10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 0-20292

Ampex Corporation

(Exact name of Registrant as specified in its charter)

Delaware	13-3667696
(State of incorporation)	(I.R.S. employer identification number)

1228 Douglas Avenue

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:

Securities registered pursuant to Section 12(g) of the Act:

Class A Common Stock, par value $.01 per share

Indicate by check mark if Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

    Large accelerated filer    ¨ Accelerated filer    x Non-accelerated filer    ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the Registrant as of June 30, 2005 was approximately $126,335,941.50, based on a price of $39.30 per share, which was the closing price of the Registrant’s Class A Common Stock on the Nasdaq National Market on that date. The Class A Common Stock is the only class of common stock outstanding.

As of February 28, 2006 there were 3,809,273 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 2006 Annual Meeting of Stockholders is incorporated by reference into Part III (Items 10, 11, 12 and 13) of this Form 10-K.

AMPEX CORPORATION

FORM 10-K

Year Ended December 31, 2005

INDEX

		Page
PART I
ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	15
ITEM 1B.	UNRESOLVED STAFF COMMENTS	23
ITEM 2.	PROPERTIES	23
ITEM 3.	LEGAL PROCEEDINGS	23
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	25
ITEM 4A.	EXECUTIVE OFFICERS OF THE REGISTRANT	25
PART II
ITEM 5.	MARKET FOR COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	27
ITEM 6.	SELECTED FINANCIAL DATA	28
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	29
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	48
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	49
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	49
ITEM 9A.	CONTROLS AND PROCEDURES	49
ITEM 9B.	OTHER INFORMATION	50
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY	51
ITEM 11.	EXECUTIVE COMPENSATION	51
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	51
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	51
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	51
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K	52
SIGNATURES AND POWER OF ATTORNEY		55

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PART I

ITEM 1. BUSINESS

Introduction

Ampex Corporation (“Ampex” or the “Company”) is a leading innovator and licensor of visual information technology. During our 61-year history, we have developed substantial proprietary technology relating to the electronic storage, processing and retrieval of data, particularly images. We currently hold approximately 550 patents and patent applications covering digital image processing, digital image compression and recording technologies. We leverage our investment in technology through our corporate licensing division that licenses our patents to manufacturers of consumer electronics products. Through our wholly-owned subsidiary, Ampex Data Systems Corporation (“Data Systems”), we also incorporate this technology in the design and manufacture of very high performance data storage products, principally used in defense applications to gather digital images and other data from aircraft, satellites and submarines. These products are also used in flight and sensor test applications.

We have two business segments, which we refer to as our Recorders segment and our Licensing segment. Our Recorders segment primarily includes the sale and service of data acquisition and instrumentation recorders (which record data and images rather than computer information), and to a lesser extent mass data storage products, all of which are made by our manufacturing subsidiary, Data Systems. Our Licensing segment involves the licensing of our intellectual property to manufacturers of consumer digital video products through our corporate licensing division. Our products and licensing activities are described below under “Patent Licensing Segment,” “Recorders Segment” and “Patents, Licenses and Trademarks.” For information regarding revenues, income or loss, assets and other financial data for each business segment for each of our last three fiscal years, see Note 19 of the Notes to Consolidated Financial Statements and “Business Segments” under Item 7 below. For financial information relating to our operations in various geographic areas, see Note 20 of the Notes to Consolidated Financial Statements.

We incorporated in Delaware in January 1992 as the successor to a business originally organized in 1944. References to “Ampex” include subsidiaries and predecessors of Ampex Corporation, unless the context indicates otherwise. Our principal executive offices are located at 1228 Douglas Avenue, Redwood City, California 94063, and our telephone number is (650) 367-2011. Our Class A Common Stock is quoted on the NASDAQ National Market under the symbol “AMPX.” We also maintain a website on the Internet at www.ampex.com.

Our trademarks used in this report include “Ampex”, “DCT”, “DST”, “DCRsi”, “DIS”, “DDRs” and “DSRs”, which are trademarks of Ampex Corporation. All other trademarks and service marks used in this report are the property of Ampex or their respective owners.

Where You Can Find More Information

You are advised to read this Form 10-K in conjunction with other reports and documents that we file from time to time with the Securities and Exchange Commission (“SEC”). In particular, please read our Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K that we may file from time to time and our proxy statements. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information for electronic filers (including us) at its website www.sec.gov. We make available free of charge on or through our Internet website located at www.ampex.com our SEC filings on Forms 10-K, 10-Q and 8-K and any amendments to those filings as soon as reasonably practicable after electronic filing with the SEC, our Code of Ethics, and certain other documents.

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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 our actual results, performance or achievements, 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. We disclaim any obligation or undertaking to disseminate updates or revisions of any 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.

Licensing Segment

Overview

Ampex has a significant portfolio of patents that results from investments in research, development and engineering that we have made to design and improve the products made by our manufacturing subsidiary, Data Systems. In general, our products have been designed for demanding and specialized professional television or intelligence gathering use and have, therefore, been too expensive for sale to individual consumers. However, we have found that, in many instances, patented innovations in performance or features developed for the professional markets have later been adopted in consumer products, typically 7-10 years later.

In order to generate revenues from the consumer markets that we do not sell in directly, we license our patents to manufacturers of consumer electronics in return for royalties based on the value of their sales. In 1968, we licensed our first manufacturer of consumer videocassette recorders (“VCRs”) and subsequently we licensed essentially every significant manufacturer of VCRs in the world. As our earlier patents expired, we developed new patented inventions and licensees continued to pay royalties to be able to incorporate these new patents in their VCRs. As a result, our royalty income has continued. In the period 1990 to 2000, our licensing income fluctuated significantly but averaged $16 million per year. VCRs were based on analog video technology. We ceased to develop analog technology many years ago. Most of the relevant patents expired by 2001 and our licensees no longer pay significant royalties on analog products. However, Ampex’s research and development in the field of digital video recording resulted in patents which have found application in digital camcorders, digital still cameras and we believe other products that record still or motion video images. All significant manufacturers of these products, except one, have now taken licenses under certain of our patents. We are in active negotiations with several of our licensees and other manufacturers regarding their use of certain additional patents on which we are not receiving royalties, which we believe they currently infringe.

Technology

In the 1980’s Ampex was a leader in the development of digital video technology for use in such products as digital special effects, digital graphics, digital time base correctors and many others. We received limited royalty income from licensing these patents for use in broadcast television products, but the markets were small and image-based consumer products did not employ digital technology at that time for various reasons, including cost.

As part of our digital video technology development, Ampex made developments in digital image compression, and in the mid 1990’s we introduced the first professional videotape recorder to successfully use digital image compression. These devices were part of a family of products marketed by Ampex under the DCT

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trademark. The patents that we received as a result of designing these products are now, we believe, among the most potentially valuable to our licensing program with the manufacturers of digital video consumer products.

Digital image compression, which was developed by Ampex and by several other companies, has been a key factor making it possible to produce new generations of digital consumer imaging products at affordable prices. Products that store images without compression have remained too inefficient and expensive. Compression lowers component costs and also reduces size, power consumption and data storage requirements, which are crucial to making devices that are portable.

The adoption of digital technology in consumer markets also resulted in a technical convergence among consumer products. For example, in the analog era, still video images were captured on chemical film while motion video was captured on magnetic videotape. Today’s digital products use common technologies so that digital still cameras can record motion video as well as still video images, digital video recorders can record still video images as well as motion video, and some digital cellular telephones can record and transmit both types of video images. This convergence has been important to Ampex because it has enabled us to broaden the markets that our licensing program can address. During the period that we licensed analog technology, substantially all of our royalties came from VCRs. Most of our analog VCR patents expired in 2001 and we no longer receive significant licensing revenues on these patents. In 2003 most of our royalties were from digital video camcorders. In 2004 and 2005, we continued to generate significant royalties from digital video camcorders but the majority of our licensing revenues came from digital still cameras, and we also generated royalties from DVD recorders. These are markets in which Ampex had never previously licensed its patents.

Patents

Due to the number of patents that we hold and the complexity of the technology, it is not possible for us to know with certainty which of our patents are the most significant. However, currently it is our opinion that our most significant patents fall into the four areas described below, which are generally relevant to digital consumer imaging products. Also, it is our policy to license a portfolio of our patents in order to provide our licensees with the maximum amount of design freedom. Whether our licensees use one or several of our patents, the royalty rate is unaffected. We do not receive information from our licensees as to which specific patents they actually use at any point in time.

Rapid image retrieval has been responsible for the majority of the license income that we earned in 2005 and 2004 from digital still cameras. In this area we have only one patent that remains in force. This patent is used in the creation, storage and retrieval of “thumbnail” images, which allow users to select a particular picture, quickly, from a large number held in electronic storage. We believe that this patent is widely used in digital still cameras and possibly also in camera-equipped cellular telephones. The related foreign patents expired in 2004 and the US patent will expire on April 11, 2006. If we are unable to validate that our licensees utilize at least one of our other digital imaging patents discussed below, our licensing revenues from digital still cameras will cease after April 11, 2006.

Image data shuffling patents are used to reduce the amount of data required to transmit or record an image. These patents expire at various dates through 2013 and have been issued in the USA, France, Great Britain, Germany, Japan, Korea and Taiwan. We believe that these patents are necessary for the production of digital video camcorders because they are included in applicable technical standards. We believe it is possible that they also may be used in DVD recorders and set top cable boxes that are equipped to record video (“cable boxes”). The technology is useful in compressing either still or motion video images and we believe it is possible these patents may be used or useful in digital still cameras and possibly in camera-equipped cellular telephones.

Feed forward quantization patents are also useful in reducing the amount of data required to transmit or record images, principally video images. These patents expire at various dates through 2012 and have been issued in the USA, France, Great Britain, Germany, Korea and Taiwan. We believe that these patents are

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necessary for the production of digital video camcorders in order to comply with applicable technical standards. We believe that these patents may be used in DVD recorders and cable boxes. We also believe that they may be used or useful now or in the future in digital still cameras and camera-equipped cellular telephones that have the capability to record still and motion video.

High-speed data decoding patents may be useful in any digital device that displays video. The patents expire at various dates through 2014 and are issued in the USA, Austria, France, Great Britain and Germany, and an application is pending in Japan. We are investigating the extent to which these patents may be used in many consumer digital devices but we have not yet reached a conclusion as to which products, if any, may currently infringe these patents.

Markets and Customers

The major product categories from which we receive royalty income at present are:

Digital video camcorders.    In 2005, we received recurring royalties from three manufacturers of these products totaling approximately $5.1 million. Additionally, under an agreement concluded in July 2005, Samsung Electronics, Co., Ltd. has prepaid $2.75 million to us for the right to use our patents in digital video camcorders, through 2008. Also, as a result of a prepaid licensing agreement concluded in 2004 that expires in April 2006, we do not receive current licensing income for these products from Sony. Commencing in the second quarter of 2006, Sony will be required to pay recurring royalties based on the value of its sales in countries where our patents are in force and infringed by their products. Based on market research and published financial data, we believe that Sony’s sales of digital video camcorders are significantly greater than those of the licensees who pay us currently. Accordingly, we expect that, commencing in the second quarter of 2006 when Sony becomes obliged to pay royalties to us currently, our recurring royalties from digital video camcorders should increase significantly from current levels, assuming sales levels remain the same.

Digital still cameras.    In 2005, we received approximately $20.4 million of royalties for use of our patents in digital still cameras. Of this amount, approximately $4.5 million represents recurring royalties and approximately $15.9 million represents negotiated settlements covering past use of Ampex’s patents and, in some cases, a prepayment of royalty obligations through April 11, 2006. April 11, 2006 coincides with the U.S. expiration of our rapid image retrieval patent (“121”), which is used in digital still cameras and in certain camera-equipped cellular phones. While our digital still camera license agreements permit our licensees to use our portfolio of digital imaging patents, by agreement, we are currently receiving royalties only on the ‘121’ patent. To date, this is the only patent we have chosen to litigate. We have analyzed several digital still cameras and believe that many utilize our feed forward quantization patent. We have provided claim charts to three licensees that allege infringement of this patent and we expect to issue additional claim charts to other licensees or manufacturers during 2006 if further testing indicates that their products infringe our patents. We have scheduled additional technical and business meetings to discuss our claim charts and believe that several additional meetings will be required over the next six to nine months until we can conclusively determine whether or not our feed forward quantization patent is being used. In addition to our feed forward quantization patent, our image data shuffling and high-speed data decoding patents may be used or useful in these products but we have not done sufficient testing to support the issuance of patent claim charts on these other digital imaging patents at this time. In exchange for a favorable royalty on future product sales, certain digital still camera licensees have agreed to provide us with access to technical information in order for the parties to confirm whether any of our other digital imaging patents, including our feed forward quantization patent, are being utilized in digital still cameras and camera equipped cellular phones manufactured by or for such licensees. To date, we have entered into licenses for the use of our patents in digital still cameras with Canon Inc., Casio Computer Co. Ltd., Fuji Photo Film Co. Ltd., Funai Electric Co. Ltd., Konica Minolta Holdings, Inc., Matsushita Electric Industrial Co. Ltd., Nikon Corporation, Olympus Corporation, Pentax Corporation, Samsung Techwin Co. Ltd., Sanyo Electric Co. Ltd., Sony Corporation and Victor Company of Japan.

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Although our rapid image retrieval patent expires on April 11, 2006, our other digital imaging patents are registered in many of the major worldwide markets and have expiration dates through 2014. In the event that additional patents are infringed by manufacturers of digital still cameras, we would expect to receive royalties over the remaining lives of these patents on product shipments after April 11, 2006. Also, because these patents are in force in most worldwide markets we would expect that the level of annual recurring royalties would be greater than amounts received in 2005 since our “121” patent is presently only in force in the U.S. However, it may be necessary to incur additional expenses for litigation to enforce our patents, which we are prepared to do. Also, while we believe that other Ampex patents may be used in digital still cameras now or in the future, we cannot assure you that this belief is correct. Therefore, after April 11, 2006, our digital still camera royalties may be materially reduced or eliminated.

Camera equipped cellular telephones.    At present we have two licensees for these products, one of which has prepaid its obligation through April 2006. Based on current trends, which are for cellular telephones to record higher resolution still images or significant amounts of video, we believe that these products will be required to employ high levels of image compression which may involve the use of our patents. We have notified many major manufacturers of camera-equipped cellular telephones that we believe they may be infringing certain of our patents. We cannot assure you that these products infringe our patents now or will do so in the future, or that we will be able to negotiate any licenses for these products. Our discussions are in an early stage and are likely to require substantial exchanges of technical and business information before we can be certain that our patents have been infringed. As a result, we believe it is not likely that we will generate significant income from these products in 2006, and if our negotiations are unsuccessful we may have to initiate litigation to enforce our patents at some time in the future.

DVD recorders and cable boxes.    In 2004, we were approached by a consumer electronic manufacturer that planned to introduce a line of DVD recorders. We concluded a license with this company that also covers use of our patents in video recorders utilizing hard disks (“PVR’s”) or DVD storage. In 2005, less than 5% of our licensing revenue was generated by this licensee and future royalties will be dependent on the value of sales achieved by this licensee. We believe that other manufacturers of DVD recorders and PVRs may be using one or more of our patents. We are currently in discussion with another major manufacturer of DVD recorders concerning a license of our technology. At present we cannot assure you that we will be able to conclude any additional licenses for our DVD recorder and PVR related patents.

We are continuing to review other categories of products such as digital television receivers for potential licensing opportunities but have not yet concluded that any of our patents are being used.

Many of our patents that are relevant to consumer products are the result of design work on professional and broadcast television products. These are markets that we do not at present pursue actively. Therefore, as our patents that are useful in consumer products expire, we may not be able to replace them, with the result that we might cease to receive patent royalties in the future. We will give consideration to funding new research and development projects in the digital imaging field or to the acquisition of patents from others. No decisions in this regard have been taken and there can be no assurance that any new licensable patents will be developed or acquired.

Recorders Segment

Products

All of our products are manufactured by Data Systems and are comprised of very high performance instrumentation and mass data storage products. High performance recorders reproduce data at higher speeds and store larger volumes of data than in general purpose recording devices. Instrumentation recorders capture digital data that is usually generated by a sensor or other devices. Examples include satellite telemetry information and flight test data. Our mass data storage products consist of our 19-millimeter scanning recorders and robotic

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library systems and related tape and after-market parts. Helical scanning 19-millimeter tape recorders were initially commercialized for the professional broadcast market and utilize a unique recording tape format that is partitioned to permit faster data access and greater storage than possible with linear tape drives that are generally used in typical computing environments. Library systems allow for scalable storage by assembling tape cartridges in multiple racks that can be quickly accessed by the tape drive. Data Systems also continues to offer spare parts to repair professional video recorders and other products that it previously manufactured and marketed to the television production and post-production industries. However, sales of spare parts of legacy television products accounted for less than 10% of total Recorders segment revenue in all periods reported herein. For information concerning revenue for each product group comprising in excess of 15% of consolidated revenue and other information relating to our operating segments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Data Acquisition/Instrumentation Products.    We have been well established for more than 50 years as a supplier of instrumentation recorders. We have supplied these recorders primarily to government agencies for use in data collection, satellite surveillance and defense-related applications, as well as to defense contractors and aerospace and other industrial users primarily for test and measurement purposes. Our instrumentation recorders have been used on almost every advanced commercial and U.S. military aircraft, as well as on foreign aircraft. We believe they are well suited to these demanding aeronautical applications and other applications involving comparable data-gathering challenges in extreme environments, because of their performance and reliability.

Our principal data acquisition/instrumentation products currently are the DDRs 400, DSRs 440 and DSRs 400B. These are disk and solid-state memory based recorders, which are plug-compatible replacements for the Company’s tape-based DCRsi instrumentation recorders for ease of data transfer, analysis and archival storage. The removable, hermetically sealed disk cartridge based DDRs 400 instrumentation disk recorder offers a sustained data rate of 400 megabits per second (“Mb/s”) and storage capacity of up to 640 gigabytes (“GB”). The DDRs 400 is used in airborne image recording, telemetry data and acoustic sonar data acquisition and in flight test and radar development applications. The DSRs 440 and DSRs 400B solid state recording systems include removable, flash memory cartridges and are specifically designed for airborne applications requiring rapid data rates and large storage capacities in a small, rugged and lightweight package. The DSRs 440 offers a sustained data rate of 400 Mb/s and an expandable storage capacity of up to one terabyte (“TB”). The DSRs 400B offers a sustained data rate of 600 Mb/s and storage capacity of up to 500 GB. The Company also offers a “Multiplexer” product line that can be internally or externally configured with the DDRs and DSRs product line to enable simultaneous capture of multiple channels of data input in mission critical applications.

The Company continues to offer its tape-based DCRsi 240, DCRsi 120 and DCRsi 75 digital instrumentation recorders. Tapes from these recorders are fully interchangeable. The DCRsi recorders are rugged, highly reliable and compact recorders that permit uninterrupted data capture from fractions of a megabit per second up to 240 megabits per second over very long periods of time, such as during test flights of new aircraft. The DCRsi 240 instrumentation recorder has the capability of storing 48GB of data at a record/reproduce rate of up to 240 Mb/s. The DCRsi 120 instrumentation recorder has a similar storage capacity and a record/reproduce rate of 120 MB per second. The DCRsi 75 recorder is our lowest cost DCRsi model with a record-reproduce rate of 75 MB per second. These products are designed for data interchange between locations and agencies. In ground-based applications, which generally are less harsh environments that do not require the ruggedness of a DCRsi recorder, our 19-millimeter DST and DIS mass data storage products can also perform the storage and analysis functions of DCRsi products.

To date, we have shipped our new disk and solid-state memory based products to various U.S. and foreign governmental agencies. Orders for these products have generated an increase in backlog at December 31, 2005 to $9.1 million from $3.7 million at December 31, 2004. In addition, we were also approved by the U.S. Navy to provide up to $5.0 million of these newly introduced products. This arrangement is excluded from backlog at this time. Future deliveries under this approval will be subject to receipt of purchase orders over the next three years

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for specific quantities to be determined by the U.S. Navy from time to time. Government programs, which utilize these products, have lead times of several years before significant revenues are generated.

Significant portions of data acquisition and instrumentation recorder sales reflect purchases by prime contractors to the federal government, which can be subject to significant fluctuations. See “Markets.” In addition, other factors relating to the markets for our instrumentation products and to competition in these markets may affect future sales of these products. See “Distribution and Customers,” “Competition,” and “New Product Development and Industry Conditions.”

19-millimeter Products.    Our 19-millimeter tape based products include our DST and DIS tape drives and library systems and use core technology developed by us for our digital video recorders. Our DST tape drives are used to store digital data in formats such as SCSI and fibre channel that are typically utilized in the computer industry. Our DIS tape drives use specialized instrumentation formats that are primarily used in intelligence gathering. The drives use high-density metal particle tape cartridges, which are available in a range of sizes providing storage capacities from 100 to 660GB per cartridge in quad-density format. DST automated library systems incorporate multiple tape cartridges and tape drives and provide from 1.2 to 12.8 terabytes (“TB”) of storage capacity while occupying only a fraction of the floor space required by competing storage systems. Expansion modules can expand the DST library storage capacities up to approximately 100 TB. DST and DIS tape drives offer rapid access times to vast amounts of data that is maintained “near online” to allow it to be retrieved/archived quickly from/to very large data bases. We manufacture our 19-millimeter products to customer order. Since our Recorders segment is primarily focused on our data acquisition and instrumentation products, we do not currently intend to invest additional development resources to extend the life of our 19-millimeter products beyond the quad density format. However, we will conduct sustaining engineering to support our current customers’ requirements. See “Markets,” “Distribution and Customers,” “Competition,” and “New Product Development and Industry Conditions.”

Other Products.    Data Systems’ other products are primarily television after-market products (including spare parts) relating to television products that we manufactured in prior periods and continue to support.

