated cash flow from
operations must be dedicated to the payment of the principal of and
interest on outstanding indebtedness, and will not be available for
other purposes;
. Ampex's ability to obtain additional financing in the future for
working capital needs, capital expenditures, acquisitions and
general corporate purposes may be materially limited or impaired, or
such financing may not be available on terms favorable to Ampex;
. the Company may be more highly leveraged than its competitors, which
may place it at a competitive disadvantage;
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. Ampex's leverage may make it more vulnerable to a downturn in its
business or the economy in general;
. investments in securities with lower credit quality or longer
maturities could subject the Company to potential losses due to
nonpayment or changes in market value of those securities, and
transactions in derivative securities could expose Ampex to losses
caused by stock market fluctuations; and
. the financial covenants and other restrictions contained in the
Senior Note indenture and other agreements relating to Ampex's
indebtedness will restrict Ampex's ability to borrow additional
funds, to dispose of assets or to pay dividends on or repurchase
preferred or common stock.
Ampex expects that cash balances and cash flow from operations will be
sufficient to fund anticipated operating expenses, capital expenditures and debt
service requirements as they become due, at least through 2000. There can be no
assurance, however, that the amounts available from these sources will be
sufficient for such purposes in future periods. The Company may also seek to
raise additional equity capital in the private or public markets to finance the
expansion of its Internet video businesses. No assurance can be given that
additional sources of funding will be available if required or, if available,
will be on satisfactory terms. If Ampex cannot service its indebtedness, it will
be forced to adopt alternative strategies. These strategies may include reducing
or delaying capital expenditures, selling additional assets, restructuring or
refinancing Ampex's indebtedness. There can be no assurance that any of these
strategies will be successful or that they will be permitted under the Senior
Note Indenture, if applicable.
Fluctuations in Royalty Income
Ampex's results of operations in certain prior periods reflect the receipt
of significant royalty income, including material nonrecurring payments
resulting from negotiated settlements primarily related to sales of products by
manufacturers before negotiating licenses from Ampex. Although Ampex has a
substantial number of outstanding and pending patents, and its patents have
generated substantial royalties in the past, it is not possible to predict the
amount of royalty income Ampex will receive in the future. Royalty income has
historically fluctuated widely due to a number of factors that Ampex cannot
predict, such as the extent to which third parties use its patented technology,
the extent to which it must pursue litigation in order to enforce its patents,
and the ultimate success of its licensing and litigation activities. As the
Company expands its Internet video businesses, the significance of its royalty
income, relative to operating income, is expected to increase until those
businesses become profitable.
The costs of patent litigation can be material. The institution of patent
enforcement litigation may also increase the risk of counterclaims alleging
infringement by Ampex of patents held by third parties or seeking to invalidate
patents held by Ampex. Moreover, there is no assurance that Ampex will continue
to develop patentable technology that will be able to generate significant
patent royalties in future years to replace patents as they expire. Ampex's
royalty income fluctuates significantly from quarter to quarter and from year to
year, and there can be no assurance as to the level of royalty income that will
be realized in future periods.
Dependence on Licensed Patent Applications and Proprietary Technology
Ampex's success depends, in part, upon its ability to establish and
maintain the proprietary nature of its technology through the patent process.
There can be no assurance that one or more of Ampex's patents will not be
successfully challenged, invalidated or circumvented or that it will otherwise
be able to rely on such patents for any reason. In addition, there can be no
assurance that competitors, many of whom have substantial resources and have
made substantial investments in competing technologies, will not seek to apply
for and obtain patents that prevent, limit or interfere with Ampex's ability to
make, use and sell its products either in the United States or in foreign
markets. If any of Ampex's patents are successfully challenged, invalidated or
circumvented or its right or ability to manufacture products were to be
proscribed or limited, Ampex's ability to continue to manufacture and market its
products could be adversely affected, which would likely have a material adverse
effect upon Ampex's business, financial condition and results of operations.
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Litigation may be necessary to enforce Ampex's patents, to protect trade
secrets or know-how owned by the Company or to determine the enforceability,
scope and validity of the proprietary rights of others. Any litigation or
interference proceedings brought against, initiated by or otherwise involving
Ampex may require Ampex to incur substantial legal and other fees and expenses
and may require some of its employees to devote all or a substantial portion of
their time to the prosecution or defense of such litigation or proceedings.
Rapid Technological Change and Risks of New Product and Services Development
All the industries and markets from which Ampex derives revenues, directly
or through its licensing program, are characterized by continual technological
change and the need to introduce new products, product upgrades, services and
patentable technology. This has required, and will continue to require, that
Ampex spend substantial amounts for the research, development and engineering of
new products and advances to existing products and, with respect to the
Company's Internet operations, new content and services. No assurance can be
given that Ampex's existing products, services and technologies will not become
obsolete or that any new products, services or technologies will win commercial
acceptance. Obsolescence of existing product lines, or inability to develop and
introduce new products and services, could have a material and adverse effect on
the Company's sales and results of operations in the future. The development and
introduction of new technologies, services and products are subject to inherent
technical and market risks, and there can be no assurance that Ampex will be
successful in this regard.
In 1999, MicroNet changed the mix of its products to focus on its high-end
products, some of which it recently introduced or expects to introduce later
this year. Although the Company believes that these products will be well
received, there is no guarantee that they will be introduced on a timely basis
or will achieve significant market share or generate significant sales revenues.
To the extent that MicroNet fails to improve its profitability, the Company will
be required to devote resources (including management's time and attention) to
MicroNet that would otherwise be available for the expansion of the Company's
Internet video businesses.
Competition
The market for Internet products and services is highly competitive and
characterized by multiple competitors and low barriers to entry. Ampex is
attempting to develop improvements in video quality in order to differentiate
itself from its competitors. However, other companies may develop competing
technologies and Ampex may be unable to obtain patent or other protection for
its Internet video technology. In addition, the market for Internet advertising
and electronic commerce, upon which iNEXTV's Internet operations will be
partially dependent to achieve ultimate profitability, is intensely competitive
and the Company believes that competition in this field will intensify.
MicroNet's competitors include large companies such as EMC, Data General
and IBM and other small system integrators, many of which are more established
and have greater resources than MicroNet. There is no assurance that MicroNet
will be able to compete successfully in these markets in the future.
Dependence on Certain Suppliers
Ampex purchases certain components from a single domestic or foreign
manufacturer for use in its disk arrays and other manufactured products.
Significant delays in deliveries or defects in such components have adversely
affect Ampex's manufacturing operations, pending qualification of an alternative
supplier. In addition, Ampex produces highly engineered products in relatively
small quantities. As a result, Ampex's ability to cause suppliers to continue
production of certain products on which it may depend may be limited. Ampex does
not generally enter into long-term raw materials or components supply contracts.
Risks Related to International Operations
International operations are subject to a number of special risks,
including limitations on repatriation of earnings, restrictive actions by local
governments, and fluctuations in foreign currency exchange rates and
nationalization. Additionally, export sales are subject to export regulation and
restrictions imposed by U.S. government agencies. Fluctuations in the value of
foreign currencies can affect Ampex's results of operations.
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Ampex does not normally seek to mitigate its exposure to exchange rate
fluctuations by hedging its foreign currency positions.
The expansion of iNEXTV's European operations, which are conducted
primarily through TV1, may generate advertising and sales revenues in future
periods, although the Company has not recognized any material revenue to date.
The European operations of iNEXTV are expected to be subject to certain risks
and uncertainties, as set forth under the caption "Risks Associated with iNEXTV
and Internet Video Strategy. "
In January 1999, the new "Euro" currency was introduced in certain
European countries that are part of the European Monetary Union. Beginning in
2003, all EMU countries are expected to be operating with the Euro as their
single currency. A significant amount of uncertainty exists as to the effect the
Euro will have on the marketplace generally. Some of the rules and regulations
relating to the governance of the currency have not yet been defined and
finalized. As a result, companies operating or conducting business in Europe
will need to ensure that their financial and other software systems are capable
of processing transactions and properly handling the Euro. Ampex is currently
assessing the effect the introduction of the Euro will have on its internal
accounting systems and the potential sales of its products. Ampex will take
appropriate corrective actions based on the results of such assessment. Ampex
has not yet determined the costs related to addressing this issue. This issue is
not expected to have a material adverse affect on Ampex's business.
Volatility of Stock Price
The trading price of Ampex's Common Stock has been and can be expected to
be subject to significant volatility, reflecting a variety of factors,
including:
. quarterly fluctuations in operating results;
. announcements of acquisitions, Internet developments or new product
introductions by Ampex or its competitors;
. reports and predictions concerning the Company by analysts and other
members of the media;
. issuances of substantial amounts of Common Stock in order to redeem
outstanding shares of its Preferred Stock, or otherwise; and
. fluctuations in trading volume of the Company's Common Stock, and
general economic or market conditions.
The stock market in general, and Internet and technology companies in
particular, have experienced a high degree of price volatility, which has had a
substantial effect on the market prices of many such companies for reasons that
often are unrelated or disproportionate to operating performance. These broad
market and industry fluctuations may adversely affect the price of Ampex's
Common Stock, regardless of its operating performance.
Dependence on Key Personnel
Ampex is highly dependent on its management. Ampex's success depends upon
the availability and performance of key executive officers and directors. Except
for certain employees of its Internet affiliates, the Company has not entered
into employment agreements with its key employees, and the loss of the services
of key persons could have a material adverse effect upon Ampex. The Company does
not maintain key man life insurance on any of these individuals.
Anti-Takeover Consequences of Certain Governing Instruments
Ampex's Certificate of Incorporation provides for a classified Board of
Directors, with members of each class elected for a three-year term. The
Certificate of Incorporation provides for nullification of voting rights of
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certain foreign stockholders in certain circumstances involving possible
violations of security regulations of the United States Department of Defense.
The instrument governing Ampex's outstanding Preferred Stock, which has an
aggregate liquidation value of approximately $38.6 million at December 31, 1999,
requires that Ampex make mandatory offers to redeem those securities out of
legally available funds in the event of a change of control. For this purpose, a
change of control includes the following events: a person or group of people
acting together acquires 30% or more of Ampex's voting securities; Ampex merges,
consolidates or transfers all or substantially all of its assets; or the
dissolution of Ampex. The Certificate of Incorporation authorizes the Board of
Directors to issue additional shares of Preferred Stock without the vote of
stockholders. The indenture governing Ampex's outstanding Senior Notes, in the
total principal amount of $44 million, requires Ampex to offer to repurchase the
Senior Notes at a purchase price equal to 101% of the outstanding principal
amount thereof together with accrued and unpaid interest in the event of a
change of control. Under the indenture, a change of control includes the
following events: a person or group of people acting together acquires 50% or
more of the Company's voting stock; or the transfer of substantially all of the
Company's assets to any such person or group, other than to certain subsidiaries
and affiliates of Ampex.
These provisions could have anti-takeover effects by making an acquisition
of Ampex by a third party more difficult or expensive in certain circumstances.
Nonpayment of Dividends
Ampex has not declared dividends on its Common Stock since its
incorporation in 1992 and Ampex has no present intention of paying dividends on
its Common Stock. Ampex is also restricted by the terms of certain agreements
and of the outstanding Preferred Stock as to the declaration of dividends.
Environmental Issues
Ampex's facilities are subject to numerous federal, state and local laws
and regulations designed to protect the environment from waste emissions and
hazardous substances. 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, including liability for investigative and cleanup costs and
damages arising out of past disposal activities. Ampex has been named from time
to time as a potentially responsible party by the United States Environmental
Protection Agency with respect to contaminated sites that have been designated
as "Superfund" sites, and are currently engaged in various environmental
investigation, remediation and/or monitoring activities at several sites located
off Company facilities. There can be no assurance Ampex will not ultimately
incur liability in excess of amounts currently reserved for pending
environmental matters, or that additional liabilities with respect to
environmental matters will not be asserted. In addition, changes in
environmental regulations could impose the need for additional capital equipment
or other requirements. Such liabilities or regulations could have a material
adverse effect on Ampex in the future.
Year 2000 Risks
Year 2000 problems could interfere with Ampex's business. Many software
programs may not recognize calendar dates beginning in Year 2000. This problem
could cause computers or machines that utilize date dependent software either to
shut down or provide incorrect information. As of the date of this annual
report, Ampex has not experienced any material Year 2000 problems. However, if
Ampex or any other company that it conducts business with fails to mitigate
internal or external Year 2000 risks, Ampex may temporarily be unable to engage
in business activities, which could materially harm its business and impair the
value of Ampex Common Stock.
Description of Continuing Business Operations
The Company's current operations consist principally of its iNEXTV
Internet operations, including its Internet Technology Group; its technology
licensing activities; and its MicroNet disk storage business. The operations of
Data Systems, which is being held for sale and is accounted for as a
discontinued business effective
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with the Company's December 31, 1999 financial statements, consist of Data
System's mass data storage and instrumentation businesses. If the Company
completes the planned sale of Data Systems, it can be anticipated that the
Company's historical mix will change significantly, with an increasing emphasis
on its video-based Internet businesses. There can be no assurance that the
Company's Internet business strategy will be successful. Ampex's Internet
operations are at an early stage of development, and have not yet produced
significant revenues. Accordingly, these operations involve a material risk of
loss, and can be expected to be unprofitable for a substantial period of time.
See "Risk Factors - Risks Associated with iNEXTV and Internet Video Strategy."
The information with respect to total revenues, income (loss) from
continuing operations before income taxes, gain (loss) on business held for
disposition and identifiable assets of the Registrant's industry segments and
operations outside the United States is contained in the Notes to Consolidated
Financial Statements captioned "Segment Reporting" and "Foreign Operations" on
pages F-26 to F-28 of the Company's 1999 Consolidated Financial Statements.
Internet Operations
The Company's Internet operations are conducted primarily through its
wholly-owned subsidiary, iNEXTV, which the Company organized in 1999. The
mission of iNEXTV is to be a leading provider of streaming video content
designed for the Internet, to deliver webcasting and other services on behalf of
other business and corporate websites and to continue to innovate new
technologies that enhance the viewing experience of video on the Internet.
The iNEXTV network of content and service oriented websites currently
includes: AENTV.com, a provider of on-demand streaming video about the
entertainment industry; EXBTV.com, a producer and netcaster of original Internet
programming, covering the executive branch of the U.S. government; iSTYLE.com,
which provides video programming for affluent Internet users; TVontheWEB.com, a
leading provider of Internet video services; and TV1.de, one of Europe's leading
webcasters. The Company's Internet operations are at an early stage of
development and have not yet produced significant revenues.
In order to expand its Internet network, Ampex may make additional
acquisitions of and/or investments in other Internet businesses or websites. The
Company's strategy has typically been to make an initial investment in a
potential acquisition candidate, with options to increase its investment or to
acquire control at a future time, affording the Company the opportunity to
evaluate the risks and merits of a further investment. See Note 3 of Notes to
Consolidated Financial Statements. Nevertheless, such acquisitions and
investments involve numerous risks and uncertainties, including difficulties in
integrating acquired entities into the Ampex Internet operation, potential
conflicts with other shareholders, and where Ampex acquires a minority interest,
risks of the inability to control the management and policies of such entities.
See "Risk Factors - Risks Associated with Acquisition Strategy."
Ampex is not currently engaged in negotiating any material Internet or
other acquisitions. However, it may elect to increase its investments in one or
more of its existing acquired businesses, and intends to actively review
investment opportunities that may be presented. There can be no assurance that
any acquisitions or investments that Ampex has made, or in the future may make,
will be successful or will not incur a partial or complete loss.
Internet Video Programming
The Company believes that there will be a growing demand for targeted
video programming to be delivered over the Internet. Accordingly, a substantial
portion of the Company's Internet activities are involved in developing such
content. The increase in demand for Internet video programming results from
Internet infrastructure enhancements, and from the deployment of DSL and cable
modems that greatly increase the speed by which information can be delivered
over the Internet and into the home or business. The Company believes that
programming that was initially developed for broadcast or cable television and
that has been repackaged for delivery over the Internet will not effectively
satisfy the demand for Internet video programming. The picture quality of
streaming video over the Internet will not, in the near term, equal that of
television or movies. Traditional media programming does not address the user's
need for highly tailored and individualized information nor the user's desire to
interact and socialize with the medium. Instead, the Company believes that a
significant portion of the demand for Internet video content will be satisfied
by companies that develop programming that is specifically designed for the
Internet.
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Currently, Internet video is subject to inferior picture quality and size
compared to television as well as frequent service interruptions. However, the
Company believes that the user will still seek the richness of an audio/video
experience over the Internet if the content is properly designed. The Company's
Internet video programming blends text, graphics, audio and interactivity
together with video. Video is used selectively first to capture an audience, and
then to inform, to persuade and to sell them in the way that sight, sound and
motion do best. The video component of made-for-the-Internet programming
constitutes a smaller portion of the overall experience than the video component
in made-for-television programming. Small screen size, delivery interruptions
and a nearly infinite number of program choices require that video for the
Internet be short in length, frequently updated, timely, easily navigated,
interactive and targeted. The Company also believes that the increasing
deployment of broadband will improve the video experience of a growing number of
web users.
In addition to investing in multiple strategic partnerships and
wholly-owned operations that produce streaming video content as discussed above,
the Company hopes to gain greater scale economies by working with independent
content developers and other content partners. The Company has built or is
building production facilities in New York City, Reston, Virginia, Washington,
DC, Los Angeles and Berlin, Germany that it intends to make available to its
content partners in order to facilitate the acquisition of Internet video
content on a cost-effective basis. The Company believes that independent content
developers often best understand a unique audience segment and can develop
programming that targets this audience most effectively and uniquely. The
Company also believes that its content partners will be well-recognized media
businesses that, as partners with the Company, seek to extend their brands and
editorial capabilities to this new distribution medium. The Company's strategy
is to obtain access to such programming on a revenue- or equity-sharing basis.
Internet Services. The Company believes that business and other corporate
websites will increasingly look to webcasting as a tool to rapidly and
effectively communicate new developments to employees, customers and other
stakeholders. The Company's affiliates, TV onthe Web and TV1, are well
recognized in their respective markets for the delivery of professionally
produced webcasts. They have established strategic partnerships with several
Internet Service Providers and are the webcaster of choice in their markets.
These affiliates differentiate their service offerings by providing creative
program and design services in addition to video production, encoding, hosting
and webcasting services. iNEXTV utilizes a combination of in-house production,
design and engineering personnel as well as independent contractors to deliver
these services.
Internet Technology Group. Ampex has developed technologies for making
electronic sound and pictures for the television broadcast market over several
decades. The Company has a thorough understanding of digital time-base
correction, digital filtering and image compression that are key enabling
technologies that support Internet streaming media. The Company's Internet
Technology Group is responsible for developing products and services to enhance
the Internet video viewing experience.
In the fourth quarter of 1999, the Company introduced the first generation
of its improved streaming video technology in certain programming shown on
EXBTV.com. These enhancements enable the Company's programming to be clearer and
flow more smoothly than competitors' video programming. The Company believes
that these improvements also permit the Company to increase the area of its
video window by 80% compared to standard player software.
The Company's Internet strategy is dependent, in part, upon the ITG's
ability to continue to develop improved technologies for streaming video
applications. The Company regards its internally developed Internet technology
as proprietary and attempts to protect it primarily with patents, copyrights,
and contractual obligations of confidentiality, regarding its trade secrets. The
Company does not currently hold any patents on its Internet technologies.
However, the Company has filed a patent application in the U.S. Patent &
Trademark office and may seek to file in the United States and foreign countries
additional patent applications with respect to technologies, such as
enhancements of picture clarity of Internet video content, that it may develop
in the future. There can be no assurance that the Company would be granted any
patents for such technology if developed or, if granted, that it would result in
any substantial competitive advantage over competing technologies. In addition,
the Company's Internet technologies could be claimed to conflict with or
infringe the proprietary rights of others, which could result in litigation and
the Company's being required to seek a license to use those proprietary assets.
The Company is not
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currently involved in any material conflict with any third party concerning
patented or proprietary Internet technology rights.
Internet Video Markets. Today, the proportion of websites that include
video content is relatively small. Those that incorporate video are primarily
websites affiliated with television and cable networks that repurpose clips of
their news and other video feeds. There also exists a limited number of
companies that are developing Internet video programming that is tailored to
appeal to specific demographic groups, believed not to be served by broadcast or
cable programming. In the near future, the Company believes that video content
will be included in an increasing number of websites of corporations,
not-for-profit agencies and other organizations that seek to enhance
communications beyond that currently provided by traditional text and
graphics-based content. Also, the Company believes that most Internet portals
will provide access to more video programming in order to continue to attract a
large number of viewers to its sites, especially those that have broadband
access. Lastly, the Company believes that there will be an increasing numbers of
websites that are dedicated to the delivery of video programming along specific
targeted demographics, where the business model is dependent upon advertising
and sponsorship revenues and fees from e-commerce activity.
The Company intends to syndicate to Internet portals and to certain other
destination websites, certain of its video programming. For example, AENTV.com
is producing timely news programming about the entertainment industry in
conjunction with the "Hollywood Reporter" and "Billboard Magazine", which it
intends to syndicate.
EXBTV.com produces daily "live" and on demand webcasts of press
conferences and Committee hearings from the White House and several Federal
agencies. This programming is targeted toward businesses and enterprises that
are regulated or otherwise strongly affected by government policy. iSTYLETV.com
is developing "life style" programming about high end personal interests of
affluent individuals, including Classic Cars, Travel, Fashion and others.
The Company's TV onthe WEB operation in Reston, Virginia provides national
webcasting, web-serving and Internet video program production for a variety of
corporations, not-for-profit organizations and other business entities.
The Company's strategy with EXBTV.com and iSTYLETV.com is to grow revenues
from Internet video advertising, sponsorships and e-commerce partnerships.
Advertising on the Internet is in its early development. Industry sources
estimate that Internet advertising in 1999 totaled approximately $3 billion, out
of total U.S. advertising in excess of $200 billion. However, by 2004, these
sources estimate that Internet advertising will exceed $20 billion and represent
nearly 7% of total U.S. advertising.
Advertising on the Internet is currently conducted primarily through
banner ads and sponsorships. Together, they accounted for over 90% of all
on-line advertising in 1998. The advertising community recognizes that banner
ads lack the impact of traditional sophisticated media. As bandwidth into the
home increases, advertisers will be able to become more creative and
advertisements may begin to look more like television advertising, though more
tailored for the audience being targeted. The Company believes the advent and
development of enhanced streaming video content will logically be supported by
the growth in sophisticated advertising.
The Company's EXBTV.com and iSTYLE.com websites have only recently become
operational. The Company intends to incur substantial marketing and promotional
expenditures to attract users to its video websites. The Company believes that
will begin to attract a growing advertiser clientele and begin to generate
e-commerce activity through these sites when they demonstrate significant
viewership. However, material advertising and e-commerce revenues are not
expected to be obtained for the next several fiscal quarters. Accordingly, the
Company anticipates that its Internet operations will generate material losses
for the foreseeable future.
Depending on the Company's financial resources and access to additional
capital, the Company may seek to take equity positions in companies that have
unique Internet video content, technology or other attributes. By providing
infrastructure support in production, sales and marketing and technology, the
Company believes that it can accelerate access to the public capital markets for
these companies. The Company may seek to make public or
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private offerings of the securities of one or more of its affiliates, depending
on market conditions and other factors. There can be no assurance that any of
these efforts will materialize or be successful.
Licensing Operations
As a result of its ongoing research and development expenditures, the
Company has developed substantial proprietary technology, certain of which it
has elected to patent or to seek to patent. As of December 31, 1999, Ampex held
over 1,000 patents and patent applications, including approximately 350 patents
in the U.S., approximately 550 corresponding patents in other countries, and
approximately 125 U.S. and foreign patent applications pending. The majority of
these patents and pending patents relate to the Company's recording technology.
The Company continually reviews its patent portfolio and allows non-strategic
patents to lapse, thereby minimizing substantial renewal fees.
Ampex has granted numerous royalty-bearing patent licenses to, and holds
patent licenses from, third parties. Certain of the Company's patented
innovations have been adopted for use in mass market consumer products and, as a
result, the Company receives the majority of its licensing royalties from
foreign manufacturers of VCRs and 8-mm camcorders. The Company intends to
negotiate license agreements with unlicensed manufacturers of digital format
consumer video recorders, but there can be no assurance that any such licensing
efforts (including any necessary litigation) will be successful.
The Company believes that it has patents that may be used in the
manufacture of television receivers. In addition, Ampex is evaluating the extent
to which its technology may be employed or useful in video games, and will
continue to evaluate additional products as potential licensing opportunities to
the extent that its technical and financial resources permit.
It is not possible to predict the amount of royalty income that will be
received in the future. 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
Company must pursue litigation in order to enforce its patents, and the ultimate
success of its licensing and litigation activities. Moreover, there can be no
assurance that the Company will continue to develop patentable technology that
will generate significant patent royalties in future years.
U.S. patents are, at present, in force for a period of 20 years from the
date of application and patents granted by foreign jurisdictions are generally
in force for between 14 years to 20 years from the date of application. Ampex
has obtained its present patents over the course of the past 20 years and,
accordingly, has patents in force that will expire from time to time over the
next 20 years. Patents are important to the current overall business of the
Company, both as a source of protection of the proprietary technology used in
the Company's current products, and as a source of royalty income. While results
of operations would be adversely affected by the loss of patents that generate
significant royalty income, management believes that none of Ampex's current
product lines is materially dependent upon a single patent or license or group
of related patents or licenses, and that timely introduction of products
incorporating new technologies or particularly suited to meet the needs of a
specific market or customer group is a more important determinant of the success
of Ampex's current business. Nevertheless, there can be no assurance that the
Company will continue to develop patentable technology that will be able to
generate significant patent royalties in future years to replace patents as they
expire. See "Research, Development and Engineering."
Ampex regards its trademark "Ampex" and the Ampex logo as valuable to its
businesses. Ampex has registered its trademark and logo in the U.S. and a number
of foreign countries. U.S. trademark registrations are generally valid for an
initial term of 10 years and renewable for subsequent 10-year periods. The
Company's former magnetic tape subsidiaries (the "Media" subsidiaries), which
were sold by the Company in November 1995, have a nonexclusive license to use
the Ampex trademark on their audio, video and instrumentation media products
through July 2000. Ampex has not granted any other material rights to use its
name or logo to any other third party.
Trademarks of the Company used in this Report include Ampex include Ampex,
DCT, DST, DCRsi and DIS, all of which are trademarks of Ampex Corporation, and
MicroNet, DataDock, Genesis, FibreFlex and Premier, all of which are trademarks
of MicroNet. All other trademarks and service marks used in this Report are the
property of Ampex or their respective owners.
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MicroNet Operations
MicroNet Products. MicroNet offers a wide variety of storage solutions
targeted at image-based creative professional markets, including principally
digital pre-press and digital video editing. It's principal products are
described below.
DataDock. DataDock transportable storage systems provide a high level of
performance, flexibility and safe removable operation available for desktop
systems. DataDock and DataDock 525 storage systems were developed for use in the
publishing and collaborative content-creation markets, where sharing of large
data files is integral to the workflow process. Available drive modules range
from hard disk drives, CD recorders, DVD-RAM and tape backup devices to high
performance disk arrays. DataDock products can be used with many computing
platforms and operating systems including Windows 95/98, NT, Mac OS, Sun Solaris
and SGI IRIX. DataDock 7000 redundant array of independent disks ("RAID")
storage systems provide platform and operating systems interdependence combined
with DataDock features in a self-contained RAID system with capacities up to 250
gigabytes ("GB"). DataDock 7000 systems were designed for small to medium
companies requiring a high performance mid-capacity RAID storage system. The
DataDock 7000 is scalable and can incorporate backup devices in the unit in
order to provide self-contained RAID storage and archive solution. Data Dock
products accounted for 22.7% and 22.4% of total revenues in 1999 and 1998,
respectively.
Genesis. MicroNet believes that many of its customers are migrating to
higher bandwidth internal networks requiring larger storage capabilities. The
Genesis RAID Systems have been developed in response to this trend. These
products incorporate many of the features of the DataDock 7000 product line and
can operate on a fibre channel interface. The Genesis product line includes
three scalable products defined by capacity, interface and feature set. All are
platform independent, fibre channel-ready. Genesis products include redundant
RAID controllers for added security and a web-based GUI (graphical user
interface) for easier system management. Genesis products integrate dual
FibreBridge technology allowing them to achieve high-speed fibre channel
connectivity for integration in a Storage Area Network ("SAN"), offering up to
1.4 terabytes of storage.
FibreFlex. FibreFlex is a complete, multi-platform compatible fibre
channel SAN that enables workgroups to achieve fast network access and was
designed as the next generation of connectivity for companies that work with
large data and graphic image files. By integrating fibre channel switches, hubs
and host adapters with Genesis RAID system and file level data management
software, FibreFlex allows multiple users simultaneously to access large data or
graphics files without typical network slowdown. FibreFlex also eliminates data
copying time and provides true version control by centralizing data and
providing file level data access, which MicroNet believes surpasses other fibre
networks that allow only volume level access. User productivity is significantly
increased in multi-project, multi-user environments.