Markets

Data Acquisition/Instrumentation Recorders.    Data Systems’ DDRs, DSRs and DCRsi recording drives are designed to acquire large volumes of data in stressful physical environments, and are used extensively in airborne and naval intelligence acquisition and for the collection of test data during the design and qualification of aircraft. These products are used by U.S. and foreign military and intelligence agencies (including those of Germany, Japan and the United Kingdom), as well as by manufacturers of commercial airplanes, such as Boeing Corporation, and other foreign airframe manufacturers. A significant portion of DCRsi products are also sold in versions that are intended for use in ground facilities for the long-term storage or analysis of data previously collected in mobile environments. Our DSRs and DDRs products have been developed to replace over several years a large installed base of DCRsi tape-based recorders.

U.S and foreign government agencies continue to be the primary market for our data acquisition and instrumentation recorders. Sales to government agencies are subject to fluctuation as a result of changes in government spending programs (including defense programs) and could be adversely affected by pressure on government agencies to reduce spending. Any material decline in the current level of government purchases of our products could have a material adverse effect on us.

19-Millimeter Products.    Our 19-millimeter mass storage tape drives and library systems are optimized for applications that must handle large amounts of data, such as those that process and store images, digital video and streaming data. Government intelligence data gathering and archival storage are our principal markets.

Our products are used in a small number of specialized applications. Accordingly, we believe that our share of the overall data storage market is very small.

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Distribution and Customers

Our data acquisition and instrumentation recorders (including our DIS 19-millimeter tape drives) are sold primarily to prime contractors who in turn sell 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 our internal domestic and international sales forces, as well as through independent sales organizations in foreign markets. The government programs that involve our products are typically long-term in duration. Government procurement practices typically limit our customers’ purchase commitments with our recorders segment to one-year or less. Also, we typically operate with low levels of backlog and ship products ordered within a particular quarter in that quarter or the succeeding quarter.

We currently distribute our 19-millimeter products (including DST and DIS recorders) directly through our internal sales force, as well as through independent value-added resellers. With respect to our 19-millimeter recorders, we are not actively pursuing new government programs but continue to offer products to customers who desire to support or expand an existing program.

We currently operate a total of six sales and service offices, including four in the U.S., one in Japan and one in the United Kingdom.

Our sales to U.S. government agencies (either directly or indirectly through government contractors) represented approximately 59% of Recorders segment revenue in fiscal 2005 compared to 70% in fiscal 2004 and 72% in fiscal 2003. Products sold for U.S. government use include primarily data acquisition instrumentation recording systems. Sales to government customers are subject to customary contractual provisions permitting termination at the government’s election. See “Markets.”

In 2005 and 2004, no single Recorders segment customer accounted for more than 10% of total revenue. In 2003, one customer, BAE Systems, accounted for 14.4% of total revenue.

Research, Development and Engineering

Recording systems such as those developed by us initially in the professional television industry and subsequently in the mass data storage industry involve extremely complex technology. As a result, we have developed extensive expertise in a wide area of technical disciplines and have developed fundamental innovations in digital image processing, magnetic recording technology and communication channel electronics. In 2005, we spent approximately $4.2 million (17.2% of total Recorders segment revenue) for research and development programs and engineering costs, compared to $3.9 million (13.8% of total Recorders segment revenue) in 2004 and $3.2 million (9.5% of Recorders segment revenue) in 2003. Future research, development and engineering spending may need to be reduced if Data Systems were to experience further declines in product revenues. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 of the Notes to Consolidated Financial Statements.

In prior years, we designed and manufactured a wide range of professional television products, and we patented many of our innovations. While we exited those markets several years ago, many patents covering innovations in the field remain in force. These technologies form the foundation of our digital patent portfolio that we are seeking to exploit with new licensing agreements covering digital video camcorders, digital still cameras, DVD recorders, and hard disk recorders.

In recent years, our Recorders segment has elected to focus on its data acquisition and instrumentation products. As a result, it has transitioned much of its research and development budget away from the 19-millimeter digital recording technology, to the recently developed DSRs and DDRs solid-state and disk-based recorders, which incorporate data interfaces previously utilized in our DCRsi recorders. These products have

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largely been designed in response to unique and varied requirements of various government agencies and are being evaluated for inclusion in future intelligence gathering programs under consideration. As a result, our new products have been manufactured in limited quantities. New government programs typically undergo several years of evaluation before product specifications are established, prime and subcontractors selected, funding appropriated and contracts let. See “Recorder Segment Products – Data Acquisition/Instrumentation Products” above. We do not plan to develop our 19-millimeter product lines beyond the quad density format. However, we will conduct sustaining engineering to support our current customers’ requirements.

All of our research, development and engineering efforts are conducted in-house. While we do not outsource our product engineering, in line with industry trends, we endeavor to utilize off the shelf components rather than to design our own components. Research and development is subject to certain risks and uncertainties described below under “New Product Development and Industry Conditions,” and there can be no assurance that any of these efforts will be technologically or commercially successful.

Patents, Licenses and Trademarks

As a result of our ongoing research and development expenditures, we have developed substantial proprietary technology, certain of which we have elected to patent or to seek to patent. As of December 31, 2005, we held approximately 550 patents and patent applications, including approximately 200 patents in the U.S. and approximately 350 corresponding patents in other countries. Also, there are approximately 30 U.S. and foreign patent applications pending. The majority of these patents and pending patents relate to our recording technology. We continually review our patent portfolio and allow non-strategic patents to lapse, thereby minimizing substantial renewal fees.

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. We have obtained our present patents over the course of the past 20 years and, accordingly, have patents in force that will expire from time to time over the next 20 years. Patents are important to our current overall business, both as a source of protection of the proprietary technology used in our current products, and as a source of royalty revenue. While results of operations would be adversely affected by the loss or expiration of patents that generate significant royalty revenue, Management believes that none of our Recorder Segment 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 our current business.

In 2005, one licensee, Matsushita Electric Industrial Co. Ltd., accounted for 12% of total revenue. In 2004, two licensees, Sony and Canon, accounted for 39.4% and 19.2% of total revenue, respectively. In 2003, one licensee, Matsushita Electric Industrial Co. Ltd. accounted for 14.9% of total revenue.

It is not possible to predict the amount of royalty revenue that will be received in the future. Royalty revenue has historically fluctuated widely due to a number of factors that we cannot predict, such as the extent of use of our patented technology by third parties, the extent to which we must pursue litigation in order to enforce our patents, and the ultimate success of our licensing and litigation activities. We also expect to spend additional costs in future years in our investigation and analysis of how our digital video imaging and data compression technologies are being utilized by manufacturers of consumer digital video products. There can be no assurance that we will continue to develop patentable technology that will generate significant patent royalties in future years. We will continue to evaluate additional products and potential licensing opportunities to the extent that our technical and financial resources permit. We have not granted any licenses under our scanning recorder patents specifically for data storage applications, but we may do so in the future if we determine that this would support our marketing strategy.

We regard our trademark “Ampex” and our logo as valuable to our businesses. We have registered our trademark and logo in the U.S. and a number of foreign countries. U.S. trademark registrations are generally

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valid for an initial term of 10 years and renewable for subsequent 10-year periods. We have not granted any material rights to use our name or logo to any other third party.

Our trademarks used in this report include “Ampex”, “DCT”, “DST”, “DIS”, “DCRsi”, “DSRs” and “DDRs”, all of which are trademarks of Ampex Corporation. All other trademarks and service marks used in this report are the property of Ampex or their respective owners.

Manufacturing

Our Recorders segment’s products are manufactured at facilities in Redwood City, California and Colorado Springs, Colorado. Products are designed and engineered primarily in Redwood City. Because our mass data storage products incorporate many of the technologies and components of our 19-millimeter-based videotape recorders, the manufacturing process of the mass data storage products has benefited from the existing video recorder production facilities and techniques.

We maintain insurance, including business interruption insurance, which Management considers adequate and customary under the circumstances. However, there is no assurance that we will not incur losses beyond the limits of, or outside the coverage of, our current insurance policies.

Sources of Supply

We use a broad variety of raw materials and components in our manufacturing operations. While most materials are readily available from numerous sources, we purchase certain components, such as customized integrated circuits, memory chips 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 our manufacturing operations pending qualification of an alternative supplier. In addition, we produce highly engineered products in relatively small quantities. As a result, our ability to cause suppliers to continue production of certain products on which we may depend may be limited. Manufacturers have required us in the past and may require us in the future to purchase lifetime quantities of certain products or components in advance of their discontinuing the product, requiring us to maintain inventory levels in excess of current period revenue forecasts. We do not generally enter into long-term raw material supply contracts. In addition, many of the components of our products are designed, developed and manufactured by us, and thus are not readily available from alternative sources.

Fluctuations in Operating Results; Seasonality and Backlog of Recorders Segment

Our revenue and results of operations are generally subject to quarterly and annual fluctuations. Factors affecting operating results include: customer ordering patterns; availability and market acceptance of new products; timing of significant orders and new product announcements; order cancellations; receipt of lump sum royalty settlements for prior period shipments and/or prepayments of running royalties otherwise due in future periods and numerous other factors. Our revenues are typically dependent upon receipt of a limited number of customer orders involving relatively large dollar volumes in any given fiscal period, increasing the potential volatility of our revenues from quarter to quarter. In addition, sales to government customers (primarily sales of instrumentation products) are subject to fluctuations as a result of changes in government spending programs, which can materially affect our gross margin as well as our revenues.

A substantial portion of our backlog at a given time is normally shipped within one or two quarters thereafter. Therefore, revenues in any quarter are heavily dependent on orders received in that quarter and the immediately preceding quarter. Our backlog of firm orders at December 31, 2005 was $9.1 million, compared to $3.7 million at December 31, 2004 and $10.7 million at December 31, 2003. We were awarded a multi-year contract of approximately $6.3 million in the second quarter of 2005 from The Boeing Company for our new disk and solid state-based data instrumentation recorders to be used in the development of the 787 airplane. The

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undelivered value of $5.8 million of this contract has been included in reported backlog as of December 31, 2005. In the fourth quarter of 2005, we were also approved by the U.S. Navy to provide up to $5.0 million of these newly introduced products, which is not included in backlog at this time. Future deliveries under this approval will be subject to receipt of purchase orders over the next three years for specific quantities to be determined by the U.S. Navy from time to time. To date we have received purchase orders and made shipments for a total of $0.4 million as of December 31, 2005. In 2003, we received government orders primarily in DCRsi instrumentation products and tape that remained in backlog pending shipment, which the customer scheduled throughout 2004. We do not generally include foreign orders in backlog until we have obtained requisite export licenses and other documentation. Orders may be subject to cancellation in the event shipments are delayed. For all of the foregoing reasons, results of a given quarter are not necessarily indicative of results to be expected for a fiscal year.

Competition

We encounter significant competition in our Recorders segment product markets. Although our competitors vary from product to product, many are significantly larger companies with greater financial resources, broader product lines and other competitive advantages. Our primary market focus is currently being directed to the data acquisition and instrumentation markets, principally involving intelligence gathering for classified programs where our products have been widely deployed. Our involvement in the mass data storage market is very limited and directed at applications that process video or large image based data sets. We do not attempt to compete in the larger commercial mass data storage applications.

In the instrumentation market, we compete primarily with companies that depend on government contracts for a major portion of their sales in this market, including Heim Data Systems, L-3 Communications Corporation, Calculex and Sypris Solutions, Inc. The number of competitors in this market has decreased in recent years as the level of government spending in many areas has declined. The principal competitive factors in this market are cost, product reliability, product performance and the ability to satisfy applicable government procurement requirements.

New Product Development and Industry Conditions

The instrumentation and data storage industries are characterized by continual technological change and the need to introduce new products and product upgrades. This requires 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 revenues and results of operations. We have no current plans to develop our 19-millimeter product lines beyond the quad density format, but we will invest in sustaining engineering activities to support the needs of our existing customer base. We have recently introduced our DSRs and DDRs solid-state memory-based and disk-based instrumentation recorders. To date, shipments of these specialized units have been made to a limited number of customers in small quantities primarily for performance evaluation. If successful, these products could be selected for new intelligence gathering programs that would ultimately seek to replace over time our older tape based DCRsi recorders. There can be no assurance that such orders will actually be received. No assurance can be given that existing products will not become obsolete, that any new products will win commercial acceptance or that our new products or technology will be competitive. See “Competition.” Furthermore, the introduction of new products or technologies can be hampered by technical problems in design, manufacturing and test procedures or the occurrence of other unforeseen events.

Sales of our instrumentation products can be significantly affected by changes in government spending levels. See “Markets” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

International Operations

Substantially all of our licensing revenue is derived from foreign customers. Sales of products to foreign customers accounted for approximately 27.3% of product and service revenue in fiscal 2005, compared to 19.5%

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in fiscal 2004 and 13.5% in fiscal 2003. Foreign marketing operations are conducted primarily through local distributors and agents, with support from our internal marketing and sales organization. See “Distribution and Customers.”

Foreign operations are subject to the usual risk attendant on investments in foreign countries, including limitations on repatriation of earnings, restrictive actions by local governments, fluctuation in foreign currency exchange rates and nationalization. Additionally, export sales are subject to export regulations and restrictions imposed by the U.S. Department of State and the U.S. Department of Commerce.

In certain prior periods, declines in the value of the U.S. dollar in relation to certain foreign currencies have favorably affected our international operations, and in other periods the strength of the dollar relative to such currencies has adversely affected our international operations. Fluctuations in the value of international currencies can be expected to continue to affect our operations in the future, although the impact will be less significant than it was in periods with a higher proportion of sales in foreign currencies. We currently do not hedge our assets that are denominated in foreign currencies. U.S. export revenues and our licensing agreements are principally denominated in U.S. dollars.

See Note 20 of the Notes to Consolidated Financial Statements for additional information concerning our foreign operations.

Environmental Regulation and Proceedings

Our facilities are subject to numerous federal, state and local laws and regulations designed to protect the environment from waste emissions and hazardous substances. We are 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 we are generally in compliance in all material respects with all applicable environmental and occupational safety laws and regulations or have plans to bring operations into compliance. Management does not anticipate that capital expenditures for pollution control equipment for fiscal 2006 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. We have three environmental investigations, remediation and/or monitoring activities outstanding at December 31, 2005. Two sites are associated with the operations of our former manufacturing subsidiary that was sold in 1995 (“Media”) while the third relates directly to a disposal activity of the Company. Some of these activities involve the participation of state and local government agencies. Although we sold Media in November 1995, we may have continuing liability with respect to environmental contamination at these sites if Media fails to discharge its responsibilities with respect to such sites. On January 10, 2005, Media filed under Chapter 11 of the Bankruptcy Code. In prior years, we had been named as a potentially responsible party by the United States Environmental Protection Agency with respect to four other 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. In the second quarter of 2005, we were informed that these former Media sites have been remediated to the satisfaction of the EPA. Accordingly, we believe that there is no further liability with respect to these Superfund sites. During 2004 and 2005, we spent a total of approximately $127,000 and $141,000, respectively, in connection with environmental investigation, remediation and monitoring activities. We expect to spend $1.1 million in the next twelve months for such activities, largely pertaining to Media’s prior 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 us to estimate with any degree of certainty the ultimate costs that we

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may incur with respect to the currently pending environmental matters referred to above. Nevertheless, at December 31, 2005, we had an accrued liability of $0.1 million for pending environmental liabilities associated with activities by us and $2.4 million of net liabilities for discontinued operations for the estimated liabilities we may incur with respect to former Media sites discussed above. Although we do not currently possess sufficient information to reasonably estimate the amounts of liabilities to be recorded upon future completion of studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with environmental matters can be determined, they could be material to our consolidated results of operations or operating cash flows in the periods recognized or paid. However, considering our past experience and existing reserves, we do not expect that these environmental matters will have a material adverse effect on our consolidated financial position. These liabilities have not been discounted.

While we believe that we are generally in compliance with all applicable environmental laws and regulations or have plans to bring operations into compliance, it is possible that we will be named as a potentially responsible party in the future with respect to additional Superfund or other sites. Furthermore, because we conduct our 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 our business, operating results or cash flow. There can be no assurance that we 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 us in the future.

Employees

As of December 31, 2005, in our continuing operations we employed 127 people worldwide, compared to 127 at December 31, 2004 and 145 at December 31, 2003. Approximately 11% of our current worldwide workforce is employed in our international operations, compared to 12% at December 31, 2004 and 9% at December 31, 2003. No employees are covered by any collective bargaining agreement. We are dependent on the performance of certain key members of Management and key technical personnel. We have not entered into employment agreements with any such individuals. Edward J. Bramson, who has served as our Chief Executive Officer since 1991, is also engaged in the management of certain companies as more fully described below in “Item 4A. Executive Officers of the Registrant.” Mr. Bramson currently devotes most of his time to the management of Ampex. The loss of the services of Mr. Bramson or other key individuals could have a material adverse effect on us.

Pension Plan Matters

We are the Plan Sponsor of the Ampex pension plan and of the Media pension plan. We amended these plans in early 1994 to terminate benefit service and compensation accruals as of February 1, 1994 in order to reduce payments that would otherwise be required. These pension plans remain underfunded and actuaries have forecasted that substantial pension contributions will be required through 2010 in order to fully fund benefits payable to plan participants.

We account for our obligations under these pension plans in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 87, “Employers Accounting for Pensions.” Under this accounting principle, we recognize a liability on our Consolidated Balance Sheet for unfunded accumulated benefit obligations earned by Ampex’s and Media’s U.S. employees and retirees through the 1994 plan termination date, which at December 31, 2005 totaled $61.3 million and $25.4 million, respectively.

The 1995 sale agreement for Media required the buyer, Quantegy Corporation, to pay directly or to reimburse Ampex for required contributions to the Media pension plan. This agreement was intended to make us whole from any expense or cash outlay as it pertained to the Media pension plan. However, we remained the Plan Sponsor of the Media pension plan and remained obligated to make pension contributions to that plan. During

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2003, the Company and Media entered into the Retirement Plan Funding and Settlement Agreement, which provided for monthly payments of $74,000 by Media to us in settlement of future pension contributions that may be required under the Media pension plan that would be funded by us. During 2004 and 2003 Media paid directly or reimbursed Ampex for pension contributions made on Media’s behalf of $0.8 million and $0.8 million, respectively. During 2005, Media did not pay directly or reimburse us for pension contributions made by us on Media’s behalf. Reimbursement payments reduce actuarially determined “Media pension costs” and are reflected in the “Statement of Operations and Comprehensive Income (Loss)” when such payments are assured of collection.

On January 10, 2005, Media filed under Chapter 11 of the Bankruptcy Code. Accordingly, we do not expect to receive any additional payments or to be reimbursed for future pension contributions that we will be required to make under the Media pension plan as its Plan Sponsor.

The following schedule lists the annual estimated contributions as computed by the plans’ actuary for the Ampex pension plan and Media pension plan through 2010. The following amounts are substantially less than the unfunded accumulated benefit obligation recognized by us as liabilities on our Consolidated Balance Sheets due to differing actuarial assumptions prescribed by ERISA in each instance.

	Estimated Contributions
	Ampex Pension Plan		Media Pension Plan
	(in thousands)
2006	$	1,641	$	7,827
2007		19,338		4,976
2008		9,201		3,769
2009		3,629		1,298
2010		400		—
Total	$	34,209	$	17,870

In 1994, the Company, the Pension Benefit Guaranty Corporation (“the PBGC”) and certain affiliates, including Hillside Capital Incorporated (“Hillside”), who were members of a “group under common control” for purposes of the Employee Retirement Income Security Act (“ERISA”), entered into a Joint Settlement Agreement (“Agreement”) in connection with the 1994 reorganization of our former parent, NH Holding Incorporated (“NHI”), relating to our pension plan (the “Ampex” pension plan) and of our former Media subsidiaries (the “Media” pension plan), which are substantially under funded. Under the terms of the Agreement, the Company and Hillside are held jointly and severally liable to the PBGC to fund the required contributions under the Ampex and Media pension plans. Pursuant to this Agreement, Hillside is obligated to advance pension contributions for the Ampex and Media pension plans in the event we are unable to make the required contributions necessary in order to satisfy the minimum funding standard. Failure by Hillside to advance funds as may be required would enable the PBGC to terminate the plans and seek recovery of termination benefits from Hillside.

During the period 2001 through 2005, Hillside made pension contributions totaling $20.7 million pertaining to the Ampex pension plan and the Media pension plan, of which $5.9 million was paid in 2005 and $10.7 million was paid in 2004. We have issued notes to Hillside (“Hillside Notes”) in the amount of the pension contributions and amounts advanced in prior years. We have requested Hillside to fund contributions due in 2006, which are estimated to total $9.5 million, pursuant to terms of the Agreement, and we may do likewise in future years based on our liquidity.

When Hillside is required to make all or portions of the Ampex and/or Media pension contributions, pursuant to the Agreement, we issue additional Hillside Notes. Under the terms of the Hillside Notes, $150,000 is due on the first anniversary of the notes with the remainder due on the fourth anniversary of the notes. Pursuant

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to amendments to our senior debt agreements, all principal payments on the Hillside Notes will be deferred until after December 31, 2006 with earlier repayment in the event that the Senior Notes have been repaid in full. The Hillside Notes provide for interest paid quarterly at 1 percent plus 175% of the applicable mid-term federal rate (effective rate of 8.75% at December 31, 2005). We granted to Hillside a security interest in Data Systems’ inventory as collateral for advances. The agreement contains certain restrictive covenants which, among other things, restrict our ability to declare dividends, sell all or substantially all of our assets or commence liquidation, or engage in specified transactions with certain related parties, breach of which could result in acceleration of our potential termination liabilities.

Hillside is legally obligated to comply with the terms of the Agreement, and has represented that it has sufficient assets to fund pension contributions that are scheduled in future years. We have no direct or indirect financial ownership interest in Hillside and, accordingly, have no ability to control Hillside or to mandate its compliance with the terms of the Agreement. Accordingly, except for the provisions of the Agreement, our ability to borrow pension contributions from Hillside is beyond our control.

ITEM 1A.    RISK FACTORS

Risk Related to our Business

Our operating results and income have fluctuated significantly in the past and will continue to fluctuate, and we may not be profitable in the future.

Our revenues and results of operations are generally subject to quarterly and annual fluctuations. Various factors affect our operating results, some of which are not within our control, including:

• receipt of lump sum, prepaid and ongoing licensing royalties;

• product sales by licensees;

• new licenses with licensees;

• litigation expenses;

• debt repayments and interest expense;

• the amount and timing of pension contributions and related funding obligations;

• customer ordering and government spending patterns;

• availability and market acceptance of new products and services;

• timing of significant orders and new product announcements; and

• order cancellations.

For example, our licensing revenue has historically fluctuated widely due to a number of factors that we cannot predict, such as the timing and negotiated terms of patent settlement agreements in any particular period, the extent to which third parties acknowledge use of our patented technology, the extent to which we must pursue litigation in order to enforce our patents to protect our business, and the ultimate success of our licensing and litigation activities. Licensing revenue also depends in part on fluctuating sales volumes and prices of licensees’ products that incorporate our technology. For 2005, we had licensing revenue of $28.9 million and net income of $6.7 million, as a result of the recognition of significant royalty receipts for past and, in some cases, future use of our patents. For 2004, however, we had licensing revenues of $72.9 million and reported net income of $46.4 million due to significant negotiated patent settlement agreements and in 2003, we had licensing revenues of $10.1 million and reported a net loss of $1.8 million. Similarly, our Recorders segment revenues may fluctuate significantly in future periods. While this segment reported operating income for 2005, 2004 and 2003, its business is dependent on the funding of government defense programs, which may come under increased pressure in the future, leading to a decline in sales. In addition, a substantial portion of our Recorders segment

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backlog at a given time is normally shipped within one or two quarters thereafter, and revenues in any quarter are heavily dependent on orders received in that quarter and the immediately preceding quarter. However, at December 31, 2005 our backlog included the undelivered portion of an order from The Boeing Company for our new instrumentation recorders, totaling approximately $5.8 million, to be delivered over the next two years.

Accordingly, results of a given quarter or year are not likely to be indicative of results to be expected for future periods, given the highly volatile nature of licensing revenue and other factors discussed above. In addition, fluctuations in operating results may negatively affect our debt service coverage, or our ability to issue debt or equity securities should we wish to do so, in any given fiscal period. In addition, material fluctuations in our operating results in future periods could have a material adverse effect on the price of our common stock.

Our licensing revenue may be materially and adversely affected due to the expiration of one of our patents in April 2006. Furthermore, if we are unable to protect our intellectual property adequately, our revenues will be reduced and we may not be able to compete effectively.

Our licensing revenues may be adversely affected due to the expiration of our rapid image retrieval patent on April 11, 2006. As of December 31, 2005, we have licensed substantially all of the major manufacturers of digital still cameras, the majority of whom have made prepayments covering their liability for the use of any of our patents through April 11, 2006. After April 11, 2006, manufacturers of digital still cameras will be required to pay royalties only to the extent that their products incorporate any of our digital imaging patents, including our feed forward quantization patent, use of which is currently being studied. Although the potential royalties from digital still camera manufacturers could be substantial, if we are unable to prove infringement of our digital imaging patents, or if our patents are deemed invalid, our royalties from digital still cameras after April 11, 2006 could be materially and adversely affected.

The success of our Licensing and Recorders segments depends, in part, upon our ability to establish and maintain the proprietary nature of our technology through the patent process. There can be no assurance that one or more of our patents will not be successfully challenged, invalidated or circumvented or that we will otherwise be able to rely on such patents for any reason. In addition, our competitors, many of whom have substantial resources and have made substantial investments in competing technologies, may seek to apply for and obtain patents that restrict our ability to make, use and sell our products either in the United States or in foreign markets. Monitoring unauthorized use of our technology is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as the laws of the United States. If any of our patents are successfully challenged, invalidated or circumvented or our right or ability to manufacture our products becomes restricted, our ability to continue to manufacture and market our products could be adversely affected, which would likely have a material adverse effect upon our business, financial condition and results of operations.

Unless we are able to develop or acquire new patents in the digital imaging field or other fields, our licensing revenues will expire in 2014. Moreover, if other companies develop patented proprietary technology similar to ours or competing technologies, our competitive position will be weakened and we may experience reduced license revenues.

Our revenues and operations may be adversely affected if we are not successful in our current and future legal actions or proceedings.

The success of our Licensing segment depends upon the validity of our digital imaging patents, which are used by manufacturers of consumer digital imaging products. In 2004, we initiated litigation to enforce one of our digital still camera patents and we may decide to initiate additional litigation against other manufacturers of digital still cameras and other products to enforce our patents, to protect trade secrets or know-how owned by us 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 us, may require us to incur

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substantial legal and other fees and expenses and may require some of our employees to devote all or a substantial portion of their time to the prosecution or defense of such litigation or proceedings. We also face the risk that a court could rule that our patents are invalid or not infringed, causing existing licensees to discontinue payments to us, and the risk of possible assertions of counterclaims.

As a result, we have incurred significant litigation expenses and may incur additional costs in future periods if we bring new lawsuits or if existing litigation is not resolved through negotiations. Additionally, if we do not prevail in our patent litigation, our patent royalties could be negatively impacted, which would have an adverse impact on our business, revenues and operations.

Our business depends materially on U.S. government spending, and a decrease in that spending may adversely affect our revenues and earnings.

Our Recorders segment depends materially on continued expenditures by the U.S. government on intelligence and defense programs. Significant portions of data acquisition and instrumentation recorder sales reflect purchases by prime contractors to the federal government, which are subject to significant fluctuations. The large U.S. budget deficit is expected to result in the cancellation of various defense programs. We do not know whether programs in which we participate will be affected by such cuts, program delays or deferred funding. The loss or significant decline in spending on various imaging and intelligence gathering programs, in which we are subcontractors to prime government contractors, or the lack of acceptance of our new products could have a material adverse effect on our revenues and earnings.

In addition, other factors relating to the markets for our instrumentation products and to competition in these markets may affect future sales of these products. We have recently introduced our new DDRs disk-based data acquisition recorder and our new DSRs solid-state memory-based data acquisition recorder for use in intelligence gathering activities. These products have been designed to replace a large installed base of DCRsi tape-based data acquisition recorders over several years. However, there can be no assurance that these new products will be successful or achieve the same level of market acceptance. If sales of new systems decline in the future, we may be increasingly dependent upon revenues from the sale of spare parts, service and tape.

We have substantial unfunded pension liabilities, which may adversely affect our liquidity and our ability to maintain or grow our operations.

We are the Plan Sponsor for the Ampex and Media defined benefit pension plans, which were frozen in 1994 but remain substantially underfunded. At December 31, 2005, unfunded accumulated plan benefit obligations under these pension plans totaled $61.3 million and $25.4 million, respectively, and have been recognized as liabilities on our consolidated balance sheet.

During 2004 and prior years, Media reimbursed us for some of the pension contributions we made on behalf of the Media pension plan based on a contractual obligation entered into at the time Media was sold. On January 10, 2005, Media filed under Chapter 11 of the Bankruptcy Code. Based on our assessment of Media’s financial condition, we do not anticipate any additional reimbursement of amounts paid to date or payable in the future on behalf of the Media pension plan. Future pension contributions payable under these pension plans will fluctuate based on actual investment performance, life expectancy of the participants and other factors versus such assumptions used to project future pension contributions.

Under a Joint Settlement Agreement between us, Hillside and the Pension Benefit Guaranty Corporation, Hillside is required to advance pension contributions for our and Media’s pension plan in the event that we cannot make them. At our request, to date Hillside has made pension contributions totaling $20.7 million pertaining to the Ampex and the Media pension plans, which includes a pension contribution of $5.9 million in September 2005. When Hillside advances pension contributions, we become indebted to Hillside, and we issue an equivalent amount of Hillside Notes. We have requested Hillside to advance pension contributions scheduled

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for 2006 that are presently estimated to total $9.5 million pursuant to the Joint Settlement Agreement. In future years, we may request Hillside to fund additional pension contributions under the Ampex and/or Media pension plans depending on our liquidity. We believe that Hillside has sufficient assets to fund future pension contributions under the Joint Settlement Agreement, but we do not own or control Hillside and, except for the provisions of the Joint Settlement Agreement, our ability to borrow pension contributions from Hillside is beyond our control.

Our substantial indebtedness could materially adversely affect our operations and financial results and prevent us from obtaining additional financing, if necessary.

As of December 31, 2005, we had outstanding approximately $25.8 million of total borrowings, which includes approximately $5.8 million under our 12% Senior Notes due 2008 and $19.9 million of Hillside Notes that at December 31, 2005 bear interest at 8.75% per annum. The Hillside Notes were incurred in connection with pension contributions advanced by Hillside in 2005 and prior years. The 12% Senior Notes are secured by liens on our future royalty receipts. We may incur additional indebtedness from time to time in the future, subject to certain restrictions imposed by our debt agreements, which could increase our interest expense in future periods. If we default in our obligations under the relevant loan agreements, the Noteholders would have the right to accelerate the indebtedness and foreclose on their liens, which would materially and adversely affect our financial condition.

The degree to which we are leveraged could have other important consequences to investors, including the following:

• a substantial portion of our cash flow from licensing operations must be dedicated to the payment of principal of and interest on our outstanding indebtedness until it is repaid in full, and until then will not be available for other purposes;

• our 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 by the terms of our existing debt agreements, and even if existing lenders consent to the issuance of new debt, such financing may not be available on terms favorable to us;

• we may be more highly leveraged than our competitors, which may place us at a competitive disadvantage;

• our leverage may make us more vulnerable to a downturn in our business or the economy in general; and

• the financial covenants and other restrictions contained in our indentures and other agreements relating to our indebtedness also restrict our ability to make new investments, dispose of assets or to pay dividends on or repurchase common stock.

If we cannot service our indebtedness, we will be forced to adopt alternative strategies. These strategies may include reducing or delaying capital expenditures, selling assets, restructuring or refinancing our indebtedness, or seeking additional equity capital. We cannot give any assurance that any of these strategies will be successful or that they will be permitted under our debt indentures.

Our substantial debt service and pension obligations may reduce our cash flow and our ability to operate our business.

We have limited liquidity with which to conduct our operations. While we had cash and marketable securities of $13.1 million at December 31, 2005, substantially all cash generated by our Licensing segment in excess of related operating expenses and certain other expenses, including patent litigation costs, is first required to be applied to reduce debt, which totaled $25.8 million at December 31, 2005. In addition to our debt service

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obligations, we are obligated to make future pension contributions to our and Media’s pension plans, which we estimate will total $52.1 million over the next five years. While our management believes that our liquidity, coupled with anticipated patent licensing revenue and our ability to borrow pension contributions from Hillside, should be sufficient to satisfy our projected cash obligations through at least December 2006, there can be no assurance that we will be able to satisfy these obligations in future years. Furthermore, our limited liquidity may harm our ability to operate or grow our business.

If we acquire companies in the future, we may experience integration costs and the acquired businesses may not perform as we expect.

We have made, and may under certain circumstances in the future make, acquisitions of, and/or investments in, other businesses. These entities may be involved in new businesses in which we have not historically been involved. We may not be able to identify or acquire suitable acquisition candidates in the future, or complete any acquisitions or investments on satisfactory terms. While we are not currently seeking to make any acquisitions of a controlling interest in new businesses and our principal debt instruments substantially restrict our ability to make acquisitions or investments in new businesses, future acquisitions and investments involve numerous additional risks. These risks include difficulties in the management of operations, services and personnel of the acquired companies, and of integrating acquired companies with us and/or each other’s operations. We may also encounter problems in entering markets and businesses in which we have limited or no experience. Acquisitions can also divert our attention from other business concerns. We have made and may make additional investments in companies in which we own less than a 100% interest. Such investments involve additional risks, including the risk that we may not be in a position to control the management or policies of such entities, and the risk of potential conflicts with other investors. For example, we have written off all of our acquisitions of Internet companies during 2000 and 2001. It is possible that we could lose all or a substantial portion of any future investments.

If we are unable to respond to rapid technological change or to develop new products, our revenues and results of operations will be adversely affected.

All the industries and markets from which we derive or expect to derive revenues, directly or through our licensing program, are characterized by continual technological change and the need to introduce new products, product upgrades and patentable technology. This has required, and will continue to require, that we spend substantial amounts of capital on the research, development and engineering of new products and advances to existing products, as well as for assessing infringement of our patents by manufacturers of consumer digital video products. We cannot assure you that our existing products, technologies and services will not become obsolete or that any new products, technologies or services will win commercial acceptance. Obsolescence of existing product lines, or inability to develop and introduce new products and services, could have a material adverse effect on our revenues and results of operations in the future. The development and introduction of new technologies, products and services are subject to inherent technical and market risks, and there can be no assurance that we will be successful in this regard. In addition, reductions in our research and development programs could adversely affect our ability to remain competitive.

Because our Recorders segment is primarily focused on our data acquisition and instrumentation products, we have devoted the majority of our research and development to producing our new solid state and disk based instrumentation recorders. We do not currently intend to invest additional development resources to extend the life of our 19-millimeter mass storage products beyond the quad density format other than as required to support the needs of our customers. If our Recorders segment were to experience further declines in product revenues, we may be required to reduce future research, development and engineering costs.

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We have numerous significant competitors in our Recorders segment, some of which have greater financial resources than we do.

Our Recorders segment encounters significant competition in all the markets for its products and services. Many of our competitors in this industry have greater resources and access to capital than us. In the instrumentation market, which currently is our Recorders segment’s major area of focus, we compete primarily with companies that depend on government contracts for a major portion of their revenues, including L-3 Communications Corporation, Calculex and Sypris Solutions, Inc. While the number of our competitors in this industry has decreased in recent years as the government spending in many areas has declined, many of these competitors have greater financial resources than we do.

We rely on a limited number of key suppliers and vendors to operate our business. If these suppliers or vendors experience problems or favor our competitors, we could fail to obtain sufficient quantities of products and services we require to operate our business successfully.

Our Recorders segment purchases certain components such as customized integrated circuits, memory chips and magnetic media products from a single or a small number of domestic or foreign manufacturers. Significant delays in deliveries or defects in such components may, from time to time, adversely affect our manufacturing operations, pending qualification of an alternative supplier. In addition, we produce highly engineered products in relatively small quantities. As a result, our ability to cause suppliers to continue production of certain products on which we depend or to deliver those products to us on a timely basis, may be limited. These suppliers may require us to purchase lifetime quantities of their products or components, which may cause our inventories to increase beyond levels required to support current revenues. We do not generally enter into long-term raw materials or components supply contracts. Accordingly, if we experience problems with these manufacturers, we could fail to obtain sufficient resources to operate our business successfully.

Our international operations subject us to social, political and economic risks of doing business in foreign countries.

Although we significantly curtailed our Recorders segment’s international operations in prior years, sales to foreign customers (including U.S. export sales) continue to be significant to our results of operations. However, international operations are subject to a number of special risks, including limitations on repatriation of earnings, restrictive actions by local governments, and nationalization. Additionally, export sales are subject to export regulation and restrictions imposed by U.S. government agencies. Although fluctuations in the value of foreign currencies can affect our results of operations, we do not normally seek to mitigate our exposure to exchange rate fluctuations by hedging our foreign currency positions. Accordingly, our revenues from international operations are subject to numerous risks, any of which may have an adverse impact on our results of operations.

We are dependent on certain key personnel and the loss of one or more these individuals could disrupt our operations and adversely affect our financial results.

We are highly dependent upon the availability and performance of our executive officers and directors, including Edward J. Bramson, who has been our chief executive officer since 1991, and the other senior executives of our corporate licensing division and Data Systems subsidiary. Mr. Bramson is also engaged in the management of certain other companies, but devotes most of his time to the management of our operations. We have not entered into employment agreements with Mr. Bramson or any of our key employees, and we do not maintain key man life insurance on any of these individuals. Accordingly, if we lose the services of Mr. Bramson or our other executive officers, our business, financial condition and operating results could be materially adversely affected.

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We are subject to environmental regulation and could incur substantial costs as a result of violations of or liabilities under environmental laws.

Our 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. We are currently engaged in various environmental investigations, remediation and/or monitoring activities at several sites located off our facilities. There can be no assurance we 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 us in the future.

Although we sold Media in November 1995, we have continuing liability with respect to environmental contamination at manufacturing sites and disposal sites used by Media when it was our subsidiary. On January 10, 2005, Media filed under Chapter 11 of the Bankruptcy Code. At December 31, 2005, we have included an estimate of future clean up costs of Media sites of $2.4 million, which is included in net liabilities of discontinued operations.

Complying with new regulatory and accounting requirements will be challenging and may adversely affect our business and operations, and the trading price of our securities.

Financial scandals in recent years have led to new laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq market rules. Under these provisions, we are required to maintain adequate internal control over financial reporting, which has involved improving existing internal controls, implementing additional internal controls, and documenting and testing our internal controls. As a result, we have incurred significant costs to engage outside legal, accounting and advisory services. Compliance has also occupied substantial management time and attention, which might otherwise have been devoted to revenue-generating activities. Changes in accounting rules, including requirements to account for employee stock options as a compensation expense, are also expected to materially increase the expenses that we report under generally accepted accounting principles, which may adversely affect our operating results. If we are unable to comply with these new requirements, investors could lose confidence in our reported financial information, which could have an adverse effect on the trading price of our securities.

Risks Related to the Ownership of our Common Stock

The future price of our common stock may fluctuate significantly.

The trading price of our common stock has been and can be expected to be subject to significant volatility, reflecting a variety of factors, including:

• fluctuations in patent licensing revenues, developments in our patent licensing program and the success or failure of litigation that we initiate to defend our patents;

• announcements relating to developments in our Recorders segment;

• quarterly fluctuations in operating results;

• modifications to our senior debt agreements and other events that affect our liquidity;

• announcements of the introduction of new products, technologies or services by us or our competitors;

• announcements of acquisitions of, or investments in, new businesses or other events;

• sales of shares of our common stock by insiders pursuant to registration statements, Rule 144, Rule 10b5-1 plans or otherwise;

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• reports and predictions concerning us by analysts and other members of the media; and

• general economic or market conditions.

In addition, the stock market in general, 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. Thus, these broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance.

Future sales or the possibility of future sales of substantial amounts of our common stock by our officers and directors may cause the price of our common stock to decline.

The resale of shares of our common stock by insiders pursuant to a registration statement or prospectus could cause the market price of our common stock to decline. Even the prospect of such resales could depress the market price for our common stock. In addition, our officers, directors and employees and certain other stockholders hold significant numbers of shares of our common stock that are not covered by a registration statement. Some of those shares are freely tradable without restriction under the federal securities laws, and those that are not may be sold in the future pursuant to newly filed effective registration statements, in compliance with the requirements of Rule 144 under the Securities Act or, in some cases, pursuant to a reoffer prospectus filed under an existing effective registration statement. Sales in the public market of substantial amounts of our common stock, whether by our officers, directors, employees or others, or the perception that such sales could occur, could materially adversely affect prevailing market prices for our common stock and our ability to raise additional capital through the sale of equity securities.

Anti-takeover provisions in our certificate of incorporation and by-laws may reduce the likelihood of any potential change of control or unsolicited acquisition proposal that you might consider favorable.

Our certificate of incorporation provides for a classified board of directors, with members of each class elected for a three-year term. It also provides for nullification of voting rights of certain foreign stockholders in certain circumstances involving possible violations of security regulations of the United States Department of Defense. Similarly, the indenture governing our outstanding Senior Notes requires us 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, which includes the purchase by a person or group of 50% or more of our outstanding voting stock or the transfer of substantially all of our assets to any such person or group, other than to certain of our subsidiaries and affiliates. These provisions could deter, delay or prevent a third-party from acquiring us, even if doing so would benefit our stockholders.

Our board of directors may issue preferred stock without stockholder approval.

Our charter authorizes our board of directors to authorize the issuance of up to 1,000,000 shares of preferred stock. Preferred stock may be issued in one or more series, the terms of which may be determined without further action by shareholders. These terms may include preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption. The issuance of any preferred stock, however, could materially adversely affect the rights of holders of our class A common stock, and therefore could reduce its value. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The power of the board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change in control, thereby preserving the current shareholders’ control.

Our executive officers and directors will continue to have substantial control over our company, which may prevent you or other stockholders from influencing significant corporate decisions.

As of December 31, 2005, our executive officers and directors beneficially owned or controlled, in the aggregate, approximately 15.9% of our outstanding common stock. As a result, they may be able to influence

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matters requiring stockholder approval. These matters include the election of directors and approval of significant corporate transactions, such as a merger, consolidation, takeover or other business combination involving us. Our existing principal stockholders, executive officers and directors may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership could also adversely affect the market price of our common stock or reduce any premium over market price that an acquirer might otherwise pay.

ITEM 1B. UNRESOLVED STAFF COMMENTS

We have not received any written comments from the SEC regarding our periodic or current reports that were issued 180 days or more before the end of our 2005 fiscal year and that remain unresolved.

ITEM 2. PROPERTIES

As of December 31, 2005, our principal properties were as follows:

Location	Activities Conducted	Approximate Square Footage of Facility
Redwood City, California	RD&E, manufacturing, sales and licensing (1)	91,760
New York City, NY	Executive offices (2)	19,000
Colorado Springs, Colorado	Manufacturing (3)	22,200
Chineham, Basingstoke, England	Sales and service (4)	3,283
Tokyo, Japan	Sales and service (5)	3,886

(1) The lease term extends to September 2008. The Recorders segment utilizes approximately 67% of these facilities with the remainder utilized by the Licensing segment.

(2) This facility lease term extends to April 2008. We have sublet 12,800 square feet of this property to a third party for a term that extends to April 2008. The facilities are utilized for general corporate purposes, unallocated to a specific segment.

(3) The facilities are leased under a five-year lease. The lease term extends to July 2009. The facilities are utilized by the Recorders segment.

(4) The lease term extends to December 2007. The facilities are utilized by the Recorders segment.

(5) The facilities are leased under leases that expire during July 2006. The current plan is to renew the leases on a year-to-year basis. The facilities are utilized by the Recorders segment.

In addition to the properties and leased facilities listed above, we lease office space and warehouse facilities from time to time at various domestic and foreign locations.