SANCube. At MacWorld in January 2000, MicroNet introduced SANCube, an
external storage product for Apple Macintosh workgroups, providing as much as
220GB of storage which can be shared by up to four users utilizing SAN software.
SANCube products afford superior data transfer rates by connecting to Macintosh
workstations through Firewire ports.
MicroNet's Markets. MicroNet products are sold in many segments of the
high-end graphics market, which includes printers, book and magazine publishers,
advertising agencies, graphic designers', video production and post production
facilities, and web design and creation houses. MicroNet enjoys an excellent
reputation in both the production and post production market segments of the
digital video programming market.
MicroNet Distribution and Customers. MicroNet products, including
DataDock, Genesis and Premier lines, are sold primarily to content-creation
customers in the publishing, pre-press and digital video open systems post
production markets. Sales of MicroNet products are made through an internal
sales force to a worldwide network of Value Added Resellers ("VARs"),
integrators and distributors. MicroNet currently maintains three regional sales
offices strategically located in the U.S. No single customer accounted for more
than 10% of the MicroNet's total net sales in 1999, 1998 or 1997. MicroNet's
backlog is not generally material to its operations.
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MicroNet Research, Development and Engineering. MicroNet will continue to
focus its development and engineering efforts on disk array products. The
Genesis product line builds on the DataDock 7000 family of disk arrays (RAID).
MicroNet engineering is developing new features for Genesis to include a native
fibre channel-version of the Genesis product line that utilizes fibre channel
devices throughout the system. This product line will leverage the 100 megabyte
("MB") per second bandwidth of fibre channel to greatly increase data transfer
rates to users on a SAN. It will be particularly attractive to users who require
a very high-sustained data transfer rate, such as for video applications.
SANCube introduces the concept of SAN at a very reasonable cost to small
workgroups with a need for shared storage. Design emphasis is on performance,
reliability, ease of use and management features.
Manufacturing. MicroNet's products are primarily manufactured, designed
and engineered at MicroNet facilities in Irvine, California. The Company also
outsources manufacturing for some of its products to contract manufacturers, and
plans to increase the use of such contractors. The Company believes that its
manufacturing facilities and outsourcing to contract manufacturers, it will have
sufficient capacity to accommodate business growth for its present products in
the foreseeable future.
The Company maintains insurance, including business interruption
insurance, that management considers to be adequate and customary under the
circumstances. However, there is no assurance that the Company will not incur
losses beyond the limits of, or outside the coverage of, its current insurance.
Sources of Supply. MicroNet uses a broad variety of raw materials and
components in its manufacturing operations. While most materials are readily
available from numerous sources, MicroNet purchases certain components, such as
customized integrated circuits and flexible magnetic media, from a single
domestic or foreign manufacturer. Significant delays in deliveries of, or
defects in the supply of, such components could adversely affect MicroNet's
manufacturing operations pending qualification of an alternative supplier. In
addition, MicroNet produces highly-engineered products in relatively small
quantities. As a result, its ability to cause suppliers to continue production
of certain products on which MicroNet may depend may be limited. MicroNet does
not generally enter into long-term raw material supply contracts. In addition,
many of the components of MicroNet's products are designed, developed and
manufactured by MicroNet itself, and thus are not readily available from
alternative sources.
Competition. MicroNet services the professional graphics community, which
is significant in range; therefore, the Company has competition in many
different segments. Competition comes mainly from captive storage solutions
provided by Compaq and Intergraph. In other segments of the professional
graphics market, MicroNet sees competition from captive storage solutions
provided by various CPU manufacturers, including Apple Computer, Silicon
Graphics, Sun MicroSystems and Intergraph. In the digital video open systems
post-production market, competitors such as DataDirect Networks and Rorke Data
Systems have products offering similar performance and capabilities. Sales of
MicroNet products can be affected by the performance of complementary software
and hardware products and market conditions in both the professional graphics
and digital video open systems post-production markets.
Description of Business Held for Disposition
As noted above, in February 2000, in order to focus more sharply on its
Internet business, Ampex announced plans to sell its Data Systems subsidiary,
which produces high performance mass data storage and instrumentation recorders
and systems. Data Systems products are sold primarily for use in the television
broadcast and government markets. At the date of this Report, the Company had
not yet entered into a contract to sell Data Systems, and there can be no
assurance that a contract will be entered into or as to the terms or timing of
any sale. Pending consummation of a sale, the Company will account for Data
Systems' operations as a discontinued business effective for the fiscal year
ended December 31, 1999. See "Risk Factors - Risk of Proposed Sale of Data
Systems," above. A brief summary of Data Systems' business and operations is set
forth below. For additional information, reference is made to the Company's 1998
Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q filed with the
Securities and Exchange Commission during 1999.
Data Systems' principal products are: (i) 19-millimeter scanning recorders
and library systems (DST and DIS products) and related tape and after-market
equipment; (ii) data acquisition and instrumentation products
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(primarily DCRsi instrumentation recorders) and related tape and after-market
equipment; and (iii) professional video and other products (primarily its DCT
video recorders and image processing systems) and related tape products and
television after-market equipment.
Data Systems distributes its 19-millimeter products directly through its
internal sales force and independent value-added resellers. Data Systems' DST
products are sold to customers such as oil and gas companies, imaging companies,
information and entertainment delivery companies and broadband
telecommunications companies. Data Systems is also pursuing opportunities for
storage of very large databases maintained by many commercial and government
entities. Data Systems' instrumentation recorders (including its DIS recorders)
are sold primarily to government agencies involved in data collection, satellite
surveillance and defense-related activities, as well as to defense contractors
and other industrial users for testing and measurement purposes. Sales of
instrumentation recorders are made through Data Systems' internal domestic and
international sales forces, as well as through independent sales organizations
in foreign markets. Data Systems' sales to U.S. government agencies (either
directly or indirectly through government contractors) represented 19.2 % of
their net sales in fiscal 1999 compared to 25.8 % in fiscal 1998 and 27.7% in
fiscal 1997. No single non-government customer accounted for more than 10% of
Data System's total net sales in 1999, 1998 or 1997. Data Systems' products are
manufactured at facilities in Redwood City, California and Colorado Springs,
Colorado. The Company believes that Data Systems' manufacturing facilities,
which were consolidated in 1998, continue to have sufficient capacity to meet
current and future demand. Data Systems competes in all markets with a number of
well-established corporations, such as IBM Corporation, Sony Corporation,
Quantum Corporation and others. In the instrumentation market, its major
competitors include Sony Corporation, Loral Data Systems, Data Tape Incorporated
and Metrum Incorporated. Data Systems' product lines are characterized by
continual technological developments, and require a high level of expenditure
for research and development. Obsolescence of existing product lines, or the
inability to develop and introduce new products, could have a material adverse
effect on the Data Systems operation.
As of December 31, 1999, Data Systems employed 293 people, as compared to
386 people as of December 31, 1998.
Employees
As of December 31, 1999, Ampex employed 172 people (including employees of
consolidated subsidiaries) in its continuing operations, as compared to 75
persons employed as of December 31, 1998, primarily reflecting expansion of the
Company's Internet operations during 1999. Also, the Company from time-to-time
utilizes the services of independent contractors, primarily in its Internet
operations. No employees are covered by any collective bargaining agreement. The
Company is dependent on the performance of certain key members of management and
key technical personnel. The Company has not entered into employment agreements
with any such individuals, except for certain employees of its Internet
affiliates. Edward J. Bramson, who has served as the Company's Chief Executive
Officer since 1991, is also engaged in the management of certain companies
affiliated with Sherborne Holdings Incorporated, a privately-owned Delaware
holding company and a Company stockholder. Mr. Bramson currently devotes most of
his time to the management of the Company. The loss of the services of Mr.
Bramson or other key individuals could have a material adverse effect on the
Company.
Environmental Regulation and Proceedings
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. Ampex 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 Ampex is
generally in compliance in all material respects with all applicable
environmental and occupational safety laws and regulations or has plans to bring
operations into compliance. Management does not anticipate that capital
expenditures for pollution control equipment for fiscal 2000 or 2001 will be
material.
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,
including liability for investigative and cleanup costs and damages arising out
of past disposal activities.
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The Company has been named as a potentially responsible party by the United
States Environmental Protection Agency with respect to four contaminated sites
that have been designated as "Superfund" sites on the National Priorities List
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980. The Company is engaged in six environmental investigation, remediation
and/or monitoring activities at sites located off Company facilities, including
the removal of solvent contamination from subsurface aquifers at a site in
Sunnyvale, California. Some of these activities involve the participation of
state and local government agencies. The other five sites (including the four
Superfund sites) are associated with the operations of the Media subsidiaries
formerly owned by the Company. Although the Company sold Media in November 1995,
the Company may have continuing liability with respect to environmental
contamination at these sites if Media fails to discharge its responsibilities
with respect to such sites. During 1999, the Company spent a total of
approximately $0.1 million in connection with environmental investigation,
remediation and monitoring activities and expects to spend a similar amount in
fiscal 2000 for such activities.
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. Nevertheless, at December 31,
1999, the Company had an accrued liability of $1.6 million for pending
environmental liabilities associated with the Sunnyvale site and certain other
sites currently owned or leased by the Company. The Company has not accrued any
liability for contingent liabilities it may incur with respect to former Media
sites discussed above. Based on facts currently known to management, management
believes it has no contingent liability 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.
While the Company believes that it is generally in compliance with all
applicable environmental laws and regulations or has plans 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 Ampex's business, operating
results or cash flow. There can be no assurance that the Company will not
ultimately incur liability in excess of amounts currently reserved for pending
environmental matters, or that additional liabilities with respect to
environmental matters will not be asserted. In addition, changes in
environmental regulations could impose the need for additional capital equipment
or other requirements. Such liabilities or regulations could have a material
adverse effect on the Company in the future.
Pension Plan Matters
In 1994, the Company, the Pension Benefit Guaranty Corporation ("PBGC")
and certain affiliates ("Affiliates") who were members of a "group under common
control" for purposes of the Employee Retirement Income Security Act ("ERISA")
entered into certain agreements in connection with the liquidation of the
Company's former parent, NH Holding Incorporated ("NHI "), relating to the
pension plans of the Company and of its former Media subsidiaries. See Note 18
of Notes to Consolidated Financial Statements. Pursuant to these agreements, the
Affiliates agreed that if during the terms of the agreements Ampex fails to make
a required contribution to the pension plans, the Affiliates will make or
advance funds to permit Ampex to make such contribution, and Ampex agreed to
repay such amounts in accordance with the terms of the agreements. Ampex has
agreed to grant the Affiliates a security interest in certain assets as
collateral for any advances which the Affiliates may be required to make in the
future pursuant to the agreements. The agreements contain certain restrictive
covenants which, among other things, restrict Ampex's ability to declare
dividends, sell all or substantially all its assets or commence liquidation, or
engage in specified transactions, with certain related parties, breach of which
could result in acceleration of any of the Company's potential termination
liabilities. Sale of Data Systems may be subject to approval of the PBGC with
respect to pension plan matters. In 1994, the Company discontinued accrual of
benefits under the pension plans, but has continued to fund its plan in
accordance with ERISA (and remains contingently liable to fund the Media plan if
Media fails to do so). No claims have been asserted or, to the knowledge of
management, are threatened under these agreements.
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ITEM 2. PROPERTIES
As of December 31, 1999, the Company's principal properties were as
follows:
<TABLE>
<CAPTION>
Approximate
Square Footage
Location Activities Conducted of Facility
-------- -------------------- -----------
<S> <C> <C>
Redwood City, California Executive offices, RD&E,
manufacturing, sales and marketing (1)(9) 91,760
Colorado Springs, Colorado Manufacturing (9) 229,961
New York City, New York Executive offices, Internet
marketing, sales, operations and studio (2) 19,000
Irvine, California Engineering, manufacturing,
sales and marketing (3) 33,089
Chineham, Basingstoke, England Sales and service (4)(9) 7,184
Tokyo, Japan Sales and service (5)(9) 3,886
Sulzbach, Germany Sales and service (6) 13,530
Reston, Virginia Internet and post production marketing,
sales, operations and studios (7) 21,250
Woodland Hills, California Internet marketing, sales, operations
and studios (8) 10,568
Washington, DC Internet and post production marketing, 1,575
sales, operations (10)
</TABLE>
(1) These facilities are leased until September 2008, with 31,987 square feet
sublet until July 31, 2004 and an option to extend the sublease to
September 2008.
(2) These facilities are leased under a ten-year lease that expires in April
2008.
(3) These facilities are leased under a five-year lease that expires in May
2005.
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(4) These facilities are leased under a ten-year lease, which is terminable at
the option of the Company or landlord in December 2002.
(5) These facilities are leased under leases that expire during July 2000. The
current plan is to renew the lease on a year-to-year basis.
(6) The lease was terminated in January 2000.
(7) These facilities are leased under two agreements with expiration dates in
June 2001 and December 2004
(8) These facilities are leased under various leases expiring in March 2004.
(9) These properties are used primarily for the operations of Data Systems,
which is being held for disposition. If the proposed sale of Data Systems
is consummated, the Company anticipates that these properties will be sold
or the lease will be assigned to the acquiring company in connection with
the sale.
(10) These facilities are leased for a two-year term that expires on December
31, 2002.
In addition, the Company has outstanding lease obligations with respect to
various facilities whose functions were terminated in connection with the
Company's prior period restructuring of its business operations. The Company is
subleasing portions of these facilities pending termination of the underlying
leases.
On January 25, 1996, Data Systems completed the sale of its real property
in Redwood City, California. All of the functions that were located at the
Redwood City site have been relocated to portions of the facility that have been
leased back from the purchaser. One lease covers approximately 32,000 square
feet and a second lease covers a newly constructed building of 59,760 square
feet, which Data Systems first occupied in September 1998. Concurrently with
occupancy of the new building, the leases on three other buildings totaling
approximately 114,560 square feet were terminated.
The Company believes that its current facilities, including machinery and
equipment, are generally in good condition, well-maintained and suitable for
their intended uses, and that its facilities have, and will continue to have,
adequate capacity to accommodate the Company's present needs and business growth
for its present products in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business.
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.
In response to a lawsuit filed by the Company against Mitsubishi Electric
Corporation and Mitsubishi Electric America Inc. ("Mitsubishi"), which has been
finally resolved as previously reported, Mitsubishi filed a lawsuit against
Ampex, alleging patent infringement by certain Ampex video and data recorder
products. In 1997, the U.S. District Court for the Central District of
California determined that Ampex has no liability to Mitsubishi patents, and
Mitsubishi appealed to the Court of Appeals for the Federal Circuit. On August
30, 1999, the Court of Appeals affirmed the judgment in favor of Ampex and
subsequently denied Mitsubishi's request for reconsideration. On January 31,
2000, Mitsubishi filed a petition for certiorari to the Supreme Court of the
United States. The Company has filed a brief opposing this petition, and it is
unknown when the Court will make its decision whether to hear Mitsubishi's
appeal.
On January 7, 2000, a suit was filed against the Company and others in the
Superior Court of the District of Columbia by Information Super Station ("ISS")
seeking an injunction and recovery of damages in connection with activities
related to an investment in a subsidiary of ISS made by the Company's
subsidiary, iNEXTV.
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The Company has moved to dismiss this suit on the grounds of inconvenient forum.
On February 1, 2000, the Company filed suit against ISS and others in the United
States District Court for the Southern District of New York under the Federal
securities laws seeking contract rescission and damages in connection with
activities related to this investment. No answer has yet been received.
See also "Environmental Regulation and Proceedings" and Note 14 of Notes
to Consolidated Financial Statements for additional information with respect to
pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages as of February 1,
2000 are as follows:
Name Age Position
Edward J. Bramson 48 Chairman and Chief Executive Officer
Craig L. McKibben 49 Vice President, Chief Financial Officer and
Treasurer
K. Michael Cooper 52 Vice President
Robert L. Atchison 62 Vice President
Joel D. Talcott 58 Vice President and Secretary
Each of the executive officers of the Company serves in such capacity at
the discretion of the Board.
Edward J. Bramson is Chairman of the Board, Chief Executive Officer and a
director of the Company. He has been an officer and director of the Company
since 1987, and since January 1991 has been Chief Executive Officer of the
Company. Mr. Bramson also serves as President of each of Ampex Holdings
Corporation and iNEXTV, as Vice President of MicroNet, and as Assistant
Secretary of Data Systems, which is being held for disposition. Mr. Bramson is a
director of each such subsidiary, and of TV onthe WEB, Inc. (a subsidiary of
iNEXTV Corporation) and Ampex Finance Corporation (a subsidiary of Ampex
Corporation). He is also Chairman and Chief Executive Officer of Sherborne
Holdings Incorporated, Sherborne & Company Incorporated and Sherborne
Investments Corporation, is a limited partner of Newhill Partners, LP and the
managing member of SH Securities Co., L.L.C. These entities, which are private
investment holding companies, may be deemed to be affiliates of the Company. Mr.
Bramson is also a director of Hillside Capital Incorporated, a private
industrial holding company with which he has been associated since 1976.
Craig L. McKibben is Vice President, Treasurer, Chief Financial Officer
and a director of the Company. Mr. McKibben has been an officer and a director
of the Company since 1989. Mr. McKibben also serves in the following capacities
with other Company subsidiaries: director, Vice President and Treasurer of Ampex
Holdings Corporation and iNEXTV, director and Vice President of Ampex Finance
Corporation and MicroNet; Treasurer of Alternative Entertainment Network, Inc.
and director and Interim Chief Financial Officer of TV onthe WEB, Inc. He also
serves as Vice President and Treasurer of Data Systems, which is being held for
disposition. He is also Vice President and a director of Sherborne Holdings
Incorporated and of Sherborne & Company Incorporated. Since 1989, Mr. McKibben
has been a director and executive officer of NHI, the Company's former parent.
>From 1983 to 1989, he was a partner at the firm of Coopers & Lybrand L.L.P., a
predecessor of PricewaterhouseCoopers LLP, independent public accountants.
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Robert L. Atchison is Vice President of the Company. Since January 1994 he
has been responsible for all operating activities of the Company, and in 1996
assumed responsibility for certain of the Company's sales and marketing
activities. From April 1991 to January 1994, he was responsible for engineering
and operations for the Company. Mr. Atchison also serves as Vice President and a
director of Data Systems, which is being held for disposition, and as President
and a director of Ampex International Sales Corporation, a wholly-owned
subsidiary of the Company. He has served as an executive officer of the Company
and various subsidiaries since 1987.
K. Michael Cooper, who joined the Company in June 1998, is Vice President
of the Company. He also serves as President and a director of MicroNet, and as
such has operating responsibility for this subsidiary. Mr. Cooper serves as Vice
President and a director of AENTV, a subsidiary of iNEXTV, and as President and
a director of Data Systems, which is being held for disposition. Previously, Mr.
Cooper served as President and Chief Executive Officer of a computer peripheral
company, and in a number of senior management positions with the Hiller Group.
Joel D. Talcott is Vice President and Secretary of the Company, positions
he has held since 1987. He has served as General Counsel since January 1996, a
position he also held from 1987 to January 1994. He is also responsible for the
Company's patent licensing activities (having served as Patent Counsel from 1987
to 1991), and has supervisory responsibility for investor relations and
corporate communications functions. Mr. Talcott also serves as Vice President,
Secretary and a director of Ampex Finance Corporation, Ampex International Sales
Corporation and Data Systems, which is being held for disposition, and as Vice
President and Secretary of iNEXTV, Ampex Holdings Corporation and MicroNet,
wholly-owned subsidiaries of the Company, and as Vice President and General
Counsel of TV onthe WEB, Inc., a subsidiary of iNEXTV.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The following table sets forth the high and low prices for the
Company's Class A Common Stock for each quarter during fiscal 1999 and 1998.
Since January 16, 1996, the Class A Common Stock has been traded on the American
Stock Exchange under the symbol "AXC."
Fiscal Year High Low
1999
First Quarter $5.63 $1.06
Second Quarter 7.50 2.56
Third Quarter 6.00 2.50
Fourth Quarter 6.38 2.25
1998
First Quarter $3.25 $2.00
Second Quarter 3.13 1.75
Third Quarter 2.13 1.00
Fourth Quarter 1.19 .69
As of January 28, 2000, there were 821 holders of record of the Company's
Class A Common Stock.
The Company has not declared any dividends on its Common Stock since its
incorporation in 1992 and has no present intention of paying dividends on its
Common Stock. The Company is also restricted by the terms of the indenture for
its Senior Notes and certain other agreements, and of its outstanding
Noncumulative Preferred Stock, as to the declaration of dividends. Under current
circumstances, the Company may not pay any cash dividends on its Common Stock.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and Notes 10 and 13 of Notes to
Consolidated Financial Statements.
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<PAGE>
(b) Information as to equity securities sold by the Company during the
fiscal year ended December 31, 1999 which were not registered under the
Securities Act of 1933, as amended (the "Securities Act") is contained in the
Company's Quarterly Reports on Form 10-Q filed by the Company for such period.
ITEM 6. SELECTED FINANCIAL DATA
The financial data required by Item 6 is included immediately following
Item 14 hereof.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company and its subsidiaries should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto,
included elsewhere in this Report.
Strategic Repositioning of the Company
Beginning in 1999, the Company began a strategic repositioning by building
a network of Internet video businesses, focusing on programming, services and
technology. During the past year the Company, through its subsidiary, iNEXTV,
acquired equity interests in various Internet video businesses and started to
assemble its internal organization to support the iNEXTV network and to develop
additional Internet video-based websites.
In February 2000, in order to focus more sharply on its Internet video
businesses, the Company announced plans to sell Data Systems, its subsidiary
which makes high performance tape-based mass data storage products. The results
of operations of Data Systems have been classified as Discontinued Operations in
the Statements of Operations for all periods presented. The book value of the
net assets to be sold of this segment have been reflected in net assets of
business held for disposition in the Consolidated Balance Sheet as of December
31, 1999. Upon consummation of a successful sale, the Company intends to use the
proceeds for investment in iNEXTV and other Internet initiatives, as well as to
retire debt.
Following the planned sale of Data Systems, the Company's continuing
operations will include iNEXTV, its non-Internet technology licensing group, the
newly-formed Internet Technology Group and MicroNet, its wholly-owned subsidiary
that makes high performance disk arrays and SAN products (principally DataDock,
Genesis and SANCube products). These product groups are described below. No
other class of similar products, services or royalty arrangements accounted for
more than 10% of continuing revenues during the comparison periods discussed
below.
The following discussion and analysis of the financial condition and
results of operations of the Company and its subsidiaries should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto,
included elsewhere in this Report.
Results of Operations for the Three Years Ended December 31, 1999
Total Revenue. Total revenue increased by 102.1% to $32.6 million in 1999
from $16.1 million in 1998, which increased by 28.3% from the total revenue of
$12.6 million in 1997. In 1999, the revenue increase over 1998 was primarily due
to the increased royalty income. In addition, there was an increase in total
revenue in 1999 as a result of the inclusion of the Company's Internet video
businesses and an increase in product sales from MicroNet reflecting the
inclusion of an entire twelve-month period in 1999 compared to the six-month
period since acquiring MicroNet in June 1998. In 1998, the revenue increase
compared to 1997 is attributed to the inclusion of MicroNet product sales for
the six-month period, offset in part by slightly lower royalty income.
Royalty Income. Royalty income was $19.9 million in 1999, $10.6 million in
1998 and $12.6 million in 1997. The increase in royalties in 1999 was positively
impacted by royalty income of approximately $10.0 million, representing the
portion of royalties earned through 1999 from a previously disclosed long-term
license agreement
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<PAGE>
extending through the year 2001. 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. During
this period, a growing portion of royalty income related to 6-mm and 8-mm video
recorders and camcorders. The Company is assessing whether manufacturers of
video games, DVD recorders and digital television receivers are using its
patented technology. There can be no assurance that the manufacturers of these
products are utilizing the Company's technology or, if used, whether the Company
will be able to negotiate license agreements with the manufacturers. Royalty
income has historically fluctuated widely due to a number of factors that the
Company cannot predict or control such as the extent of use of the Company's
patented technology by third parties, the materiality of any nonrecurring
royalties received as the result of negotiated settlements for products sold by
manufacturers prior to entering into licensing agreements with the Company, the
extent which the Company must pursue litigation in order to enforce its patents,
and the ultimate success of its licensing and litigation activities. The costs
of patent litigation can be material, and the institution of patent enforcement
litigation may also increase the risk of counterclaims alleging infringement by
the Company of patents held by third parties or seeking to invalidate patents
held by the Company. See "Legal Proceedings," above.
Internet Revenue. The Company's Internet video programming and services
business began in early 1999, and in June 1999 were consolidated under its
subsidiary, iNEXTV. iNEXTV recorded revenue of $1.7 million in the year ended
December 31, 1999, principally from Internet video services conducted by TV
onthe WEB. Such revenues do not include revenues of TV1, which provides Internet
video services to European businesses, as TV1 is not a majority-owned affiliate.
iNEXTV currently anticipates that Internet video revenues will grow in 2000, but
that revenues from advertising and e-commerce are not expected to become
significant until the second half of 2000. The Company's two new websites,
EXBTV.com and iSTYLETV.com, which are expected to rely significantly on
advertising and e-commerce revenues, were launched in the first quarter of 2000.
Additionally, AENTV.com's new programming, on which it will be primarily
dependent for revenue, was introduced in the fourth quarter of 1999.
Product Sales. The Company has included the operations of MicroNet in its
consolidated results of operations since its acquisition effective June 30,
1998. Sales of MicroNet products for 1999 totaled $11.0 million compared to the
six-month period since acquisition of $5.5 million. The Company believes that
MicroNet sales levels have been adversely impacted by the decision to withdraw
from lower priced product lines, and MicroNet is refocusing on higher
performance disk-array products such as the DataDock 7000, and Genesis which was
introduced in 1999. In 2000, MicroNet has introduced SANCube which is
anticipated to further enhance MicroNet's position in the market for storage
area network products.
Intellectual Property Costs. Intellectual property costs relate to those
expenditures incurred by the Company's in-house patent department in procuring
royalty income and expenditures associated with patent enforcement litigation.
Intellectual property costs totaled $1.3 million, $1.5 million and $5.7 million
in 1999, 1998 and 1997, respectively. Expenditures in 1997 were higher than in
subsequent years as the Company filed a lawsuit alleging patent infringement
resulting in additional legal expenses.
Internet Video Programming and Site Development. Internet video
programming and site development costs of $7.9 million in 1999 represent costs
incurred for services rendered to customers, as well as costs incurred for the
development of made-for-the-Internet video programming and website hardware and
software purchases in preparation for the launch of EXBTV.com and iSTYLETV.com.
Such costs also include costs incurred by Ampex's Internet Technology Group to
develop improved Internet video technology that will be used by iNEXTV and its
affiliates. The Company anticipates that site development startup costs will
decline in the first quarter of 2000, but that expenditures for program
production, marketing and advertising will increase materially as the network
expands.
Cost of Product Sales. Product costs associated with MicroNet sales were
$8.6 million and $4.1million in 1999 and the six-month period since acquisition,
respectively. The Company has been transitioning MicroNet's product line to
focus on higher margin disk arrays and storage area network products. Gross
margins on such products are generally higher than on the Company's current
product lines.
Research, Development and Engineering Expenses. Research, development and
engineering expenses associated with MicroNet increased to $1.0 million (9.2% of
product sales) in 1999 from $0.4 million (7.0% of
22
<PAGE>
product sales) in 1998. The majority of RD&E was focused on the development and
engineering on disk array products, specifically the development of the Genesis
and SANCube product lines which have been introduced to the market in 1999 and
early 2000, respectively. The Company did not have any RD&E expenses in 1997.
The Company is also committed to investing in research, development and
engineering programs which support iNEXTV's Internet video strategy.
Selling and Administrative. Selling and administrative expenses increased
to $15.4 million in 1999 from $7.1 million in 1998 and $3.9 million in 1997. In
addition to costs incurred for the Internet video programming and site
development discussed above, the Company's Internet video businesses incurred
sales, marketing and administrative expenses totaling $12.2 million in 1999. In
1998, there were no material Internet-related expenditures. MicroNet incurred
expenditures of $4.0 million in 1999 compared to $2.5 million for the six-month
period since acquisition. The Company anticipates that it will need to increase
its sales and marketing efforts to be successful in bringing together the
necessary capabilities to build the Company's presence in Internet video markets
and increase sales at MicroNet due to its new product offerings in early 2000.
Amortization of Goodwill and Asset Writedown. In connection with the
acquisitions of each of MicroNet, TV onthe WEB and AENTV, the purchase price
exceeded the fair value of assets acquired and liabilities assumed, resulting in
the recording of goodwill. Goodwill is being amortized on a straight-line basis
over a three-to-five year period from the respective dates of acquisition.
Additional goodwill may be recognized to the extent that future payments are
required to be paid on the MicroNet preferred stock, or if the Company exercises
options to acquire controlling equity interest in its other Internet video
affiliates. The rapid amortization policy results in material charges against
operations and increased losses being recognized. In the fourth quarter of 1999,
the Company elected not to exercise options to acquire additional ownership in
Executive Branch Webcasting Corporation ("EBWC") but to proceed with the
development of EXBTV.com as an iNEXTV-funded Internet video initiative. The
Company wrote off its minority investment in EBWC totaling $1.5million. Also in
the fourth quarter of 1999, the Company wrote off a minority investment in a
company providing web hosting and Internet consulting services, totaling $0.5
million, since the Company is no longer involved in the strategic direction of
that entity.
Acquisition of In-process Research and Development. In connection with the
acquisition of MicroNet, the independent appraisal of the in-process research
and development resulted in the recording of a one-time $0.9 million charge in
the second quarter of 1998. At the acquisition date, MicroNet was in the process
of developing four significant enhancements to its Data Dock product line which
had not reached technological feasibility and for which there was no future
alternative use. These projects included:
. the first generation Genesis product, a disk array with a scalable,
variable raid-configured disk array offering up to 1 terabyte of
capacity and fibre channel interface for broadband users,
. the second generation Genesis product that will incorporate a fibre
channel back plane to permit fibre channel connectivity to fibre
channel disk drives,
. DataDock products offering a low voltage differential compatible
back plane to connect to Ultra2 SCSI channels between the disk array
and host computer,
. DataDock products offering Ethernet connectivity permitting local
and remote monitoring via TCP/IP networks and standard web browsers
for multiple user workgroup environments.
The classification of each research and development project as "complete"
or "under development" was made in accordance with the guidelines of SFAS 86,
SFAS 2 and FIN4. The above development projects were estimated to be completed
within 18 months of the acquisition date and between 25% and 85% complete, based
on engineering estimates of hours incurred to date and hours expected to be
required to complete technological feasibility per project. The Company's
development effort involves storage subsystem design and includes software,
firmware and electronics designed to tie together disk drives and third party
hardware drive mechanisms. MicroNet's design philosophy is to incorporate
"off-the-shelf" technology as it becomes available and proven in the
marketplace, and to focus its design activities on ease of use, reliability,
security, durability and similar enhancements. As a result, its development
activities can be budgeted with a fair degree of precision.
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All in-process R&D projects continue to progress, in all material
respects, consistently with the assumptions that MicroNet provided to the
independent appraiser for use in the valuation of the in-process R&D. The
Company used an independent appraisal firm to assist it with its valuation of
the fair market value of the purchased assets of MicroNet and the valuation of
the consideration issued. Fair market value is defined as the estimated amount
at which an asset might be expected to be exchanged between a willing buyer and
willing seller, assuming the buyer continues to use the assets in their current
operations. MicroNet provided assumptions by product line of revenue, cost of
goods sold and operating expense to the appraiser to assist in the valuation.
The appraisal considered three traditional approaches to valuation: the cost
approach, the market approach and the income approach. The incomplete technology
represents a mix of near and mid-term prospects for the business and imparts a
level of uncertainty to its prospects. It is the nature of the business to be
constantly developing enhanced products that offer improved storage capacity and
performance. A reasonable expectation of return on the incomplete technology
would be higher than that of completed technology due to these inherent risks.
As a result, the earnings associated with incomplete technology were discounted
at a rate of 39%, and included as in-process R&D only that portion of the
discounted revenues that had been completed at the acquisition date. The
valuation was based on the assumption that the estimated cost to complete all
products under development, measured as of the acquisition date, would be
approximately $500,000. The valuation approach also assumed that these products
would generate revenues through the year 2007. The inability of MicroNet to
complete this technology within the expected timeframes could materially impact
future revenues and earnings, which could have a material adverse effect on
MicroNet's business, financial condition and results of operations.
Operating Income (Loss). The Company incurred an operating loss of $6.2
million in 1999 compared to operating income of $1.5 million in 1998 and
operating income of $2.9 million in 1997. The operating loss in 1999 was
primarily due to the inclusion of the Company's Internet video activities,
including amortization of goodwill as a result of the acquisition of TV onthe
WEB and AENTV and the write off of two minority investments described above,
offset in part by royalty income of which approximately $10.0 million relates to
royalties earned from a previously disclosed license agreement. The Company
expects to make additional strategic acquisitions relative to its Internet video
strategy that will require significant expenditures in 2000 and future periods.
The Company may also incur material charges to goodwill amortization and that
will increase consolidated net losses while the Company is building its Internet
programming network.
Interest Expense. Interest expense, primarily due to the issuance of $44.0
million of 12% Senior Notes due 2003 and Warrants to purchase approximately 1.02
million shares of Common Stock in January and July 1998, increased between the
comparison periods. Interest expense was not material in 1997.
Amortization of Debt Financing Costs. These amounts reflect periodic
amortization of financing costs over the remaining terms of the debt. Financing
costs associated with the January and July 1998 issuance of the 12% Senior Notes
are being charged to expense over five years.
Interest Income. Interest income is earned on cash balances and short and
long-term investments. In 1999 and 1998 the Company, pending application of the
proceeds of the 12% Senior Notes, had significantly higher investment balances
compared to 1997, which resulted in higher interest income. In 1997, interest
income included imputed interest on the notes received in connection with the
sale of the Company's Redwood City, California property in 1996. The notes were
fully paid in 1997.
Other (Income) Expense, Net. In 1999, other (income) expense, net includes
a proportionate share of the net loss for the period the Company held a minority
interest in TV onthe WEB and AENTV.
Provision for (Benefit of) Income Taxes. The provisions for income taxes
in 1999 and 1997 consist primarily of foreign income taxes and withholding taxes
on royalty income. In the first quarter of 1998, the Company reversed $5.2
million previously reserved in connection with disputed state income taxes for
the prior years, following the favorable settlement of that dispute in March
1998. In the second and third quarters of 1998, the Company reversed $4.9 and
$5.2 million, respectively, previously reserved in connection with the
liquidation of its subsidiary in Italy. See Note 20 of Notes to Consolidated
Financial Statements. The Company was not required to include any material
provision for U.S. Federal income tax in any of the last three fiscal years due
to the utilization of net operating loss carry forwards and timing differences.
At December 31, 1999, the Company had net operating loss carry forwards for
income tax purposes of $128.8 million, expiring in the years 2005 through 2014.
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As a result of financing transactions that were completed in 1994 and 1995, the
Company is limited in the amount of net operating loss carry forwards that can
offset consolidated Federal taxable income in a given year. 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, 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 loss carry forwards are not deductible in
computing such foreign taxes.
Gain (Loss) of Business Held for Disposition. In February 2000, the Board
of Directors of the Company authorized management to pursue a sale of Data
Systems, its wholly-owned subsidiary that manufacturers and sells high
performance, tape-based mass data storage products. As a result, for all periods
presented, the Company reported as a single line item in the Consolidated
Statements of Operations and Comprehensive Income (Loss), a gain (loss) of
business held for disposition, net of taxes of ($3.0) million, ($3.8) million
and 11.6 million in 1999, 1998 and 1997, respectively. Revenues of this segment
totaled $51.6 million, $57.8 million and $80.3 million in 1999, 1998 and 1997,
respectively. Total costs and operating expenses of this segment totaled $54.9
million, $62.2 million and $69.8 million in 1999, 1998 and 1997, respectively.
Other (income) expense of this segment totaled $(0.2) million, ($0.5) million
and ($1.5) million in 1999, 1998 and 1997, respectively. Prospective buyers have
only recently been approached by the Company's advisors. However, the Company
believes that it will recognize a gain on the sale of Data Systems some time in
fiscal 2000.
Net Income (Loss). The Company reported a net loss of $15.4 million in
1999 and net income of $10.4 million in 1998 and $14.8 million in 1997,
primarily as a result of the factors discussed above under "Operating Income
(Loss)", "Provision for (Benefit of) Income Taxes" and "Gain (Loss) of Business
Held for Disposition."
Benefit from Extinguishment of Mandatorily Redeemable Preferred Stock. On
April 28, 1999, the Company agreed to exchange 40,000 shares of its Common Stock
for 287 of its outstanding Redeemable Preferred Stock. The resultant $374,000
benefit on exchange has been recognized as a benefit available to the common
stockholders in the Consolidated Statements of Operations and Comprehensive
Income (Loss).
Liquidity and Capital Resources
Cash Flow. At December 31, 1999, the Company had cash and short-term
investments of $41.7 million and working capital of $38.5 million. At December
31, 1998, the Company had cash and short-term investments of $62.6 million and
working capital of $70.0 million. Data Systems, which is accounted for as a
Discontinued Operation, had working capital of $8.8 million and $16.8 million at
December 31, 1999 and 1998, respectively. Working capital of Data Systems has
been classified in net assets of business held for disposition at December 31,
1999, whereas such balances are included in the respective balance sheet
accounts of the Company at December 31, 1998. The decline in cash and short-term
investments from 1998 to 1999 results primarily from operating losses of the
Company's Internet video businesses, operations of the Internet Technology Group
and operating losses of MicroNet. These losses more than offset operating income
from the Company's non-Internet technology licensing activities. Cash used in
continuing operations totaled $ 11.9 million in 1999 and $5.8 million in 1998.
Cash provided from (used in) discontinued operations totaled $2.0 million in
1999 and $(2.9 million) in 1998.
Major items impacting income from continuing operations in 1999, which did
not affect cash, were goodwill amortization and asset write-downs associated
with acquired Internet businesses, totaling $4.6 million. Other non-cash charges
affecting 1999 operations included other depreciation and amortization of $1.2
million, the Company's equity in losses in Internet businesses prior to the
Company having acquired control in such affiliates totaling $0.7 million, and
stock issued to individuals for services rendered to the Company totaling $0.7
million.
During 1999, the Company, through its subsidiary iNEXTV, acquired majority
control of TV onthe WEB and AENTV in step acquisitions. The Company invested a
total of $14.4 million in such affiliates. The Company has included the value of
assets and liabilities of these majority-owned affiliates in its Consolidated
Financial Statements and has reported 100% of net losses reported by these
affiliates for periods after it acquired a majority interest. Also during 1999,
the Company acquired minority interests in Executive Branch Webcasting
Corporation ("EBWC") and TV1. The Company invested a total of $3.3 million in
such affiliates. The Company has elected not to exercise options to acquire
additional ownership in EBWC but to proceed with the development of EXBTV.com
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<PAGE>
as an iNEXTV-funded Internet video initiative. Accordingly, in the fourth
quarter of 1999, the Company wrote off its minority investment in EBWC.
The Company's strategy is to grow Internet revenues from video
advertising, e-commerce partnerships, webcasting and technology licensing. In
order to do so, the Company will be required to incur substantial expenditures
to attract users to its video websites, which have only recently become
operational. Material advertising and e-commerce revenues are not likely to be
obtained until a significant base of users can be demonstrated. There can be no
assurance that the Company will be successful in obtaining sufficient revenues
from the above sources to make its Internet video businesses viable or
profitable.
The Company intends to seek strategic partnerships with other companies in
order to obtain additional content, brand recognition, user awareness,
technology and infrastructure cost savings. The Company may be required to
commit significant resources and/or to issue a significant percent of its Common
Stock in order to attract such prospective partners, which would dilute current
stockholders' interest in the Company.
The Company believes that it has adequate financial resources to develop
its Internet video businesses as presently envisioned for at least the next
twelve months. However, the Company may seek to raise additional capital this
next fiscal year to support future years' operations and to make new investments
in streaming media Internet ventures and technology. The Company may seek to
issue additional shares of Common Stock in public or private equity transactions
or seek to sell equity securities of one or several of its Internet video
businesses in an initial public offering. There can be no assurance that a
market will exist for the Company's or its affiliates securities. The Company
expects that it will face an increased number of competitors in future years,
many of whom will be better capitalized and have greater financial resources
than the Company. The ability to access the capital markets will be instrumental
to the Company's future success.
The Company has available, through a subsidiary, a working capital
facility that allows it to borrow or obtain letters of credit totaling $7.0
million, based on eligible accounts receivable, through May 2002. At December
31, 1999, the Company had borrowings outstanding of $0.8 million and had letters
of credit issued against the facility totaling $1.1 million. At December 31,
1998, the Company had borrowings outstanding of $2,549 and had letters of credit
issued against the facility totaling $0.9 million. The Company believes that
this facility will be significantly reduced or allowed to expire in conjunction
with the sale of Data Systems.
Financing Transactions. During 1999, holders of 8,115 shares of
Convertible Preferred Stock exchanged their holdings for 4,057,500 shares of
Common Stock, leaving 1,885 shares of Convertible Preferred Stock outstanding.
Subsequent to year-end, holders of 760 shares of Convertible Preferred Stock
exchanged their holdings for 380,000 shares of Common Stock. Beginning in June
2001, the Company will be required to redeem any remaining shares of Convertible
Preferred Stock in quarterly installments through September 2008. The Company's
Redeemable Preferred Stock is redeemable in quarterly installments from June
1999 through March 2008. During 1999, the Company satisfied its redemption
obligation by issuing 1,242,245 shares of Common Stock in exchange for
Redeemable Preferred Stock with a liquidation preference of $4.5 million. In
April 1999, the Company agreed to exchange 287 shares of Redeemable Preferred
Stock for 40,000 shares of Common Stock. The resultant $374,000 benefit on
exchange has been recognized as a benefit available to common stockholders on
its Consolidated Statements of Operations and Comprehensive Income (Loss) for
the year ended December 31, 1999. The Company will have the option to redeem the
Redeemable Preferred Stock at any time and the Convertible Preferred Stock
beginning in June 2001, and has the option to make mandatory redemption payments
either in cash or in shares of Common Stock. Shares of Common Stock issued to
make any optional or mandatory redemption payments will be valued at the higher
of $2.50 or fair market value per share of Common Stock. See Note 15 of Notes to
Consolidated Financial Statements.
In January 1998, the Company issued $30.0 million of its 12% Senior Notes,
together with Warrants to purchase 1.02 million shares of its Class A Common
Stock (the "Class A Stock"). The Warrants are exercisable at $2.25 per share at
any time on or prior to March 15, 2003. At the end of the second quarter of
1998, the Company issued an additional $14.0 million of 12% Senior Notes. As a
result of the issuance of the 12% Senior Notes, the Company's total indebtedness
and future debt service obligations have increased significantly from prior
levels. A portion of the net proceeds of the offering have been invested to
repay short-term debt and trade accounts payable of MicroNet, and the balance
has been invested in short-term government securities and other investments. The
yield
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<PAGE>
on the Company's investment portfolio is substantially lower than the interest
charges on the 12% Senior Notes. The Company has wide discretion as to how the
debt proceeds may be invested, including for acquisitions of and investments in
new businesses, including the Company's Internet video businesses. Any such
investments or acquisitions are not expected to pay a current return, which
could require the Company to fund debt service obligations on the 12% Senior
Notes out of its liquidity and cash flow from existing operations. In order to
minimize the difference between the interest the Company currently receives on
its investments and the interest payable on the Senior Notes, the Company has
invested a portion of the Senior Note proceeds in securities with higher yields,
longer terms or lower credit quality, and the Company may also engage in various
transactions in derivative securities. Investments in any securities could
expose the Company to a risk of trading losses due to market or interest rate
fluctuations or other factors that are not within the Company's control. The
indenture under which the 12% Senior Notes were issued contains customary
affirmative and negative restrictive covenants that limit, among other things,
the incurrence of additional senior debt, the payment of dividends, the sale of
assets and other actions by the Company and certain restricted subsidiaries.
Upon a successful sale of Data Systems, the Company plans to offer to repay a
substantial portion of the Senior Notes.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS 133 is effective for the
Company in fiscal year 2000 and will not require retroactive restatement of
prior period financial statements. The Company has not yet quantified the impact
of adopting SFAS 133 on its financial statements, but the Company believes there
will not be a significant impact.
In December 1999, the Securities Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements, which outlines the basic criteria that must be met to recognize
revenue and provides guidance for presentation of revenue and for disclosure
related to revenue recognition policies in financial statements filed with the
SEC. The Company believes that adopting SAB 101 will not have a material impact
on the Company's financial position and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes, foreign
currency fluctuations, and change in the market values of its investments.
Interest Rate Risk. The Company's exposure to market rate risk for changes
in interest rates relates primarily to the Company's investment portfolio. The
Company has not used derivative financial instruments in its investment
portfolio. The Company invests its excess cash in debt instruments of the U.S.
government and its agencies, and in high-quality corporate issuers and, by
policy, limits the amount of credit exposure to any one issuer. The Company
protects and preserves its invested funds by limiting default, market and
reinvestment risk.
Investments in both fixed rate and floating rate interest-earning
instruments carries a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment income
may fall short of expectations due to changes in interest rates or the Company
may suffer losses in principal if forced to sell securities which have declined
in market value due to changes in interest rates.
Foreign Currency Risk. International revenues from the Company's foreign
subsidiaries were less than 25% of total revenues. International sales are made
mostly from the Company's foreign sales subsidiaries in their respective
countries and are typically denominated in the local currency of each country.
These subsidiaries also
27
<PAGE>
incur most of their expenses in the local currency. Accordingly, all foreign
subsidiaries use the local currency as their functional currency.
The Company's international business is subject to risks typical of an
international business including, but not limited to, differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
the Company's future results could be materially adversely impacted by changes
in these or other factors.
The Company's exposure to foreign exchange rate fluctuations arises in
part from intercompany accounts in which costs incurred in the United States are
charged to the Company's foreign sales subsidiaries. These intercompany accounts
are typically denominated in the functional currency of the foreign subsidiary
in order to centralize foreign exchange risk with the parent company in the
United States. The Company is also exposed to foreign exchange rate fluctuations
as the financial results of foreign subsidiaries are translated into U.S.
dollars in consolidation. As exchange rates vary, these results, when
translated, may vary from expectations and adversely impact overall expected
profitability. The effect of foreign exchange rate fluctuations on the Company
in 1999 was not material.
Investment Risk. The Company invests in equity instruments of technology
companies for business and strategic purposes. These investments are included in
other long-term assets and are accounted for under the cost method when
ownership is less than 20%. The Company's policy is to regularly review the
assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying values. The Company identifies and records impairment
losses on long-lived assets when events and circumstances indicate that such
assets might be impaired. To date, no such impairment has been recorded.
Investments, which are in the Internet industry, are subject to significant
fluctuations in fair market value due to the volatility of the stock market.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Item 8 and the financial statement
schedules required by Item 14(d) are included following Item 14 hereof. The
supplementary data called for by Item 8 is not applicable to the Company.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this item is incorporated herein by reference
to the Company's Proxy Statement for its 1999 Annual Meeting of Stockholders
(the "Proxy Statement").
Information regarding executive officers is included in Part I hereof as
Item 4A and is incorporated by reference into this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to the Company's Proxy Statement.
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<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM S-K
(a) Documents Filed with this Report:
1. Financial Statements (see Item 8 above).
Ampex Corporation Consolidated Balance Sheets and Statements of
Operations and Comprehensive Income (Loss), of Cash Flows, and of
Stockholders' Deficit as of December 31, 1999, 1998 and 1997 and
for each of the three years in the period ended December 31,
1999.
2. Financial Statement Schedule (see Item 8 above) Schedule II
Valuation and Qualifying Accounts.
3. Exhibits.
Exhibit
Number Description
2.1 Stock Purchase Agreement dated as of November 10, 1995, among the Company,
Quantegy Acquisition Corp., Ampex Media Holdings Incorporated, Ampex Media
Corporation and Ampex Recording Media Corporation (filed as Exhibit 10.1
to the Company's Form 8-K dated November 13, 1995 and incorporated herein
by reference).
3.1 Restated Certificate of Incorporation of the Company dated June 1, 1993
(filed as Exhibit 4.01 to the Company's Form 10-Q for the quarter ended
March 31, 1993 and incorporated herein by reference); Certificate of
Amendment of Restated Certificate of Incorporation of the Company filed
with the Secretary of State of Delaware on April 22, 1994 (filed as
Exhibit 3.2 to the Company's Form 8-K filed on May 2, 1994 (the "May 1994
8-K") and incorporated herein by reference); and Certificate of Amendment
of Restated Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on April 20, 1995 (filed as Exhibit 4.1 to
the Company's Form 10-Q for the quarter ended March 31, 1995 (the "First
Quarter 1995 10-Q") and incorporated herein by reference).
3.2 Certificate of Designations, Preferences and Rights of the Company's 8 %
Noncumulative Convertible Preferred Stock and 8% Noncumulative Redeemable
Preferred Stock as filed with the Secretary of Delaware on July 2, 1998
(filed as Exhibit 3.1 to the Company's Form 8-K filed on July 15, 1998
(the "July 1998 8-K") and incorporated herein by reference).
3.3 By-Laws of the Company, as amended through April 20, 1995 (filed as
Exhibit 4.2 to the First Quarter 1995 10-Q and incorporated herein by
reference).
4.1 Form of Class A Common Stock Certificate (filed as Exhibit 4.4 to the
Company's Post-Effective Amendment No. 1 on Form S-3 to Form S- 1 (File
No. 33-93312) (the "1996 Form S-3") and incorporated herein by reference).
4.2 Form of Class C Common Stock Certificate (filed as Exhibit 4.5 to the 1996
Form S-3 and incorporated herein by reference).
4.3 Exchange Agreement for 8% Noncumulative Preferred Stock, dated as of June
22, 1998, among the Company and the Holders named therein (filed as
Exhibit 4.1 to the July 1998 8-K and incorporated herein by reference).
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<PAGE>
4.4 Stock Purchase Agreement, dated February 10, 1995, between the Company and
Edward J. Bramson, and related promissory note issued to the Company by
Sherborne Investments Corporation (each filed as an Exhibit to Amendment
No. 6 to Schedule 13D, filed on February 23, 1995 by Edward J. Bramson and
the other filing parties named therein, and incorporated herein by
reference).
4.5 Stock Subscription and Debt Exchange Agreement dated as of January 25,
1993 between the Company and Sherborne Group Incorporated, and
Registration Rights Agreement dated as of January 25, 1993 between the
Company and Sherborne Group Incorporated, executed in counterpart by
Sherborne Holdings Incorporated (each filed as an Exhibit to Amendment No.
1 to Schedule 13D, filed on February 3, 1993 by Sherborne Group
Incorporated, Sherborne Holdings Incorporated and the other filing parties
named therein, and incorporated herein by reference).
4.6 Promissory Note in the amount of $1,754,727, issued by the Company to NH
Holding Incorporated, dated December 22, 1993 (filed as Exhibit 4.25 to
the Company's Form 10-K for its fiscal year ended December 31, 1993 (the
"1993 Form 10-K") and incorporated herein by reference).
4.7 Warrant Agreement, dated as of January 28, 1998, between the Registrant
and American Stock Transfer & Trust Company, as warrant agent, including
form of Warrant Certificate (filed as Exhibit 4.2 to the Registrant's Form
8-K filed on February 2, 1998 (the "February 1998 8-K") and incorporated
herein by reference).
4.8 Indenture, dated as of January 28, 1998, between the Company and IBJ
Schroder Bank & Trust Company, as trustee, relating to the Registrant's
12% Senior Notes due 2003, including forms of 12% Senior Notes (filed as
Exhibit 4.1 to the February 1998 8-K and incorporated herein by
reference).
4.9 Purchase Agreement, dated January 26, 1998, between the Registrant and
First Albany Corporation, relating to the Registrant's 12 % Senior Notes
due 2003 (filed as Exhibit 1.1 to the February 1998 8-K and incorporated
herein by reference).
4.10 Exchange and Registration Rights Agreement, dated as of January 28, 1998,
between the Registrant and First Albany Corporation, relating to the
Registrant's 12% Senior Notes due 2003 (filed as Exhibit 4.3 to the
February 1998 8-K and incorporated herein by reference).
4.11 Warrants and Warrants Share Registration Rights Agreement, dated as of
January 28, 1998, between the Registrant and First Albany Corporation
(filed as Exhibit 4.4 to the February 1998 8-K and incorporated herein by
reference).
4.12 Purchase Agreement, dated July 17, 1998, between the Registrant and First
Albany Corporation, as Initial Purchaser, relating to the Company's 12%
Senior Notes due 2003 (filed as Exhibit 1.1 to the Company's Form 8-K
filed on July 30, 1998 and incorporated herein by reference).
4.13 First Amendment to Indenture, dated as of July 2, 1998, between the
Registrant and IBJ Schroder Bank & Trust Company, as trustee (filed as
Exhibit 4.1 to the Company's Form 8-K filed on July 30, 1998 and
incorporated herein by reference).
4.14 Exchange and Registration Rights Agreement, dated as of July 2, 1998,
between the Registrant and the Initial Purchaser (filed as Exhibit 4.2 to
the Company's Form 8-K filed on July 30, 1998 and incorporated herein by
reference).
4.15 Acquisition Agreement, dated as of June 24, 1998, among the Registrant,
Ampex Holdings Corporation ("Holdings") and the several selling
stockholders named therein ("Sellers") (filed as
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<PAGE>
Exhibit 4.3 to the Company's Form 8-K filed on July 30, 1998 and
incorporated herein by reference).
4.16 Supplement to Acquisition Agreement, dated June 30, 1998, among the
Registrant, Holdings and the Sellers (filed as Exhibit 4.4 to the
Company's Form 8-K filed on July 30, 1998 and incorporated herein by
reference).
4.17 Second Supplement to Acquisition Agreement, dated July 16, 1998, among the
Registrant, Holdings and the Sellers (filed as Exhibit 4.5 to the
Company's Form 8-K filed on July 30, 1998 and incorporated herein by
reference).
10.1 Tax Indemnification Agreement dated as of July 24, 1992 among Sherborne
Group Incorporated, NH Holding Incorporated, the Company and certain
affiliates and former affiliates of the Company (filed as Exhibit 10.1 to
the Company's Form 1O-Q for the quarter ended September 30, 1992 (the
"Third Quarter 1992 10-Q") and incorporated herein by reference).
10.1 Ampex Corporation 1992 Stock Incentive Plan and related documents, as
amended through August 22, 1996 (filed as Exhibit 4.03 to the Company's
Post-Effective Amendment No. 1 to Registration Statement on Form S-8 (File
No. 333-05623) and incorporated herein by reference).
10.2 Ampex Systems Corporation Savings Plan (1997 Restatement) (filed as
Exhibit 10.3 to the Company's Form 10-K for its fiscal year ended December
31, 1997 (the "1997 Form 10-K") and incorporated herein by reference).
10.3 Ampex Systems Corporation Employees' Retirement Plan, as amended and
restated as of January 1, 1997 (filed as Exhibit 10.4 to the Company's
1997 Form 10-K and incorporated herein by reference).
10.4 Ampex Corporation Supplemental Retirement Income Plan, as amended through
September 3, 1985 (filed as Exhibit 10.27 to Amendment No. 3 to the
Company's Registration Statement on Form S-1 (filed No. 33-47660) and
incorporated herein by reference).
10.5 Form of Indemnification Agreement entered into between the Company and
directors Bramson, McKibben, Slusser and Stoltzfus (filed as Exhibit 10.16
to the Company's Form 10-Q for the quarter ended June 30, 1993 (the
"Second Quarter 1993 10-Q") and incorporated herein by reference).
10.6 Office Sharing Agreement and Assignment and Assumption of Lease, each
dated as of July 24, 1992 and each between the Company and Sherborne Group
Incorporated (filed as Exhibit 10.20 to the Third Quarter 1992 10-Q and
incorporated herein by reference), and related Sublease dated October 4,
1993 and Letter Agreement dated October 28, 1993 (filed as Exhibit 10.20
to the 1993 10-K and incorporated herein by reference).
10.7 Loan and Security Agreement by and between Ampex Finance Corporation and
Congress Financial Corporation dated May 5, 1994 (filed as Exhibit 10.2 to
the Company's Form 10-Q for the quarter ended March 31, 1994 and
incorporated herein by reference) and Amendment Agreement dated as of July
31, 1995, second Amendment Agreement, dated March 29, 1996 (filed as
Exhibit 10.2 to the Company's Form 10-Q for the quarter ended June 30,
1996 and incorporated herein by reference), third Amendment Agreement,
dated December 26, 1996 (filed as Exhibit 10.13 to the Company's Form 10-K
for its fiscal year ended December 31, 1996 (the "1996 Form 10-K") and
incorporated herein by reference).
10.8* Fourth Amendment Agreement to Loan and Security Agreement by and between
Ampex Finance Corporation and Congress Financial Corporation dated April
7, 1999.
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<PAGE>
10.9* Form of Employment Security Letter entered into between the Company and
Messrs. Atchison, Cooper, McKibben, Jacquet and Talcott (executive
officers of the Company), dated July 24, 1998.
10.10 Stock Purchase Agreement, dated October 22, 1996, between the Company and
Edward J. Bramson (filed as Exhibit 10.15 to the 1996 Form 10-K and
incorporated herein by reference).