We believe that our current facilities, including machinery and equipment, are generally in good condition, well-maintained and suitable for their intended uses, and that our facilities have, and will continue to have, adequate capacity to accommodate our present needs and business growth for our present products in the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

We are a party to routine litigation incidental to our business. In the opinion of Management, no such current or pending lawsuits, either individually or in the aggregate, is likely to have a material adverse effect on our financial condition, results of operations or cash flows.

In October 2004, we initiated litigation against Eastman Kodak Company (“Kodak”) for its infringement of one of our patents, the “121” patent, in the International Trade Commission (“ITC”) and also, at the same time, in U.S. District Court in Delaware (“District Court”). In the ITC proceeding, the remedies available would be to

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bar Kodak from the importation or sale of digital still cameras or in certain circumstances to require Kodak to post a forfeitable bond on digital still cameras imported into the United States, in each case for the life of the “121” patent which expires in April 2006. In the separate District Court case, we are seeking monetary damages for infringement of the patent. As discussed below, until recently the District Court suit, although filed, had not proceeded as it was automatically stayed for the duration of the ITC proceeding.

We have had several settlement discussions with Kodak but, although we have negotiated licenses with thirteen other manufacturers of digital still cameras, we believe that it is unlikely that an out-of-court settlement with Kodak can be reached. If we had prevailed in the ITC proceeding, the period during which the relief could have applied was relatively short, and while that proceeding continued we were unable to pursue our damages claim in District Court. Accordingly, we concluded that our interests were best served by withdrawing our litigation in the ITC, and we made a motion to withdraw on July 29, 2005, which was granted on August 5, 2005. The effect of withdrawal was to recommence the proceedings in the District Court at an earlier date instead of several months later, after a final decision would have been reached in the ITC. The District Court suit seeks damages for unauthorized use of our patent from August 2001 (the date on which we gave notice of infringement) through April 11, 2006, and we intend to pursue the litigation vigorously. A trial date has been scheduled for December 2006. There can be no assurance that this litigation will be successful or that we will be awarded damages, and we will be required to devote significant management resources and to incur significant legal expenses as long as the lawsuit continues. Our strategy is to negotiate commercially reasonable licenses of our patents where possible, but we are prepared to initiate additional litigation when negotiations are not successful. We are evaluating the use of our patents other than the “121” patent in digital cameras and other digital consumer products and may decide to initiate litigation to enforce these patents in future periods.

Our facilities are subject to numerous federal, state and local laws and regulations designed to protect the environment from waste emissions and hazardous substances. We are 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 we are generally in compliance in all material respects with all applicable environmental and occupational safety laws and regulations or have plans to bring operations into compliance. Management does not anticipate that capital expenditures for pollution control equipment for fiscal 2006 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. We have three environmental investigations, remediation and/or monitoring activities outstanding at December 31, 2005. Two sites are associated with the operations of Media while the third relates directly to a disposal activity of the Company. Some of these activities involve the participation of state and local government agencies. Although we sold Media in November 1995, we may have continuing liability with respect to environmental contamination at these sites if Media fails to discharge its responsibilities with respect to such sites. On January 10, 2005, Media filed under Chapter 11 of the Bankruptcy Code. In prior years, we had been named as a potentially responsible party by the United States Environmental Protection Agency with respect to four other 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. In the second quarter of 2005, we were informed that these former Media sites have been remediated to the satisfaction of the EPA. Accordingly, we have determined that there is no further liability with respect to these Superfund sites. During 2004 and 2005, we spent a total of approximately $127,000 and $141,000, respectively, in connection with environmental investigation, remediation and monitoring activities. We expect to spend $1.1 million in the next twelve months for such activities, largely pertaining to Media’s prior 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 us to estimate with certainty the ultimate costs to be incurred with

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respect to the currently pending environmental matters referred to above. At December 31, 2005, we had an accrued liability of $0.1 million for pending environmental liabilities associated with activities by us and $2.4 million of net liabilities for discontinued operations for the estimated liabilities we may incur with respect to former Media sites discussed above. Although we do not currently possess sufficient information to estimate with certainty the ultimate costs to be incurred upon future completion of studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with environmental matters can be determined, they could be material to our consolidated results of operations or operating cash flows in the periods recognized or paid. However, considering our past experience and existing reserves, we do not expect that these environmental matters will have a material adverse effect on our consolidated financial position. These liabilities have not been discounted.

While we believe that we are generally in compliance with all applicable environmental laws and regulations or have plans to bring operations into compliance, it is possible that we will be named as a potentially responsible party in the future with respect to additional Superfund or other sites. Furthermore, because we conduct our 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 our business, operating results or cash flow. There can be no assurance that we 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 us in the future.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 4A.    EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers and their ages as of February 1, 2006 are as follows:

Name	Age	Position
Edward J. Bramson	54	Chairman and Chief Executive Officer
Craig L. McKibben	55	Vice President, Chief Financial Officer and Treasurer
Robert L. Atchison	68	Vice President
Joel D. Talcott	64	Vice President and Secretary
Sharon M. Genberg	63	Vice President
Ramon C. Venema	52	Vice President

Each of our executive officers 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 our Chief Executive Officer. Mr. Bramson is also president and a director of AFC Holdings Corporation, a wholly-owned subsidiary of the Company. He serves as chairman and chief executive officer of Sherborne Holdings Incorporated, Sherborne & Company Incorporated and Second Jeffson Corporation, and is a limited partner of Newhill Partners, L.P. These entities, which are private investment holding companies, may be deemed to be our affiliates. Mr. Bramson is also an officer, director and stockholder of HIP-IV Incorporated (“HIP-IV”), a privately held investment company, and since September 2005 has been a stockholder and director of Hanover General Partner I and certain affiliated entities comprising a hedge fund (the “Hanover Fund”) advised by an affiliate of Hanover Investors Ltd., a UK financial advisory firm. He also serves as a director of Hillside Capital Incorporated, a private industrial holding company with which he has been associated since 1976. Mr. Bramson

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was appointed the non-executive Chairman of the Board of Directors of Elementis Group plc, a global specialty chemical business on June 6, 2005, and its interim CEO on August 9, 2005. Mr. Bramson previously served as chairman from October 2003 to July 2004, and a non-executive director from July 2004 to April 2005, of 4imprint Group, plc, a company listed on the London Stock Exchange. See Note 14 of the Notes to Consolidated Financial Statements.

Craig L. McKibben is Vice President, Chief Financial Officer, Treasurer and a director of the Company. He has been an officer and a director of Ampex since 1989. Mr. McKibben also serves as Vice President, Treasurer and a director of Ampex Holdings Corporation, Vice President and Treasurer of AFC Holdings Corporation, Vice President and Treasurer of Ampex Data Systems Corporation, and President, Chief Financial Officer and a director of Ampex Finance Corporation, wholly-owned subsidiaries of the Company. He is also Vice President and a director of Sherborne Holdings Incorporated and Sherborne & Company Incorporated, Vice President of Second Jeffson Corporation, and an officer and stockholder of HIP-IV. Since September 2005, Mr. McKibben has served as a director of Hanover General Partner I and certain affiliated entities comprising the Hanover Fund. 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.

Robert L. Atchison is Vice President of the Company. Since January 1994 he has been responsible for all our operating activities, and in 1996 assumed responsibility for certain of our sales and marketing activities. From April 1991 to January 1994, he was responsible for our engineering and operations. Mr. Atchison also serves as President and a director of Ampex Data Systems Corporation, Ampex Data International Corporation and Ampex International Sales Corporation, wholly-owned subsidiaries of the Company. He has served as an executive officer of the Company and various subsidiaries since 1987.

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 our patent licensing activities (having served as Patent Counsel from 1981 to 1987). Mr. Talcott also serves as Chairman of Ampex Data Systems Corporation, as Vice President, Secretary and a director of Ampex Data Systems Corporation, Ampex Data International Corporation, Ampex Finance Corporation and Ampex International Sales Corporation, as Vice President and Secretary of Ampex Holdings Corporation, and as Secretary of AFC Holdings Corporation, wholly-owned subsidiaries of the Company. On January 10, 2006, Mr. Talcott was elected a director of Command Audio Corp., a licensor of intellectual property to consumer electronics, media and technology companies.

Sharon M. Genberg is Vice President of the Company, a position she was appointed to in June 2002. She held the position of Director, Human Resources for 10 years prior to her appointment. She is responsible for all employment activity, employee benefit programs, compensation, training and development, facilities, maintenance, telecommunications, safety and security. Ms. Genberg also serves as Vice President and Assistant Secretary of Ampex Data Systems Corporation.

Ramon C. Venema is Vice President, Assistant Treasurer and Assistant Secretary of the Company, a position he was appointed to in July 2003. He previously served as Assistant Treasurer of the Company from 1995 to 2001, also serving as a Vice President of the Company during 2001. Mr. Venema also serves as Vice President, Assistant Treasurer and Assistant Secretary of Ampex Data International Corporation, Vice President and Treasurer of Ampex Finance Corporation, Assistant Treasurer and Assistant Secretary of Ampex Holdings Corporation, and Vice President, Treasurer and Chief Financial Officer of Ampex International Sales Corporation, wholly-owned subsidiaries of the Company. He is responsible for certain of our financial reporting and accounting operations.

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PART II

ITEM 5. MARKET FOR COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

From November 21, 2003 to June 23, 2005, our Class A Common Stock was listed for quotation on the OTC Bulletin Board under the symbol “AEXCA.” The OTC Bulletin Board is an interdealer, over- the-counter market. On June 24, 2005, our Common Stock was listed on the NASDAQ National Market under the symbol “AMPX.”

The following table sets forth the high and low prices for the Class A Common Stock for each quarter during fiscal 2005 and 2004. All prices through the second quarter of 2005 represent bid information as quoted on the OTC Bulletin Board. The OTC Bulletin Board prices reflect interdealer prices, without retail mark-up, mark-down or commissions, and may not necessarily represent actual transactions. All prices for the third and fourth quarters of 2005 represent quotations on NASDAQ.

Fiscal Year	High		Low
2005
First Quarter	$	56.75	$	33.00
Second Quarter		42.00		27.35
Third Quarter		39.75		26.97
Fourth Quarter		31.00		18.43
2004
First Quarter	$	2.30	$	0.59
Second Quarter		2.38		1.00
Third Quarter		2.80		1.70
Fourth Quarter		50.75		1.74

As of February 28, 2006, there were 288 holders of record of our Class A Common Stock.

We have not declared any dividends on our Common Stock since our incorporation in 1992 and have no present intention of paying dividends on our Common Stock. We are also restricted by the terms of the indentures for the Senior Notes and certain other agreements as to the declaration of dividends. Under current circumstances, we may not pay any cash dividends on our Common Stock. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 10 of the Notes to Consolidated Financial Statements.

The table below provides information relating to our equity compensation plans as of December 31, 2005.

	Number of Shares Issuable Upon Exercise of Outstanding Options	Weighted Average Exercise Price of Outstanding Options		Number of Shares Remaining Available for Future Issuance
Approved by Shareholders	154,066	$	9.18	590,358	(1)

(1) This number includes 125,000 shares issuable as stock bonuses or direct stock purchase rights under our 2000 Stock Bonus Plan.

We have two equity compensation plans—our 1992 Stock Incentive Plan and our 2000 Stock Bonus Plan. Both of these plans were approved by our common stockholders, and provide for the issuance of shares of our Class A Common Stock. These plans do not provide for the issuance of any other class of our equity securities. We have no other equity compensation plans or individual compensation arrangements under which additional equity securities may be issued.

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We did not sell any equity securities during our 2005 fiscal year that were not registered under the Securities Act and have not previously been described in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.

During the fourth quarter of our 2005 fiscal year, there were no purchases of our common stock made by or on behalf of Ampex or any of our “affiliated purchasers” (as defined in Rule 10b-18(a) of the Exchange Act).

ITEM 6.    SELECTED FINANCIAL DATA

The following table summarizes certain selected financial data, which have been derived from and should be read in conjunction with our 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 the second quarter of 2001, we announced that we were closing iNEXTV, a business involved in Internet video operations started in 1999. The operating results of iNEXTV have been classified as “Discontinued Operations” in the Consolidated Statement of Operations for the year ended December 31, 2001. We have excluded the assets and liabilities of iNEXTV in the Consolidated Balance Sheets for all periods presented below.

Statement of Operations Data:

	Year Ended December 31,
	2005		2004		2003			2002			2001
	(in thousands, except per share data)
Total revenue	$	53,154	$	101,451	$	43,359		$	36,989		$	46,020
Total costs and operating expenses		43,954		40,607		37,425			37,235			48,340
Income (loss) from continuing operations		5,812		48,510		(1,764	)		(2,872	)		(9,619	)
Net income (loss)		6,727		46,362		(1,764	)		(2,872	)		(26,873	)
Diluted undistributed income (loss) per share from continuing operations	$	1.51	$	12.73	$	(0.53	)	$	(0.92	)	$	(3.25	)
Diluted undistributed income (loss) per share applicable to common shareholders	$	1.75	$	12.17	$	6.30		$	0.00		$	(7.16	)

Balance Sheet Data:

	Year Ended December 31,
	2005			2004			2003			2002			2001
	(in thousands)
Working capital	$	10,377		$	11,849		$	368		$	8,532		$	4,698
Total assets		26,702			32,619			35,197			29,339			39,173
Long-term debt		25,725			30,275			74,022			68,218			58,790
Redeemable preferred stock		—			—			—			25,754			30,050
Convertible preferred stock		—			—			—			—			102
Total stockholders’ deficit		(114,346	)		(99,429	)		(147,784	)		(163,114	)		(131,717	)

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates

Note 2 of the Notes to Consolidated Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements. The following is a brief discussion of the more significant accounting policies and methods used by us and includes a discussion of, among other things, liquidity, off-balance sheet arrangements, contractual obligations and commercial commitments.

General

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The most significant estimates and assumptions relate to the recoverability of receivables and inventories and the adequacy of allowances for returns and doubtful accounts and accruals for liabilities and contingencies. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, bad debts, warranty obligations, inventories, pension costs and unfunded accumulated benefit obligations, litigation expense and environmental obligations. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We recognize revenue in accordance with applicable accounting standards including Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” and Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables,” and American Institute of Certified Public Accountants’ (the “AICPA”) Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended. Revenue is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery and acceptance has occurred or services have been rendered, (3) the fee is fixed or determinable, and (4) collection is reasonably assured. We derive our revenues from two principal sources: license fees (including royalties) through our Licensing segment, and product and parts sales and service contracts through our Recorders segment.

Determination of criteria (3) and (4) are based on Management’s judgments regarding the fixed nature of the fee charged for services rendered and products delivered and the collectibility of those fees. Should changes in conditions cause Management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.

Our revenue recognition policy with respect to royalty income is as follows: when we enter into an agreement with a new licensee for use of our patents, we may receive settlement of “past due” royalties. This is a negotiated amount and is typically paid by the licensee within 30 days of signing the license agreement. Past due royalties cover the licensee’s product shipments from the period when they were first notified of infringement up through the effective date of the license. We may also negotiate a “prepayment” of royalties that would otherwise be due up to a specific future date. The amounts due under our negotiated agreements for both past due royalties and prepayment of royalties are non-refundable and non-forfeitable. We recognize both past due and prepayment amounts as revenue in the period when the agreement has been executed by both parties, which is when there is

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persuasive evidence of an arrangement, fees become fixed or determinable and collection becomes probable, as we have no future obligations with respect to these agreements and delivery has occurred. In addition, our licensing agreement may include a “running” royalty which covers products shipped by the licensee after the date that the license agreement has been entered into and until the patent has expired or when the patent is no longer contractually available to the licensee, if shorter. Our royalties are computed as a percentage of the selling price of the licensee’s products and are paid quarterly in arrears and recognized as revenue at the time the amount of the quarterly royalty payment becomes determinable, generally upon receipt of the licensee’s sales report upon which royalties are determined, and collection is reasonably assured.

Revenue on product sales and services is recorded when all of the following have occurred: an agreement of sale exists, product delivery (principally FOB Ampex Factory) and, where applicable, acceptance has occurred or services have been rendered, pricing is fixed or determinable, and collection is reasonably assured. Service revenue is recognized ratably over the life of the service contract.

Accounts Receivable

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current credit worthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Since our accounts receivable are concentrated in a relatively few number of customers, a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the collectibility of our accounts receivables and our future operating results.

Inventories

We value our inventory at the lower of the actual cost to purchase and/or manufacture the inventory or the current estimated market value of the inventory. Abnormal amounts of facility expense, freight, handling costs and scrap material are excluded from inventory cost and expensed during the period in which they are incurred. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and production requirements for the next eighteen months. A significant increase in the demand for our products could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. We also maintain an inventory of spare parts to service our customers’ products after the date of sale. We amortize spare parts inventories over the expected number of years we expect to support such products but not in excess of 30 months. If actual market conditions are less favorable than those projected by Management, additional inventory write-downs may be required. Additionally, our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess and obsolete inventory. If our inventory were determined to be overvalued, we would be required to recognize such costs in our cost of goods sold at the time of such determination. We make every effort to ensure the accuracy of our forecasts of future product demand, however, any significant unanticipated changes in demand or technological development could have a significant impact on the value of our inventory and our reported operating results.

Deferred Taxes

We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

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We must assess the likelihood that we will be able to recover our deferred tax assets and net operating loss carryforwards. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets and net operating loss carryforwards that we estimate will more likely than not ultimately not be recoverable. Although we reported net income in 2004 and 2005, we have reported losses in recent years. Accordingly, we cannot determine that it is more likely than not that we will recover our deferred tax assets and net operating loss carryforwards, and therefore have established a valuation allowance equal to such assets. If we recognize and/or realize deferred tax assets or net operating loss carryforwards in subsequent years, through absorption of taxable income or reversal of deferred tax asset reserves, our tax provision in that period will be less than the statutory tax rate.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be. For a discussion of current tax matters, see Note 18 of the Notes to Consolidated Financial Statements.

Warranty

Products sold are generally covered by a warranty for periods ranging from 90 days to one year. We accrue a warranty reserve at the time of sale for estimated costs to provide warranty services. Our estimate of costs to service our warranty obligations is based on historical experience and expectation of future conditions. To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims, our warranty accrual will increase, resulting in decreased gross profit.

Pension and Other Postretirement Benefits/ Obligations

The determination of our obligation and expense for pension and other postretirement benefits payable to Ampex’s and Media’s employees and retirees is dependent on our selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, the discount rate, expected long-term rate of return on plan assets and mortality assumptions for the plan participants. In accordance with SFAS No. 87, “Employers Accounting for Pensions,” actual results that differ from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense and recorded obligation in such future periods.

While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions that may be required under new legislation or otherwise may materially affect our pension and other postretirement obligations and our future expense as well as amounts that may ultimately be required to be paid to fund the Media pension plan. On January 10, 2005, Media filed under Chapter 11 of the Bankruptcy Code. Accordingly, we do not expect to receive additional reimbursement from Media of amounts that we have paid to date or that we will be required to pay in the future.

Valuation of Long-Lived Assets and Investments

We periodically review the carrying value of our long-lived assets and investments for continued appropriateness. This review is based upon our projections of anticipated future cash flows or other methods used to determine fair value. While we believe that our estimates of fair value are reasonable, different assumptions could materially affect our evaluations. We record an impairment provision to reduce the carrying value of minority equity investments carried on the cost method if our estimate of their fair value is below their original cost and the impairment is other than temporary.

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Employee Stock Options

We account for stock-based awards to employees in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and have adopted the disclosure alternative of SFAS No. 123, “Accounting for Stock Based Compensation.” Beginning January 1, 2006, we will adopt SFAS 123 (revised 2004), which requires that all share-based payments to employees, including grants of employee stock options, be recognized as expense in the financial statements. We expect to apply the modified prospective method of SFAS 123 (revised 2004) and that it will have a material effect on our consolidated results of operations and earnings per share beginning in the first quarter of 2006.

Contingencies

We account for contingencies in accordance with SFAS No. 5, “Accounting for Contingencies.” SFAS No. 5 requires that we record an estimated loss from a loss contingency when information available prior to issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies such as our obligations to fund Media’s environmental remediation costs, as well as obligations involving legal, income tax and other matters, requires us to use our judgment. While we believe that our accruals for these matters are adequate, if the actual loss from a loss contingency is significantly different than the estimated loss, our results of operations may be over- or understated.

Environmental Liabilities

Our facilities and business practices are subject to numerous federal, state and local laws and regulations designed to protect the environment from waste emissions and hazardous substances. Also, we may have continuing liability with respect to environmental contamination related to the facilities and disposal activities of our former Media subsidiary. We are engaged in a number of environmental investigations, remediation and/or monitoring activities, some of which involve the participation of state and local government agencies. We recognize a liability for any contingency that is probable of occurrence and reasonably estimable in accordance with AICPA Statement of Position No. 96-1: “Environmental Remediation Liabilities.” We continually assess these contingencies based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Such analysis includes making judgments concerning matters such as the extent of environmental damage and our pro rata participation, if applicable, the most desirable remediation techniques and the time period during which the cleanup costs may be incurred. Because most contingencies are resolved over long periods of time, liabilities may change in the future due to new developments or other changes. For a discussion of our contingencies related to environmental matters, including management’s judgment applied in the recognition and measurement of specific liabilities, see Note 12 of Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”

Overview

Our continuing operations include the results of our Licensing and Recorders segments. Beginning in the fourth quarter of 2004 and continuing through 2005, we entered into new license agreements and received royalty receipts for past and, in some cases, future use of our patents covering various consumer digital imaging products. We applied these proceeds to repay all of our outstanding 20% Senior Discount Notes with an accreted value of $10.2 million and redeemed $62.2 million of our 12% Senior Notes and related accrued interest. At December 31, 2005, our indebtedness totaled $25.8 million, down from $30.3 million at December 31, 2004 and $74.0 million at December 31, 2003.