10.11 Lease dated January 19, 1996 by and between Martin/Campus Associates, LP
as landlord and the Company as tenant, with respect to approximately
132,150 square feet of premises located on Douglas Avenue and on Broadway
in Redwood City, California (filed as Exhibit 2.03 to the Company's Form
8-K filed on February 5, 1996 and incorporated herein by reference) as
amended by amendment dated December 20, 1996 (filed as Exhibit 10.17 to
the 1996 Form 10-K and incorporated herein by reference).
10.12* Amendment dated September 10, 1998 and amendment dated November 19, 1999
to Lease between Martin/Campus Associates, LP as landlord and the Company
as tenant.
10.13 Lease dated January 19, 1996 by and between Martin/Campus Associates, LP
as landlord and the Company as tenant, with respect to approximately
60,000 square feet of premises to be constructed on Broadway in Redwood
City, California (filed as Exhibit 2.06 to the January 1996 8-K and
incorporated herein by reference).
10.14 Trademark License Agreement dated May 31, 1990, by and between Ampex
Corporation (a predecessor of the Company) as licensor, and certain of
the Media Subsidiaries as licensee, relating to the Ampex trademark;
related Trademark License Agreement dated July 24, 1992, by and between
Ampex Systems Corporation (a former subsidiary that was merged into the
Company) certain of the Media Subsidiaries; Amendment No. 1 to Trademark
License Agreement dated March 23, 1993; Amended and Restated Trademark
License Agreement dated June 22, 1993; and First Amendment to Amended and
Restated Trademark License Agreement dated November 10, 1995 (filed as
Exhibit 10.2 to the Company's Form 10-K for its fiscal year ended
December 31, 1995 and incorporated herein by reference).
10.15 Joint Settlement Agreement by and among Pension Benefit Guaranty
Corporation, the Ampex Group (a group of companies that includes the
Company), the Limited Hillside Group and the Sherborne Group, dated
November 22, 1994 (filed as Exhibit 10.2 to 1995 Form 10-K and
incorporated herein by reference).
10.16 Hillside-Ampex/Sherborne Agreement by and among the Ampex Group (a group
of companies that includes the Company), the Limited Hillside Group and
the Sherborne Group, dated December 1, 1994 (effective November 22, 1994)
(filed as Exhibit 10.2 to 1995 Form 10-K and incorporated herein by
reference).
10.17 Stock Purchase Agreement, dated as of October 29, 1997, between the
Registrant and Edward J. Bramson (filed as Exhibit 10.20 to Registrant's
Form 10-K for fiscal 1997 and incorporated herein by reference).
10.18 Stock Purchase Agreement, dated as of November 7, 1997, between the
Registrant and Edward J. Bramson (filed as Exhibit 10.21 to Registrant's
Form 10-K for fiscal 1997 and incorporated herein by reference).
10.19 Stock Purchase Agreement dated as of February 18, 1998 between the
Registrant and Edward J. Bramson (filed as Exhibit 10.22 to Registrant's
Form 10K for fiscal 1997 and incorporated herein by reference).
21.1* Subsidiaries of the Company.
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23.1* Consent of Independent Accountants.
25.1* Power of Attorney (included in the signature page of this Report).
27.1* Financial Data Schedule.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the fourth quarter of 1999.
(c) Exhibits. See Item 14(a)(3) above.
Financial Statement Schedules. See Items 8 and 14(a)(2) above.
* Filed Herewith.
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SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data, which have been
derived from and should be read in conjunction with the Company's Consolidated
Financial Statements, and the Notes thereto, and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," both of which
are included elsewhere herein. There have been no cash dividends declared for
the periods presented. In February 2000, the Company announced its intention to
sell Data Systems and therefore has classified this subsidiary as a business
held for disposition in the statement of operations for 1999, 1998 and 1997 and
a net asset of business held for disposition in the Balance Sheet for 1999. In
November 1995, the Company completed the divestiture of its Media subsidiaries,
which had been accounted for as a business held for disposition since the second
quarter of 1993. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 1 to the table below.
Statement of Operations Data (1)(2):
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total revenue $32,559 $16,107 $12,550 $10,497 $15,006
Total costs and operating expenses 38,748 14,583 9,067 9,513 3,314
Income (loss) from continuing
operations (12,405) 14,233 3,163 340 9,080
Net income (loss) (15,371) 10,438 14,803 340 52,966
Diluted income (loss) per share
from continuing operations (0.23) 0.27 0.07 0.01 0.25
Diluted income (loss) per share (0.28) 0.20 0.32 0.01 1.18
Balance Sheet Data (2):
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
(in thousands)
<S> <C> <C> <C> <C> <C>
Working capital $38,461 $69,958 $44,607 $39,277 $10,742
Total assets 87,319 116,001 81,671 84,492 88,651
Long-term debt 43,914 43,380 2 914 31,585
Redeemable preferred stock 38,642 43,718 69,970 69,970 69,970
Convertible preferred stock 3,770 20,000 -- -- --
Total stockholders' deficit (33,506) (71,154) (90,015) (86,360) (127,357)
</TABLE>
(1) The sale of Media as discontinued operations in November 1995 is reflected
in the statement of operations for 1995.
(2) Classifies Data Systems as a business held for disposition in the
statement of operations for 1999, 1998 and 1997 and a net asset of
business held for disposition in the Balance Sheet for 1999.
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<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMPEX CORPORATION
By: /s/ Edward J. Bramson
-------------------------------------
Edward J. Bramson
Chairman and Chief Executive Officer
Date: March 28, 2000
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint Edward J. Bramson, Joel D.
Talcott, David Griffin or any of them, with full power to act, his
attomey-in-fact, with the power of substitution for him in any and all
capacities, to sign any or all amendments to this report, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Edward J. Bramson Chairman, Chief Executive Officer March 28, 2000
Edward J. Bramson and Director (Principal Executive Officer)
/s/ Craig L. McKibben Vice President, Chief Financial Officer, March 28, 2000
Craig L. McKibben Treasurer and Director
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas T. McClure, Jr. Director March 28, 2000
Douglas T. McClure, Jr.
/s/ Peter Slusser Director March 28, 2000
Peter Slusser
/s/ William A. Stoltzfus, Jr. Director March 28, 2000
William A. Stoltzfus, Jr.
</TABLE>
35
<PAGE>
AMPEX CORPORATION
INDEX TO FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants on Financial Statement Schedule........... S-2
Schedule II - Valuation and Qualifying Accounts............................. S-3
S-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
Ampex Corporation:
Our audits of the consolidated financial statements referred to in our
report dated March x, 2000, appearing on F-2 of this Annual Report on Form 10-K
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
March x, 2000
S-2
<PAGE>
AMPEX CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Additions Charges to Balance at
beginning of cost and other end of
Description period expenses accounts(1) Deductions(2) period
- ----------- ------------ --------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts and
sales returns
December 31, 1997 $ 2,241 $ (395) $ (67) $ (295) $ 1,484
December 31, 1998 $ 1,484 $ (432) $ 1,174 $ (866) $ 1,360
December 31, 1999 $ 1,360 $ (540) $ (432) $ (30) $ 358
Allowance for obsolete and slow
moving inventory
December 31, 1997 $20,077 $ 25 $ (3) $(4,470) $15,629
December 31, 1998 $15,629 $ 978 $ 5,961 $(4,926) $17,642
December 31, 1999 $17,642 $ 41 $(13,395) $(2,515) $ 1,773
Allowance restructuring costs
December 31, 1997 $ 7,598 $(2,104) $ -- $(2,176) $ 3,318
December 31, 1998 $ 3,318 $2,525 $ -- $(3,020) $ 2,823
December 31, 1999 $ 2,823 $3,787 $ (3,486) $(3,057) $ 67
</TABLE>
(1) Includes transfers and reclassifications to other accounts, including the
disposition of Ampex Data Systems Corporation accounts receivable,
inventories and accrued restructuring.
(2) Includes write-offs and disposition of accounts receivable, inventories
and accrued restructuring.
S-3
<PAGE>
AMPEX CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets
As of December 31, 1999 and 1998...................................... F-3
Consolidated Statements of Operations
For Each of the Three Years in the Period Ended December 31, 1999..... F-4
Consolidated Statements of Cash Flows
For Each of the Three Years in the Period Ended December 31, 1999..... F-5
Consolidated Statements of Stockholders' Deficit
For Each of the Three Years in the Period Ended December 31, 1999..... F-6
Notes to Consolidated Financial Statements................................ F-7
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Ampex Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 30 present fairly, in all material
respects, the financial position of Ampex Corporation and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedules listed in the
index appearing under Item 14(a)(2) on page 30 present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
February 25, 2000
<PAGE>
AMPEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,598 $ 11,300
Short-term investments 31,067 51,279
Accounts receivable (net of allowances of $358 in 1999 and $1,360 in 1998) 1,236 11,789
Inventories 2,261 19,766
Other current assets 4,951 2,510
--------- ---------
Total current assets 50,113 96,644
Property, plant and equipment 5,363 10,546
Intangible assets, net 9,806 5,461
Investment in unconsolidated companies 1,786 --
Deferred pension asset 5,571 --
Other assets 1,620 3,350
Net assets of business held for disposition 13,060 --
--------- ---------
Total assets $ 87,319 $ 116,001
========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 1,103 $ 180
Accounts payable 2,569 6,470
Accrued restructuring costs 67 2,135
Other accrued liabilities 7,913 17,901
--------- ---------
Total current liabilities 11,652 26,686
Long-term debt 43,914 43,380
Other liabilities 21,634 51,470
Deferred income taxes 1,213 1,213
Accrued restructuring costs -- 688
--------- ---------
Total liabilities 78,413 123,437
--------- ---------
Commitments and contingencies (Note 14)
Mandatorily redeemable junior preferred stock (Note 3) -- --
Mandatorily redeemable nonconvertible preferred stock, $1,000 liquidation value:
Authorized: 69,970 shares in 1999 and in 1998
Issued and outstanding - none in 1999 and in 1998 -- --
Mandatorily redeemable preferred stock, $2,000 liquidation value:
Authorized: 21,859 shares in 1999 and in 1998
Issued and outstanding - 19,321 shares in 1999; 21,859 in 1998 38,642 43,718
Convertible preferred stock, $2,000 liquidation value:
Authorized: 10,000 shares in 1999 and in 1998
Issued and outstanding - 1,885 shares in 1999; 10,000 in 1998 3,770 20,000
Stockholders' deficit:
Preferred stock, $1.00 par value:
Authorized: 898,171 shares in 1999 and in 1998
Issued and outstanding - none in 1999 and in 1998 -- --
Common stock, $.01 par value:
Class A:
Authorized: 175,000,000 shares in 1999; 125,000,000 shares in 1998
Issued and outstanding - 55,941,854 shares in 1999; 49,782,547 in 1998 559 498
Class C:
Authorized: 50,000,000 shares in 1999 and in 1998
Issued and outstanding - none in 1999 and in 1998 -- --
Other additional capital 415,437 391,849
Notes receivable from stockholders (4,642) (4,818)
Accumulated deficit (445,001) (429,630)
Accumulated other comprehensive income (loss) 141 (29,053)
--------- ---------
Total stockholders' deficit (33,506) (71,154)
--------- ---------
Total liabilities, redeemable preferred stock and stockholders' deficit $ 87,319 $ 116,001
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Royalty income $ 19,850 $ 10,591 $ 12,550
Internet revenue 1,721 -- --
Product sales 10,988 5,516 --
------------ ------------ ------------
Total revenue 32,559 16,107 12,550
------------ ------------ ------------
Intellectual property costs 1,268 1,504 5,702
Internet video programming and site development 7,902 -- --
Cost of product sales 8,577 4,091 --
Research, development and engineering 1,012 386 --
Selling and administrative 15,447 7,067 3,905
Amortization of goodwill and asset writedown 4,542 606 --
Acquisition of in-process research and development -- 929 --
------------ ------------ ------------
Total costs and operating expenses 38,748 14,583 9,607
------------ ------------ ------------
Operating income (loss) (6,189) 1,524 2,943
Interest expense 5,559 4,282 --
Amortization of debt financing costs 349 316 --
Interest income (2,385) (2,982) (1,345)
Other (income) expense, net 683 3 (4)
------------ ------------ ------------
Income (loss) from continuing operations before income taxes (10,395) (95) 4,292
Provision for (benefit of) income taxes 2,010 (14,328) 1,129
------------ ------------ ------------
Income (loss) from continuing operations (12,405) 14,233 3,163
Gain (loss) of business held for disposition (net of taxes
of $95, $81 and $(378) in 1999, 1998 and 1997) (2,966) (3,795) 11,640
------------ ------------ ------------
Net income (loss) (15,371) 10,438 14,803
Benefit from extinguishment of mandatorily
redeemable preferred stock 374 -- --
------------ ------------ ------------
Net income (loss) available for common stockholders (14,997) 10,438 14,803
Other comprehensive income (loss), net of tax:
Unrealized gain on marketable securities 141 -- --
Mininum pension adjustment 29,631 (23) (19,076)
------------ ------------ ------------
Comprehensive income (loss) $ 14,775 $ 10,415 $ (4,273)
============ ============ ============
Basic income (loss) per share:
Income (loss) per share from continuing operations $ (0.23) $ 0.30 $ 0.07
Income (loss) per share from discontinued operations $ (0.05) $ (0.08) $ 0.25
Income (loss) per share available to common stockholders $ (0.28) $ 0.22 $ 0.32
------------ ------------ ------------
Weighted average number of common shares outstanding 53,137,283 47,572,224 45,616,344
============ ============ ============
Diluted income (loss) per share :
Income (loss) per share from continuing operations $ (0.23) $ 0.27 $ 0.07
Income (loss) per share from discontinued operations $ (0.05) $ (0.08) $ 0.25
Income (loss) per share available to common stockholders $ (0.28) $ 0.20 $ 0.32
------------ ------------ ------------
Weighted average number of common shares outstanding 53,137,283 53,280,956 46,461,321
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (15,371) $ 10,438 $ 14,803
Loss (income) from discontinued operations 2,966 3,795 (11,640)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation, amortization and accretion 3,740 1,206 3
Write-off investments 2,009 -- --
Acquisition of in-process research and development -- 929 --
Foregiveness of stockholders note receivable 176 176 --
Reversal of prior year's tax accrual -- (15,378) --
Issuance of stock for services rendered 721 -- --
Equity in loss of subsidiary prior to control 686 -- --
Changes in operating assets and liabilities:
Accounts receivable 698 1,411 (311)
Inventories (897) (826) 4
Long-term receivables -- 8 132
Other assets (2,438) 471 127
Accounts payable 561 (1,805) (56)
Other accrued liabilities and income taxes payable 2,373 (1,688) (1,743)
Deferred income taxes -- (9) (89)
Accrued restructuring costs (87) (899) (388)
Other liabilities (7,028) (3,608) (4,679)
--------- --------- ---------
Net cash used in continuing operations (11,891) (5,779) (3,837)
Net cash provided by (used in) discontinued operations 2,044 (2,932) 8,412
--------- --------- ---------
Net cash provided by (used in) operating activities (9,847) (8,711) (4,575)
--------- --------- ---------
Cash flows from investing activities:
Purchases of short-term investments (111,738) (84,409) (78,629)
Proceeds received on the maturity of short-term investments 117,274 23,310 77,957
Proceeds from the sale of short-term investments 14,817 27,505 228
Additions to property, plant and equipment (2,108) (2,194) (448)
Purchase of long-term investments -- (1,280) --
Investment in affiliate -- (400) --
Purchase of company, net of cash acquired (5,039) (338) --
Investments in unconsolidated companies (2,541) -- --
--------- --------- ---------
Net cash provided by (used in) continuing operations 10,665 (37,806) (892)
Net cash provided by (used in) discontinued operations (1,806) (2,169) 6,874
--------- --------- ---------
Net cash provided by (used in) investing activities 8,859 (39,975) 5,982
--------- --------- ---------
Cash flows from financing activities:
Borrowings under working capital facilities -- 21 --
Repayments under working capital facilities (1,279) (5,474) --
Repayment of notes payable-affiliates (10) (5) (2)
Issuance of senior notes -- 42,680 --
Debt financing costs (20) (583) --
Proceeds from issuance of common stock 432 136 637
Proceeds from exercise of warrants 459 -- --
--------- --------- ---------
Net cash provided by (used in) continuing operations (418) 36,775 635
Net cash provided by (used in) discontinued operations 750 (787) (855)
--------- --------- ---------
Net cash provided by (used in) financing activities 332 35,988 (220)
--------- --------- ---------
Effects of exchange rates on discontinued operations (46) (78) 329
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (702) (12,776) 10,666
Cash and cash equivalents, beginning of period 11,300 24,076 13,410
--------- --------- ---------
Cash and cash equivalents, end of period $ 10,598 $ 11,300 $ 24,076
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For Each of the Three Years in the Period Ended
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Notes
Common Stock Other R'cvble
Class A Additional from Accumulated
Shares Amount Capital Stkhlders Deficit
------ ------ ------- --------- -------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1996 45,434 $ 454 $ 382,042 $ (3,979) $ (454,871)
Net income -- -- -- -- 14,803
Translation adjustments -- -- -- -- --
Minimum pension liability
adjustment -- -- -- -- --
Proceeds from issuance
of shares 325 3 1,045 (839) --
Stock options exercised 178 2 426 -- --
------ --------- --------- --------- -----------
Balances, December 31, 1997 45,937 $ 459 $ 383,513 $ (4,818) $ (440,068)
Net income -- -- -- -- 10,438
Translation adjustments -- -- -- -- --
Minimum pension liability
adjustment -- -- -- -- --
Note foregiveness -- -- -- 176 --
Preferred stock exchange,
net of issuance costs 3,000 30 6,043 -- --
Acquisition of MicroNet 720 7 1,217 -- --
Fair value of warrants issued -- -- 765 -- --
Proceeds from issuance
of shares 75 1 219 (176) --
Stock options exercised 51 1 92 -- --
------ --------- --------- --------- -----------
Balances, December 31, 1998 49,783 $ 498 $ 391,849 $ (4,818) $ (429,630)
Net loss -- -- -- -- (15,371)
Adjustment due to business
held for disposition -- -- -- -- --
Unrealized gain (loss) on short-term
investments -- -- -- -- --
Minimum pension liability
adjustment -- -- -- -- --
Note foregiveness -- -- -- 176 --
Preferred stock converted or
redeemed 5,339 53 21,253 -- --
Exercise of warrants 204 2 457 -- --
Issuance of shares for investment
in Executive Branch Webcasting 304 3 1,449 -- --
Stock options exercised 312 3 429 -- --
------ --------- --------- --------- -----------
Balances, December 31, 1999 55,942 $ 559 $ 415,437 $ (4,642) $ (445,001)
====== ========= ========= ========= ===========
<CAPTION>
Accumulated
Comprehensive Income (Loss)
-----------------------------------------
Unrealized Minimum
Gain (Loss) Cumulative Pension Total
on Short-Term Translation Liability Stockholders'
Investments Adjustment Adjustment Deficit
------------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Balances, December 31, 1996 -- $ 526 $ (10,532) $ (86,360)
Net income -- -- -- 14,803
Translation adjustments -- (19) -- (19)
Minimum pension liability
adjustment -- -- (19,076) (19,076)
Proceeds from issuance
of shares -- -- -- 209
Stock options exercised -- -- -- 428
------------- --------- --------- ---------
Balances, December 31, 1997 -- $ 507 $ (29,608) $ (90,015)
Net income -- -- -- 10,438
Translation adjustments -- 71 -- 71
Minimum pension liability
adjustment -- -- (23) (23)
Note foregiveness -- -- -- 176
Preferred stock exchange,
net of issuance costs -- -- -- 6,073
Acquisition of MicroNet -- -- -- 1,224
Fair value of warrants issued -- -- -- 765
Proceeds from issuance
of shares -- -- -- 44
Stock options exercised -- -- -- 93
------------- --------- --------- ---------
Balances, December 31, 1998 -- $ 578 $ (29,631) $ (71,154)
Net loss -- -- -- (15,371)
Adjustment due to business
held for disposition -- (578) -- (578)
Unrealized gain (loss) on short-term
investments $ 141 -- -- 141
Minimum pension liability
adjustment -- -- 29,631 29,631
Note foregiveness -- -- -- 176
Preferred stock converted or
redeemed -- -- -- 21,306
Exercise of warrants -- -- -- 459
Issuance of shares for investment
in Executive Branch Webcasting -- -- -- 1,452
Stock options exercised -- -- -- 432
------------- --------- --------- ---------
Balances, December 31, 1999 $ 141 -- -- $ (33,506)
============= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Ampex Corporation
Ampex Corporation ("Ampex" or the "Company") is one of the world's leading
innovators of technologies for the visual information age. Beginning in 1999,
the Company embarked to strategically reposition the Company by building a
network of Internet video businesses, focused on programming, services and
technology. During the year, the Company through its subsidiary, iNEXTV
Corporation ("iNEXTV"), acquired equity interests in various Internet video
businesses and started to assemble its internal organization to support the
iNEXTV network and to develop additional Internet video-based websites.
In February 2000, in order to focus more sharply on its Internet video
businesses, the Company announced plans to sell Ampex Data Systems Corporation,
("Data Systems"), its subsidiary that makes high performance tape-based mass
data storage products. The results of operations of Data Systems have been
classified as Discontinued Operations in the Statements of Operations for all
periods presented. The book value of the net assets to be sold is reflected in
net assets of business held for disposition in the Consolidated Balance Sheet as
of December 31, 1999. The Company expects to report a gain on the sale of Data
Systems. However, at the date of these financial statements, the Company has not
yet entered into a contract to sell Data Systems. Upon consummation of a
successful sale, the Company intends to use the proceeds for investment in
iNEXTV and other Internet initiatives, as well as to retire debt.
Following the planned sale of Data Systems, the Company's continuing
operations will include iNEXTV, its non-Internet technology licensing group, the
newly-formed Internet Technology Group and MicroNet Technology, Inc.
("MicroNet"), its wholly-owned subsidiary that makes high performance disk
arrays and Storage Area Network products.
iNEXTV was formed in 1999 to consolidate all of the Company's internal
Internet initiatives as well as to hold its investments in Internet businesses
that have been acquired during the year. Recently, iNEXTV launched Executive
Branch TV, ("EXBTV.com"), which provides live and on-demand coverage of
executive agency and White House activities, and is developing iSTYLETV.com, a
video driven life style channel.
iNEXTV owns controlling equity interests in TV onthe WEB, Inc. ("TV onthe
WEB"), a provider of Internet video production services and Alternative
Entertainment Network, Inc. ("AENTV"), a provider of on-demand streaming video
sites about the entertainment industry. iNEXTV owns a minority interest in TV1
Internet Television, ("TV1"), one of Europe's leading webcasters. The
Consolidated Balance Sheet as of December 31, 1999 includes the value of assets
and liabilities of TV onthe WEB and AENTV. The Consolidated Statements of
Operations and Comprehensive Income (Loss) for 1999 includes the Company's
minority share of the net loss of TV onthe WEB and AENTV for periods the Company
held less than 50% of these entities and 100% of their net loss for periods it
held a majority interest. See Note 3. The Company's investment in TV1 is being
accounted for under the cost method.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements are presented in
accordance with Generally Accepted Accounting Principles. All intercompany
accounts and transactions have been eliminated. Certain reclassifications have
been made to the prior years' financial statements to conform to the current
year's presentation. These reclassifications had no effect on the prior years'
stockholders' deficit or net income.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net sales and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents consist of investments with original maturities of 90
days or less.
F-7
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (cont'd.)
Short-term and Long-term Investments
The Company's investments are comprised primarily of debt securities and
consist of highly liquid U.S. Treasury instruments, investments in high yield
mutual funds and U.S. corporate securities. All investments are classified as
available for sale. Investments with remaining maturities of less than 12 months
from the balance sheet date are classified as short-term investments.
Investments with remaining maturities of more than 12 months from the balance
sheet date are classified as long-term assets. Unrealized gains and losses, if
material, are reported net of tax as a separate component of stockholders'
equity under accumulated comprehensive income until realized. Realized gains and
losses, if any, are determined using the specific identification method.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
on a standard cost basis which approximates the first in, first out (FIFO)
method. Appropriate consideration is given to obsolescence, excessive levels,
deterioration and other factors in evaluating net realizable value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and stated net of
accumulated depreciation. Depreciation is computed on a straight-line basis over
the estimated useful lives of the assets ranging from three to nine years for
machinery and equipment and five to 50 years for buildings and improvements.
When assets are disposed of, the cost and related accumulated depreciation are
removed from the accounts and the resulting gains or losses are included in the
results of operations.
Intangible Assets
The gross book value of goodwill associated with acquisitions was $13.0
million and $6.1 million at December 31, 1999 and December 31, 1998,
respectively. Goodwill is being amortized on a straight-line basis over three or
five years and is included within the Consolidated Balance Sheet caption
intangible assets, net. Accumulated amortization was $3.2 million and $0.6
million at December 31, 1999 and December 31, 1998, respectively. The Company
regularly reviews the carrying value of intangible assets and writes down the
carrying value of long-lived assets to the extent estimated future undiscounted
operating cash flows are not sufficient to recover the carrying value of these
assets over their remaining useful life.
Foreign Currency Translation
Assets and liabilities of subsidiaries located outside the United States
have been translated at rates in effect at year end. Revenues and expenses are
translated at average rates during the year. Local currencies are considered to
be the functional currencies for substantially all of the Company's foreign
subsidiaries. Accordingly, the effects of translating the financial statements
of foreign subsidiaries into U.S. dollars are reported in the cumulative
translation adjustment, a separate component of stockholders' deficit. Foreign
currency transaction gains and losses, which are included in other expense, were
not material in the periods reported.
Revenue Recognition
Royalty income is recorded when earned and receipt is assured. Internet
revenues from website advertising and sponsorship are recognized ratably over
the period earned which is usually based on the passage of time or the number of
visitors to a site. Internet video production and service revenues are
recognized on the percentage of completion method for large projects and upon
delivery of the final product or service for smaller projects. Revenue on
product sales and services are recognized at the time products are shipped and
at the time services are rendered to customers. The Company provides for
estimated costs that may be incurred for product warranties upon shipment.
Website Development and Content Production Costs
Internet video programming costs consist of the costs related to
developing, producing, encoding and
F-8
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (cont'd.)
distributing the Company's original programs over the Internet. Programming
costs are capitalized if projected revenues related to the content exceed the
estimated total cost of the programming. Capitalized programming costs are
amortized over the expected period that revenue is to be recognized. Otherwise
programming costs are expensed as incurred. In the opinion of management,
pending receipt of significant Internet revenues, all website development is in
the preliminary project stage. Accordingly, the Company has expensed all website
development costs as incurred.
Research, Development and Engineering
Research and development costs are expensed as incurred and amounted to
$0.8 million, $0.3 million and none in 1999, 1998 and 1997, respectively. Other
engineering costs, principally incurred in connection with product introductions
and process enhancements, amounted to $0.2 million, $0.1 million and none in
1999, 1998 and 1997, respectively.
Advertising Costs
The Company expenses advertsing costs as incurred. The costs incurred in
1999 were $1.3 million.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109
("SFAS 109"), Accounting for Income Taxes. Under this method, deferred income
taxes are recognized for temporary differences by applying enacted statutory
rates applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized. See Note 20.
Foreign withholding taxes have been provided on the undistributed earnings
of foreign subsidiaries, giving recognition to applicable tax rates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of risk consist principally of short-term and long-term
investments and trade receivables. The Company invests its temporary cash
balances in short-term U.S. treasury obligations, high yield mutual funds and
U.S. corporate securities and, by policy, limits the investment maturity and the
amount of credit exposure to any one financial institution or type of
investment. The Company performs ongoing credit evaluations on its customers,
and collateral is generally not required for trade receivables.
Fiscal Year
The Company's fiscal year is the 52 or 53-week period ending on the
Saturday nearest December 31. Fiscal 1999 and 1998 were 52-week years. Fiscal
1997 was a 53-week year.
Comprehensive Income (Loss)
Comprehensive income (loss) as defined includes all changes in equity (net
assets) during a period from non-owner sources. Accumulated other comprehensive
income (loss), as presented on the accompanying Consolidated Balance Sheets,
consists of the net unrealized gains on available-for-sale securities, net of
tax, cumulative translation adjustments, net of tax, and the minimum pension
adjustment.
Income (Loss) Per Common Share
Basic income (loss) per common share is computed by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted income (loss) per common share is computed
giving effect to all potentially dilutive common shares that were outstanding
during the period.
F-9
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (cont'd.)
Stock Options
The Company accounts for stock-based awards to employees in accordance
with APB No. 25 ("APB 25"), Accounting for Stock Issued to Employees and has
adopted the disclosure-only alternative of Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), Accounting for Stock Based Compensation. See
Note 17.
Fair Value of Financial Instruments
For certain instruments that are short-term in nature, such as cash and
cash equivalents, short-term investments and working capital facilities,
carrying value approximates fair value. The Company's Senior Notes have been
valued at approximately par value at December 31, 1999 and December 31, 1998 by
the underwriter; however no securities have traded in the secondary market.
Management has determined that it is not practical to estimate fair value for
note payable-other, as no market for such instruments currently exists. See Note
12.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes methods of accounting
for derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities, and is effective for fiscal
years beginning after June 15, 2000, as amended by SFAS No. 137. The Company
believes that adoption of this pronouncement will have no material impact on the
Company's financial position and results of operations.
In December 1999, the Securities Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements, which outlines the basic criteria that must be met to recognize
revenue and provides guidance for presentation of revenue and for disclosure
related to revenue recognition policies in financial statements filed with the
SEC. The Company believes that adopting SAB 101 will not have a material impact
on the Company's financial position and results of operations.
Note 3 - Acquisition of Companies
During 1999, the Company acquired in a step acquisition a majority
interest in TV onthe WEB, and has invested a total of $10.6 million for its
interest. The Company has recorded its proportionate share of the net loss for
the period in 1999 during which the Company held a minority interest in TV onthe
WEB, totaling $0.6 million, in other (income) expense. For the approximately
seven-month period the Company has held a majority interest, 100% of the results
of operations of TV onthe WEB has been included in the Company's consolidated
results of operations.
During 1999, the Company acquired in a step- acquisition a majority
interest in AENTV, and has invested a total of $3.8 million for its interest.
The Company has recorded its proportionate share of the net loss for the period
in 1999 during which the Company held a minority interest in AENTV, totaling
$0.1 million, in other (income) expense. For the approximately six-month period
the Company has held a majority interest, 100% of the results of operations of
AENTV has been included in the Company's consolidated results of operations.
The Company allocated the purchase price to the acquired assets and
assumed liabilities of TV onthe WEB and AENTV as follows:
(in thousands)
Current assets .......................................... $ 8,100
Plant and equipment ..................................... 1,400
Goodwill ................................................ 6,900
Current liabilities ..................................... (3,200)
Long-term debt .......................................... (1,500)
Goodwill is being amortized on a straight-line method over three years.
F-10
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Acquisition of Companies (cont'd.)
As of June 30, 1998, the Company acquired the capital stock of MicroNet.
In connection with the acquisition, Ampex issued 720,000 shares of Common Stock,
valued at $1.2 million and assumed $3.5 million face amount of MicroNet
Redeemable Junior Preferred Stock, notes payable of $5.5 million and other
liabilities estimated at $4.7 million. The Company incurred acquisition costs of
$0.6 million. The MicroNet Redeemable Junior Preferred Stock is redeemable out
of a percentage of earnings of MicroNet beginning in fiscal 1999. However,
MicroNet has reported losses since the acquisition date and no redemption
payments have been made. Due to the contingent nature of the redemption
provision, no value was ascribed to the MicroNet Redeemable Junior Preferred
Stock in determination of the purchase price. The shares of the Company's Common
Stock and MicroNet Redeemable Junior Preferred Stock are being held in escrow,
pending resolution of certain contingencies for which the Company has been
indemnified by the former stockholders of MicroNet.
The acquisition of MicroNet has been accounted for under the purchase
method of accounting. Accordingly, the results of operations of MicroNet and the
fair value of the acquired assets have been included in the consolidated
financial statements of the Company as of the acquisition date. The purchase
price was allocated to the acquired assets and assumed liabilities as follows:
(in thousands)
Current assets............................................ $ 4,328
Plant and equipment....................................... 400
In-process research and development....................... 929
Goodwill and other intangibles............................ 6,067
Accounts payable.......................................... (2,809)
Accrued liabilities....................................... (1,864)
Notes payable............................................. (5,474)
The amounts allocated to intangible assets, including in-process research
and development, were based on results of an independent appraisal. Acquired
in-process research and development represented development projects in areas
that had not reached technological feasibility and had no alternative future use
and were valued using the "stage of completion" methodology prescribed by the
Securities and Exchange Commission, and were charged to operations at the date
of the acquisition. All other intangible assets acquired, including goodwill,
are being amortized over five years.
The following table presents unaudited pro forma information as if Ampex
and the acquired companies had been combined as of the beginning of 1999 and
1998. The pro forma data are presented for illustrative purposes only and are
not necessarily indicative of the combined financial position or results of
operations of future periods or the results that actually would have resulted
had the companies been a combined company during all of 1999 and 1998. The pro
forma results include the effects of the purchase price allocation on
amortization of acquired intangible assets and exclude the acquisition-related
charge for the purchased in-process technology at MicroNet and compensation
expense for stock of TV onthe WEB issued to founding stockholders for services
rendered.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
---- ----
(in thousands, except per share amounts)
<S> <C> <C>
Net sales ............................................... $ 33,662 $ 19,642
======== ========
Net income (loss) ....................................... $(24,855) $ 6,760
======== ========
Basic income (loss) per share:
Income (loss) per share ............................... $ (0.47) $ 0.14
======== ========
Weighted average number of common shares outstanding .. 53,137 47,572
======== ========
Diluted income (loss) per share:
Income (loss) per share ............................... $ (0.47) $ 0.13
======== ========
Weighted average number of common shares outstanding .. 53,137 53,631
======== ========
</TABLE>
Note 4 - Business Held for Disposition
In February 2000, the Board of Directors of the Company authorized
management to pursue a sale of Data Systems, its wholly-owned subsidiary that
manufacturers and sells high performance, tape-based mass data storage products.
Revenues of this segment totaled $51.6 million, $57.8 million and $80.3 million
in 1999, 1998 and 1997, respectively. Total costs and operating expenses of this
segment totaled $54.9 million, $62.2 million and $69.8 million in 1999, 1998 and
1997, respectively. Other (income) expense of this segment totaled $(0.2)
million, $(0.5)
F-11
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Business Held for Disposition (cont'd.)
million and $(1.5) million in 1999, 1998 and 1997, respectively. Prospective
buyers have only recently been approached by the Company's advisors. However,
the Company believes that it will recognize a gain on the sale of Data Systems
some time in fiscal 2000.
A summary of the assets and liabilities of Data Systems at December 31,
1999 is as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Current assets.......................................................... $ 26,328
Plant, plant and equipment, net......................................... 6,796
Other assets............................................................ 134
Current liabilities..................................................... (17,527)
Long-term debt.......................................................... (752)
Other liabilities....................................................... (1,038)
Other................................................................... (881)
---------------
Net assets of segment to be sold........................................ $ 13,060
===============
</TABLE>
Note 5 - Asset Writedowns
In the fourth quarter of 1999, the Company elected not to exercise options
to acquire additional ownership in Executive Branch Webcasting Corporation
("EBWC") but to proceed with the development of EXBTV.com as an iNEXTV-funded
Internet video initiative. The Company wrote off its minority investment in EBWC
totaling $1.5million. Also in the fourth quarter of 1999, the Company wrote off
a minority investment in a company providing web hosting and Internet consulting
services, totaling $0.5 million, since the Company is no longer involved in the
strategic direction of that entity.
Note 6 - Computation of Basic and Diluted Income (Loss) per Share
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted income
(loss) per common share is provided as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Numerator
Income (loss) from continuing operations ............... $ (12,405) $ 14,233 $ 3,163
========= ======== ========
Net income (loss) available for common stockholders .... $ (15,371) $ 10,438 $ 14,803
========= ======== ========
Denominator - Basic
Weighted average common stock outstanding .............. 53,137 47,572 45,616
--------- -------- --------
Basic income (loss) per share from continuing operations . $ (0.23) $ 0.30 $ 0.07
========= ======== ========
Basic income (loss) per share ............................ $ (0.28) $ 0.22 $ 0.32
========= ======== ========
Denominator - Diluted
Weighted average common stock outstanding .............. 53,137 47,572 45,616
Effect of dilutive securities:
Stock options ........................................ -- 154 845
Contingent shares .................................... -- 370 --
Conversion of redeemable preferred stock ............. -- 5,185 --
--------- -------- --------
53,137 53,281 46,461
--------- -------- --------
Diluted income (loss) per share from continuing operations $ (0.23) $ 0.27 $ 0.07
========= ======== ========
Diluted income (loss) per share .......................... $ (0.28) $ 0.20 $ 0.32
========= ======== ========
</TABLE>
F-12
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Computation of Basic and Diluted Income (Loss) per Share (cont'd.)
In connection with the acquisition of MicroNet, the Company issued 720,000
shares of Common Stock which are being held in escrow pending the resolution of
certain contingencies. These shares have been included in the computation of
diluted weighted average common stock outstanding from their issue date in
periods when their inclusion is dilutive.
In the second quarter of 1998, the Company redeemed its 8% Noncumulative
Preferred Stock by issuing 3,000,000 shares of Common Stock, $20 million face
amount of Convertible Preferred Stock and $43.7 million face amount of
Redeemable Preferred Stock. The 3,000,000 shares of Common Stock have been
included in the computation of weighted average common stock outstanding since
their issue date. In 1998, 5,000,000 shares of Common Stock potentially issuable
on conversion of Convertible Preferred Stock and 5,000,000 shares of Common
Stock potentially issuable on redemption of the Redeemable Preferred Stock,
based on the Company's policy to make redemptions part in cash and part in
stock, have been included in the computation of diluted weighted average common
stock outstanding. In 1999, holders of 8,115 shares of Convertible Preferred
Stock converted their holdings into 4,057,500 shares of Common Stock and holders
of 2,538 shares of Redeemable Preferred Stock were redeemed into 1,282,200
shares of Common Stock which are included in the weighted average common stock
outstanding since the date of exchange. The remaining shares of Common Stock
potentially issuable on conversion of Convertible Preferred Stock and redemption
of the Redeemable Preferred Stock have not been included in the computation of
diluted weighted average common stock outstanding for the periods in 1999 since
they are anti-dilutive. If the Company was to make all remaining redemption
payments in Common Stock based on the floor conversion price, an additional
16,399,300 shares of Common Stock would be issued over the number of common
shares included in the diluted income per share computation. At December 31,
1999 such additional shares of Common Stock would be anti-dilutive to the
diluted income (loss) per share reported.
Stock options to purchase 3,175,134 shares of Common Stock at prices
ranging from $1.06 to $6.00 per share were outstanding at December 31, 1999, but
were not included in the computation of diluted income (loss) per share as they
are anti-dilutive.
Stock options to purchase 2,384,477 shares of Common Stock at prices
ranging from $1.0625 to $10.50 per share were outstanding at December 31, 1998,
but were not included in the computation of diluted income (loss) per share
because the exercise price was greater than the average market value of the
common shares.
Stock options to purchase 566,775 shares of Common Stock at prices ranging
from $3.19 to $10.50 per share were outstanding at December 31, 1997, but were
not included in the computation of diluted income per share because the exercise
price was greater than the average market value of the common shares.
In January 1998, Warrants to purchase 1,020,000 shares of Common Stock at
$2.25 per share were issued in connection with the issuance of the Senior Notes.
See Note 12. The Warrants were not included in the computation of diluted
weighted average common stock outstanding at December 31, 1998 because the
exercise price was greater than the average market value of the common shares.
On May 10, 1999, Warrants were exercised for 204,000 shares of Common Stock,
which are included in the weighted average common stock outstanding since the
date of the exchange. The remaining outstanding warrants are excluded from the
computation of weighted average common stock outstanding at December 31, 1999 as
they are anti-dilutive.
Note 7 - Supplemental Schedule of Cash Flow Information
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- ---------
(in thousands)
<S> <C> <C> <C>
Interest paid................................................... $ 5,332 $ 3,408 $ 86
Income taxes paid............................................... 2,031 1,113 1,341
Debt financing costs............................................ -- 1,320 --
Warrants .................................................... (459) 765 --
Common stock issued for MicroNet acquisition.................... -- 1,224 --
Common stock issued for EBWC acquisition........................ 731 -- --
Common stock issued for services rendered....................... 721 -- --
Redeemable nonconvertible preferred stock....................... -- (69,970) --
Redeemable preferred stock...................................... (5,076) 43,718 --
Convertible preferred stock..................................... (16,230) 20,000 --
Issuance of common stock........................................ 21,765 6,252 --
</TABLE>
F-13
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Investments
The carrying and market value of investments are as follows at December
31, 1999 and 1998:
<TABLE>
<CAPTION>
Available - for - Sale December 31, 1999
----------------------------------------
Scheduled
Carrying Unrealized Fair Maturity
Value Gains Value Date
------- ---------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C>
U.S. government and
agency obligations ...... $26,759 $ -- $26,759 Jan.-Mar. 2000
Certificate of deposits ..... 1,001 -- 1,001 Mar. 2000
High yield mutual funds ..... 3,166 141 3,307
------- ------- -------
Total ................... $30,926 $ 141 $31,067
------- ------- -------
Due within 1 year ........... $31,067
</TABLE>
<TABLE>
<CAPTION>
Available - for - Sale December 31, 1999
----------------------------------------
Scheduled
Carrying Unrealized Fair Maturity
Value Gains Value Date
------- ---------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C>
U.S. government and
agency obligations ....... $39,222 $ -- $39,222 Jan.-Apr. 1999
High yield mutual funds ...... 12,057 -- 12,057
------- ------- -------
Total .................... $51,279 $ -- $51,279
------- ------- -------
U.S. convertible debentures .. 1,170 -- 1,170 Sept. 2002
U.S. corporate securities .... 110 -- 110
------- ------- -------
Total .................... $ 1,280 $ -- $ 1,280
------- ------- -------
Due within 1 year ............ $51,389
Due after 1 year ............. 1,170
</TABLE>
U.S. convertible debentures and corporate securities are reported as other
assets.
Note 9 - Inventories
December 31,
-------------------------
1999 1998
-------- ---------
(in thousands)
Raw materials.............................. $ 313 $ 7,488
Work in process............................ 57 5,824
Finished goods............................. 1,891 6,454
-------- ---------
Total................................. $ 2,261 $ 19,766
======== =========
At December 31, 1999, inventories associated with Data Systems have been
reported in net assets of business held for disposition. However, inventories of
Data Systems are included in the above table as of December 31, 1998.
Inventories are stated net of reserves for obsolete and slow-moving items of
$1.8 million and $17.6 million at December 31, 1999 and 1998, respectively.
Inventory disposals, which had previously been fully reserved, totaled $1.6
million and $2.8 million, during 1999 and 1998, respectively.
F-14
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Property, Plant and Equipment
December 31,
-------------------------
1999 1998
-------- ---------
(in thousands)
Land ...................................... $ -- $ 952
Buildings and improvements................. 2,727 10,887
Furniture, fixtures and equipment.......... 4,738 29,718
Construction in progress................... -- 115
7,465 41,672
Less accumulated depreciation.............. (2,102) (31,126)
-------- --------
Total................................. $ 5,363 $ 10,546
======== ========
At December 31, 1999, property, plant and equipment associated with Data
Systems have been reported in net assets of business held for disposition.
However, property, plant and equipment of Data Systems are included in the above
table as of December 31, 1998. Depreciation charged to operations was $0.7
million, $0.1 million and none in 1999, 1998 and 1997, respectively. During the
year, the Company did not retire any fixed assets.
Note 11 - Other Accrued Liabilities
December 31,
-------------------------
1999 1998
-------- ---------
(in thousands)
Compensation and employee benefits......... $ 2,963 $ 5,214
Pension.................................... 1,950 5,104
Interest payable........................... 1,567 1,581
Warranty and other product costs........... 256 1,177
Customer deposits.......................... -- 899
Environmental.............................. 80 65
Other...................................... 1,097 3,861
-------- --------
Total................................. $ 7,913 $ 17,901
======== ========
At December 31, 1999, other accrued liabilities associated with Data
Systems have been reported in net assets of business held for disposition.
However, other accrued liabilities of Data Systems are included in the above
table as of December 31, 1998.
Note 12 - Debt
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
-------- ---------
(in thousands)
Notes Payable
<S> <C> <C>
Notes payable to selling stockholders of affiliate......... $ 934 $ --
Note payable - other....................................... 169 180
-------- --------
Total................................................. $ 1,103 $ 180
======== ========
Long-term Debt
Working capital facilities................................. $ -- $ 3
Notes payable to selling stockholders of affiliate......... 31 --
Notes payable - capital lease.............................. 353 --
Senior notes............................................... 43,530 43,377
-------- --------
Total................................................. $ 43,914 $ 43,380
======== ========
</TABLE>
F-15
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Debt (cont'd.)
Working Capital Facilities
Ampex had a loan from a foreign bank which was fully repaid in 1998. Ampex
has a revolving credit line with a domestic financial institution to finance
working capital requirements. The Company's domestic revolving credit agreement
permits borrowings up to $7.0 million, based on eligible accounts receivable as
defined in the agreement, less a standby letter of credit facility in the amount
of $2.5 million. Average borrowings under these agreements in 1999 were $0.02
million at an average interest rate of 8.9% and were $0.3 million at an average
interest rate of 3.0% in 1998. Maximum borrowings outstanding at any time during
1999 and 1998 were $1.0 million and $1.4 million, respectively. At December 31,
1999, the Company had borrowings outstanding of $0.8 million and had letters of
credit issued against the facility totaling $1.1 million. At December 31, 1998,
the Company had borrowings outstanding of $2,549 and had letters of credit
issued against the facility totaling $0.9 million. The Company pays a monthly
commitment fee of 0.5% per annum based on the average daily unused amount. The
borrowings are collateralized by certain current assets of the Company.
Notes Payable to Selling Stockholders of Affiliate
In connection with the Company's investment in TV onthe WEB, the selling
stockholders of the predecessor business were issued cash and notes by TV onthe
WEB as consideration for the purchase of the common stock of the predecessor
business. The Notes are payable in quarterly installments, with a final payment
due January 15, 2001, and bear interest at a rate of seven percent per annum.
The Notes provide for offset of amounts due under the indemnification provisions
of the stock purchase agreement. The Company has not made the scheduled note
payment due December 31, 1999 and intends to withhold payments scheduled for
2000 pending resolution of disputes arising in connection with representations
made by the selling stockholders to TV onthe WEB.
Notes Payable - Capital Lease
The Company is obligated under a number of capital leases for office
equipment and company vehicles, which will expire over the next five-year
period. See Note 14.
Note Payable - Other
The note is a noninterest-bearing demand promissory note held by NH
Holding Incorporated. The outstanding balance at December 31, 1999 of $0.2
million is expected to be paid or converted into shares of Common Stock in 2000.
Senior Notes
In January 1998, the Company issued $30.0 million of its 12% Senior Notes
("Notes"), together with Warrants to purchase 1.02 million shares of Common
Stock. The Warrants are exercisable at $2.25 per share at any time on or prior
to March 15, 2003. At the time of issuance, the Warrants were valued using the
Black-Scholes model. The value assigned to the Warrants was $765,000, which is
being amortized against interest expense over the term of the Notes. At the end
of June 1998, the Company issued an additional $14.0 million Senior Notes.
Interest on the Notes is payable semi-annually on March 15 and September 15 of
each year, commencing September 15, 1998. The Notes will mature on March 15,
2003. The Company may redeem the Notes, in whole or in part, at any time after
March 15, 2000, at redemption prices expressed as percentages of the principal
amount of the Notes ranging from 100% to 106% depending on the redemption date,
together with accrued and unpaid interest, if any, to the date of redemption.
The Notes are senior unsecured obligations of the Company and rank pari passu in
right of payment with all existing and future subordinated indebtedness of the
Company.
Noncurrent Maturities of Long-term Debt
The following table summarizes the scheduled noncurrent maturities of the
Company's long-term debt as of December 31, 1999, for years subsequent to 2000:
Year (in thousands)
----
2003 $ 44,031
F-16
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - Other Liabilities
December 31,
-------------------------
1999 1998
-------- ---------
(in thousands)
Pension.................................... $ 1,911 $ 28,062
Reserve for tax liabilities................ 11,614 11,614
Other postemployment benefits.............. 6,557 7,009
Environmental.............................. 1,552 1,850
Other...................................... -- 2,935
-------- --------
Total.................................. $ 21,634 $ 51,470
======== ========
At December 31, 1999, other liabilities associated with Data Systems have
been reported in net assets of business held for disposition. However, other
liabilities of Data Systems are included in the above table as of December 31,
1998.
The increase in deferred pension asset and decrease in the minimum pension
and pension liability accounts was attributable to the gain on the fair value of
the plan assets and the increase of the discount rate from 6.5% in 1998 to 7.75%
in 1999 due to an increase in long-term interest rates. See Note 18.
Note 14 - Commitments and Contingencies
Leases
The Company leases certain manufacturing and office facilities and
equipment under operating lease agreements. At December 31, 1999 future annual
lease obligations under leases with noncancellable lease terms in excess of one
year were as follows:
Year (in thousands)
2000.............................................. $ 2,218
2001.............................................. 2,090
2002.............................................. 1,966
2003.............................................. 1,893
2004.............................................. 1,530
Thereafter........................................ 3,465
----------
$ 13,162
==========
Total rent expense for all operating leases was $2.1 million, $0.8 million
and $0.2 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
The following is a schedule by years of future minimum lease payments
under capital leases together with the present value of the net minimum lease
payments as of December 31, 1999:
Year (in thousands)
2000................................................. $ 222
2001................................................. 187
2002................................................. 143
2003................................................. 123
2004................................................. 42
--------
Net minimum lease payments........................... 717
Less amount representing interest.................... (18)
--------
Present value of net minimum lease payments.......... $ 699
========
The gross book value and accumulated depreciation of capital leases at
December 31, 1999 was $0.6 million and $0.1 million, respectively.
F-17
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Commitments and Contingencies (cont'd.)
Legal Proceedings
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.
On January 7, 2000, a suit was filed against the Company and others by
Information Super Station ("ISS"), the majority stockholder of EBWC, in which
the Company's Internet subsidiary, iNEXTV held a minority interest. The suit
seeks an injunction or recovery of damages in the amount of $600 million. The
Company believes that the suit is without merit. On February 1, 2000, the
Company filed suit against ISS and others under the Federal securities laws
seeking contract recission and damages in connection with activities related to
the Company's investment.
Certain subsidiaries have been assessed income and value-added taxes
together with penalties and interest. MicroNet was involved in litigation in the
ordinary course of its business that was unresolved at the date the business was
acquired by the Company. A portion of the purchase price paid in shares of
Common Stock is being held in escrow pending the ultimate resolution of the
litigation and would revert to the Company in the event the Company incurred any
future loss relative to such matters.
Environmental Matters
Ampex's facilities are subject to numerous federal, state and local laws
and regulations designed to protect the environment from waste emissions and
hazardous substances. 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, including liability for investigative and cleanup costs and
damages arising out of past disposal activities. Ampex has been named from time
to time as a potentially responsible party by the United States Environmental
Protection Agency with respect to contaminated sites that have been designated
as "Superfund" sites, and are currently engaged in various environmental
investigation, remediation and/or monitoring activities at several sites located
off Company facilities. Management has provided reserves, which have not been
discounted, 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.
The Company has not accrued any liability for costs that might be assessed
against it by federal or state environmental agencies involving sites owned by
the Company's former subsidiary Media. Media is primarily responsible for the
cleanup at its facilities and at off site locations. The Company believes that
it has no contingent liability in connection with the Media properties.
Guarantees
The Company has certain arrangements with banks primarily to facilitate
the issuance of performance guarantees or letters of credit. At December 31,
1999 and 1998, the Company was contingently liable for $1.2 million and $0.9
million, respectively, of general performance guarantees and letters of credit.
Note 15 - Preferred Stock
At December 31, 1997, the Company became required to redeem the 69,970
outstanding shares of its 8% Noncumulative Preferred Stock with an aggregate
liquidation value of $70.0 million (the "Old Preferred Stock"), to the extent of
funds legally available therefore (generally, the excess of the value of assets
over liabilities) at the redemption price of $1,000 per share. Pursuant to an
agreement in the second quarter of 1998, the Company completed the redemption of
the Old Preferred Stock in exchange for the following securities (a) 3,000,000
shares of its Common Stock, par value $0.01 per share; (b) 10,000 shares of a
new series of 8% Noncumulative Convertible Preferred Stock, par value $1.00,
with an aggregate liquidation value of $20.0 million (the "Convertible Preferred
Stock"); and (c) 21,859 shares of a new series of 8% Noncumulative Redeemable
Preferred Stock, par value $1.00 per share, with an aggregate liquidation value
of $43.7 million (the "Redeemable Preferred Stock").
F-18
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 - Preferred Stock (cont'd.)
Each share of Convertible Preferred Stock and Redeemable Preferred Stock
entitles the holder thereof to receive noncumulative dividends at the rate of 8%
per annum, if declared by the Company's Board of Directors. Each share of
Convertible Preferred Stock may be converted, at the option of the holder
thereof, at a conversion price of $4.00 per share, into 500 shares of Common
Stock, subject to adjustment under certain circumstances. In 1999, the holders
of 8,115 shares of Convertible Preferred Stock converted their holdings into
4,057,500 shares of Common Stock. Beginning in June 2001, the Company will
become obligated to redeem any remaining Convertible Preferred Stock in
quarterly installments through December 2008. On April 28, 1999, the Company
agreed to exchange 287 shares of Redeemable Preferred Stock for 40,000 shares of
its Common Stock. The resultant $374,000 benefit on exchange has been recognized
as a benefit available to the common stockholders on its Consolidated Statements
of Operations and Comprehensive Income (Loss) for the year ended December 31,
1999. Beginning in June 1999, the Company became obligated to redeem the
Redeemable Preferred Stock in quarterly installments through March 2008. In
1999, the Company issued 1,242,245 shares of its Common Stock to satisfy the
quarterly redemption requirements. The Company is obligated to redeem
approximately $4.3 million face amount of the security over the next twelve
months. The Company has the option to redeem the Redeemable Preferred Stock at
any time and the Convertible Preferred Stock beginning in June 2001, and has the
option to make mandatory redemption payments either in cash or in shares of
Common Stock. In the event that the Company does not have sufficient funds
legally available to make any mandatory redemption payment in cash, the Company
will be required to make such redemption payment by issuing shares of Common
Stock. Shares of Common Stock issued to make any optional or mandatory
redemption payments will be valued at the higher of $2.50 or fair market value
per share of Common Stock. The Company intends to issue shares of Common Stock
to satisfy its redemption obligation on the Redeemable Preferred Stock through
December 31, 2000.
The MicroNet Redeemable Junior Preferred Stock has a liquidation value of
$5.0 million and is redeemable out of a percentage of earnings of MicroNet
beginning in fiscal 1999. No redemption payments have been made because MicroNet
has reported losses since its date of acquisition. Due to the contingent nature
of the redemption provision, no value has been ascribed to the MicroNet
Redeemable Junior Preferred Stock in determination of the purchase price. The
shares of the MicroNet Redeemable Junior Preferred Stock are being held in
escrow, pending resolution of certain contingencies for which the Company has
been indemnified by the former stockholders of MicroNet.
Note 16 - Related Party Transactions
During 1998, 1997, 1996 and 1995, the Company received five-year notes for
the purchase of Common Stock by an affiliated company in the principal amounts
of $176,250, $838,750, $2,200,000 and $2,052,750, respectively. The notes bear
annual interest at 5.69%, 6.34%, 6.72% and 7.96%, respectively, and are
collateralized by the purchased shares.
In June 1996, the Company received a partial payment on the notes
outstanding of $273,700.
During 1998, the Company modified the terms of the note originally issued
in 1996 in the principal amount of $2.2 million. The final maturity date of the
note was extended to October 15, 2008. Commencing on October 15, 1998 and
continuing until the final maturity date, the principal amount of the note shall
be reduced in ten equal annual installments of $176,000, whereupon the remaining
unpaid balance shall be due and payable. In certain circumstances when the stock
price exceeds $7.00 per share, the unpaid principal balance of the note shall
thereupon be reduced to $440,000. Accrued interest on the unpaid principal
amount of the note due on each October 15 during the term of the note will be
forgiven on each interest payment date subject to certain stipulated employment
issues.
During 1999, the Company extended the maturity date of the notes
originally issued in 1995, 1997 and 1998 an additional five years to January 24,
2005, October 15, 2007 and February 15, 2008, respectively.
Note 17 - Common Stock, Stock Options and Warrants
The Company's authorized capital stock consists of Class A Common Stock
("Class A Stock"), Class C Common Stock ("Class C Stock", and collectively with
Class A Stock, the "Common Stock") and Preferred Stock. Shares of Class C Stock
and Preferred Stock are generally nonvoting except in circumstances specified in
the Company's charter documents or as otherwise required by applicable corporate
law. Accordingly, holders of Class
F-19
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17 - Common Stock, Stock Options and Warrants (cont'd.)
A Stock are generally the only stockholders with voting rights. Each share of
Class C Stock converts into one share of Class A Stock automatically following
transfer unless otherwise elected by the transferee.