As of December 31, 2005, we have completed license agreements with thirteen manufacturers of digital still cameras that, with one exception, represent substantially all of the major manufacturers of digital still cameras. In the third quarter of 2005, we concluded a license agreement with a manufacturer of digital video tape recorders, including MiniDV camcorders, permitting the use of several of our patents. Accordingly, we now have license

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agreements with the six major manufacturers of digital video camcorders. We have one license agreement with a manufacturer of DVD recorders and are in negotiations with other manufacturers. We continue to attempt to negotiate new patent license agreements with manufacturers of digital still cameras, camera equipped cellular phones, hard disk T.V. recorders and cable set top boxes and other consumer products that we believe may use our patents. As discussed more fully below, these negotiations cover the use of our other digital imaging patents, including our feed forward quantization patent, that expire at various dates from 2012 to 2014.

During 2004, we brought litigation against three manufacturers of digital video products who we believe infringed our rapid image retrieval patent in digital still cameras and in certain camera-equipped cellular phones that they produce. Two of these suits were settled by concluding licensing agreements, and one suit continues. We have incurred significant external litigation expenses associated with these suits of $9.5 million in 2005 and $4.9 million in 2004. While we believe our litigation costs will decline temporarily over the next several quarters from levels experienced during 2005, such amounts will still be significant. Also, it may be necessary to initiate additional litigation at some future date in order to enforce our patents if our ongoing licensing negotiations are not successful.

In 2005, our Recorders segment revenues decreased by approximately 15.2% from 2004 levels, and 2004 levels decreased by approximately 14.2% from 2003 levels. This decrease is attributable to declining sales of our older tape-based data recorders and mass data storage systems. In order to counter this trend, during 2004, we introduced our new solid-state and disk-based data acquisition and instrumentation recorders to a select number of customers in limited quantities for performance evaluation. These products are intended to replace over several years the large installed base of tape-based data recorders and, if successful, should generate increased sales and profits for the Recorders segment. We have incurred increased research and development costs associated with these new products that, we expect, will continue at similar levels for the foreseeable future. Our Recorders segment was awarded a multiyear contract in the second quarter of 2005 from The Boeing Company valued at approximately $6.3 million. The undelivered value of $5.8 million has been included in reported backlog as of December 31, 2005 and is scheduled to be delivered over the next two years. In the fourth quarter of 2005, we were also approved by the U.S. Navy to provide up to $5.0 million of these newly introduced products. This arrangement is excluded from backlog at this time. Future deliveries under this approval will be subject to receipt of purchase orders over the next three years for specific quantities to be determined by the U.S. Navy from time to time. We have received related purchase orders and made shipments for a total of $0.4 million through December 31, 2005.

We are obligated to make significant pension contributions to the Ampex pension plan and to the Media pension plan, as discussed below. Due to the application of accounting principals generally accepted in the United States with respect to pensions, pension costs charged to the Statement of Operations do not correspond with pension contributions paid in cash during the period. Also, there are a number of legislative proposals under consideration that, if enacted, would adversely affect the amount and timing of required future pension contributions.

We are assessed foreign withholding taxes on royalty income generated in Korea. Our effective income tax rate for 2005 was lower than the statutory rate due to the anticipated utilization federal and state net operating loss (“NOL”) carryforwards. At December 31, 2005, the amount of unused net operating loss carryforwards available to offset future federal taxable income totaled approximately $173 million. In 2004, we were able to apply NOL carryovers to reduce a substantial amount of our tax provision. We have provided a valuation reserve against our NOL carryforwards and net deferred tax assets. Our tax provision in 2003 reflected the reversal of $4.2 million in reserves provided on prior years’ foreign, federal, state and deferred income taxes for years that have been closed to audit or are otherwise determined not to be required.

Periodically, we are required to adjust reserves established in prior years for restructured activities due to subsequent favorable or unfavorable developments. We increased the restructuring reserve in 2003 by $3.1

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million to reflect the depressed San Francisco Bay Area commercial real estate market where we remain obligated to pay rent on a facility that we abandoned in 2001. In 2004, we recognized a restructuring credit of $1.4 million when we decided to sell our Colorado Springs manufacturing facility and reutilize, in part, the Redwood City leased facilities that had been charged to restructuring in prior periods.

We are also required periodically to adjust reserves established in prior years for discontinued operations for subsequent favorable or unfavorable developments that are directly related to the operations of the discontinued businesses. In 2004, we increased provisions by $2.5 million for amounts we expected to have to pay for environmental remediation at various disposal sites used by Media when it was a subsidiary of the Company. This was, in part, offset in 2004 with the favorable resolution of operating lease obligations that expired. In the fourth quarter of 2005, we recognized income on discontinued operations of $0.9 million related to the sublease of facilities formerly used by our Internet video operations.

While not a component of “Net Income (Loss),” included in the determination of “Other comprehensive income (loss), net of tax” is a charge of $21.8 million in 2005, a credit of $1.8 million in 2004 and a charge of $8.9 million in 2003 to minimum pension adjustment, to reflect an actuarially computed increase or decrease in accumulated benefit obligations over pension plan assets of the Ampex, Media and foreign pension plans. The $21.8 million charge in 2005 is due primarily to the effects of changes to the mortality assumption and the discount rate. Our reported income (loss) per share applicable to common stockholders includes the effect of the benefit attributed to common shareholders from extinguishment of preferred stock from the issuance of Common Shares of $24.0 million in 2003.

At December 31, 2005, we had cash and short-term investments totaling $13.1 million, down from $18.0 million at December 31, 2004. We believe that our cash balances, together with the projected results of our manufacturing subsidiary, Ampex Data Systems Corporation (“Data Systems”), royalties from license agreements presently in effect and our ability to borrow pension contributions from Hillside Capital Incorporated (“Hillside”), a former affiliate, should be sufficient to satisfy all projected cash obligations through at least the next twelve months. The results of our operations and the liquidity of our business are more fully 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.

Business Segments

We have two business segments, which we refer to as our Recorders segment and our Licensing segment. Our Recorders segment involves the sale and service of instrumentation recorders and mass data storage systems, all of which are made by Data Systems. Our Licensing segment involves the licensing of our intellectual property to manufacturers of consumer digital imaging products through our corporate licensing division. For information regarding revenues, income or loss, assets and other financial data for each business segment, see Note 19 of the Notes to Consolidated Financial Statements.

Our Recorders segment includes Data Systems’ three principal product groups and its service revenue, which are described more fully below. Data Systems also conducts an “aftermarket” operation consisting primarily of the supply of spare parts for certain products.

• Instrumentation recorders, including Data Systems’ data acquisition and instrumentation products (including disk-based DDRs instrumentation recorders, solid-state memory-based DSRs instrumentation recorders and tape-based DCRsi instrumentation recorders) and related tape and aftermarket parts;

• Mass data storage systems, including Data Systems’ 19-millimeter scanning recorders and library systems (DST and DIS products) and related tape and aftermarket parts;

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• Professional video products, consisting principally of television aftermarket products that Data Systems continues to support but no longer manufactures; and

• Service revenue, consisting principally of maintenance contracts on Data Systems’ products.

DST, DIS, DCRsi, DDRs and DSRs are trademarks of Ampex Corporation.

Our Licensing segment generates revenue from licenses granted to companies that manufacture consumer-imaging products (digital video camcorders, digital still cameras, camera-equipped cellular phones, and DVD recorders). We also license our patents to certain manufacturers of professional videotape recorders and image processing devices such as digital special effects processors.

The following table shows (i) licensing revenue generated by our Licensing segment, (ii) revenue generated by our Recorders segment through sales of Data Systems’ products by product group and (iii) service revenue generated by our Recorders segment for the past three years.

	2005		2004		2003
	(in millions)
Licensing Segment
Licensing revenue	$	28.9	$	72.9	$	10.1
Recorders Segment
Mass data storage tape drives and library systems	$	4.7	$	6.9	$	10.4
Data acquisition and instrumentation recorders		8.2		10.1		10.6
Service revenue		8.9		8.7		9.3
Other (including professional video products)		2.4		2.9		3.0
Total net product and service revenue	$	24.2	$	28.6	$	33.3

Results of Operations for the Three Years Ended December 31, 2005

Licensing Revenue.    Licensing revenue was $28.9 million in 2005, $72.9 million in 2004 and $10.1 million in 2003. Licensing revenue is derived from royalties that we receive from licensing our patents.

Licensing revenue recognized in 2005, 2004 and 2003 included one-time royalty settlements totaling $18.7 million, $65.5 million and $5.4 million, respectively, that pertained to settlement of royalties due on products sold in periods prior to the execution of the license, and in some cases included prepayment of licensees’ obligations covering future periods. The balance of licensing revenue recognized of $10.2 million in 2005, $7.4 million in 2004 and $4.7 million in 2003, represented running royalties based on the sales price of products sold by the licensees in the respective periods. Due to one-time royalty settlements covering prior and future periods, licensing revenues are not comparable between the periods presented and are not indicative of licensing revenues to be received in future periods.

At the beginning of the year, we forecasted that 2005 licensing revenue would be between $20 million and $30 million. Our forecast was based on having strong indications from the major unlicensed manufacturers of digital still cameras, with whom we had been negotiating for several years, that they would license our rapid image retrieval patent (“121”), a patent used in digital still cameras and in certain camera-equipped cellular telephones. During 2005, we completed substantially all of these negotiations and successfully concluded licensing agreements with thirteen manufacturers, representing all but one of the major manufacturers of digital still cameras. Our lawsuit against Eastman Kodak Company (“Kodak”), initiated in October 2004 for infringement of the “121” patent, is continuing in District Court and has been scheduled for trial in December 2006. See “Item 3. Legal Proceedings.”

As discussed above, many of our licensees have prepaid for the use of our patents through April 11, 2006, which coincides with the U.S. expiration of the”121” patent. While our digital still camera license agreements

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permit licensees to use several of our digital imaging patents, by agreement, we are only currently receiving royalties on the “121” patent. After April 11, 2006, our digital still camera licensees will be required to pay royalties only to the extent that their products incorporate any of our other digital imaging patents.

These patents have expiration dates from 2012 through 2014. During 2005, we have conducted detailed technical meetings with certain of our digital still camera licensees to assess whether such other digital imaging patents, including our feed forward quantization patent, are being utilized in digital still cameras manufactured by or for them. Certain of our license agreements provide our licensees with an incentive to share their technical materials with us to jointly assess possible patent use.

These technical meetings have identified image compression processes that are incorporated into the design of several digital still cameras that we believe may utilize our patents. In the fourth quarter of 2005 and subsequently, we presented claim charts to three of our existing licensees that indicate that we believe they infringe our feed forward quantization patent. Additional technical meetings have been held to review these claims, and we expect that additional technical meetings will be required during the second and third quarters of 2006 before we are able to definitively conclude whether or not our feed forward quantization patent is being infringed and can be enforced. Also, our research indicates that several other digital still camera manufacturers appear to use feed forward quantization in several of their digital still cameras. Claim charts are in process of being prepared for each of these manufacturers. Feed forward quantization is a complex process and patent claims can be subject to varying interpretation. Accordingly, there can be no assurance that digital still camera manufacturers will agree with our conclusions regarding patent infringement or pay royalties on product sales after April 11, 2006, even if their products incorporate these patented processes. We may be required to bring additional litigation in order to enforce these patents if our negotiations are not successful. If we are unable to prove infringement of our other digital imaging patents or if the courts deem our patents invalid, we will cease earning royalties from digital still cameras after April 11, 2006.

The worldwide value of the digital still camera market in 2006 has been estimated by an independent market research firm to total approximately $30 billion. Because our other digital imaging patents are registered in the U.S. as well as key international markets, if our digital still camera licensees acknowledge their use of our other digital imaging patents, we could realize a material increase in licensing revenues in future periods compared with the amount of royalties received from our “121” patent, but we cannot assure you that this will occur. Due to the stage of our negotiations, the possible need to initiate new litigation and the uncertainty surrounding litigation with Kodak, we are not able to provide a reliable forecast of digital still camera licensing revenues to be recognized in 2006.

In prior years, we formally notified major manufacturers of camera equipped cellular telephones and other products that are equipped to record still and/or motion video that they may be infringing our patents. During 2005, we held preliminary technical meetings with two manufacturers of camera equipped cellular telephones. The worldwide retail sales value of the camera equipped cellular telephone market in 2006 has been estimated by an independent market research firm to total approximately $50 billion. We seek to charge these manufacturers what we believe are commercially reasonable licensing fees computed as a percentage of the selling price of products shipped. Due to the size of this market, we could realize a material increase in royalty income in future years if we are successful in concluding licensing agreements with manufacturers of camera equipped cellular telephones. Licensing negotiations have historically taken several years to conclude and since our discussions with these manufacturers have only recently been initiated, there can be no assurance that we will successfully conclude camera equipped cellular telephone licensing agreements in the near term, if at all.

In June 2005, we completed a license agreement with Samsung Electronics (“Samsung”). We now have six license agreements covering all of the major manufacturers of digital video camcorders. The Samsung license permits the use of several of our U.S. and foreign patents in the manufacture and sale of digital tape recorders, including MiniDV camcorders. It also permits Samsung to use certain of our patents in other camcorders utilizing hard disk drive, optical or solid-state memories. We received a one-time royalty settlement of $2.8

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million, less foreign withholding taxes of $0.5 million, which covers Samsung’s liability for past use and a non-refundable, non-forfeitable prepayment of royalties due through 2008.

Our running royalties from digital video camcorders during 2005 totaled $5.1 million. We do not forecast a material increase in running royalties until Sony Corporation (“Sony”) becomes obligated to pay running royalties on digital video camcorders and other products incorporating our technology which are sold after April 11, 2006, at which time Sony’s December 2004 $40 million prepayment will have expired. Based on published market share information, we believe that Sony represents approximately twice the combined market shares of those digital video camcorder manufacturers that are paying us running royalties in 2005. Accordingly, we expect to receive a proportionate increase in annualized running royalties after April 11, 2006, although we cannot assure you that such an increase will actually occur. Royalty amounts are based on current unit shipments and sales prices, which may change in the future.

We are also receiving running royalties from one manufacturer of DVD recorders, but these royalties are presently not significant to total licensing revenues. We are in discussions with additional manufacturers who we believe may license our patents for use in DVD and hard disk recorders. If successful, these discussions might lead to further increases in royalties from these products, although we cannot assure you that any such increases will occur.

In 2004, we entered into three major new licensing agreements with Canon Inc. (“Canon”), Sanyo Electric Co. Ltd. (“Sanyo”) and Sony. The agreements with Canon and Sanyo permit their use of various U.S. and foreign patents owned by us in the manufacture and sale of digital still cameras. The Sanyo agreement also permits use of our patents in camera equipped cellular telephones. These two manufacturers made payments in 2004 totaling $25.5 million. That amount included a negotiated prepayment of $13.5 million, which is non-refundable and non-forfeitable, from one of the licensees that covers royalties due on sales through April 11, 2006. The Sony agreement permits use of our patents in many products that they manufacture, including digital video camcorders, digital still cameras, camera equipped cellular telephones and other similar products. We received the Sony settlement payment in 2004, which totaled $40 million and covered liability for past use and prepayment of royalties due on all product shipments through April 11, 2006. The Sony agreement does not specify how the lump sum payment was allocated among its various products or license periods covered.

In 2003, our licensing revenue principally came from royalties paid by manufacturers of digital video camcorders. That year we entered into license agreements with Matsushita Electric Industrial Co. Ltd. and Victor Company of Japan, Ltd. authorizing their use of our patents in the manufacture of videotape recorders, including digital video camcorders. The agreements collectively provided for a one-time royalty payment of $5.4 million received in 2003, as settlement of royalties due on products sold in periods prior to the execution of the license. The agreements provide for the payment of running royalties on product shipments calculated as a percentage of current period sales.

Our relevant digital imaging patents were developed when we manufactured still stores, video special effects products and digital videotape recorders, which we marketed to the professional broadcast and postproduction industries in prior years. As discussed above, these patents have expiration dates from 2006 through 2014. After they expire, our future licensing revenues are expected to decline materially.

Product Revenue.    Product revenue generated by our Recorders segment decreased to $15.4 million in 2005 from $19.8 million in 2004 compared to $24.0 million in 2003. Government agencies and defense contractors are currently our principal market for the Recorders segment. Sales declines in recent years have resulted from our decision not to seek new government program involvement with our mass data storage products and to focus our product development and marketing efforts on data acquisition products. Government agencies and defense contractors have historically experienced significant pressure to reduce spending and we expect them to experience such pressure in the future, which may lead to further sales declines. In 2004, we introduced our DDRs and DSRs instrumentation recorders, which are disk-based and solid-state memory-based

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data acquisition recorders used in intelligence gathering activities. These products are intended to replace, over several years, a large installed base of our DCRsi tape-based data acquisition recorders. If successful, these new products could lead to increased product revenues over current levels. While we have recently been awarded significant multi-year contracts for our disk and solid state based instrumentation recorders, there can be no assurance that these new products will attain the same level of market penetration that our earlier products achieved. Revenues in 2005 and 2004 from such products totaled $5.7 million and $0.9 million, respectively.

Our backlog of firm orders was $9.1 million at December 31, 2005 compared to $3.7 million at December 31, 2004 and $10.7 million at December 31, 2003. We were awarded a contract of approximately $6.3 million in the second quarter of 2005 from The Boeing Company for our new disk and solid state-based data instrumentation recorders to be used in the development of the 787 airplane. We have made initial deliveries of our recorders in the amount of $0.5 million against this contract but the vast majority is scheduled to be delivered over the next two years. The undelivered value of the contract has been included in reported backlog as of December 31, 2005. In the fourth quarter of 2005, we were also approved by the U.S. Navy to provide up to $5.0 million of these newly introduced products. This agreement has not been included in backlog at this time because future deliveries under this approval will be subject to receipt of purchase orders over the next three years for specific quantities to be determined by the U.S. Navy from time to time. To date we have received related purchase orders and made shipments for a total of $0.4 million as at December 31, 2005. We received government orders primarily in DCRsi instrumentation products and tape in 2003 that remained in backlog pending shipment, which the customer scheduled throughout 2004. We typically operate with low levels of backlog, requiring us to obtain the majority of each period’s orders in the same period that they must be shipped to the customer. Historically, a small number of large orders have significantly impacted sales levels and often orders are received late in the quarter, making it difficult to predict revenue levels in future periods. See “Fluctuations in Operating Results; Seasonality and Backlog of Recorders Segment.”

Service Revenue.    Total service revenue generated by our Recorders segment in the year ended December 31, 2005 was $8.9 million compared to $8.7 million for the year ended December 31, 2004 and $9.3 million for December 31, 2003. The decline in the service revenue level in 2005 and 2004 compared to 2003 resulted from the non-renewal of older service contracts offset, in part, by new customer activity.

Intellectual Property Costs.    Intellectual property costs include external legal costs as well as certain internal costs, described below, pertaining to the enforcement of our patents. Intellectual property costs also include external accounting costs incurred in investigating the validity and enforceability of our patents and auditing royalty reports. Intellectual property costs fluctuate widely between periods based primarily on whether or not we are pursuing patent litigation. During the year ended 2005 and 2004, we incurred significant external legal costs in preparing for patent enforcement suits in the ITC and in the District Court that totaled $9.5 million and $4.9 million, respectively. By withdrawing our suit against Kodak in the ITC in order to accelerate our suit in District Court, our external litigation costs are expected to decrease for several quarters until commencement of preparation for the trial that commences in December 2006, although such costs will still be significant. While our strategy is to negotiate reasonable royalty agreements, we may seek to enforce our patents by instituting additional litigation against other manufacturers of digital still cameras and other products where our technology is being used, if licensing agreements are not completed on satisfactory terms. There is no direct cost of goods sold associated with licensing revenue. We have an internal staff of lawyers and engineers that are principally involved in negotiating and monitoring our licensing agreements. Their compensation, travel expenditures and other direct costs are included as intellectual property costs. We do not allocate any general corporate overhead to our Licensing segment. Compensation includes incentive payments under long-term incentive plans earned by our employees based on amounts collected from our licensees. We also expect to incur additional costs in future years investigating and analyzing whether manufacturers of consumer digital imaging products are utilizing our digital imaging and data compression technologies. We may also seek to acquire patent portfolios that we believe offer commercial value to our licensing program.

Cost of Product Revenue.    Cost of product sales includes the cost of materials, labor and overheads incurred in the manufacture of our products. Cost of product sales as a percentage of product revenue was 61.4%

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in the year ended December 31, 2005 compared to 70.6% in the year ended December 31, 2004 and 61.2% in the year ended December 31, 2003. Our cost of product sales percentage fluctuates based on a number of factors, including the volume and mix of product shipped in the period. The increase in the cost of product sales percentage in 2004 when compared to 2005 and 2003 was due, in part, to additional inventory provisions of $1.1 million for excess and no requirements inventory to lower the carrying value of older products and spare parts based on sales projections for these products.

Cost of Service Revenue.    Cost of service revenue includes materials and labor used in maintaining and repairing our customers’ systems that we provide under service contracts. Cost of service revenue as a percentage of service revenue was 31.2% in 2005 compared to 31.3% in 2004, and 28.0% in 2003. The cost of service revenue fluctuates based largely on the level of services we provide to repair or replace equipment in a particular period and the cost of material used to repair or replace such equipment.

Research, Development and Engineering Expenses.    All of our research, development and engineering expenses relate to our Recorders segment. The increase in research, development and engineering expenditures during 2005 and 2004 is due primarily to a 10% increase in engineering personnel coupled with additional costs incurred to produce prototypes of the DDRs new ruggedized disk and DSRs solid-state memory-based data acquisition recorders. Such costs are expected to continue as we develop new and enhanced products. We do not currently plan to invest additional resources to develop new formats for our 19-millimeter mass storage products beyond the quad density format. However, we will incur sustaining engineering to support our customers’ requirements.

Selling and Administrative Expenses.    Selling and administrative expenses increased to $15.9 million in the year ended December 31, 2005 from $13.8 million in the year ended December 31, 2004 and $12.2 million in the year ended December 31, 2003. Selling and administrative expenses for the Recorders segment and the unallocated corporate administrative expenses (no administrative expenses are allocated to the Licensing segment) are shown in the following table:

	2005		2004		2003
	(in millions)
Recorders segment	$	6.0	$	6.4	$	6.3
Corporate		9.9		7.4		5.9
Total	$	15.9	$	13.8	$	12.2

The decline in Recorders segment administrative costs was due in part to savings realized in relocating to smaller, more cost-efficient facilities and the sale of our former manufacturing facility in Colorado Springs, CO in April 2005. In addition, the Recorders segment’s selling and administrative costs included payments under a management incentive plan that established income and cash flow targets for the segment. Such payments totaled $0.2 million, $0.7 million and $0.4 million in 2005, 2004 and 2003, respectively.

The principal components of corporate selling and administrative expense are listed below:

	2005		2004		2003
	(in millions)
U.S. and foreign pension expense	$	3.5	$	3.0	$	1.0
Legal and accounting fees		2.0		1.2		1.3
Corporate salaries and benefits		1.0		0.9		0.9
Business development expenses, net		1.0		—		0.7

In 2005, accounting costs included $0.5 million related to documenting, assessing and auditing internal controls required by the Sarbanes Oxley Act and $0.2 related to the restatement of prior years’ financial statements to correct the accounting for the Media pension plan. We expect that these costs will decrease

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significantly in future years. Beginning in 2006, we will begin to expense the fair value of stock options over the period such options vest. Assuming no additional options are granted, we will expense approximately $0.4 million during 2006. In prior years, the issuance of stock options did not affect our operating results.

Corporate selling and administrative expenses also included business development expenses to identify new investment and other income-generating opportunities. Business development expenses, including consulting fees and office rent paid to a non-affiliated British investment advisory company, totaled $1.0 million, $0.6 million and $0.7 million in 2005, 2004 and 2003, respectively. We currently expect to discontinue payments to the investment advisory company after March 31, 2006. In 2004, we received $0.6 million of incentive fees, which were assigned to us by the general partner of the investment limited partnership in which we invested, and we credited these incentive fees against business development expenses. We did not receive any incentive fees in 2005 and 2003, but we are entitled to receive additional incentive fees from the general partner in the future.

Future incentive fees will be based upon any gains realized by the limited partnership upon the sale of its investment in a UK specialty chemicals company. Based on the market value of the specialty chemicals company at December 31, 2005, we estimate that we would have been entitled to receive reimbursement of business development expenses and incentive fees of approximately $4.1 million from the general partner, had the partnership’s investment been sold on that date. In the first quarter of 2006, we expect to realize a reimbursement of business development expenses incurred during the investment holding period, September 2004 to March 2006, and a portion of the incentive fee resulting from the sale of approximately two thirds of the limited partnership’s investment in Elementis. We will be entitled to additional incentive fees upon the sale by the limited partnership of the remaining share of Elementis and such incentive fees will be based on any gain that may be realized at the time of the sale.

In 2005, we also incurred additional nonrecurring fees related to our Nasdaq National Market listing of $0.1 million and other legal settlement costs of $0.2 million.

Restructuring Charges (Credits).    We vacated certain administrative offices in Redwood City, CA in 2001 and 2002 to consolidate operations to lower continuing operating expenses and recorded a net restructuring charge of $4.2 million. In 2003, we established an additional reserve of $3.1 million to reflect the inability to sublease the premises due to the continued depressed real estate market. In 2004, we decided to seek a buyer for our Colorado Springs manufacturing facility and reutilize, in part, the Redwood City leased facilities that had been charged to restructuring in prior periods. As a result, we recognized a restructuring credit of $1.4 million. We remeasured the restructuring accrual pursuant to SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Lease costs associated with the manufacturing activities in Redwood City are charged as incurred to the “Cost of product sales” of Data Systems. During 2005, 2004 and 2003, we paid and charged the restructuring accrual $0.6 million, $1.1 million and $1.3 million, respectively, related to costs associated with the vacated portion of the facilities. We have paid and charged the restructuring accrual $4.3 million since the inception of the 2002 restructuring program. The unamortized balance in accrued restructuring totaled $1.6 million at December 31, 2005. This obligation has been discounted to present value. We expect to make payments related to the remaining balance of accrued restructuring through 2008. We evaluate the amount of accrued restructuring costs, including projected sublet income, on a quarterly basis, and we may make additional adjustments in future periods if we determine that our actual obligations will differ significantly from remaining amounts accrued.

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Operating Income (Loss).    We reported operating income of $9.2 million in 2005, compared to operating income of $60.8 million in 2004 and operating income of $5.9 million in 2003. The operating income (loss) for the Licensing segment, Recorders segment, corporate administrative expenses and restructuring charges (credits) is shown in the following table:

	2005			2004			2003
	(in millions)
Licensing segment	$	17.3		$	65.3		$	8.4
Recorders segment		1.8			1.5			6.5
Unallocated corporate		(9.9	)		(7.4	)		(5.9	)
Restructuring (charges), credits		—			1.4			(3.1	)
Operating income	$	9.2		$	60.8		$	5.9

See Corporate selling and administrative expenses above for a discussion of the major components of Unallocated Corporate loss.

The increase in operating income in 2004 was primarily a result of the factors discussed above under “Licensing Revenue” and “Intellectual Property Costs.”

Media Pension Costs.    We remain the plan sponsor of the pension plan of Media, a former subsidiary that was sold to Quantegy Corporation (“Quantegy”) in 1995, and remain obligated to make pension contributions to that plan. Pension costs (credits) are recognized under SFAS No. 87, “Employers’ Accounting for Pensions.” Payments made by Quantegy either as direct pension contributions or as reimbursement of amounts paid by Ampex on behalf of Media are recognized as an offset to actuarially computed pension costs. Contributions and reimbursements paid by Quantegy totaled $0.8 million and $0.8 million in 2004 and 2003, respectively. There were no contributions or reimbursements paid by Quantegy in 2005 and no additional reimbursements are expected as Quantegy filed for bankruptcy protection in January 2005.

Interest Expense.    Interest expense decreased in fiscal 2005 to $2.5 million compared to $9.7 million in 2004 and $9.0 million in fiscal 2003 due to the significant repayment of senior debt of $62.4 million in the fourth quarter of 2004 and $10.4 million in the second quarter of 2005. We made cash payments of interest totaling $2.9 million, $3.3 million and $0.5 million in 2005, 2004 and 2003, respectively. Interest not paid in cash was capitalized and added to the principal amount of the related debt obligation.

Amortization of Debt Financing Costs.    Financing costs associated with the original issuance of the 12% Senior Notes are being charged to expense through the maturity date in 2008. We included an additional amortization charge of $0.2 million in 2005 based on the significant redemption payments made against the 12% Senior Notes.

Interest Income.    Interest income is earned on cash balances and short and long-term investments.

Other (Income) Expense, Net.    On April 15, 2005, Data Systems sold its former manufacturing facility and received net proceeds on the sale of approximately $3.1 million. We recognized a gain in other (income) expense of $0.5 million on the sale in the second quarter of 2005. Other (income) expense, net for 2004 included a net gain of $0.4 million on the sale of assets, which were substantially fully amortized and disposed of in connection with the relocation of our Colorado Springs manufacturing operations to more cost-efficient facilities in Colorado Springs, Colorado and Redwood City, California. Otherwise, other income (expense), net consists primarily of foreign currency translation gains and losses resulting from our foreign operations, which were not significant.

Provision for (Benefit of) Income Taxes.    In 2005 and 2004, we were able to lower our tax provision by utilizing NOL carryforwards. In addition, the provision for income taxes in the years ended December 31, 2005,

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2004 and 2003 included foreign and state income taxes and withholding taxes on royalty revenue. At December 31, 2005, we had federal NOLs for income tax purposes of approximately $173 million, expiring in the years 2006 through 2023. In addition, we have federal capital loss carryforwards totaling $8.8 million at December 31, 2005, which may be utilized to offset capital gains, if any, generated in future periods. Accordingly, we have the ability to shelter a substantial amount of future federal taxable income, including future licensing revenue, if any is ultimately realized. Effective July 1, 2004, a new U.S./Japanese tax treaty eliminated withholding taxes on royalty payments. Prior to July 1, 2004, our Japanese licensing revenue was subject to foreign tax withholding of up to 10% of licensing revenue. During the year ended December 31, 2003, we decreased reserves provided on prior years’ foreign, federal, state and deferred income taxes for years where we reached a proposed settlement or where years have been closed to audit or otherwise determined not to be required, which resulted in a non-cash benefit of income taxes of $4.2 million.

Equity in Income of Limited Partnership, Including Sale of Investment.    We made an investment in a limited partnership in 2003, which we accounted for under the equity method of accounting. During the year ended December 31, 2004, the partnership sold or distributed to its partners all of its remaining investments in a publicly held British promotional products company and we recognized our pro rata share of the gain on the sale of $1.7 million. We received total distributions of $3.3 million on our $1 million investment, which included incentive fees earned of $0.6 million from the general partner. No further investment activities are envisioned by this partnership, which has wound up its affairs.

Income (Loss) from Discontinued Operations.    For the year ended December 31, 2005, we recognized income from Discontinued Operations of $0.9 million compared to a loss from Discontinued Operations of $2.1 million for the year ended December 31, 2004. There was no income (loss) on discontinued operations in 2003.

We disposed of our Media subsidiary in 1995. However, we have a continuing liability with respect to environmental matters pertaining to Media’s sites and activities. The measurement of our obligation and recognition of expense for environmental matters directly related to Media’s operations is accounted for under SFAS No. 5, “Accounting for Contingencies.” On January 10, 2005, Media filed under Chapter 11 of the Bankruptcy Code. Based on our assessment of Media’s financial condition and understanding of its environmental remediation obligations, we recorded an estimate of amounts probable of incurrence by us for future clean up costs of $2.5 million, all of which was provided in the fourth quarter of 2004.

In 2004, lease obligations that we guaranteed, of a former subsidiary that manufactured disk drives, expired. We recognized a gain on these discontinued operations of $0.3 million as a result of the favorable disposition of the lease.

In 2005, we recognized a gain on discontinued operations of $0.9 million on subletting facilities formerly occupied by our Internet video operations.

Net Income (Loss).    We reported net income of $6.7 million in 2005 compared to net income of $46.4 million in 2004 and a $1.8 million net loss in 2003, primarily as a result of the factors discussed above.

Benefit from Extinguishment of Mandatorily Redeemable Preferred Stock.    During 2003, we issued shares of Common Stock to satisfy our redemption obligation on our Redeemable Preferred Stock. By agreement, such shares were valued at $50.00 ($2.50 per share pre-reverse stock split), which was higher than the market value per share at the time of redemption. As a result, we recorded a benefit applicable to common stockholders in the year ended December 31, 2003 of $24.0 million. In October 2003, we redeemed all of our outstanding Redeemable Preferred Stock and paid the redemption price by issuing 450,600 shares of Class A Common Stock in exchange for $22.5 million face amount of Preferred Stock, which was then cancelled. We recognized a benefit applicable to common stockholders of approximately $20.9 million in the fourth quarter of 2003 from the extinguishment of the Preferred Stock.

Other Comprehensive Income (Loss).    In accordance with Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions,” we have recorded in “Accumulated Other Comprehensive

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Income (Loss)” non-cash charges (credits) of $21.8 million in 2005, ($1.8) million in 2004 and $8.9 million in 2003, respectively, to increase the additional minimum pension liability to $112.8 million at December 31, 2005, representing the excess of accumulated benefit obligations over the fair value of plan assets that is yet to be recorded in our Income Statement as unfunded accrued pension cost. We terminated benefit service and compensation credit accruals under the pension plan in 1994 and since that date pension expense consisted of amortization of unrecognized pension losses over the expected remaining lives of the plans’ retirees. Other comprehensive income (loss) also includes foreign currency transaction adjustments resulting from our foreign operations.

Inflation and Changing Prices.    We do not believe that inflation or changing prices have had any material impact on our product and service revenue, licensing revenue or income from continuing operations for the year ended December 31, 2005, 2004 and 2003.

Liquidity and Capital Resources

General.    Cash and marketable securities totaled $13.1 million at December 31, 2005. These funds are available for general corporate purposes. Substantially all cash generated by our Licensing segment in excess of related operating expenses and certain other expenses, including patent litigation costs, is first required to be applied to reduce debt, which at December 31, 2005 totaled $25.7 million.

In 2004, after several years of negotiations, we instituted litigation in the ITC and in the District Court against certain manufacturers of digital still cameras and camera equipped cellular phones for unauthorized use of our intellectual property. We believe that the possible threat of an unfavorable ruling by these courts was instrumental in causing certain companies to enter into new agreements with us. We spent $4.9 million during the twelve months ended December 31, 2004 and $9.5 million during the twelve months ended December 31, 2005 in connection with these suits. Although two of these suits were settled by entering into license agreements with Sanyo Electric Ltd. and Sony in 2004, the suit against Kodak continues. In August 2005, we withdrew our ITC suit against Kodak in order to accelerate related litigation in the District Court. We may decide to enforce our patents by instituting additional litigation against other manufacturers of digital still cameras and/or other products where our technology is being used if licensing agreements are not completed on acceptable terms. Any such additional litigation could cause our litigation costs to increase, and any such increases could be material. See “Item 3. Legal Proceedings.”

Cash Flow.    We used cash from continuing operating activities totaling $2.9 million in the year ended December 31, 2005 compared to generating cash from continuing operations of $57.3 million in the year ended December 31, 2004 and $9.3 million in the year ended December 31, 2003. Our royalty income included lump sum payments of $18.7 million, $65.5 million and $5.4 million for 2005, 2004 and 2003, respectively, for royalties due on products sold in periods prior to the effective date of the license agreements and in some cases prepayments of running royalties otherwise due on sales of products through April 11, 2006. In 2005, licensing revenue was offset by additional patent litigation costs and the excess of pension contributions over pension costs. Cash used by discontinued operations totaled $0.5 million in the year ended December 31, 2005, $0.8 million in the year ended December 31, 2004 and $1.0 million in the year ended December 31, 2003.

Management believes that our liquidity, together with Data Systems’ projected results, licensing agreements presently in effect and our ability to borrow pension contributions from Hillside, a former affiliate, should be sufficient to satisfy all projected cash obligations through at least December 2006, as discussed more fully below.

Senior Debt.    As of December 31, 2005 we had outstanding approximately $25.7 million of total borrowings, which includes approximately $5.8 million under our 12% Senior Notes due 2008 and $19.9 million of notes from Hillside (“Hillside Notes”). Our debt levels have been significantly reduced from levels in prior years.

The indenture under which the Senior Notes were issued contains customary affirmative and negative restrictive covenants that limit the payment of dividends, the incurrence of additional indebtedness or liens,

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certain sales of assets and other actions by our restricted subsidiaries and us. In the event of a default, the holders of the Senior Notes would be entitled to enforce the liens granted by us on our future patent royalty stream and to apply amounts collected to repayment of the Senior Notes.

Pension Contributions and Pension Related Funding Obligations.    We are the Plan Sponsor of the Ampex pension plan and the pension plan of Media. We amended these plans in early 1994 to terminate benefit service and compensation accruals as of February 1, 1994 in order to reduce payments that would otherwise be required. These pension plans remain underfunded and actuaries have forecasted that substantial pension contributions will be required through 2010. The following amounts are substantially less than the unfunded accumulated benefit obligation recognized by us as liabilities on our Consolidated Balance Sheets due to differing actuarial assumptions prescribed by ERISA in each instance.

	Estimated Pension Contributions
	Ampex Pension Plan		Media Pension Plan
	(in thousands)
2006	$	1,641	$	7,827
2007		19,338		4,976
2008		9,201		3,769
2009		3,629		1,298
2010		400		—
	$	34,209	$	17,870

Pension contributions are payable quarterly in April, July and October of the current year, and January and September following the plan year. Pension contributions payable in 2006 are estimated as follows:

	Estimated Contributions
	Ampex Pension Plan		Media Pension Plan
	(in thousands)
January 2006	$	—	$	240
April 2006		—		1,225
July 2006		231		1,225
September 2006		—		3,912
October 2006		1,410		1,225
	$	1,641	$	7,827

Hillside made the January 2006 contribution to the Media pension plan and we have requested Hillside to make the remaining scheduled payments due in 2006.

In connection with the sale of Media, the buyer assumed the obligation to reimburse us for pension contributions that we may be required to make in future years as Plan Sponsor of the Media pension plan. This agreement was intended to make us whole from any expense or cash outlay as it pertains to the Media pension plan. However, on January 10, 2005, Media filed under Chapter 11 of the Bankruptcy Code. Accordingly, we do not expect any additional reimbursement of amounts paid to date or payable by us in the future to the Media pension plan.

In 1994, the Company, the Pension Benefit Guaranty Corporation (“the PBGC”) and certain affiliates, including Hillside Capital Incorporated (“Hillside”), who were members of a “group under common control” for

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purposes of the Employee Retirement Income Security Act (“ERISA”), entered into a Joint Settlement Agreement (“Agreement”) in connection with the 1994 reorganization of our former parent, NH Holding Incorporated (“NHI”). The Agreement relates to our pension plan (the “Ampex” pension plan) and the pension plan of our former Media subsidiaries (the “Media” pension plan), which are substantially under funded. Under the terms of the Agreement, Ampex and Hillside are held jointly and severally liable to the PBGC to fund the required contributions under the Ampex and Media pension plans. Pursuant to this Agreement, Hillside is obligated to advance pension contributions for the Ampex and Media pension plans in the event we are unable to make the required contributions necessary in order to satisfy the minimum funding standard. Failure by Hillside to advance funds as may be required would enable the PBGC to terminate the plans and seek recovery of termination benefits from Hillside.

During the period 2001 through 2005, Hillside made pension contributions totaling $20.7 million pertaining to the Ampex pension plan and the Media pension plan, of which $5.9 million was paid in 2005 and $10.7 million was paid in 2004. We issued notes to Hillside (“Hillside Notes”), as discussed below, in the amount of the pension contributions and amounts advanced by Hillside in prior years. We have requested Hillside to fund contributions due in 2006, which are estimated to total $9.5 million, and we may do likewise in future years based on our liquidity.

When Hillside makes all or any portion of a pension contribution under the Ampex and/or Media pension contributions, we issue additional Hillside Notes. Under the terms of the Hillside Notes, $150,000 is due on the first anniversary of each of the notes with the remainder due on the fourth anniversary of the notes. Pursuant to amendments to the senior debt agreements, all principal payments on the Hillside Notes will be deferred until after December 31, 2006 with earlier repayment in the event that the Senior Notes have been repaid in full. The Hillside Notes provide for interest paid quarterly at 1 percent plus 175% of the applicable mid-term federal rate (effective rate of 8.75% at December 31, 2005). We granted to Hillside a security interest in Data Systems’ inventory as collateral for the Hillside Notes. This agreement contains certain restrictive covenants which, among other things, restrict our ability to declare dividends, sell all or substantially all of our assets or commence liquidation, or engage in specified transactions with certain related parties, breach of which could result in acceleration of our potential termination liabilities.

Hillside is legally obligated to comply with the terms of the Agreement, and has represented that it has sufficient assets to fund pension contributions that are scheduled in future years. We have no direct or indirect financial ownership interest in Hillside and, accordingly, have no ability to control Hillside or to mandate its compliance with the terms of the Agreement. Accordingly, our ability to borrow pension contributions from Hillside is beyond our control.

Off-Balance Sheet Arrangements.    During the year ended December 31, 2005 and 2004, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that our Management believes is material to investors.

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Contractual Obligations.    An aggregate listing of our contractual obligations and commercial commitments is as follows:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1 - 3 Years		4 - 5 Years		After 5 Years
	(in thousands)
Senior debt (a)	$	5,846	$	—	$	5,846	$	—	$	—
Other debt (b)		19,879		—		4,279		9,850		5,750
Operating leases (c)		8,514		3,297		5,101		116		—
Pension and other retirement plans (d)		96,812		10,331		39,044		7,133		40,304

(a) The maturity date of the Senior Notes is August 2008. Pursuant to the agreement, substantially all Available Cash Flow is to be applied to the Senior Notes in full repayment of principal and accrued interest. Accordingly, payments due on these obligations could vary from the amounts shown in the table. See Note 10 of the Notes to Consolidated Financial Statements.

(b) Other debt includes the Hillside Notes. See Note 10 of the Notes to Consolidated Financial Statements.

(c) Operating leases include facility rentals of both continuing operations and discontinued operations or abandoned leaseholds related to prior years’ restructuring activities. Amounts shown above exclude projected sublease rental income, which we have included in establishing reserves for discontinued operations that total $0.8 million.

(d) Pension and other retirement plans include estimated pension contributions for the Ampex Plan and the Media Plan based on actuarial assumptions presently in effect and an assumed rate of return on pension assets of 8% per annum. If interest rates decline, if the return on assets is less than projected or the actuarial assumptions change, future pension contributions could increase over amounts shown above. Payment of the 2006 pension contributions for the Ampex Plan and the Media Plan totaling $9.5 million will be funded pursuant to the terms of the Joint Settlement Agreement whereby long-term notes will be issued to Hillside in the amount of the contributions. The Company may request Hillside to make pension contributions due in future years based on the Company’s liquidity. See Note 16 of the Notes to Consolidated Financial Statements. Pension and other retirement plans also include a foreign defined benefit plan and domestic supplementary retirement plans at $10.1 million.

	Amount of Commitment Expiration Per Period
	Total		Less than 1 Year		1 - 3 Years		4 - 5 Years		After 5 Years
	(in thousands)
Standby Letters of Credit (a)	$	1,483	$	—	$	1,483	$	—	$	—

(a) We have obtained standby letters of credit from a bank to support our obligations under various building leases, which are required to be renewed through the lease term. We have collateralized these standby letters of credit with cash.

Recent Pronouncements

In November 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” which provides guidance on determining when investments in certain debt and equity securities are considered impaired, whether that impairment is other-than-temporary, and on measuring such impairment loss. FSP FAS 115-1 also includes accounting considerations subsequent to the recognition of an other-than temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. FSP FAS 115-1 is required to be applied to reporting periods beginning after December 15, 2005. We are currently evaluating the effect that the adoption of FSP FAS 115-1

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will have on our consolidated results of operations and financial condition but do not expect it to have a material impact.