The Company's 1992 Stock Incentive Plan (the "Stock Incentive Plan") for
directors, executive officers and other key employees provides for the granting
of "nonqualified stock options" and "incentive stock options" to acquire Common
Stock and/or the granting of stock appreciation rights to obtain, in cash or
shares of Common Stock, the benefit of the appreciation of the value of shares
of Common Stock after the grant date.
On June 18, 1999, at the Company's Annual Meeting, stockholders authorized
the issuance of an additional 4,000,000 shares of Common Stock under the 1992
Stock Incentive Plan. The Company is currently authorized to issue up to
8,250,000 shares of Common Stock under the Stock Incentive Plan.
On November 6, 1998, the Committee authorized the Company to allow holders
of certain "out-of-the-money" stock options to voluntarily cancel these options
in exchange for an equivalent number of new options. The new options were
granted at an exercise price of $1.0625, which was the fair value of the Common
Stock on November 6, 1998, and with new vesting and expiration schedules. Of the
1,474,850 options eligible for exchange, option holders elected to exchange
1,455,850 options that had exercise prices of $2.00 to $4.875.
On October 28, 1997, the Committee authorized the holders of 918,100
"out-of-the-money" stock options with exercise prices ranging from $3.625 to
$10.50, to voluntarily elect to cancel those options in exchange for an
equivalent number of new options. The new options were granted at an exercise
price of $3.125, which was the fair value of the Common Stock on October 28,
1997, and with new vesting and expiration schedules. Of the 918,100 options
eligible for exchange, option holders elected to exchange 664,250 options that
had exercise prices ranging from $4.875 to $10.50.
At December 31, 1999, there were 3,175,134 options outstanding, including
1,328,253 vested options. The exercise prices range from $1.0625 to $6.00 per
share and vesting schedules vary from immediate vesting to vesting over a
three-year period.
<TABLE>
<CAPTION>
Weighted
Shares Number Price Aggregate Average
Available of per Exercise Exercise
for Grant Options Share Price Price
--------- --------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1996 1,450,300 2,396,900 $ 1.50-10.50 $ 9,765,231 $ 4.07
Granted (990,000) 990,000 2.38-7.94 3,789,813 3.83
Canceled 899,745 (899,745) 1.50-10.50 (6,023,836) 6.70
Exercised -- (177,290) 1.50-5.75 (384,298) 2.17
--------- --------- ------------- ------------- --------
Balances, December 31, 1997 1,360,045 2,309,865 $ 1.50-10.50 $ 7,146,910 $ 3.09
Granted (1,954,600) 1,954,600 1.06-2.94 2,649,069 1.36
Canceled 1,870,648 (1,870,648) 1.50-2.38 (6,282,617) 3.36
Exercised -- (50,840) 1.50-10.50 (92,010) 1.81
--------- --------- ------------- ------------- --------
Balances, December 31, 1998 1,276,093 2,342,977 $ 1.06-10.50 $ 3,421,358 $ 1.46
Authorized 4,000,000 -- -- -- --
Granted (1,298,850) 1,298,850 2.13-5.88 4,696,869 3.62
Canceled 154,977 (154,977) 1.06-10.50 (620,292) 4.00
Exercised -- (311,716) 1.06-3.75 (406,674) 1.30
--------- --------- ------------- ------------- --------
Balances, December 31, 1999 4,132,220 3,175,134 $ 1.06-6.00 $ 7,091,261 $ 2.23
========= ========= ============= ============= ========
</TABLE>
For the years ended December 31, 1999, 1998 and 1997, the weighted average
fair value of options granted was $2.10, $0.65 and $2.76 per share,
respectively.
At December 31, 1999 and 1998, there were 816,000 and 1,020,000 Warrants
outstanding, respectively, exercisable at $2.25 per share, to provide a like
number of shares of Common Stock. At December 31, 1997, there were no Warrants
outstanding.
F-20
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17 - Common Stock, Stock Options and Warrants (cont'd.)
The options outstanding and currently exercisable by exercise price at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Options Currently
Options Outstanding Exercisable
------------------------------------------------------------------------------ -------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
------ ----------- ------------ --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.06-$2.50 2,148,802 3.82 $ 1.38 1,257,745 $ 1.30
$2.56-$4.88 985,273 2.30 3.95 50,273 3.72
$5.75-$6.00 41,059 1.80 5.85 20,235 5.82
--------- ---- -------- --------- --------
3,175,134 3.32 $ 2.23 1,328,253 $ 1.46
========= ==== ======== ========= ========
</TABLE>
The fair values of options at the date of grant was estimated using the
Black-Scholes with the following weighted average assumptions:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Expected life (years)................................... 1.0 - 3.5 1.5 - 3.5 1.5 - 5.5
------------ ----------- -----------
Risk-free interest rate................................. 4.59 - 6.59% 4.4 - 5.65% 5.6 - 6.54%
------------ ----------- -----------
Expected volatility..................................... 0.95 - 1.5 0.75 - 1.22 0.85 - 1.41
------------ ----------- -----------
Expected dividend yield................................. -- -- --
------------ ----------- -----------
</TABLE>
Subsidiary ISO Plan
Effective January 1, 1999, the TV onthe WEB 1999 Long-term Incentive Plan
for directors, officers and other key employees and consultants provides for the
granting of "nonqualified stock options" and "incentive stock options" to
acquire Common Stock of TV onthe WEB and/or the granting of stock appreciation
rights and other stock-based awards to obtain, in cash or shares of Common Stock
of TV onthe WEB, the benefit of the appreciation of the value of shares of
Common Stock of TV onthe WEB after the grant date. A Compensation Committee of
the Board of Directors ("TV onthe WEB Committee") is authorized to grant
options, which in aggregate shall not exceed 12.5% of the total number of issued
and outstanding shares of Stock of TV onthe WEB, for a term not greater than 10
years at a base price at least equal to the fair market value, as defined. The
TV onthe WEB Committee shall determine the time or times at which an option may
be exercised in whole or in part, the method by which such exercise price may be
paid and the form of payment. At December 31, 1999, the TV onthe WEB Committee
had granted as options approximately 10% of the total number of issued and
outstanding shares of stock of TV onthe WEB and the current share value of all
options issued was below the exercise price. No options were exercised during
1999.
F-21
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17 - Common Stock, Stock Options and Warrants (cont'd.)
The Company has elected to account for employee stock options using the
intrinsic value method prescribed by APB 25, and therefore compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock. Had compensation cost for the Company's stock-based
compensation plan been determined on the fair value of the grant dates for
awards under those plans consistent with the method of SFAS 123, the Company's
net income (loss) and diluted income (loss) per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
-----------------------------------------
(in thousands)
<S> <C> <C> <C>
Net income (loss) available for common stockholders:
As reported............................................. $ (14,997) $ 10,438 $ 14,803
---------- --------- ----------
Pro forma............................................... $ (17,790) $ 8,231 $ 12,360
---------- --------- ----------
Basic income (loss) per share:
As reported............................................. $ (0.28) $ 0.22 $ 0.32
---------- --------- ----------
Pro forma............................................... $ (0.33) $ 0.17 $ 0.27
---------- --------- ----------
Diluted income (loss) per share:
As reported............................................. $ (0.28) $ 0.20 $ 0.32
---------- --------- ----------
Pro forma............................................... $ (0.33) $ 0.15 $ 0.27
---------- --------- ----------
</TABLE>
The above pro forma disclosures include the effect as if the TV onthe WEB
1999 Long-term Incentive Plan had been accounted for under the fair value method
prescribed by FAS 123. These proforma disclosures are not necessarily
representative of the effects on reported net income (loss) for future years.
Note 18 - Pension Plans
The Company's domestic employees participate in a qualified
noncontributory defined benefit pension plan. Benefits are based on years of
service and salary levels during the highest 60 consecutive months of the last
120 consecutive months of service. In early 1994, the Company amended the plan
to terminate benefit service and compensation credit accruals as of February 1,
1994. The impact of this curtailment was not material to the Company's liability
accounts relating to its pension plan. Certain of the Company's employees
employed by its foreign subsidiaries are covered by contributory pension plans
maintained and funded in accordance with local laws.
Pension expense for the domestic plan in 1999, 1998 and 1997 consisted of
the following:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Service cost.................................................... $ -- $ -- $ --
Interest on projected benefit obligation........................ 11,744 11,217 11,389
Actual return on assets......................................... (26,122) (20,538) (7,673)
Amortization of unrecognized prior service costs................ 25,301 8,526 4,401
--------- --------- ---------
Net periodic pension cost (benefit).......................... $ 821 $ (785) $ (685)
========== ========== ==========
</TABLE>
F-22
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 - Pension Plans (cont'd.)
The domestic plan funded status and amounts included in the consolidated
balance sheets are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
------------ ------------
(in thousands)
<S> <C> <C>
Actuarial present value of benefits:
Vested....................................................... $ 164,747 $ 187,209
Nonvested.................................................... -- --
------------ ------------
Total accumulated benefits................................. $ 164,747 $ 187,209
============ ============
Projected benefit obligation..................................... $ (164,747) $ (187,209)
Less: plan assets at fair value.................................. 175,803 157,578
------------ ------------
11,056 (29,631)
Unrecognized net loss............................................ (5,485) --
Tax benefit of excess pension liability.......................... -- --
------------ ------------
Prepaid (accrued) pension cost................................... $ 5,571 $ (29,631)
============ ============
</TABLE>
The Company remains the plan sponsor of a pension plan ("Media Plan")
although it disposed of the company ("Media") in November 1995. Media is
contractually required to provide funding for its obligations under the plan,
but if it fails to do so, the Company will be required to make any required
termination liability payments. As of December 31, 1999, the Company's
consolidated balance sheets included $1.9 million in "other accrued liabilities"
for potential contingencies associated with the Media Plan. The Media Plan's
projected benefit obligation and plan assets at fair value at December 31, 1999,
were approximately $42.2 million and $43.8 million, respectively.
The following provides a reconciliation of benefit obligations, plan
assets and funded status of the plans:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
------------ ------------
(in thousands)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at the beginning of the year............. $ 187,209 $ 178,828
Interest cost............................................... 11,744 11,217
Actuarial gain (loss)....................................... (21,230) 9,826
Benefits paid............................................... (12,976) (12,663)
----------- ------------
Benefit obligation at the end of the year................... $ 164,747 $ 187,209
=========== ============
Change in plan assets:
Plan assets at the beginning of the year.................... $ 157,578 $ 144,705
Actual return on plan assets................................ 26,122 20,528
Company contributions....................................... 5,079 5,008
Benefits paid............................................... (12,976) (12,663)
----------- ------------
Plan assets at the end of the year.......................... $ 175,803 $ 157,578
=========== ============
Funded status............................................... $ 11,056 $ (29,631)
Unrecognized net actuarial loss/(gain)...................... (5,130) 31,269
----------- ------------
Prepaid (accrued) benefit cost.............................. $ 5,926 $ 1,638
=========== ============
</TABLE>
F-23
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 - Pension Plans (cont'd.)
Actuarial assumptions as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
------------ ----------
<S> <C> <C>
Assumed discount rate........................................... 7.75% 6.5%
Rate of compensation increase................................... N/A N/A
Expected long-term rate of return............................... 9.0% 9.0%
</TABLE>
Assets of the domestic pension plan are invested in directed trusts. At
December 31, 1999 and 1998, assets of the directed trusts were primarily
invested in U.S. government obligations, corporate stocks and bonds and units of
common investment funds consisting of short-term interest bearing instruments
and common stock.
In accordance with Statement of Financial Accounting Standards No. 87,
Employers' Accounting for Pensions, the Company has recorded a deferred pension
asset of $5.6 million at December 31, 1999, representing the excess of the fair
value of plan assets less the unrecognized net actuarial gain over the
accumulated benefit obligation. At December 31, 1998, the Company recorded a
minimum pension liability of $29.6 million, representing the excess of unfunded
accumulated benefit obligations over previously recorded pension cost
liabilities at December 31, 1998. To the extent that these additional
liabilities exceed related unrecognized prior service cost and net transition
obligations, the increase or decrease in liabilities was charged directly to
stockholders' deficit. For 1998, stockholders' deficit was charged $0.02
million.
The components of foreign pension expense were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Service cost.......................................... $ -- $ 47 $ 41
Interest cost......................................... 118 115 127
FAS 88 income......................................... (207) -- --
Amortization and deferral............................. -- 11 10
-------- --------- ---------
Net periodic pension cost (benefit)................. $ (89) $ 173 $ 178
======== ========= =========
</TABLE>
The reconciliation of the funded status of the foreign plans is as
follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1999 1998
Plans in Which Plans in Which
----------------------------- --------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
----------- ----------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Actuarial present value of benefits:
Vested............................................... $ -- $ 1,777 $ -- $ 1,835
Nonvested............................................ -- - -- 99
----------- ----------- ---------- ----------
Total accumulated benefits......................... $ -- $ 1,777 $ -- $ 1,934
=========== =========== ========== ==========
Projected benefit obligation............................ $ -- $ (1,777) $ -- $ (2,212)
Less: plan assets at fair value......................... -- - -- --
----------- ----------- ---------- ----------
-- (1,777) -- (2,212)
Remaining unrecognized transition
net (asset) obligation............................... -- (7) -- 2
----------- ----------- ---------- ----------
Prepaid (accrued) pension cost.......................... $ -- $ (1,784) $ -- $ (2,210)
=========== =========== ========== ==========
</TABLE>
Effective July 1, 1996, the United Kingdom defined benefit pension plan
was terminated and replaced by a new defined contribution retirement plan.
The Company also maintains a 401(k) savings plan available to domestic
employees. The Company matches certain portions of employee contributions after
one year of service. Contributions and expenses in connection with this plan
amounted to less than $0.1 million for each year ended December 31, 1999, 1998
and 1997, respectively.
F-24
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19 - Royalty Income
In 1999, 1998 and 1997, the Company received and recognized payments
attributable to the settlement of patent litigation and other negotiated
settlements related to prior years' sales of products by licensees. Such
payments amounted to $6.7 million, $2.0 million and $4.6 million in 1999, 1998
and 1997, respectively. The balance of royalties earned in these years
represents royalties for product shipments in the current period.
Note 20 - Income Taxes
Income (loss) from continuing operations before income taxes for domestic
and foreign operations consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
----------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Domestic ................................................... $ (10,017) $ 143 $ 4,316
Foreign ................................................... 378 (238) (24)
----------- --------- ---------
$ (10,395) $ (95) $ 4,292
=========== ========= =========
</TABLE>
The provision for (benefit of) income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
----------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Current:
Federal................................................. $ -- $ (44) $ (77)
State................................................... -- 10 (44)
Foreign................................................. -- 5 --
Foreign withholding taxes on royalty income............. 2,010 1,079 1,250
--------- --------- ---------
2,010 1,050 1,129
--------- --------- ---------
Long-term:
State................................................... -- (5,227) --
Foreign................................................. -- (10,151) --
--------- --------- ---------
-- (15,378) --
--------- --------- ---------
$ 2,010 $ (14,328) $ 1,129
=========== ========= =========
</TABLE>
The difference between taxes computed by applying the statutory federal
corporate income tax rate (effective for 1999, 1998, and 1997) to income from
continuing operations before income taxes and the actual provision for income
taxes was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
----------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Federal income tax provision at statutory rate............... $ (3,374) $ 157 $ 1,868
Domestic losses not benefited................................ 3,506 (199) --
Foreign gains not taxed...................................... (131) -- --
Foreign losses not benefited................................. -- 47 --
Rates in excess of U.S....................................... 2009 1,079 595
Temporary differences not previously benefited............... -- -- (1,232)
Net operating losses not previously benefited................ --
Reversal of long-term state and
foreign income tax reserves............................. -- (15,378) --
Other, net................................................... -- (34) (102)
----------- --------- ---------
$ 2,010 $ (14,328) $ 1,129
=========== ========= =========
</TABLE>
F-25
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20 - Income Taxes (cont'd.)
The following table shows the major components of the deferred income tax
assets and liabilities as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
------------ ------------
(in thousands)
<S> <C> <C>
Inventory basis differences.................................. $ 657 $ 6,584
Restructuring reserves and other liabilities not yet
deductible for tax purposes............................. 987 10,404
Loss carryforwards........................................... 45,631 41,285
Foreign withholding taxes on undistributed earnings
of foreign subsidiaries................................. (1,213) (1,213)
Property, plant and equipment
Basis differences....................................... (107) 876
Credit from prior year's minimum tax......................... 1,133 1,191
Other........................................................ 315 7,739
Less valuation allowance..................................... (48,616) (68,079)
------------ ------------
Deferred tax liability............................... $ (1,213) $ (1,213)
============ ============
</TABLE>
A valuation allowance has been established to reduce the deferred tax
asset to the amount expected to be realized.
In the first quarter of 1998, the Company reversed $5.2 million previously
reserved in connection with disputed state income taxes for the prior years,
following the favorable settlement of that dispute in March 1998. In the second
and third quarter of 1998, the Company reversed $4.9 and $5.2 million,
respectively, previously reserved in connection with the liquidation of its
subsidiary in Italy. As at December 31, 1999, the Company had net operating loss
carryforwards for income tax purposes of $128.8 million expiring in the years
2005 through 2014. As a result of the financing transactions that were completed
in April 1994 and February 1995, the Company's ability to utilize its net
operating losses and credit carryforwards as an offset against future
consolidated federal income tax liabilities will be restricted in its
application, which will result in a material amount of the net operating loss
never being utilized by the Company.
Note 21 - Segment Reporting
The Company has the following operating segments: high-performance
magnetic disk arrays; licensing of intellectual property and Internet video
production and distribution. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies.
The Company evaluates segment performance based on return on operating
assets employed. Profitability is measured as income or loss from operations
before income taxes, excluding restructuring charges (credits), foreign exchange
gains and losses and goodwill amortization and related acquisition charges.
Intersegment sales and transfers are accounted for at current market
prices but they were not significant to revenues.
F-26
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 21 - Segment Reporting (cont'd.)
<TABLE>
<CAPTION>
Year Ended December 31, 1999
------------------------------------------------------------------------------------
Licensing of Eliminations
Internet Intellectual and
Video MicroNet Property Corporate Totals
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers.............. $ 1,909 $ 10,988 $ 19,850 $ (188) $ 32,559
Interest income............................... 108 -- -- 2,277 2,385
Interest expense.............................. 140 1,366 -- 4,053 5,559
Depreciation, amortization and accretion...... 289 127 -- 976 1,392
Segment income (loss)......................... (18,934) (4,111) 18,582 (1,390) (5,853)
Segment assets................................ 17,551 8,005 3 61,760 87,319
Expenditures for segment assets............... 1,518 304 -- 286 2,108
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1999
------------------------------------------------------------------------------------
Licensing of Eliminations
Internet Intellectual and
Video MicroNet Property Corporate Totals
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers.............. $ -- $ 5,516 $ 10,591 $ -- $ 16,107
Interest income............................... -- -- -- 2,982 2,982
Interest expense.............................. -- 477 -- 3,805 4,282
Depreciation, amortization and accretion...... -- 34 2 756 792
Segment income (loss)......................... -- (1,958) 9,087 (5,686) 1,443
Segment assets................................ -- 8,631 3 107,367 116,001
Expenditures for segment assets............... -- -- -- 2,194 2,194
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1999
------------------------------------------------------------------------------------
Licensing of Eliminations
Internet Intellectual and
Video MicroNet Property Corporate Totals
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers.............. $ -- $ -- $ 12,550 $ -- $ 12,550
Interest income............................... -- -- -- 1,345 1,345
Interest expense.............................. -- -- -- -- --
Depreciation, amortization and accretion...... -- -- 1 229 230
Segment income (loss)......................... -- -- 6,848 (2,560) 4,288
Segment assets................................ -- -- 3 81,668 81,671
Expenditures for segment assets............... -- -- -- 448 448
</TABLE>
F-27
<PAGE>
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 22- Foreign Operations
The following table shows certain financial information relating to the
Company's operations in various geographical areas:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
----------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
Total revenue:
United States.......................................... $ 32,559 $ 16,107 $ 12,550
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
----------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
Income (loss) from continuing operations before income taxes:
United States.......................................... $ 3,921 $ 5,841 $ 10,688
Europe, Africa and the Middle East..................... (3) 313 (247)
Other foreign.......................................... -- 18 (14)
Eliminations and corporate expenses.................... (14,313) (6,267) (6,135)
----------- ---------- ---------
Total........................................... $ (10,395) $ (95) $ 4,292
=========== ========== =========
Gain (loss) on business held for disposition:
United States.......................................... $ (1,630) $ (3,285) $ 8,542
Europe, Africa and the Middle East..................... (1,080) 457 386
Other foreign.......................................... (49) 154 919
Eliminations and corporate expenses.................... (207) (1,121) 1,793
----------- ---------- ---------
Total........................................... $ (2,966) $ (3,795) $ 11,640
=========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998
------------ ------------
(in thousands)
<S> <C> <C>
Identifiable assets:
United States........................................................... $ 25,637 $ 38,226
Europe, Africa and the Middle East...................................... 92 5,007
Other foreign........................................................... 1,136 1,595
Eliminations and corporate assets....................................... 60,454 71,173
---------- ----------
Total............................................................ $ 87,319 $ 116,001
========== ==========
</TABLE>
Transfers between geographic areas are at cost plus a reasonable profit.
Sales from the United States include export sales to unaffiliated customers of
$1.3 million, $0.6 million and none in 1999, 1998 and 1997, respectively.
Identifiable assets are classified by the location of the Company's facilities
and include cash, investments, accounts receivable, inventories, intangible
assets, other assets, net assets of business held for disposition, deferred
pension and property, plant and equipment. Corporate assets consisted
principally of cash, investments, interest receivable, deferred pension and
intangible assets at December 31, 1999 and 1998.
Note 23 - Major Customers
The Company recorded revenue from two licensees in 1999 and 1997 and three
licensees in 1998, which each individually accounted for more than 10% of the
total revenue and collectively accounted for 41.9%, 48.9% and 79% of total
revenue in 1999, 1998 and 1997, respectively.
F-28
<PAGE>
AMPEX CORPORATION
1999 FORM 10-K
EXHIBIT INDEX
Description
10.8 Fourth Amendment Agreement to Loan and Security Agreement by and between
Ampex Finance Corporation and Congress Financial Corporation dated April
7, 1999.
10.9 Form of Employment Security Letter entered into between the Company and
Messrs. Atchison, Cooper, McKibben, Jacquet and Talcott (executive
officers of the Company), dated July 24, 1998.
10.12 Amendment dated September 10, 1998 and amendment dated November 19, 1999
to Lease between Martin/Campus Associates, LP as landlord and the Company
as tenant.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Accountants.
25.1 Power of Attorney (included in the signature page of this Report).
27.1 Financial Data Schedule.
<PAGE>
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, dated as of April 13, 1999 (the "Amendment"),
between Ampex Finance Corporation (the "Borrower") and Congress Financial
Corporation (Western) (the "Lender").
WHEREAS, the Borrower and Congress Financial Corporation are parties
to that certain Loan and Security Agreement dated as of May 5, 1994, as amended
(the "Loan Agreement") (all capitalized terms used and not otherwise defined
herein shall have the meanings given to them in the Loan Agreement);
WHEREAS, Congress Financial Corporation (Western) has succeeded to
the interests of Congress Financial Corporation by assignment and is for all
purposes the Lender under the Loan Agreement, as the same may be amended from
time to time; and
WHEREAS, Borrower and Lender have agreed to amend the Loan Agreement
on the terms and subject to the conditions herein.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and subject to the fulfillment of
the conditions set forth below, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO LOAN AGREEMENT
1.1 Section 3.1(a) shall be amended by deleting the reference to (i) "two
(2) percent" and substituting therefor "one-half (1/2) percent" and (ii) "four
(4) percent" and substituting therefor "two and one-half (2 1/2) percent."
1.2 Section 9.14(f) shall be amended by deleting the reference to "$500
per person per day" and substituting therefor "$650 per person per day."
1.3 The first sentence of Section 12.1(a) shall be amended in its entirety
as follows: "This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date eight (8) years from the
date hereof (the "Renewal Date"), and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof."
1.4 Section 12.1(c) shall be amended by adding (a) below item (iv) in the
"Amount" column set forth therein "(v) 1% of Maximum Credit" and (b) below "May
5, 1997 to and including May 5, 1998" in the "Period" column set forth therein
"April 13, 1999 to and including May 5, 2002."
<PAGE>
SECTION 2. MISCELLANEOUS
2.1 Borrower reaffirms and restates the representations and warranties set
forth in Section 8 of the Loan Agreement and confirms that each such
representation and warranty shall be true and correct on the date hereof with
the same force and effect as if made on such date. In addition, the Borrower
represents and warrants (which representations and warranties shall survive the
execution and delivery hereof) that (a) no Event of Default and no event or
condition which, with notice or passage of time or both, would constitute an
Event of Default exists or has occurred and is continuing as of the date hereof,
(b) the Borrower has taken or caused to be taken all necessary corporate action
to authorize the execution and delivery of this Amendment, and (c) no consent of
any other person (including, without limitation, shareholders or creditors of
the Borrower), and no action of, or filing with any governmental or public body
or authority is required to authorize, or is otherwise required in connection
with the execution and performance of this Amendment other than such that have
been obtained.
2.2 Except as herein expressly amended, each of the Loan Agreement and
Financing Agreements is hereby ratified and confirmed in all respects and shall
remain in full force and effect in accordance with its terms.
2.3 All references to the Loan Agreement in the various Financing
Agreements shall mean the Loan Agreement as amended hereby and as the same may
in the future be amended, restated, supplemented or modified from time to time.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings attributed to them in the Loan Agreement.
2.4 This Amendment may be executed by the parties hereto individually or
in combination, in one or more counterparts, each of which shall be an original
and all of which shall constitute one and the same agreement.
2.5 THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF.
[Remainder of this Page is Intentionally Blank]
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
AMPEX FINANCE CORPORATION
By: /s/ Ramon Venema
-------------------------------------
Name: Ramon Venema
Title: President
CONGRESS FINANCIAL CORPORATION (WESTERN)
By: /s/ Kristine Metchikian
-------------------------------------
Name: Kristine Metchikian
Title: Vice President
-3-
<PAGE>
July 24, 1998
Mr. (ADDRESSEE_NAME)
(STREET_ADDRESS)
(CITY_STATE_ZIP_CODE)
Dear (NAME):
This letter is intended to provide you with additional employment security as
follows:
If at any time during the five year period following the date of this letter
there shall occur a "Change of Control" (as defined below) while you are
employed by Ampex Corporation (the "Company") or a subsidiary and if you (1) are
terminated; (2) have your compensation and benefits reduced to less than 90% of
your then current compensation and benefits, not including stock options and
your savings plan; or (3) are relocated to a work location more than 50 miles
from your current work location by the Company (or its successor) within 24
months after the date of such Change of Control, then you shall be entitled to
the following:
(a) Salary continuation (as defined below) for a period of 24 months from the
date of such Change of Control; and
(b) Continued participation in the Company's medical and insurance benefit
programs (or similar programs of its successor) for such 24 month period.
"Change of Control" shall mean (i) any "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) other than Sherborne Holdings Incorporated, a Delaware corporation, or
its affiliates (as such term is used in such Act) shall become the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under such Act) of voting stock of
the Company entitling such person or group under ordinary circumstances to elect
a majority of the members of the Board of Directors of the Company or (ii) the
sale of all or substantially all the assets of the Company to an unaffiliated
third party.
"Salary continuation" shall mean continuation of your monthly salary payments at
the annual base rate of salary in effect at the date of such termination, plus
annual incentive compensation equal to the average percentage incentive award to
you in the last three years (or such lesser period as you shall have been
employed) times such annual base salary; it being understood and agreed that if
you shall continue to be employed by the
<PAGE>
Mr. (ADDRESSEE_NAME)
July 24, 1998
Page 2
Company (or its successor) after the date of such Change of Control and shall be
subsequently terminated (i) your salary continuation during such 24 month period
shall be at a rate not less than would have been in effect if you had been
terminated on the date of such Change of Control, and (ii) the Company (or its
successor) shall receive credit for any salary and incentive awards payable to
you in respect of such period of employment. Long-term performance incentive
awards shall not be included hereunder, but shall be payable to the extent
provided in the relevant long-term incentive plan document. Salary continuation
provided hereunder shall be offset by any severance or similar amounts otherwise
payable to you by the Company (or its successor) and shall cease in the event
you accept employment during such 24 month period with any other company engaged
in the manufacture or sale of instrumentation or data storage products in the
United States. All payments shall be subject to applicable withholding taxes.
Your participation in medical and insurance benefit programs will be subject to
the terms of the controlling plans and will be continued during the period
unless similar benefits are provided by a successor or subsequent employer.
Other benefits, such as automobiles or memberships will not be continued, nor
will contributions be made nor additional service time accrue to savings,
pension or supplemental retirement plans.
It is not intended that this letter deprive you of any of the normal benefits
that you would receive on any termination of your employment at Ampex. For
example, if you were terminated near the end of the two year period recited in
the letter and you were entitled under applicable Ampex policy to receive
benefits, such as salary continuation, which would extend beyond the completion
of the two years, you will not be deprived of those benefits. Further, although
the salary continuation provided in the letter will not result in the accrual of
additional service time for pension and other purposes, other service accruals,
if any, provided under Ampex policy would be applied if appropriate.
Notwithstanding anything to the contrary above, if all or any portion of the
payments or benefits provided to you pursuant to this letter, either alone or
together with other payments or benefits which you receive or are then entitled
to receive from the Company or any of its subsidiaries or affiliates, would
constitute a "parachute payment" within the meaning of Section 280G of the
Internal Revenue Code of 1986 as amended (the "Code"), such payments or benefits
shall be deferred or reduced to the extent necessary so that no portion thereof
shall be subject to the excise tax imposed on you under Section 4999 of the Code
and such that all such payments and benefits are deductible under Section 280G
of the Code. The deferral or reduction, if any, shall be made with respect to
such payments and benefits as the Company in its sole discretion shall
determine, provided, that nothing in this paragraph shall result in a reduction
or deferral of any amounts payable to you under any long-term incentive plan in
accordance with the relevant plan documents.
Nothing herein is a guarantee or contract of continued employment. Your
entitlement to the additional benefits provided herein is subject to your
continued compliance with all your obligations to the Company (including without
limitation obligations as to protection of confidential information) now or
hereafter in effect.
<PAGE>
Mr. (ADDRESSEE_NAME)
July 24, 1998
Page 2
This letter sets forth our entire understanding and agreement concerning the
subject matter hereof, and may not be amended, supplemented or waived in any
respect except by a writing signed by the Company. If any clause or provision
hereof shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not impair or affect the remainder of the agreement. You
may not assign any of your rights or interests herein.
Please sign a copy of this letter and return it to me.
Very truly yours,
AMPEX CORPORATION
BY:/s/ Edward J. Bramson
--------------------------------
Edward J. Bramson
Chairman
UNDERSTOOD AND AGREED:
- -----------------------------------
(ADDRESSEE_NAME)
<PAGE>
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE (the "Third Amendment") is made and entered
into as of this ___ day of September, 1998 by and between MARTIN/CAMPUS
ASSOCIATES NO. 4, L.P., a Delaware limited partnership ("Landlord") and AMPEX
CORPORATION, a Delaware corporation ("Tenant").
R E C I T A L S:
This Third Amendment is entered into upon the basis of, and with reference
to the following facts, understandings and intentions of the parties:
A. Martin/Campus Associates, L.P., a Delaware limited partnership
("Original Landlord"), and Tenant entered into that certain Lease dated January
19, 1996 which demised those certain premises located at 1228 Douglas Avenue
(Building 8), 1250 Douglas Avenue (Building 20) and 550 Broadway (Building 10),
Redwood City, California as more particularly described in the Lease (the
"Premises"), which Lease has been amended by a certain First Amendment Lease
dated December 20, 1996 (the "First Amendment") and by a certain Amendment to
Bay Road Lease and Douglas/Broadway Lease dated July 14, 1998 (the "Second
Amendment") (the Lease, the First Amendment and the Second Amendment are
hereinafter collectively referred to as the "Lease").
B. Original Landlord assigned all of its right, title and interest as
landlord under the Lease to Landlord pursuant to that certain Assignment and
Assumption of Tenant Leases dated as of September 22, 1997 (the "Assignment of
Lease").
C. Landlord and Tenant desire to modify and amend the terms of the Lease
(i) to provide for the surrender of that portion of the Premises located at 1250
Douglas Avenue and commonly referred to as Building 20 together with the
exclusive use of the Outside Area (the "Released Premises") on the Effective
Date (as defined in that certain Partial Termination of Lease Agreement of even
date herewith), (ii) to release each other from their respective obligations
under the Lease with respect to the Released Premises arising after the
Effective Date and (iii) to designate common areas for which Landlord shall
assume maintenance obligations, a proportionate share of the cost therefor to be
paid by Tenant, all as more fully set forth herein.
NOW, THEREFORE, for good and valuable consideration, including the mutual
covenants contained in the Lease and in this Third Amendment, Landlord and
Tenant hereby agree as follows:
1. Defined Terms. Except as expressly provided in this Third Amendment to
the contrary, terms which are defined in the Lease shall have the same meaning
when used in this Third Amendment.
2. Title Page. The last two lines of the Title Page of the Lease are
hereby deleted and the following lines are inserted in place thereof:
"For the approximately 99,638 SF Premises at
1228 Douglas Avenue and 550 Broadway, Redwood City, CA 94063"
1
<PAGE>
3. Lease Summary. The Building Addresses, the Total Building Square
Footage, the Monthly Rent and the Security Deposit terms contained in the Lease
Summary are hereby deleted and the following terms are inserted in place
thereof:
"Building Addresses: 1228 Douglas Avenue and 550 Broadway
Redwood City, CA 94063
* * *
"Total Building Square Footage: 99,638 square feet
* * *
"Monthly Rent (net): $87,233.07
* * *
"Security Deposit $87,233.07"
4. Premises. Paragraph 2 of the Lease is hereby deleted in its entirety
and the following Paragraph is inserted in place thereof:
"Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
those certain premises consisting of a total area of approximately 99,638
square feet in those certain buildings, commonly known as 1228 Douglas
Avenue (Building 8) and 550 Broadway (Building 10), consisting of
approximately 32,000 square feet and 67,638 square feet, respectively
(each, a "Building," but collectively, the "Buildings") in the City of
Redwood City, County of San Mateo, State of California, as more
particularly shown on EXHIBIT A (collectively, the "Premises"). The
Premises also include the appurtenant right to use in common with other
tenants of the Property (as defined below) the Common Area (as defined
below) of the Property owned by Landlord."
5. Definitions. Paragraph 3 of the Lease is hereby amended (a) to delete
in its entirety Paragraph 3. J (the definition of "Outside Area") and (b) to
insert the following new definitions:
"C.1. Common Area. All areas and facilities within the Property which are
not within buildings wholly or partially leased to or occupied by tenants
or not otherwise appropriated to the exclusive occupancy of tenants,
including the Parking Area, the sidewalks, pedestrian ways, driveways,
signs (other than Tenant's signs), pools, ponds, service delivery and
loading facilities, common storage areas, common utility facilities and
all other areas on the Property established by Landlord and/or its
successors for non-exclusive use. Landlord may, by written notice to
Tenant, elect in its sole discretion to increase and/or decrease the
Common Area from time to time during the Term for any reason whatsoever
(including without limitation an election by Landlord and/or its
successors in their sole discretion to make changes to the buildings
situated on the Property, and/or to subdivide, sell, exchange, dispose of,
transfer, or change the configuration of all or any portion of the Common
Area from time to time), so long as Landlord does not (i) unreasonably
interfere with ingress to or egress from the Buildings; (ii) permanently
reduce the number of parking spaces available for Tenant's use below the
minimum requirements set forth in paragraph 37; (iii) move the Parking
Area materially farther from the Buildings; (iv) materially decrease the
visibility of Tenant's signage located on the Buildings or within the
Property as of the date of this Third Amendment or future Tenant's
identification signage installed on the exterior of the Buildings in
accordance with paragraph 20
2
<PAGE>
(provided that Landlord alternatively may relocate Tenant's signage at
Landlord's expense to a location mutually acceptable to Landlord and
Tenant as may be agreed by the parties prior to such relocation); or (v)
reconfigure the Common Area located within those certain areas surrounding
the Buildings as highlighted in yellow on EXHIBIT A and designated as the
"Protected Areas." No such subdivision, sale, exchange, disposition,
transfer, or change to the configuration of all or any portion of the
Common Area shall cause the Common Area to be increased or decreased
unless and until Landlord has given Tenant written notice of such increase
or decrease. Landlord shall have exclusive control of the Common Area and
may at any time close any part thereof for periods not to exceed thirty
(30) days (subject to delays due to causes beyond Landlord's control),
exclude and restrain anyone from any part thereof, except the bonafide
customers, employees and invitees of Tenant who use the Common Area in
accordance with the reasonable rules and regulations as Landlord may from
time to time promulgate. In exercising any such rights, Landlord shall not
unreasonably disrupt Tenant's business.
"C.2. Common Area Maintenance Expenses. The total of all costs and
expenses paid or incurred by Landlord in connection with the operation,
maintenance, ownership, repair and replacement of the Common Area, as
calculated in accordance with generally accepted accounting principles,
consistently applied. Without limiting the generality of the foregoing and
subject to the exclusions set forth below, Common Area Maintenance
Expenses include all costs of and expense for: (i) resurfacing, resealing,
remarking, painting, repainting, striping or restriping the Parking Area
(but excluding certain parking lot repairs to the Parking Area, cross
hatched on EXHIBIT A and identified as the Phase III Parking Lot
Resurfacing area, to be performed pursuant to the Second Amendment); (ii)
maintenance, repair and replacement of sidewalks, curbs, paving, walkways,
Parking Area, Property signs, landscaping, planting and irrigation
systems, trash facilities, loading and delivery areas, lighting, drainage
and common utility facilities associated with Parking Area lighting,
signage and irrigation of landscaping, directional or other signs, markers
and bumpers; (iii) wages, salaries, benefits, payroll burden fees and
charges of non-executive personnel (but including Landlord's property
manager to extent the manager is utilized, in lieu of retaining
independent contractors, for the supervision of the maintenance or repair
of the Common Area) employed by Landlord and the charges of all
independent contractors retained by Landlord (to the extent on a
percentage basis of time spent that such personnel and contractors are
utilized by Landlord) for the maintenance or repair of the Common Area
(but excluding the cost of any security services, except to the extent
provided in paragraph 39); (iv) depreciation or amortization (or in lieu
thereof, rental payments) on all tools, equipment and machinery used in
the operation and maintenance of the Common Area; (v) premiums for
Comprehensive General Liability Insurance or Commercial General Liability
Insurance, casualty insurance, workers compensation insurance or other
insurance on the Common Area, or any portion thereof or interest therein,
and any deductibles (which deductible shall not exceed $15,000, increased
annually by 3%) payable with respect to such insurance policies other than
earthquake insurance for which the deductible shall not be included in
Common Area Maintenance Expenses; (vi) cleaning, collection, storage and
removal of trash, rubbish, dirt and debris, and sweeping and cleaning the
Common Area; (vii) all personal property or real property taxes and
assessments levied or assessed on the Property, or any portion thereof or
interest therein, including without limitation the Real Property Taxes for
the Premises, if applicable under paragraph 15.A; (viii) reasonable legal,
accounting and other professional services for the operation of the Common
Area, including reasonable costs, fees and expenses of contesting the
validity or applicability of any law, ordinance, rule, regulation or order
relating to the Buildings, and of contesting, appealing or otherwise
attempting to reduce any Real Property Taxes assessed against the
Property; (ix) any alterations, additions or improvements required to be
made to the Common Area in order to reduce Common Area Maintenance
Expenses or to protect the safety of occupants of the Property (provided
in the latter case that such alterations, additions or improvements are
not necessitated solely as a result of the use and occupancy of the Common
Area by a new tenant of the Property or as a result of new tenant
improvements to any building on the Property, other than in or on the
Buildings, and further provided
3
<PAGE>
in any case that the cost of any such alterations, additions, improvements
or capital improvements, together with interest at the rate of ten percent
(10%) per annum, or, if applicable, the rate paid by Landlord on funds
borrowed for the purpose of constructing or installing such alterations,
additions or improvements, shall be amortized over the useful life of the
alteration, addition, improvement or capital improvement in question and
included in Common Area Maintenance Expenses for each year over which such
costs are amortized and that the annual amount of such amortized costs
passed through as an expense shall not exceed the cost savings realized in
such year); (x) all costs and expenses incurred in performing any
alterations, additions or improvements required to be made to the Common
Area in order to comply with applicable laws, ordinances, rules,
regulations and orders enacted after the date hereof, provided that the
cost of any such alterations, additions, improvements or capital
improvements, together with interest at the rate of ten percent (10%) per
annum, or, if applicable, the rate paid by Landlord on funds borrowed for
the purpose of constructing or installing such alterations, additions or
improvements, shall be amortized over the useful life of the alteration,
addition, improvement or capital improvement in question and included in
Common Area Maintenance Expenses for each year over which such costs are
amortized; (xi) any and all payments due and owing on behalf of the
Property or any portion thereof with respect to any CC&R's to the extent
such payments are in lieu of or substitution for other Common Area
Maintenance Expenses; and (xii) all costs and expenses related to the
adoption and maintenance of a portion of Highway 101 (Tenant's Percentage
Share of which shall not exceed $720 per year, increased annually by 3%).
However, notwithstanding the foregoing or anything to the contrary in this
Lease, Common Area Maintenance Expenses shall not include the cost of or
expenses for the following: (A) leasing commissions, attorneys' fees or
other costs or expenses incurred in connection with negotiations or
disputes with other tenants of the Property or attorneys' fees incurred
which must be capitalized for income tax purposes; (B) depreciation of
buildings in the Property; (C) payments of principal, interest, late fees,
prepayment fees or other charges on any debt secured by a mortgage
covering the Property, or rental payments under any ground lease or
underlying lease; (D) any penalties incurred due to Landlord's violation
of any governmental rule or authority (but not excluding the cost of
compliance therewith, if such cost is chargeable to Tenant pursuant to
this Lease); (E) items for which Landlord is reimbursed by insurance; (F)
all costs associated with the operation of the business of the entity
which constitutes "Landlord", as distinguished from the costs of
operations, including, but not limited to, costs of partnership accounting
and legal matters, costs of defending any lawsuits with any mortgagee
(except as the actions of Tenant may be in issue), costs of selling,
syndicating, financing, mortgaging, or hypothecating any of the Landlord's
interest in the Property and/or Common Area, or any portion thereof, costs
of any disputes between Landlord and its employees, costs of disputes of
Landlord with Building management or costs paid in connection with
disputes with Tenant or any other tenants; (G) all costs (including
permit, license and inspection fees) incurred in renovating or otherwise
improving or decorating, painting or redecorating space for other tenants
in the Property; (H) the creation of any reserves for equipment or capital
replacement; (I) all costs arising from monitoring, cleaning up and
otherwise remediating any release of Hazardous Materials at the Premises;
(J) any Real Property Taxes or costs for which Landlord is separately and
directly reimbursed by Tenant or any other tenant of the Property which
are assessed against the Premises or the premises leased by such other
tenant(s); (K) any costs for security services; (L) any costs of repairs
for damage or destruction occasioned by fires or other casualty (except
the deductible amount permitted under item (v) above); (M) any costs due
to replacement or failure of Landlord's computer hardware or software or
other equipment used in connection with the operation of the Common Area
due to so called "Year 2000" issues relating to the inability to
distinguish between dates before and after January 1, 2000; and (N) all
capital expenditures not described in items (ix) and (x) above.
"J. Parking Area. All Common Area on the Property (except sidewalks and
service delivery facilities) now or hereafter designated by Landlord for
the parking or access of motor vehicles, including roads, traffic lanes,
vehicular parking spaces, landscaped areas and walkways, and including any
parking structure constructed during the Term. Landlord and/or its
successors may, by written notice to Tenant, elect in their sole
discretion to increase and/or decrease the Parking Area from time
4
<PAGE>
to time during the Term for any reason whatsoever (including without
limitation an election by Landlord and/or its successors in their sole
discretion to make changes to the buildings situated on the Property,
and/or to subdivide, sell, exchange, dispose of, transfer, or change the
configuration of all or any portion of the Parking Area from time to
time), so long as such changes to the Parking Area do not reduce the
number of parking spaces available for Tenant's use below the minimum
requirements set forth in paragraph 37 for periods in excess of thirty
(30) days (subject to delays due to causes beyond Landlord's control),
materially impair access to or from the Buildings to and from the Parking
Area or move the Parking Area materially farther from the Buildings. No
such subdivision, sale, exchange, disposition, transfer, or change to the
configuration of all or any portion of the Parking Area shall cause the
Parking Area to be increased or decreased unless and until Landlord has
given Tenant written notice of such increase or decrease.
"K.1 Property. The real property shown on EXHIBIT A consisting of
approximately nine and 31/100ths (9.31) acres and the buildings and
permanent improvements located thereon, within which the Premises are
located.
"M.1 Rentable Area. The aggregate square footage in any one or more
buildings on the Property, as appropriate, as reasonably determined by
Landlord's architect in accordance with BOMA Standard (ANSI Z65.1 1980)
for full floor office occupancy. The Rentable Area of Building 8 is 32,000
square feet, the Rentable Area of Building 10 is 67,638 square feet and
the Rentable Area of all of the buildings on the Property is 191,910
square feet.
"R.1 Tenant's Percentage Share. The ratio (expressed as a percentage) of
the total Rentable Area of the Premises to the total Rentable Area of all
of the buildings located on the Property owned by Landlord from time to
time, which as of the date hereof shall equal 51.92% (i.e., the Rentable
Area of the Premises divided by the Rentable Area of the buildings located
on the Property owned by Landlord as of the date hereof). Tenant's
Percentage Share shall be recalculated each and every time that the amount
of Rentable Area contained in Premises is adjusted, or the Premises is
expanded, buildings are added to or removed from the Property, or there is
a change in the total Rentable Area of those buildings located on the
Property owned by Landlord, or Landlord sells, exchanges, or otherwise
transfers any or all of the buildings located on the Property (including
without limitation the Buildings). The parties acknowledge and agree that
the total Rentable Area of all of the buildings located on the Property
owned by Landlord may increase and/or decrease from time to time during
the Term, since Landlord may elect in its sole discretion to sell a
building or buildings or to make changes to the buildings it owns."
6. Monthly Rent. Paragraph 5.A of the Lease is hereby amended to (a)
delete the last two lines of the first paragraph of paragraph 5.A. and (b) to
add the following paragraph as the second paragraph to the Lease:
"Notwithstanding anything to the contrary contained in the previous
paragraph, as of the Effective Date (as defined hereinafter), Tenant shall
pay to Landlord, in lawful money of the United States, Monthly Rent in the
amount of $87,223.07 per month, which amount represents the sum of
$28,016.00 per month for the Building at 1228 Douglas and $59,217.07 per
month for the Building at 550 Broadway and which amount shall be subject
to adjustment on each Adjustment Date in accordance with paragraph 5.B.,
the next Adjustment Date being November 1, 1998. If the Term of this Lease
extends beyond the date which if ten (10) years from the Commencement
Date, the Monthly Rent for the eleventh (11th) year of the Term shall be
(i) 134% of initial Monthly Rent attributable to Building 8 and Building
10 (i.e., $113,487.68 per month) if the cumulative increase in the Index
from the Commencement Date through the tenth (10th) year of the Term
exceeds thirty-four percent (34%), or (ii) the Monthly Rent payable during
the last month of the tenth (10th) year of the Term, increased by the
percentage increase in the Index over the twelve (12) month period
5
<PAGE>
immediately preceding the commencement of the eleventh (11th) year of the
Term (calculated as provided in paragraph 5.B.) if the cumulative increase
in the Index during such 10-year period is thirty-four percent (34%) or
less. At the commencement of the twelfth (12th) and thirteenth (13th)
years of the Term (if applicable), the Monthly Rent shall be increased by
the percentage increase in the Index, calculated as provided in paragraph
5.B. over the previous 12-month period.
7. Additional Rent. Paragraph 5.E of the Lease is hereby amended to add in
the second line thereof after the words "including, without limitation," the
words "Common Area Maintenance Expenses pursuant to paragraph 5.G.,".
8. Common Area Maintenance Expenses. The following paragraph is added as a
new paragraph 5.G. of the Lease:
"G. Common Area Maintenance Expenses.
(1) Estimated Payments. Commencing as of the Effective Date
and continuing throughout the entire Term, Tenant shall pay Tenant's
Percentage Share of all Common Area Maintenance Expenses paid or
payable by Landlord in each year. On the Effective Date and during
December of each calendar year or as soon thereafter as practicable,
Landlord shall give Tenant notice of its estimate of amounts payable
under this paragraph 5.G.(1) for the ensuing calendar year. Such
notice shall show in reasonable detail the basis on which the
estimate was determined. On or before the first day of each month
during the ensuing calendar year, Tenant shall pay to Landlord
one-twelfth (1/12th) of such estimated amounts, provided that if
such notice is not given in December, Tenant shall continue to pay
on the basis of the prior year's estimate until the month after such
notice is given. If at any time or times it appears to Landlord, in
its reasonable judgment, that the amounts payable under this
paragraph 5.G.(1) for the current calendar year will vary from its
then-current estimate by more than five percent (5%), Landlord may,
by notice to Tenant, showing in reasonable detail the basis for such
variance, revise its estimate for such year, in which case
subsequent payments by Tenant for such year shall be based upon such
revised estimate. Landlord's election not to give the notice
described in the foregoing sentence shall not affect Landlord's
ability to charge Tenant for, nor Tenant's liability to pay for, any
shortfall in the estimated payments for such calendar year
previously made by Tenant, as set forth in paragraph 5.G.(2).
"(2) Adjustment. Within one hundred twenty (120) days after
the close of each calendar year or as soon after such 120-day period
as reasonably practicable, Landlord shall deliver to Tenant a
reasonably detailed statement of Common Area Maintenance Expenses
for such calendar year, certified by Landlord or its property
manager, subject to Tenant's right to audit as hereinafter provided.
At that time, Landlord shall also deliver to Tenant a statement,
certified as correct by Landlord, of the adjustments to be made
pursuant to paragraph 5.G.(1) above. If Landlord's statement shows
that Tenant owes an amount that is less than the estimated payments
for such calendar year previously made by Tenant, Landlord may
elect, in its sole discretion, to either refund such excess to
Tenant within thirty (30) days after delivery of the statement, or
offset such overpayment against Monthly Rent due or remaining due
under this Lease; provided that if no Monthly Rent remains due,
Landlord shall refund such excess to Tenant within thirty (30) days
after delivery of the statement. If such statement shows that Tenant
owes an amount that is more than the estimated payments for such
calendar year previously made by Tenant, Tenant shall pay the
deficiency to Landlord within thirty (30) days after delivery of the
statement.
"(3) Last Lease Year. If this Lease shall terminate on a day
other than the last day of a calendar year, the adjustment in
Minimum Rent applicable to the calendar year in which such
termination shall occur shall be prorated on the basis which the
number of days from the commencement of such calendar year to and
including such termination date bears to three hundred
6
<PAGE>
sixty (360). The termination of this Lease shall not affect the
obligations of Landlord and Tenant pursuant to paragraph 5.G.(2) to
be performed after such termination."
9. Security Deposit. Paragraph 7 of the Lease is hereby amended to add the
fallowing sentence to the end thereof: "Landlord and Tenant agree that as of the
Effective Date of the Third Amendment, the Security Deposit shall be further
reduced to Eighty-Seven Thousand Two Hundred Thirty-Three and 07/100
($87,233.07)."
10. Real Property Taxes. Paragraph 15.A is hereby amended to delete the
first two sentences thereof and insert in place thereof the following:
"Tenant shall pay the Real Property Taxes for the Premises. If
billed directly, Tenant shall pay such Real Property Taxes directly
to the San Mateo County assessor. If the Real Property Taxes for the
Premises are billed to Landlord or included in bills to Landlord for
Real Property Taxes covering the entire Property, then Tenant shall
pay its share of Real Property Taxes as part of the Common Area
Maintenance Expenses."
The following paragraph is added as a new paragraph 15.D:
"D. Tax Parcels. If Landlord determines in its reasonable discretion
that the configuration of tax parcels within the Property (including
without limitation the tax parcel on which the Premises is situated)
causes the allocation of Real Property Taxes between the affected
tax parcels to be unfair or inequitable, Landlord reserves the right
to internally reallocate the Real Property Taxes assessed against
such affected tax parcels in a manner that reasonably addresses such
unfairness or inequity. If Landlord effects any such reallocation,
then the Real Property Taxes payable by Tenant under this Lease
shall be those Real Property Taxes allocated to the Premises
pursuant to this paragraph 15.D."
11. Repairs and Maintenance. Paragraph 17.A of the Lease is hereby amended
by adding the words "Landlord shall repair, maintain and operate the Common Area
and" to the beginning thereof. Paragraph 17.B. is hereby amended by deleting
therefrom the third, fourth, fifth and sixth sentences regarding Tenant's
obligation to maintain the Outside Area.
12. Parking Area. Paragraph 37 is hereby deleted and the following is
inserted in place thereof:
"Tenant shall have the non-exclusive right, in common with any other
tenants or occupants of the Property, to use up to 274 unassigned
parking spaces, upon terms and conditions, as may from time to time
be reasonably established by Landlord (provided that such terms and
conditions shall not include an imposition by Landlord of a charge
for parking). Should parking charges or surcharges of any kind be
imposed on the parking facilities by a governmental agency, Tenant
shall reimburse Landlord for such charges and/or surcharges or, if
possible, shall pay such charges and/or surcharges directly to the
governmental agency and, in such event, Tenant shall provide
Landlord with proof that such charges and/or surcharges have been
paid by Tenant."
13. Security. The following paragraph is hereby added to the Lease as
paragraph 39:
"39. Security. Tenant shall be solely responsible for providing such
security services for the Premises and the Common Area surrounding
or adjacent to the Premises as an owner or manager of such property
would be obligated to provide. At the request of Tenant, Landlord
shall not be responsible for providing such security services in
connection with Landlord's operation of the Common Area. Tenant may
later elect to have Landlord assume responsibility for the security
of the Common Area surrounding or adjacent to the Premises and, upon
such election by Tenant, Landlord's costs in providing such services
shall be included in Common Area Maintenance Expenses
notwithstanding anything to the contrary contained in paragraph
3.C.2."
7
<PAGE>
14. Exhibits. EXHIBIT A attached to the Lease is hereby deleted and
EXHIBIT A attached hereto is inserted in place thereof.
15. Effective Date. The effective date of this Third Amendment shall be
the date which is the Effective Date under that certain Partial Termination of
Lease between Landlord and Tenant dated as of the date hereof and executed
simultaneously herewith.
16. Interpretation of Amendment. This Third Amendment and Lease (as
previously amended) shall be construed as a whole in order to effectuate the
intent of the parties to amend the Lease in the manner specified in this Third
Amendment. All provisions of the Lease affected by this Third Amendment shall be
deemed amended regardless of whether so specified in this Third Amendment.
Subject to the foregoing, if any provision of the Lease conflicts with any
provision of this Third Amendment, the provision of this Third Amendment shall
control.
17. No Further Amendment. Except as amended by this Third Amendment, the
Lease shall continue in full force and effect and in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed this Third Amendment as of
the date first hereinabove set forth.
LANDLORD: MARTIN/CAMPUS ASSOCIATES NO. 4, L.P.,
a Delaware limited partnership
By: MARTIN/REDWOOD PARTNERS, L.P.,
a California limited partnership
General Partner
By: TMG REDWOOD LLC,
a California limited liability company
General Partner
By: THE MARTIN GROUP OF COMPANIES, INC.
a California corporation
Managing Member
By:
------------------------------------
Name: /s/ Cathy Greenwald
----------------------------------
Title: Vice President
---------------------------------
TENANT: AMPEX CORPORATION
a Delaware corporation
By:
--------------------------------------
Name: /s/ Richard Jacquet
------------------------------------
Title: Vice President
-----------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
8
<PAGE>
SECOND PARTIAL TERMINATION OF LEASE AGREEMENT
THIS PARTIAL TERMINATION OF LEASE AGREEMENT ("Agreement") is made and entered
into as of the 19th day of November, 1999, by and between MARTIN/CAMPUS
ASSOCIATES NO. 4, L.P., a Delaware limited partnership ("Landlord"), and AMPEX
CORPORATION, a Delaware corporation ("Tenant")
RECITALS
This Agreement is entered into on the basis of the following facts,
understandings and intentions of the parties:
A. Martin/Campus Associates, L.P., a Delaware limited partnership
("Original Landlord"), and Tenant entered in to that certain Lease dated January
19, 1996 which demised those certain premises commonly known as 1228 Douglas
Avenue (Building 8), 1250 Douglas Avenue (Building 20) and 550 Broadway
(building 10), consisting of approximately 32,000 square feet, 32,512 square
feet, and 67,638 square feet, respectively, located in Redwood City, California
as more particularly described in the Lease (the "Premises"), which Lease has
been amended by a certain First Amendment to Lease dated December 20, 1996 (the
"First Amendment"), by a certain Amendment to Bay Road Lease and
Douglas/Broadway Lease dated June 22, 1998 (the "Second Amendment"), and by a
certain Third Amendment to Lease dated September 10, 1998 (the "Third
Amendment") (the Lease, the First Amendment, the Second Amendment, and the Third
Amendment are hereinafter collectively referred to as the "Lease").
B. Original Landlord assigned all of its rights, title and interest as
landlord under the Lease to Landlord pursuant to that certain Assignment and
assumption of Tenant Leases dated as of September 22, 1997 (the "Assignment of
Lease").