In June 2005, the FASB issued FSP FAS 143-1, “Accounting for Electronic Equipment Waste Obligations,” which provides guidance on the accounting for obligations associated with the Directive on Waste Electrical and Electronic Equipment (the “Directive”), which was adopted by the European Union (“EU”). Under the Directive, the waste management obligation for historical equipment (products put on the market on or prior to August 13, 2005) remains with the commercial user until the equipment is replaced. FSP FAS 143-1 is required to be applied to the later of the first reporting period ending after June 8, 2005 or the date of the Directive’s adoption into law by the applicable EU member countries in which we have significant operations. The adoption of FSP FAS 143-1 did not have a material impact on our consolidated results of operations and financial condition.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” which replaces APB Opinion No. 20 “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements—An Amendment of APB Opinion No. 28.” SFAS No 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We are currently evaluating the effect that the adoption of SFAS No. 154 will have on our consolidated results of operations and financial condition, but do not expect it to have a material impact.

In March 2005, the FASB issued FASB Interpretation (“FIN”) 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143,” which requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. We are currently evaluating the effect that the adoption of FIN 47 will have on our consolidated results of operations and financial condition, but do not expect it to have a material impact.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123 (revised 2004) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period after December 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. We are required to adopt SFAS No. 123 (revised 2004) in the first quarter of fiscal 2006, beginning January 1, 2006. We expect to use the Black-Scholes valuation model in determining the fair value of share-based payments to employees and directors, and to amortize such amounts to compensation cost on a straight-line basis. We expect to apply the modified prospective method which requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS No. 123 (revised 2004). We are evaluating the requirements of SFAS No. 123 (revised 2004), including SAB No. 107 regarding the SEC’s interpretation of SFAS No. 123 (revised 2004), and expect that the adoption will have a material effect on our consolidated results of operations and earnings per share beginning in the first quarter of 2006.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. We are currently evaluating the effect

47

that the adoption of SFAS No. 153 will have on our financial position, cash flows or results of operation, but we do not expect it to have a material impact.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs—An Amendment of Accounting Research Bulletin (“ARB”) No. 43, Chapter 4.” SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS No. 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. We are currently evaluating the effect that the adoption of SFAS No. 151 will have on our financial position, cash flows or results of operations, but we do not expect it to have a material impact.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have limited exposure to financial market risks, including changes in interest rates. We do not use derivative financial instruments in our investment portfolio. Our investment portfolio generally has been comprised of US Treasury Bills. These securities mature within one year and are classified as available for sale in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Investments in both fixed-rate and floating-rate interest-earning instruments carry 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. We did have a number of cash and cash equivalent accounts whose returns varied directly proportionally to US interest rates. The fair value of our portfolio or related income would not be significantly impacted by a 100 basis point increase or decrease in interest rates due mainly to the short-term nature of the major portion of our investment portfolio. A 100 basis point increase or decrease in interest rates would increase or decrease interest expense on debt obligations by approximately $144 thousand.

Foreign Currency Exchange Rate Risk

Our licensing agreements typically provide for the quarterly remittance of running royalties based on a percentage of the products’ sales price. A portion of our licensees’ sales is made in foreign currencies, which fluctuate against the US dollar and will impact the amount of royalties collected and revenue recognized. Royalties are typically paid 60 days after the end of the quarter, so we are exposed to receivables currency risks for that period. International revenues from our Recorders segment’s foreign subsidiaries were less than 25% of total revenues. International product and service revenues are made mostly from our foreign sales subsidiaries and are typically denominated in the local currency of each country. The foreign subsidiaries incur most of their expenses in the local foreign currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency. Our foreign operations are limited in scope and thus we are not materially exposed to foreign currency fluctuations.

Our 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, our future results could be materially adversely impacted by changes in these or other factors.

Investment Risk

We have in the past invested 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% and we do not have significant influence over the business operations. We have

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also made investments for capital appreciation and current income, which we account for under the equity method since we are deemed to exercise significant influence. Our policy is to regularly review the assumptions underlying the operating performance and cash flow forecasts in assessing the carrying values. If the decline in fair value is determined to be other-than-temporary, an impairment loss is recorded and the individual security is written down to a new cost basis. As a result of our review, we recorded an impairment loss of $150,000 in the fourth quarter of 2004 on an equity investment carried on the cost method. All of our investments in the Internet video industry that were made in 2000 to 2001 have been written off as they have no estimated net realizable value.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by Item 8 and the financial statement schedules required by Item 15(d) are included following Item 15 hereof. The supplementary financial information called for by Item 8 is included in Note 22 of the Notes to Consolidated Financial Statements following Item 15 hereof.

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Ampex changed independent registered public accounting firms in December 2004, from PricewaterhouseCoopers LLP (“PWC”) to BDO Seidman, LLP (“BDO”). Information regarding the change in independent accountants was reported in our Current Report on Form 8-K dated December 16, 2004. There were no disagreements or reportable events requiring disclosure under Item 304(b) of Regulation S-K.

ITEM 9A.     CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of December 31, 2005, the Company’s management carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our chief executive officer and chief financial officer have concluded that, as of December 31, 2005, our disclosure controls and procedures were effective to ensure that Ampex records, processes, summarizes and reports the information we must disclose in reports that we file or submit under the Exchange Act within the time periods specified in the SEC’s rules and forms.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a – 15(f) of the Exchange Act. Under the supervision and with the participation of management, including the chief executive officer and chief financial officer, management assessed the effectiveness of internal control over financial reporting as of December 31, 2005 based on the framework in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management has concluded that our internal control over financial reporting was effective at December 31, 2005 to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with United States generally accepted accounting principles. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

BDO Seidman LLP, an independent registered public accounting firm, has audited management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005, as stated in their report, which is included herein.

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Status of Previously Disclosed Internal Control Items

In making its evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, management has considered the significant resources devoted and substantial actions taken by the Company over the past year to remediate the material control weakness that was identified at December 31, 2004, namely that we did not maintain effective controls over the application of generally accepted accounting principles related to complex, non-routine transactions. This control deficiency gave rise to errors in how we had historically accounted for our obligations with respect to a pension plan of our former magnetic tape manufacturing subsidiary (“Media”) which we sold in 1995, that became known to us and the Audit Committee of our Board of Directors based on communications with the Office of the Chief Accountant of the SEC, and which resulted in the restatement of our financial statements as of December 31, 2003 and 2002 and for each of the three years ended December 31, 2003 in a Form 10-K/A, and for each period ending March 31, 2004, June 30, 2004 and September 30, 2004 in a Form 10-Q/A.

Changes in Internal Control Over Financial Reporting

In 2005, our management implemented the steps necessary to address the material weakness described above, as follows:

• Reorganized the accounting and finance department to ensure that accounting personnel with adequate experience, skills and knowledge relating to complex, non-routine transactions are directly involved in the review and accounting evaluation of our complex, non-routine transactions;

• Engaged outside contractors with technical accounting expertise, as needed, early in the evaluation of a complex, non-routine transaction to obtain additional guidance as to the application of generally accepted accounting principles to a transaction;

• Documented to standards established by senior accounting personnel and the principal accounting officer the review, analysis and related conclusions with respect to complex, non-routine transactions; and

• Required senior accounting personnel and the principal accounting officer to review complex, non-routine transactions to evaluate and approve the accounting treatment for such transactions.

We began to execute the remediation plans identified above in the first quarter of 2005. We have implemented policies and procedures to assure adequate and timely involvement of outside accounting contractors, as needed, to obtain guidance as to the application of generally accepted accounting principles to complex, non-routine transactions. We believe that these corrective actions, taken as a whole, have mitigated the control deficiencies with respect to our preparation of our 2005 and 2004 Annual Reports on Form 10-K and that these measures have been effective to ensure that information required to be disclosed therein has been recorded, processed, summarized and reported correctly. Based on their evaluation, the chief executive officer and the chief financial officer have concluded that as of December 31, 2005, internal controls over financial reporting for complex, non-routine transactions have been sufficiently remediated.

There was no change in our internal control over financial reporting during the quarter ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.     OTHER INFORMATION

There is no information required to be disclosed in a report on Form 8-K during the fourth quarter of fiscal 2005 that was not so reported.

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PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The information required by this item regarding directors, compliance with Section 16(a) of the Exchange Act of 1934 and the Company’s Code of Ethics and Audit Committee is incorporated herein by reference to our Proxy Statement for our 2006 Annual Meeting of Stockholders (the “Proxy Statement”). A copy of our Code of Ethics is also available on our website at www.ampex.com. 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 our Proxy Statement to be filed before April 30, 2006.

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated herein by reference to our Proxy Statement and to Item 5 of Part II of this report with respect to our equity compensation plans.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated herein by reference to our Proxy Statement.

ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference to our Proxy Statement.

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PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-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, 2005, 2004 and 2003 and for each of the three years in the period ended December 31, 2005.

2. Financial Statement Schedule (see Item 8 above) Schedule II Valuation and Qualifying Accounts.

3. Exhibits.

Exhibit Number	Description
3.1	Restated Certificate of Incorporation of the Company, as amended through June 1, 2003 (filed as Exhibit 3.1 to the 2003 Form 10-Q for the quarter ended June 30, 2003 (the “Second Quarter 2003 10-Q”) and incorporated herein by reference).
3.2	By-Laws of the Company, as amended through April 20, 1995 (filed as Exhibit 3.2 to the 2001 Form 10-K and incorporated herein by reference).
4.1	Form of Class A Common Stock Certificate (filed as Exhibit 4.1 to the Second Quarter 2003 10-Q and incorporated herein by reference).
4.2	Form of Class C Common Stock Certificate (filed as Exhibit 4.5 to the Company’s Post-Effective Amendment No. 1 on Form S-3 to Form S-1 (File No. 33-91312) and incorporated herein by reference).
4.3	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 1993 Form 10-K and incorporated herein by reference).
4.4	Indenture, dated as of February 28, 2002, between the Company and State Street Bank and Trust Company, as trustee, relating to the Company’s 12% Senior Notes due 2008, including forms of 12% Senior Notes and Security Agreement (filed as Exhibit 4.4 to the 2001 Form 10-K and incorporated herein by reference).
4.5	First Amendment to Indenture, dated as of March 2, 2004, between the Company and U.S. Bank National Association, as successor trustee to State Street Bank and Trust Company, as trustee, relating to the Company’s 12% Senior Notes due 2008 (filed as Exhibit 4.5 to the 2003 Form 10-K and incorporated herein by reference).
4.6	Form of Consent of Noteholders, dated as of March 2, 2004, among Ampex Corporation and each of the Holders of the Company’s 12% Senior Notes (filed as Exhibit 4.6 to the 2003 Form 10-K and incorporated herein by reference).
4.7	Amendment No. 3 to Collateral Security Agreement, dated as of June 17, 2005, between Ampex Corporation and US Bank, National Association, as trustee, relating to the Company’s 12% Senior Notes due 2008 (filed as Exhibit 4.1 to the Company’s 2005 Form 10-Q for the quarter ended June 30, 2005 (the “Second Quarter 2005 10-Q”) and incorporated herein by reference).
4.7	Security Agreement dated March 27, 2002, among Ampex Corporation, Ampex Data Systems Corporation and Hillside Capital Incorporated. (filed as Exhibit 4.3 to the 2002 Form 10-Q for the quarter ended March 31, 2002 and incorporated herein by reference).

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Exhibit Number	Description
10.1	Ampex Corporation 1992 Stock Incentive Plan, with exhibits, as amended through June 10, 2005 (filed as Annex A to the Company’s Proxy Statement dated April 29, 2005 and incorporated herein by reference).
10.2	Ampex Systems Corporation Savings Plan (1997 Restatement) (filed as Exhibit 10.3 to the 1997 Form 10-K and incorporated herein by reference).
10.3	Ampex Corporation 2000 Stock Bonus Plan, as adopted on June 9, 2000 (filed as Exhibit 4.01 to the Company’s Registration Statement on Form S-8 (File No. 333-41652) and incorporated herein by reference).
10.4	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).
10.5	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 (File No. 33-47660) and incorporated herein by reference).
10.6	Form of Indemnification Agreement entered into between the Company and members of the Board of Directors (filed as Exhibit 10.06 to the 2001 Form 10-K and incorporated herein by reference).
10.7	Form of Employment Security Letter entered into between the Company and certain executive officers of the Company, dated July 24, 1998 (filed as Exhibit 10.9 to the 1999 Form 10-K and incorporated herein by reference).
10.8	Letter agreement dated March 1, 2005 between Edward J. Bramson and Craig L. McKibben regarding management incentive compensation (filed as Exhibit 10.1 to the Second Quarter 2005 10-Q and incorporated herein by reference).
10.9	Letter agreement dated March 19, 2004 between Edward J. Bramson and Joel D. Talcott regarding management incentive compensation (filed as Exhibit 10.2 to the Second Quarter 2005 10-Q and incorporated herein by reference).
10.10	Letter agreement dated March 15, 2005 between Edward J. Bramson and Robert L. Atchison regarding management incentive compensation (filed as Exhibit 10.3 to the Second Quarter 2005 10-Q 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 10.10 to the 2001 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 (filed as Exhibit 10.12 to the 1999 Form 10-K and incorporated herein by reference).
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 10.12 to the 2001 Form 10-K and incorporated herein by reference).
10.14	Assignment and assumption of lease dated November 21, 2000 between the Company as assignor and Data Systems as assignee (filed as Exhibit 10.15 to the 2000 Form 10-K and incorporated herein by reference).
10.15	Agreement of Purchase and Sale dated January 31, 2005, between Ampex Data Systems Corporation and Darwin L. Faaborg, and Amendment Number One thereto, relating to the purchase and sale of real property located in Colorado Springs, Colorado (filed as Exhibit 10.1 to the 2005 Form 10-Q for the quarter ended March 31, 2005 and incorporated herein by reference).

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Exhibit Number		Description
10.16	*	Lease and First Amendment of Lease dated August 14, 1997 and April 19, 1999, respectively, each by and between 135 East 57th Street LLC, as landlord, and the Company, as tenant, with respect to approximately 19,000 square feet of premises located at 135 East 57th Street, New York, New York.
10.17	*	Agreement of Sublease dated as of April 23, 2004, between the Company, as sublessor, and Calypso Capital Management, LLC, as sublessee, with respect to approximately 12,800 square feet of premises located at 135 East 57th Street, New York, New York.
10.18		Joint Settlement Agreement dated November 22, 1994, 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 (filed as Exhibit 10.14 to the 2001 Form 10-K and incorporated herein by reference).
10.19		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 (filed as Exhibit 10.15 to the 2001 Form 10-K and incorporated herein by reference).
10.20		Form of Note between the Company and Hillside Capital Incorporated to fund pension contributions (filed as Exhibit 4.11 to the 2001 Form 10-Q for the quarter ended September 30, 2001 and incorporated herein by reference).
10.21		Second Amendment dated as of September 2002 to the Hillside – Ampex/Sherborne Agreement dated December 1, 1994, as previously amended (filed as Exhibit 10.1 to the 2002 Form 10-Q for the quarter ended September 30, 2002 and incorporated herein by reference).
10.22		Third Amendment dated as of March 2, 2004 to the Hillside – Ampex/Sherborne Agreement dated December 1, 1994, as previously amended (filed as Exhibit 10.16 to the 2003 Form 10-K and incorporated herein by reference).
10.23		Retirement Plan Funding and Settlement Agreement dated as of July 8, 2003 between the Company and Quantegy Inc. (filed as Exhibit 10.17 to the 2003 Form 10-K and incorporated herein by reference).
10.24		Promissory Note dated April 18, 2001, issued by Second Jeffson Corporation (formerly Sherborne Capital Incorporated) to the Company in the principal amount of $1,848,000 (filed as Exhibit 10.17 to the 2001 Form 10-K and incorporated herein by reference).
10.25	*	Letter agreements dated as of March 31, 2005 and June 30, 2005, each between HIP-IV Incorporated (“HIP-IV”) and AFC Holdings Corporation (“AFC”), relating to the assignment of incentive fees by HIP-IV to AFC.
21.1	*	Subsidiaries of the Company.
23.1	*	Consent of Independent Registered Public Accounting Firm.
23.2	*	Consent of Independent Registered Public Accounting Firm.
24.1	*	Power of Attorney (included in the signature page of this Report).
31.1	*	Chief Executive Officer certification pursuant to Rules 13a – 14(a) of the Exchange Act.
31.2	*	Chief Financial Officer certification pursuant to Rules 13a – 14(a) of the Exchange Act.
32.1	*	Chief Executive Officer and Chief Financial Officer certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Exhibits. See Item 15(a)(3) above.

(c) Financial Statement Schedules. See Items 8 and 15(a)(2) above.

* Filed herewith.

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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, 2006

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint Edward J. Bramson, Craig L. McKibben, Joel D. Talcott, 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.

Signature	Title	Date
/s/    EDWARD J. BRAMSON         Edward J. Bramson	Chairman, Chief Executive Officer and Director (Principal Executive Officer)	March 28, 2006
/s/    CRAIG L. MCKIBBEN         Craig L. McKibben	Vice President, Chief Financial Officer, Treasurer and Director (Principal Financial Officer and Principal Accounting Officer)	March 28, 2006
/s/    DOUGLAS T. MCCLURE, JR.       Douglas T. McClure, Jr.	Director	March 28, 2006
/s/    PETER SLUSSER         Peter Slusser	Director	March 28, 2006
/s/    WILLIAM A. STOLTZFUS, JR.       William A. Stoltzfus, Jr.	Director	March 28, 2006

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AMPEX CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm at December 31, 2005 and 2004	F-2
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting as of December 31, 2005	F-3
Report of Independent Registered Public Accounting Firm at December 31, 2003	F-4
Consolidated Balance Sheets As of December 31, 2005 and 2004	F-5
Consolidated Statements of Operations and Comprehensive Income (Loss) For Each of the Three Years in the Period Ended December 31, 2005	F-6
Consolidated Statements of Cash Flows For Each of the Three Years in the Period Ended December 31, 2005	F-7
Consolidated Statements of Stockholders’ Deficit For Each of the Three Years in the Period Ended December 31, 2005	F-8
Notes to Consolidated Financial Statements	F-9

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Ampex Corporation

Redwood City

We have audited the accompanying consolidated balance sheets of Ampex Corporation (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2005. We have also audited the financial statement schedule listed in the accompanying index at Item 15(a) 2. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ampex Corporation at December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States.

Also, in our opinion, the financial statement schedule as of and for each of the years ended December 31, 2005 and 2004, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Ampex Corporation’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 15, 2006 expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

San Jose, California

March 15, 2006

F-2

Report of Independent Registered Public Accounting Firm

on Internal Control Over Financial Reporting

To the Board of Directors and Stockholders

Ampex Corporation

Redwood City

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Ampex Corporation (the “Company”) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Ampex Corporation maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, the Company maintained effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Ampex Corporation as of December 31, 2005 and 2004, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2005 and our report dated March 15, 2006 expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

San Jose, California

March 15, 2006

F-3

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

of Ampex Corporation:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) on page 52 of Ampex Corporation and its subsidiaries at December 31, 2003 presents fairly, in all material respects, the results of their operations and their cash flows in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) on page 52 presents 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 schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board in the United States of America. Those standards 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 our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

San Jose, California

April 9, 2004, except Note 1 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2004 (not presented herein), as to which date is April 15, 2005.

F-4

AMPEX CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	December 31, 2005			December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	13,070		$	8,840
Short-term investments		—			9,134
Accounts receivable (net of allowances of $78 in 2005 and $74 in 2004)		3,091			2,602
Inventories		5,862			5,187
Royalties receivable		735			—
Cash collateral on letter of credit		1,483			1,424
Other current assets		873			647
Property held for sale		—			2,670
Total current assets		25,114			30,504
Property, plant and equipment		1,215			1,560
Other assets		373			555
Total assets	$	26,702		$	32,619
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Notes payable	$	113		$	131
Accounts payable		3,802			1,577
Net liabilities of discontinued operations		1,413			1,042
Accrued restructuring costs		610			645
Pension and other retirement plans		864			5,501
Other accrued liabilities		7,935			9,759
Total current liabilities		14,737			18,655
Long-term debt		25,725			30,275
Pension and other retirement plans		95,948			76,125
Other liabilities		1,929			1,868
Accrued restructuring costs		1,030			1,622
Net liabilities of discontinued operations		1,679			3,503
Total liabilities		141,048			132,048
Commitments and contingencies (Note 12)
Mandatorily redeemable nonconvertible preferred stock, $1,000 liquidation value per share:
Authorized: 69,970 shares in 2005 and in 2004
Issued and outstanding—none in 2005 and in 2004		—			—
Mandatorily redeemable preferred stock, $2,000 liquidation value per share:
Authorized: 21,859 shares in 2005 and in 2004
Issued and outstanding—none in 2005 and in 2004		—			—
Convertible preferred stock, $2,000 liquidation value per share:
Authorized: 10,000 shares in 2005 and in 2004
Issued and outstanding—none in 2005 and in 2004		—			—
Stockholders’ deficit:
Preferred stock, $1.00 par value:
Authorized: 898,171 shares in 2005 and in 2004
Issued and outstanding—none in 2005 and in 2004		—			—
Common stock, $.01 par value:
Class A:
Authorized: 175,000,000 shares in 2005 and in 2004
Issued and outstanding—3,789,773 shares in 2005; 3,692,517 in 2004		38			37
Class C:
Authorized: 50,000,000 shares in 2005 and in 2004
Issued and outstanding—none in 2005 and in 2004		—			—
Other additional capital		454,789			454,525
Accumulated deficit		(456,953	)		(463,680	)
Accumulated other comprehensive loss		(112,220	)		(90,311	)
Total stockholders’ deficit		(114,346	)		(99,429	)
Total liabilities, redeemable preferred stock and stockholders’ deficit	$	26,702		$	32,619

The accompanying notes are an integral part of these consolidated financial statements.