C. Landlord and Tenant terminated and canceled the Lease only with respect
to that portion of the Premises located at 1250 Douglas Avenue, consisting of
32,512 square feet and commonly referred to as Building 20 in the Partial
Termination of Lease Agreement dated September 10, 1998, and released each other
from their respective obligations under the Lease with respect to Building 20
after such date.
D. Landlord and Tenant desire to terminate and cancel the Lease only with
respect to that portion of the Premises located at 550 Broadway, consisting of
67,638 square feet and commonly referred to as Building 10 (the "Released
Premises") upon the date Tenant vacates and surrenders the Released Premises and
to release each other from their respective obligations under the Lease with
respect to the Released Premises arising after such date.
E. Except as expressly provided in this Agreement, all capitalized terms,
which are defined in the Lease, shall have the same meaning when used in this
Agreement.
NOW, THEREFORE, in good consideration of the mutual covenants set forth below
and other good and valuable consideration, the parties agree as follows:
1. Termination of the Lease. The Lease is hereby terminated and canceled
with respect to the Released Premises on and as of the Effective Date. The
"Effective Date" shall be December 31, 1999. The rights of Tenant to occupy the
Released Premises, and the rights of Tenant under the Lease, shall automatically
and without further action on the part of Landlord terminate at 5:00 p.m. on the
Effective Date. Not later that 5:00 p.m. on the Effective Date, Tenant shall
surrender possession of the Released Premises, and shall deliver exclusive
possession and occupancy thereof and all keys thereto, to Landlord. The Released
Premises shall be surrendered in the condition existing on the Commencement
Date, normal wear and tear (as defined in Paragraph 14 of the Lease) and fire
and other casualty excepted, broom clean, with the plumbing and electrical
systems, lighting and HVAC equipment in good order and repair. On or before the
Effective Date, Tenant shall remove all of Tenant's Personal Property from the
Released
- --------------------------------------------------------------------------------
SECOND PARTIAL TERMINATION OF LEASE AGREEMENT - Rev. 3 (11/12/99) Page 1
<PAGE>
Premises and repair and damage and perform any restoration work caused by the
removal of said Personal Property. Upon surrender of the Released Premises, as
provided in this Agreement, all rent and other amounts payable by Tenant under
the Lease attributable to the Released Premises, including, without limitation,
rent and Tenant's share of taxes, utility costs and other operating expenses,
shall be prorated through the Effective Date and paid by Tenant pursuant to the
terms of the Lease.
2. Consideration. In consideration for the early termination of the Lease,
Landlord shall pay to Tenant Two Million Two Hundred Thousand and 00/100 Dollars
($2,200,000.00) (the "Termination Fee"), payable in two installments as follows:
(i) a nonrefundable payment of Two Hundred Thousand Dollars ($200,000) to be
provided on the earlier of either November 15, 1999 or the date this Agreement
is fully executed by both parties; and (ii) a second payment of Two Million
Dollars ($2,000,000) on or before December 20, 1999, provided that Tenant has
fully complied with the terms and conditions set forth in this Agreement as of
that date. If any payment is not received by Tenant within ten (10) days after
the date such payment is due, then Landlord shall pay Tenant a late charge of
five (5%) percent of the delinquent amount.
3. Termination Documents from Tenant. During regular business hours, but
no later than the Effective Date, Landlord and Tenant shall conduct an
inspection of the Released Premises. If the condition of the Released Premised
is as required by Paragraph 1 above, then (a) Landlord and Tenant shall each
deliver to the other an executed Acknowledgement of Partial Termination and
Surrender of all of the right, title and interest of Tenant in and to the Lease
only with respect to the Released Premises, in the form attached to this
Agreement as Exhibit A; and (b) Tenant shall deliver to Landlord a Quitclaim
Deed of all of the right, title and interest of Tenant in and to the Released
Premises and the personal property remaining on the Released Premises, in the
form attached to this Agreement as Exhibit B.
4. Tenant's Obligations. Nothing in this Agreement shall limit or reduce
Tenant's obligations to pay all rent and other amounts of every kind and nature
whatsoever payable by Tenant under the Lease and to comply with all of Tenant's
other obligations under the Lease with respect to the Released Premises through
the Effective Date and with respect to the balance of the Premises through the
Effective Date and continuing hereafter throughout the remaining term of the
Lease.
5. Remedies. Tenant acknowledges that if Landlord is not able to obtain
exclusive possession of the Released Premises on or before the Effective Date,
the Landlord may incur substantial damages, costs and losses. Tenant understands
and agrees that Tenant's failure to deliver possession of the Released Premises
as provided in this agreement and to perform its other obligations under this
Agreement may cause Landlord to be unable to fulfill its obligations to certain
third parties, including its obligations to perform certain work to prepare the
Released Premises for new tenants, which failure would cause material damage to
the Landlord. In accordance with the foregoing understandings, as of the
Effective Date, Landlord shall have the right to prosecute any proceedings at
law and in equity, in the event of any default or breach of the obligations of
Tenant contained in this Agreement. If Tenant does not vacate the Release
Premises, terminate the Lease with respect to the Released Premises or perform
Tenant's obligations under the other terms of this Agreement of the Effective
Date, then in addition to all other rights and remedies of Landlord under
applicable law or in equity, Landlord shall be entitled to receive from Tenant
all damages resulting from or arising our of Tenant's failure to vacate the
Released Premises. All rights , privileges and elections of remedies set forth
in this Paragraph 5 are cumulative and not alternative to the extent permitted
by law or equity.
6. Holding Over. If Tenant remains in possession of the Released Premises
after the Effective Date, with Landlord's consent, such possession by Tenant
shall be deemed to be a month-to-month tenancy with respect to the Released
Premises, and, solely for the first month of any hold over period, the monthly
rent shall be prorated on a daily basis. Tenant acknowledges that the Landlord's
cost of owning and carrying the Released Premises is substantially in excess of
the rent payable by Tenant under this Lease. Accordingly, during such
month-to-month tenancy, the Monthly Rent (as defined in the Lease for the
Premises payable pursuant to the terms of the Lease shall be One Hundred
Sixty-Four
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SECOND PARTIAL TERMINATION OF LEASE AGREEMENT - Rev. 3 (11/12/99) Page 2
<PAGE>
Thousand, Nine Hundred Sixty-Nine and 31/100 Dollars ($164,969.31) per month
which amount represents the sum of Twenty-Nine Thousand Six Hundred Ninety-Three
and 31/100 Dollars ($29,693.31) for 1228 Douglas Avenue (being the current
rental rate under the Lease) and One Hundred Thirty-Five Thousand, Two Hundred
Seventy-Six and 00/100 Dollars ($135,276.00) for the Released Premises (being a
hold-over rental rate per month). Tenant shall pay such Monthly Rent and all
other sums required to be paid under the Lease monthly on or before the first
day of each month. All other provisions of the Lease, except those pertaining to
the term, shall apply to the month-to-month tenancy for the Released Premises.
7. Amendment to Lease. This Agreement is and shall constitute an amendment
to the Lease and shall be effective as of the date of this Agreement. In
addition, as a condition precedent to the effectiveness of the termination of
this Lease with respect to the Released Premises, Landlord and Tenant shall,
upon execution of this Agreement, execute a further Fourth Amendment to the
Lease in the form attached hereto as Exhibit C.
8. Representations and Warranties
8.1. Of Tenant. As a material inducement to Landlord to enter into
this Agreement, Tenant represents and warrants to Landlord that, as of the date
of this Agreement:
8.1.1. No Defaults. That Lease is in full force and effect.
There are not defaults by Landlord or Tenant under the Lease, and no
circumstance has occurred which, but for the expiration of an applicable grace
period, would constitute an event of default by Landlord or Tenant under the
Lease. Tenant has no defenses or rights of offset under the Lease.
8.1.2. Authority. Tenant has full right, power and authority
to enter into this Agreement, and has obtained all necessary consents and
resolutions from its board of directors required under the documents governing
its affairs in order to consummate this transactions, and the persons executing
this Agreement have been duly authorized to do so. This Agreement and the Lease
are binding obligations of Tenant, enforceable in accordance with their terms.
8.1.3. No Assignments. Tenant is the sole lawful tenant of the
Released Premises under the Lease, and Tenant has not sublet, assigned,
conveyed, encumbered or otherwise transferred any of the right, title or
interest of Tenant under the Lease or arising from its use or occupancy of the
Released Premises, and no other person, partnership, corporation or other entity
has any right, title or interest in the Lease or the Released Premises, or the
right to occupy or use all or any part of the Released Premises.
8.2 Of Landlord. As a material inducement to Tenant to enter into
this Agreement, Landlord represents and warrants to Tenant that, as of the date
of this Agreement:
8.2.1 No. Defaults. The Lease is in full force and effect.
There are not defaults by Tenant or Landlord under the Lease, and no
circumstance has occurred which, but for the expiration of an applicable grace
period, would constitute an event of default by Tenant or Landlord under the
Lease.
8.2.2 Authority. Landlord has full right, power and authority
to enter into this Agreement and has obtained all necessary consents and
resolutions required under the documents governing its affairs in order to
consummate this transaction, and the person executing this Agreement has been
duly authorized to do so. This Agreement and the Lease are binding obligations
of Landlord, enforceable in accordance with their terms.
8.2.3 No Assignments. Landlord is the sole lawful owner of the
Premises and no other party's consent to the execution of this Agreement is
required.
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SECOND PARTIAL TERMINATION OF LEASE AGREEMENT - Rev. 3 (11/12/99) Page 3
<PAGE>
9. Attorneys' Fees. If either party should bring an action to enforce the
terms of this Agreement or declare rights under this Agreement, the prevailing
party in such action shall be entitled to reasonable attorneys' fees, costs and
expenses to be paid by the losing party in such action.
10. Construction. Counsel for all parties have read and approved the
language of this Agreement. The provisions of this Agreement shall be construed
as a whole according to their common meaning and not strictly for or against
Tenant or Landlord.
11. Miscellaneous. This Agreement shall inure to the benefit of, and shall
be binding upon, the parties hereto and their respective successors and
permitted assigns. This Agreement may not be amended, changed or waived except
by a writing signed by the parties hereto, and shall be construed and enforced
in accordance with the laws of the State of California. This Agreement
supersedes any prior oral agreements between the parties with respect to the
subject matter hereof, and the parties acknowledge that there are no oral
agreements between them with regard to such subject matter. This Agreement may
be executed in multiple counterparts, each of which shall be deemed a duplicate
original, but all of which taken together shall constitute one and the same
instrument.
12. Effect of Lease on Remaining Premises. With respect to that portion of
the Premises commonly known as 1228 Douglas Avenue (Building 8), consisting of
approximately 32,000 square feet (the "Remaining Premises"), nothing contained
in this Agreement shall be deemed to constitute or cause a termination of the
Lease or the landlord/tenant relationship between Landlord and Tenant. The Lease
is hereby ratified and confirmed with respect to the Remaining Premises, subject
to the amendments and modifications provided in the lease amendment attached
hereto as Exhibit C. Notwithstanding any other provision of this Agreement,
there remains an outstanding issue regarding Landlord's obligation to repair and
repave Parking Lot G, which is part of the common area under the Lease and
nothing in this Agreement shall constitute a waiver of either party's rights and
obligations regarding said issue.
13. Letter of Credit. Pursuant to Paragraph 7 of the Lease, Landlord holds
a letter of credit as a security deposit. At any time after the Effective Date,
Tenant may substitute a letter of credit otherwise meeting the requirements of
paragraph 7 of the Lease in the amount of $29,693.31.
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SECOND PARTIAL TERMINATION OF LEASE AGREEMENT - Rev. 3 (11/12/99) Page 4
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date first written above.
LANDLORD: MARTIN/CAMPUS ASSOCIATES NO. 4, L.P.
a Delaware limited partnership
By: MARTIN/REDWOOD PARTNERS, L.P.,
a California limited partnership
General Partner
By: TMG REDWOOD LLC,
a California limited liability company
General Partner
By: THE MARTIN GROUP OF
COMPANIES, INC.
a California corporation
Managing Member
By:
--------------------------------------
Name: /s/ Cathy Greenwald
-----------------------------------
Title: Vice President
----------------------------------
TENANT: AMPEX CORPORATION
a Delaware corporation
By:
----------------------------------
Name:/s/ Richard Jacquet
--------------------------------
Title: Vice President
-------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
- --------------------------------------------------------------------------------
SECOND PARTIAL TERMINATION OF LEASE AGREEMENT - Rev. 3 (11/12/99) Page 5
<PAGE>
EXHIBIT A
ACKNOWLEDGEMENT OF PARTIAL TERMIANTION AND SURRENDER
The undersigned hereby acknowledges:
1. The Lease dated January 19, 1996 between Martin/Campus Associates No.
4, L.P., a Delaware limited partnership and Ampex Corporation, as amended (the
"Lease") for the premises described therein (the "Premises"), is terminated with
respect only to those premises commonly known as 550 Broadway, Redwood City,
California (the "Released Premises") as of the date set forth below and is of no
further force or effect with respect to the Released Premises.
2. The Released Premises have been surrendered as of the date set forth
below and exclusive occupancy thereof is hereunder delivered to Martin/Campus
Associates No. 4, L.P.
3. This Acknowledgement of Partial Termination and Surrender is dated
_________, 1999.
AMPEX CORPORATION,
a Delaware corporation
By: /s/ Richard Jacquet
------------------------------------
Its: Vice President
------------------------------------
By:
------------------------------------
Its:
------------------------------------
MARTIN/CAMPUS ASSOCIATES NO. 4, L.P.,
a Delaware limited partnership
By: MARTIN/REDWOOD PARTNERS, L.P.,
a California limited partnership
General Partner
By: TMG REDWOOD LLC,
a California limited liability company
General Partner
By: THE MARTIN GROUP OF COMPANIES, INC.
a California corporation
Managing Member
By:
-----------------------------------
Name: /s/ Cathy Greenwald
---------------------------------
Title: Vice President
--------------------------------
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SECOND PARTIAL TERMINATION OF LEASE AGREEMENT - Rev. 3 (11/12/99) Page 6
<PAGE>
EXHIBIT B
Recorded at the request of:
Martin/Campus Associates No. 4, L.P.
And, when recorded, return to:
Mandel, Buder & Verges
101 Vallejo Street
San Francisco, CA 94111
Attention: Scott C. Verges, Esq.
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QUITCLAIM DEED
For One Dollar ($1.00) and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, AMPEX CORPORATION, a Delaware
corporation ("Ampex") hereby quitclaims, demises and releases to MARTIN/CAMPUS
ASSOCIATES NO. 4, L.P., a Delaware limited partnership ("Grantee"), all of
Ampex's right, title and interest in and to or any right title and interest
claimed by, under or through Ampex to that certain improved real property or
premises therein and any personal property located thereon commonly known as 550
Broadway, Redwood City, California, more particularly described in Exhibit A
attached hereto and incorporated herein by this reference ("Property").
IN WITNESS WHEREOF, Ampex has executed this Quitclaim Deed this ___ day of
________________, 1999.
"Ampex"
AMPEX CORPORATION,
a Delaware corporation
By: /s/ Richard Jacquet
------------------------------------
Its: Vice President
------------------------------------
By:
-------------------------------------
Its:
------------------------------------
[Acknowledgements Required]
[Property Description Required]
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SECOND PARTIAL TERMINATION OF LEASE AGREEMENT - Rev. 3 (11/12/99) Page 7
<PAGE>
FOURTH AMENDMENT TO LEASE
THIS FOURTH AMENDMENT TO LEASE (the "Fourth Amendment") is made and
entered into as of this 19th of November 1999 by and between MARTIN/CAMPUS
ASSOCIATES NO. 4, L.P., a Delaware limited partnership ("Landlord") and Ampex
Corporation, a Delaware corporation ("Tenant").
R E C I T A L S:
This Fourth Amendment is entered into upon the basis of, and with
reference to the following facts, understandings and intentions of the parties:
A. Martin/Campus Associates, L.P., a Delaware limited partnership
("Original Landlord"), and Tenant entered into that certain Lease
dated January 19, 1996 which demised those certain premises located
at 1228 Douglas Avenue (Building 8), 1250 Douglas Avenue (Building
20) and 550 Broadway (Building 10), Redwood City, California as more
particularly described in the Lease (the "Premises"), which Lease
has been amended by a certain First Amendment Lease dated December
20, 1996 (the "First Amendment"), by a certain Amendment to Bay Road
Lease and Douglas/Broadway Lease dated June 22, 1998 (the "Second
Amendment"), and by a certain Third Amendment Lease dated September
10, 1998 (the "Third Amendment") (the Lease, the First Amendment,
the Second Amendment, and the Third Amendment are hereinafter
collectively referred to as the "Lease").
B. Original Landlord assigned all of its right, title and interest
as landlord under the Lease to Landlord pursuant to that certain
Assignment and Assumption of Tenant Leases dated as of September 22,
1997 (the "Assignment of Lease").
C. Landlord and Tenant terminated and canceled the Lease only with
respect to that portion of the Premises located at 1250 Douglas
Avenue, consisting of 32,512 square feet and commonly referred to as
Building 20 in the Third Amendment on September 10, 1998 and the
Partial Termination of Lease Agreement of the same date, and
released each other from their respective obligations under the
Lease with respect to Building 20 after such date.
D. Landlord and Tenant desire to modify and amend the terms of the
Lease (i) to provide for the surrender of that portion of the
Premises located at 550 Broadway, consisting of 67,638 square feet
and commonly referred to as Building 10 (the "Released Premises")
(as defined in that certain Second Partial Termination of Lease
Agreement of even date herewith) upon the date Tenant vacates and
surrenders the Released Premises, and (ii) to release each other
from their respective obligations under the Lease with respect to
the Released Premises arising after December 31, 1999 (the
"Effective Date")
NOW, THEREFORE, for good and valuable consideration, including the mutual
covenants contained in the Lease and in this Fourth Amendment, Landlord and
Tenant hereby agree as follows:
1. Defined Terms. Except as expressly provided in this Fourth Amendment to
the contrary, terms that are defined in the Lease, shall have the same meaning
when used in this Fourth Amendment.
2. Title Page. The last two lines of the Title Page of the Lease (as
modified by the Third Amendment) are hereby deleted and the following lines are
inserted in place thereof:
For the approximately 32,000 SF Premises at 1228 Douglas Avenue, Redwood
City, CA 94063.
- --------------------------------------------------------------------------------
FOURTH AMENDMENT TO LEASE - Rev. 3 (11/12/99) Page 1
<PAGE>
3. Lease Summary: The Building Addresses, the Total Building Square
Footage, the Monthly Rent and the Security Deposit terms contained in the Lease
Summary (as modified by the Third Amendment) are hereby deleted and the
following terms are inserted in place thereof:
Building Address: 1228 Douglas Avenue
Redwood City, CA 94063
* * *
Total Building Square Footage: 32,000 square feet
* * *
Monthly Rent (net): $29,639.31
* * *
Security Deposit: $29,639.31
4. Premises. Paragraph 2 of the Lease (as amended by the Third Amendment)
is hereby deleted in its entirety and the following Paragraph is inserted in
place thereof:
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord those certain premises consisting of a total area of
approximately 32,000 square feet in that certain building, commonly
known as 1228 Douglas Avenue (Building 8), consisting of
approximately 32,000 square feet (the "Building") in the City of
Redwood City, County of San Mateo, State of California, as more
particularly shown on EXHIBIT A (collectively, the "Premises"). The
Premises also include the appurtenant right to use in common with
other tenants of the Property the Common Area of the Property owned
by Landlord.
5. Definitions. Paragraph 3 of the Lease (as amended by the Third
Amendment) is hereby amended to replace the existing definition of each of the
following terms with the following new definitions:
M.1 Rentable Area. The aggregate square footage in any one or more
buildings on the Property, as appropriate, as reasonably determined
by Landlord's" architect in accordance with BOMA Standard (ANSI
Z65.1 1980) for full floor office occupancy. The Rentable Area of
Building 8 is 32,000 square feet, and the Rentable Area of all of
the buildings on the Property is 191,910 square feet.
R. 1 Tenant's Percentage Share. The ratio (expressed as a
percentage) of the total Rentable Area of the Premises to the total
Rentable Area of all of the buildings located on the Property owned
by Landlord from time to time, which as of the date hereof shall
equal 16.67% (i.e., the Rentable Area of the Premises divided by the
Rentable Area of the buildings located on the Property owned by
Landlord as of the date hereof). Tenant's Percentage Share shall be
recalculated each and every time that the amount of Rentable Area
contained in Premises is adjusted, or the Premises is expanded,
buildings are added to or removed from the Property, or there is a
change in the total Rentable Area of those buildings located on the
Property owned by Landlord, or Landlord sells, exchanges, or
otherwise transfers any or all of the buildings located on the
Property (including without limitation the Buildings). The
- --------------------------------------------------------------------------------
FOURTH AMENDMENT TO LEASE - Rev. 3 (11/12/99) Page 2
<PAGE>
parties acknowledge and agree that the total Rentable Area of all of
the buildings located on the Property owned by Landlord may increase
and/or decrease from time to time during the Term, since Landlord
may elect in its sole discretion to sell a building or buildings or
to make changes to the buildings it owns.
6. Monthly Rent. Paragraph 5. A of the Lease (as modified by the Third
Amendment) is hereby amended to (a) delete the last two lines of the first
paragraph of paragraph 5.A. and (b) to add the following paragraph as the second
paragraph to the Lease:
Notwithstanding anything to the contrary contained in the previous
paragraph, as of the Effective Date (as defined hereinafter), Tenant
shall pay to Landlord, in lawful money of the United States, Monthly
Rent in the amount of $29,664.00 per month, which amount represents
the sum of $29,664.00 per month for the Building at 1228 Douglas,
and which amount shall be subject to adjustment on each Adjustment
Date in accordance with paragraph 5.B., the next Adjustment Date
being November 1, 2000. If the Term of this Lease extends beyond the
date which if ten (10) years from the Commencement Date, the Monthly
Rent for the eleventh (11th) year of the Term shall be (i) 134% of
initial Monthly Rent attributable to Building 8 (i.e. $36,448.00 per
month) if the cumulative increase in the Index from the Commencement
Date through the tenth (10th) year of the Term exceeds thirty-four
percent (34%), or (ii) the Monthly Rent payable during the last
month of the tenth (10th) year of the Term, increased by the
percentage increase in the Index over the twelve (12) month period
immediately preceding the commencement of the eleventh (11th) year
of the Term (calculated as provided in a paragraph 5.B.) if the
cumulative increase in the Index during such 10-year period is
thirty-four percent (34%) or less. At the commencement of the
twelfth (12th) and thirteenth (13) years of the Term (if
applicable), the Monthly Rent shall be increased by the percentage
increase in the Index, calculate as provided in paragraph 5.B. over
the previous 12-month period.
7. Security Deposit. Paragraph 7 of the Lease is hereby amended to replace
the last sentence thereof (as modified by the Third Amendment) with the
following: "Landlord and Tenant agree that as of the Effective Date of the
Fourth Amendment, the Security Deposit shall be further reduced to Twenty-Nine
Thousand Six Hundred Sixty-Four and 00/100 ($29,664.00)."
8. Parking Area. Paragraph 37 (as modified by the Third Amendment) is
hereby deleted and the following is inserted in place thereof:
Tenant shall have the non-exclusive right, in common with any other
tenants or occupants of the Property, to use up to 70 unassigned
parking spaces, upon terms and conditions, as may from time to time
be reasonably established by Landlord (provided that such terms and
conditions shall not include an imposition by Landlord of a charge
for parking). Should parking charges or surcharges of any kind be
imposed on the parking facilities by a governmental agency, Tenant
shall reimburse Landlord for such charges and/or surcharges or, if
possible, shall pay such charges and/or surcharges directly to the
governmental agency and, in such event, Tenant shall provide
Landlord with proof that such charges and/or surcharges have been
paid by Tenant.
9. Exhibits. EXHIBT A attached to the Lease is hereby deleted and EXHIBIT
A attached hereto is inserted in place thereof.
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FOURTH AMENDMENT TO LEASE - Rev. 3 (11/12/99) Page 3
<PAGE>
10. Effective Date. The effective date of this Fourth Amendment shall be
December 31, 1999, the date which is the Effective Date under that certain
Second Partial Termination of Lease between Landlord and Tenant dated as of the
date hereof and executed simultaneously herewith.
11. Interpretation of Amendment. This Fourth Amendment and the Lease (as
previously amended) shall be construed as a whole in order to effectuate the
intent of the parties to amend the Lease in the manner specified in this Fourth
Amendment. All provisions of the Lease affected by this Fourth Amendment shall
be deemed amended regardless of whether so specified in this Fourth Amendment.
This Fourth Amendment shall constitute a complete release between the parties
regarding their respective obligations under the Lease regarding Building 10.
Subject to the foregoing, if any provision of the Lease conflicts with any
provision of this Fourth Amendment, the provision of this Fourth Amendment shall
control.
12. No Further Amendment. Except as amended by this Fourth Amendment, the
Lease shall continue in full force and effect and in accordance with its terms.
[SIGNATURES ON FOLLOWING PAGE]
- --------------------------------------------------------------------------------
FOURTH AMENDMENT TO LEASE - Rev. 3 (11/12/99) Page 4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Fourth Amendment as the
date first hereinabove set forth.
LANDLORD: MARTIN/CAMPUS ASSOCIATES NO. 4, L.P.
a Delaware limited partnership
By: MARTIN/REDWOOD PARTNERS, L.P.,
a California limited partnership
General Partner
By: TMG REDWOOD LLC,
a California limited liability company
General Partner
By: THE MARTIN GROUP OF
COMPANIES, INC.
a California corporation
Managing Member
By:
-------------------------------
Name: /s/ Cathy Greenwald
-----------------------------
Title: Vice President
----------------------------
TENANT: AMPEX CORPORATION
a Delaware corporation
By:
--------------------------------
Name: /s/ Richard Jacquet
------------------------------
Title: Vice President
-----------------------------
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
- --------------------------------------------------------------------------------
FOURTH AMENDMENT TO LEASE - Rev. 3 (11/12/99) Page 5
<PAGE>
EXHIBIT A
[MAP OF THE PREMISES TO BE INSERTED.]
- --------------------------------------------------------------------------------
FOURTH AMENDMENT TO LEASE - Rev. 3 (11/12/99) Page 6
<PAGE>
EXHIBIT 21.1
AMPEX CORPORATION
LIST OF SUBSIDIARIES
Jurisdiction of
Name Incorporation
- ---- -------------
Ampex Data Systems Corporation Delaware
Ampex Finance Corporation Delaware
Ampex Holdings Corporation Delaware
Ampex International Sales Corporation California
Ampex Canada Inc. (1) Canada
Ampex Cintas Magneticas, S.A. Mexico
Ampex de Colombia, S.A. Colombia
Ampex de Mexico, S.A de C.V. (1) Mexico
Ampex do Brasil Electronica Ltd. Brazil
Ampex Europa GmbH (1) Germany
Ampex Great Britain Limited United Kingdom
Ampex International S.A. (1) Switzerland
Ampex Japan Ltd. Japan
Ampex S.A. (1) Belgium
MicroNet Technology, Inc. Delaware
iNEXTV Corporation Delaware
Alternative Entertainment Network, Inc. (51%) Delaware
TV onthe WEB, Inc (59.4%) Delaware
Gardy-McGrath (International), Inc. (subsidiary of TV
onthe WEB, Inc.) New Jersey
(1) Dissolution pending
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in (i) the Registration
Statement of Ampex Corporation on Form S-8 (File No. 33-77664), (ii) the
Registration Statement of Ampex Corporation on Form S-8 (File No. 33-92640),
(iii) the Post-Effective Amendment No. 1 on Form S-3 to Form S-1 Registration
Statement of Ampex Corporation (File No. 33-91312), (iv) the Registration
Statement of Ampex Corporation on Form S-3 (File No. 33-333-5115), and (v) the
Registration Statement of Ampex Corporation on Form S-3 (File No. 333-66789) of
our report dated February 25, 2000 relating to the financial statements and
financial statement schedule, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DEC. 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 10,598
<SECURITIES> 31,067
<RECEIVABLES> 1,594
<ALLOWANCES> (358)
<INVENTORY> 2,261
<CURRENT-ASSETS> 50,113
<PP&E> 7,465
<DEPRECIATION> 2,102
<TOTAL-ASSETS> 87,319
<CURRENT-LIABILITIES> 11,652
<BONDS> 43,530
42,412
0
<COMMON> 559
<OTHER-SE> (34,065)
<TOTAL-LIABILITY-AND-EQUITY> 87,319
<SALES> 10,988
<TOTAL-REVENUES> 32,559
<CGS> 8,577
<TOTAL-COSTS> 38,748
<OTHER-EXPENSES> 683
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,559
<INCOME-PRETAX> (10,395)
<INCOME-TAX> 2,010
<INCOME-CONTINUING> (12,405)
<DISCONTINUED> (2,966)
<EXTRAORDINARY> 374
<CHANGES> 0
<NET-INCOME> (14,997)
<EPS-BASIC> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