F-5

AMPEX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share and per share data)

	Year Ended December 31,
	2005			2004			2003
Licensing revenue	$	28,914		$	72,869		$	10,054
Product revenue		15,382			19,843			23,972
Service revenue		8,858			8,739			9,333
Total revenue		53,154			101,451			43,359
Intellectual property costs		11,604			7,551			1,633
Cost of product revenue		9,440			14,017			14,669
Cost of service revenue		2,765			2,735			2,610
Research, development and engineering		4,205			3,934			3,179
Selling and administrative		15,940			13,780			12,236
Restructuring charges (credits)		—			(1,410	)		3,098
Total costs and operating expenses		43,954			40,607			37,425
Operating income		9,200			60,844			5,934
Media pension costs		774			3,936			1,383
Interest expense		2,481			9,732			9,000
Amortization of debt financing costs		195			57			57
Interest income		(264	)		(161	)		(103	)
Other (income) expense, net		(547	)		(179	)		74
Income (loss) from continuing operations before income taxes and equity in loss (income) of limited partnership, including sale of investment		6,561			47,459			(4,477	)
Provision for (benefit of) income taxes		749			1,098			(3,172	)
Equity in loss (income) of limited partnership, including sale of investment		—			(2,149	)		459
Net income (loss) from continuing operations		5,812			48,510			(1,764	)
Income (loss) from discontinued operations (net of taxes of $19 in 2005 and nil in 2004)		915			(2,148	)		—
Net income (loss)		6,727			46,362			(1,764	)
Benefit from extinguishment of mandatorily redeemable preferred stock		—			—			23,951
Preferred dividends ascribed, but not declared		—			—			(1,416	)
Undistributed income applicable to common stockholders		6,727			46,362			20,771
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(148	)		18			103
Minimum pension adjustment		(21,761	)		1,844			(8,907	)
Comprehensive income (loss)	$	(15,182	)	$	48,224		$	11,967
Basic undistributed income (loss) per share (Note 4):
Income (loss) per share from continuing operations	$	1.56		$	13.21		$	(0.53	)
Income (loss) per share from discontinued operations	$	0.24		$	(0.58	)	$	0.00
Undistributed income per share applicable to common stockholders	$	1.80		$	12.63		$	6.30
Weighted average number of basic common shares outstanding		3,734,916			3,671,803			3,297,927
Diluted undistributed income (loss) per share (Note 4):
Income (loss) per share from continuing operations	$	1.51		$	12.73		$	(0.53	)
Income (loss) per share from discontinued operations	$	0.24		$	(0.56	)	$	0.00
Undistributed income per share applicable to common stockholders	$	1.75		$	12.17		$	6.30
Weighted average number of diluted common shares outstanding		3,850,846			3,809,514			3,297,977

The accompanying notes are an integral part of these consolidated financial statements.

F-6

AMPEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2005			2004			2003
Cash flows from operating activities:
Net income (loss)	$	6,727		$	46,362		$	(1,764	)
Loss (income) from discontinued operations		(915	)		2,148			—
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		670			774			1,089
Ampex periodic pension costs		2,545			2,020			600
Media periodic pension costs		774			3,936			1,383
Net loss (gain) on disposal of assets		(454	)		52			2
Notional AMT due to stock option exercises		36			—			—
Accretion of interest expense		—			9,198			8,793
Writedown investment		—			150			—
Reversal of prior year's tax reserves		—			—			(4,164	)
Equity in loss (income) of limited partnership, including sale of investment		—			(2,149	)		459
Stock option compensation expense		—			60			—
Changes in operating assets and liabilities:
Accounts receivable		(567	)		1,935			(294	)
Inventories		(675	)		1,156			993
Royalties receivable		(735	)		—			—
Other assets		(320	)		4,809			(1,999	)
Accounts payable		2,235			66			517
Other accrued liabilities and income taxes payable		(6,378	)		1,405			4,297
Ampex and Media pension contributions		(9,685	)		(10,720	)		—
Accrued restructuring costs		(627	)		(2,483	)		1,750
Other liabilities		4,489			(1,460	)		(2,405	)
Net cash provided by (used in) continuing operations		(2,880	)		57,259			9,257
Net cash used in discontinued operations		(519	)		(750	)		(985	)
Net cash provided by (used in) operating activities		(3,399	)		56,509			8,272
Cash flows from investing activities:
Purchase of limited partnership interest, net		—			—			(945	)
Purchases of short-term investments		—			(9,134	)		—
Proceeds received on the maturity of short-term investments		9,134			—			1,483
Net proceeds on sale of assets		3,100			—			—
Additions to property, plant and equipment		(114	)		(174	)		(25	)
Deferred gain on sale of assets		(50	)		(50	)		(50	)
Net cash provided by (used in) investing activities		12,070			(9,358	)		463
Cash flows from financing activities:
Borrowings under debt agreements		5,900			10,720			—
Repayments under debt agreements		(10,468	)		(63,924	)		(3,311	)
Reimbursements of pension contributions		—			780			814
Proceeds from foreclosure of shareholders notes		—			14			—
Proceeds from issuance of common stock		210			57			144
Net cash used in financing activities		(4,358	)		(52,353	)		(2,353	)
Effects of exchange rates on cash		(83	)		19			62
Net increase (decrease) in cash and cash equivalents		4,230			(5,183	)		6,444
Cash and cash equivalents, beginning of period		8,840			14,023			7,579
Cash and cash equivalents, end of period	$	13,070		$	8,840		$	14,023

The accompanying notes are an integral part of these consolidated financial statements.

F-7

AMPEX CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

For Each of the Three Years in the Period Ended

December 31, 2005

(in thousands)

	Common Stock Class A									Accumulated Comprehensive Income (Loss)
	Shares		Amount		Other Additional Capital		Accumulated Deficit			Cumulative Translation Adjustment			Minimum Pension Liability Adjustment			Total Stockholders' Deficit
Balances, December 31, 2002	3,171		$	32	$	428,501	$	(508,278	)	$	623		$	(83,992	)	$	(163,114	)
Net loss	—			—		—		(1,764	)		—			—			(1,764	)
Translation adjustments	—			—		—		—			103			—			103
Exercise of stock options	42			—		144		—			—			—			144
Minimum pension liability adjustment	—			—		—		—			—			(8,907	)		(8,907	)
Preferred stock redeemed	515			5		25,749		—			—			—			25,754
Balances, December 31, 2003	3,728			37		454,394		(510,042	)		726			(92,899	)		(147,784	)
Net income	—			—		—		46,362			—			—			46,362
Translation adjustments	—			—		—		—			18			—			18
Exercise of stock options	50			—		57		—			—			—			57
Stock based compensation charge for non-employees	—			—		60		—			—			—			60
Minimum pension liability adjustment	—			—		—		—			—			1,844			1,844
Foreclosure of shareholders notes	(86	)		—		14		—			—			—			14
Balances, December 31, 2004	3,692			37		454,525		(463,680	)		744			(91,055	)		(99,429	)
Net income	—			—		—		6,727			—			—			6,727
Translation adjustments	—			—		—		—			(148	)		—			(148	)
Exercise of stock options	98			1		209		—			—			—			210
Notional AMT on stock options	—			—		55		—			—			—			55
Minimum pension liability adjustment	—			—		—		—			—			(21,761	)		(21,761	)
Balances, December 31, 2005	3,790		$	38	$	454,789	$	(456,953	)	$	596		$	(112,816	)	$	(114,346	)

The accompanying notes are an integral part of these consolidated financial statements.

F-8

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Ampex Corporation

Ampex Corporation (“Ampex” or the “Company”) is a leading innovator and licensor of visual information technology. During its 61-year history, the Company has developed substantial proprietary technology relating to the electronic storage, processing and retrieval of data, particularly images. The Company currently holds patents and patent applications covering digital image-processing, data compression and recording technologies. The Company leverages its investment in technology through its corporate licensing division that licenses its patents to manufacturers of consumer electronics products. Through its wholly-owned subsidiary, Ampex Data Systems Corporation (“Data Systems”), the Company incorporates this technology in the design and manufacture of very high performance data storage products, principally used in defense applications to gather digital images and other data from aircraft, satellites and submarines. These products are also used in flight and sensor test applications.

Note 2—Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated. The preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Certain prior year amounts in the consolidated financial statements and notes thereto have been reclassified to conform to the current year presentation.

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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Management’s more significant judgments and estimates used in the preparation of its consolidated financial statements include revenue recognition, accounts receivable, inventories, deferred taxes, warranty reserves, pension liabilities, valuation of long-lived assets and investments, contingencies and environmental liabilities.

Fiscal Year

The Company’s fiscal year is the 52- or 53-week period ending on the Saturday nearest December 31. Fiscal 2004 was a 53-week year. Fiscal 2005 and 2003 were 52-week years.

Cash Equivalents and Short-term Investments

Highly liquid investments with original maturities of three months or less are classified as cash equivalents. Highly liquid investments with maturities greater than three months and less than one year are classified as short-term investments. Management determines the appropriate classification of its investments in debt and marketable equity securities at the time of purchase and reevaluates such designation as of each balance sheet date. The Company’s debt and marketable equity securities have been classified and accounted for as available-for-sale. These securities are carried at fair value, with the unrealized gains and losses, net of taxes, reported as a component of shareholders’ deficit. The cost of securities sold is based upon the specific identification method.

F-9

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Long-Term Investments

The Company owns a 1.5% minority equity investment in a private company that is carried on the cost method. The Company conducts research and development and performs contract engineering services for the U.S. Department of Defense and high technology industries. The carrying value of this investment amounted to $225,000 at December 31, 2005 and 2004 and is included in other long-term assets. This investment is inherently risky because the products and technologies in development are not fully commercialized. The Company monitors its investment for impairment on a periodic basis. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than- temporary, the Company records an impairment charge and establishes a new cost basis for the investment at its current fair value. In order to determine whether a decline in value is other-than-temporary, the Company evaluates the duration and extent to which the fair value has been less than the carrying value, the financial condition of and business outlook for the company and the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

In 2004, the Company determined that the decline in the fair value of the investment was other-than-temporary. As a result, the Company recognized a charge to earnings of $150,000 to write down the basis of its investment to $225,000. This charge was included in “Other income and expense, net.”

Prior to concluding its affairs in 2004, the Company’s investment in a separate limited partnership was accounted for under the equity method. During the year ended December 31, 2004, the partnership sold or distributed to its partners all of the shares of common stock that it had purchased in a publicly held British promotional products company. No further investment activities are envisioned by this partnership. The Company received total distributions of $3.3 million on its $1.0 million investment. The Company’s share of the equity in income of the partnership for the year ended December 31, 2004 is included in “Equity in income of limited partnership, including sale of investment.”

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on a standard cost basis, which approximates actual cost under the first in, first out method. Abnormal amounts of facility expense, freight, handling costs and scrap material are excluded from inventory cost and expensed during the period in which they are incurred. 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 furniture, fixtures and equipment, two to ten years for leasehold improvements, which represents the shorter of the lease term or the estimated useful lives, and 50 years for buildings. 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.

Warranty

Products sold are generally covered by a warranty for periods ranging from 90 days to one year. The Company accrues a warranty reserve at the time of sale for estimated costs to provide warranty services. The Company’s estimate of costs to service its warranty obligation is based on historical experience and expectation

F-10

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

of future conditions. To the extent the Company experiences increased warranty claim activity or increased costs associated with servicing those claims, its warranty accrual will increase, resulting in decreased gross profit.

Environmental Liabilities

The Company’s facilities and business practices are subject to numerous federal, state and local laws and regulations designed to protect the environment from waste emissions and hazardous substances. Also, the Company may have continuing liability with respect to environmental contamination related to the facilities and disposal activities of its former subsidiary Media (“Media”). The Company recognizes a liability for any contingency that is probable of occurrence and reasonably estimable in accordance with the American Institute of Certified Public Accountants (the “AICPA”) Statement of Position No. 96-1, “Environmental Remediation Liabilities.” The Company continually assesses these contingencies based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Such analysis includes making judgments concerning matters such as the extent of environmental damage and the Company’s pro rata participation, if applicable, the most desirable remediation techniques and the time period during which the cleanup costs may be incurred. Because most contingencies are resolved over long periods of time, liabilities may change in the future due to new developments or other changes. Given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other potentially responsible parties, technology and information related to individual sites, the Company does not believe it is possible to develop an estimate of the range of reasonably possible environmental loss in excess of its accruals.

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 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 and comprehensive income (loss). Foreign currency transaction gains and losses, which are included in other expense, were not material in the periods reported.

Revenue Recognition

The Company recognizes revenue in accordance with applicable accounting standards including Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” and Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables,” and the AICPA Statement of Position No. 97-2, “Software Revenue Recognition,” as amended. Revenue is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery and, where applicable, acceptance has occurred or services have been rendered, (3) the fee is fixed or determinable, and (4) collection is reasonably assured. The Company derives its revenue from three principle sources: license fees (including royalties) through its Licensing segment, and product and parts sales and service contracts through its Recorders segment.

Determination of criteria (3) and (4) are based on Management’s judgments regarding the fixed nature of the fee charged for services rendered and products delivered and the collectibility of those fees. Should changes in conditions cause Management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.

The Company’s revenue recognition policy with respect to royalty income is as follows: when the Company enters into an agreement with a new licensee for use of its patents, the Company may receive settlement of “past

F-11

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

due” royalties. This is a negotiated amount and is typically paid by the licensee within 30 days of signing the license agreement. Past due royalties cover the licensee’s product shipments from the period when they were first notified of infringement up through the effective date of the license. The Company may also negotiate a “prepayment” of royalties that would otherwise be due up to a specific future date. The dollar amounts due under a negotiated agreement for both past due royalties and for prepayment of royalties are non-refundable and non-forfeitable. The Company recognizes both past due and prepayment amounts as revenue in the period when the agreement has been executed by both parties, which is when there is persuasive evidence of an arrangement, fees become fixed or determinable and collection becomes probable, as the Company has no future obligations with respect to these agreements and delivery has occurred. In addition, the Company’s licensing agreement may include a “running” royalty which covers products shipped by the licensee after the date that the license agreement has been entered into and until the patent has expired or when the patent is no longer contractually available to the licensee, if shorter. The Company’s royalties are computed as a percentage of the selling price of the licensee’s products and are paid quarterly in arrears and recognized as revenue at the time the amount of the quarterly royalty payment becomes determinable, generally upon receipt of the licensee’s sales report upon which royalties are determined, and collection is reasonably assured.

Revenue on product sales and services is recorded when all of the following have occurred: an agreement of sale exists, product delivery (principally FOB Ampex Factory) and acceptance has occurred or services have been rendered, pricing is fixed or determinable, and collection is reasonably assured. Service revenue is recognized ratably over the life of the service contract.

Long-Term Contracts

During 2005, the Company did not have any contracts that were subject to accounting as long-term contracts. Prior to 2005, the Company had one long-term contract that qualified for percentage-of-completion accounting, which was completed in 2004. Revenues and estimated profits on this long-term contract were recognized over an extended period of time on the percentage-of-completion method based on the total direct costs expected to be incurred on the contract. The Company’s estimates to complete were reviewed periodically, with adjustments recorded in the period in which revisions were required. The Company did not incur any losses on this long-term contract.

Pension and Other Post-Retirement Benefits/Obligations

The determination of the Company’s obligation and expense for pension and other postretirement benefits payable to Ampex’s and Media’s employees and retirees is dependent on the Company’s selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, the discount rate, expected long-term rate of return on plan assets and mortality assumptions for the plan participants. In accordance with SFAS No. 87, “Employers Accounting for Pensions,” actual results that differ from the Company’s assumptions are accumulated and amortized over future periods and therefore, generally affect its recognized expense and recorded obligation in such future periods.

While the Company believes that its assumptions are appropriate, significant differences in its actual experience or significant changes in the Company’s assumptions that may be required under new legislation or otherwise may materially affect its pension and other postretirement obligations and its future expense as well as amounts that may ultimately be required to be paid to fund the Media pension plan. On January 10, 2005, Media filed under Chapter 11 of the Bankruptcy Code. Accordingly, the Company does not expect to receive additional reimbursements from Media of amounts that the Company has paid to date or that the Company will be required to pay in the future.

F-12

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Research, Development and Engineering

Research and development costs are expensed as incurred and amounted to $4.2 million, $3.7 million and $2.6 million in 2005, 2004 and 2003, respectively. Other engineering costs, principally incurred in connection with product introductions and process enhancements, amounted to $33 thousand, $0.2 million and $0.6 million in 2005, 2004 and 2003, respectively.

Restructuring Charges

The Company accounts for severance and benefit termination costs and other costs associated with an exit or disposal activity initiated after January 1, 2003 in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred, as opposed to when management commits to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value, and subsequent adjustments to the liability shall be measured using the credit-adjusted risk-free rate that was used to measure the liability initially.

Income Taxes

The Company follows SFAS No. 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 18.

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 U.S. treasury obligations 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.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of two components, undistributed income applicable to common stockholders and other comprehensive income (loss), net of tax. Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under generally accepted accounting principles are recorded as an element of total shareholders’ deficit but are excluded from net income (loss). Accumulated other comprehensive income (loss), as presented on the accompanying Consolidated Balance Sheets, consists of foreign currency translation adjustments and the minimum pension adjustment.

Segment Information

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments. See Note 19.

F-13

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Basic and Diluted Undistributed Income (Loss) Per Share

The basic income (loss) per share from continuing operations and basic undistributed income per share applicable to common stockholders are calculated in accordance with the two-class method described in EITF Issue No. 03-6. Under this method, dividends of 8% per annum were ascribed to preferred stockholders, in 2003 when Preferred Stock was outstanding, to the extent that sufficient income was available, even though preferred stock dividends had not been declared. All preferred stock was redeemed by December 31, 2003. Diluted income (loss) per share from continuing operations and diluted undistributed income per share applicable to common stockholders is computed using the “as if” converted method if such method results in additional dilution.

Stock-Based Compensation

The Company accounts for stock-based awards to employees in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and has adopted the disclosure-only alternative of SFAS No. 123, “Accounting for Stock Based Compensation.”

The Company has elected to account for employee stock options using the intrinsic value method prescribed by APB Opinion No. 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. As required under SFAS No. 123, the pro forma effects of stock-based compensation on net income (loss) and income (loss) per common share for employee stock options granted have been estimated at the date of grant, using a Black-Scholes option pricing model. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to pro forma net income (loss) over the options’ vesting period. Had compensation cost for the Company’s stock-based compensation plan been determined based on the fair value on the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Company’s undistributed income applicable to common stockholders would have been reduced to the pro forma amounts indicated below:

	Year Ended December 31,
	2005			2004			2003
	(in thousands, except per share amounts)
Undistributed income applicable to common stockholders:
As reported	$	6,727		$	46,362		$	20,771
Add stock-based employee compensation expense included in reported income, net of related tax effects		—			—			—
Less total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects		(345	)		(138	)		(13	)
Pro forma	$	6,382		$	46,224		$	20,758
Basic undistributed income per share:
Undistributed income per share applicable to common stockholders, as reported	$	1.80		$	12.63		$	6.30
Undistributed income per share applicable to common stockholders, pro forma	$	1.71		$	12.59		$	6.30
Diluted undistributed income per share:
Undistributed income per share applicable to common stockholders, as reported	$	1.75		$	12.17		$	6.30
Undistributed income per share applicable to common stockholders, pro forma	$	1.66		$	12.13		$	6.30

F-14

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

These pro forma disclosures are not necessarily representative of the effects on reported undistributed income per share applicable to common stockholders for future years.

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, 2005 and December 31, 2004 by the Company; however no securities have traded recently in the secondary market. Management has determined that it is not practical to estimate the fair value of the Hillside Notes and note payable-other, as no market for such instruments currently exists. See Note 10.

Recent Pronouncements

In November 2005, the FASB issued FASB Staff Position (“FSP”) FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” which provides guidance on determining when investments in certain debt and equity securities are considered impaired, whether that impairment is other-than-temporary, and on measuring such impairment loss. FSP FAS 115-1 also includes accounting considerations subsequent to the recognition of an other-than temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. FSP FAS 115-1 is required to be applied to reporting periods beginning after December 15, 2005. The Company is currently evaluating the effect that the adoption of FSP FAS 115-1 will have on its consolidated results of operations and financial condition but does not expect it to have a material impact.

In June 2005, the FASB issued FSP FAS 143-1, “Accounting for Electronic Equipment Waste Obligations,” which provides guidance on the accounting for obligations associated with the Directive on Waste Electrical and Electronic Equipment (the “Directive”), which was adopted by the European Union (“EU”). Under the Directive, the waste management obligation for historical equipment (products put on the market on or prior to August 13, 2005) remains with the commercial user until the equipment is replaced. FSP FAS 143-1 is required to be applied to the later of the first reporting period ending after June 8, 2005 or the date of the Directive’s adoption into law by the applicable EU member countries in which the Company has significant operations. The adoption of FSP FAS 143-1 did not have a material impact on its consolidated results of operations and financial condition.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which replaces APB Opinion No. 20 “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements—An Amendment of APB Opinion No. 28.” SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company is currently evaluating the effect that the adoption of SFAS No. 154 will have on its consolidated results of operations and financial condition, but does not expect it to have a material impact.

In March 2005, the FASB issued FASB Interpretation (“FIN”) 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143,” which requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company is currently evaluating the effect that the adoption of FIN 47 will have on its consolidated results of operations and financial condition, but does not expect it to have a material impact.

F-15

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which replaces SFAS No. 123, “Accounting for Stock-Based Compensation, and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123 (revised) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period after December 15, 2005, with early adoption encouraged. The pro forma disclosures shown above and previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. The Company is required to adopt SFAS No. 123 (revised) in the first quarter of fiscal 2006, beginning January 1, 2006. The Company expects to use the Black-Scholes valuation model in determining the fair value of share-based payments to employees and directors, and to amortize such amounts to compensation cost on a straight-line basis. The Company expects to apply the modified prospective method which requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS No. 123 (revised). The Company is evaluating the requirements of SFAS No. 123 (revised) including SAB No. 107 regarding the SEC’s interpretation of SFAS No. 123 (revised), and expects that the adoption of SFAS No. 123 (revised) will have a material effect on the Company’s consolidated results of operations and earnings per share beginning in the first quarter of 2006.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. The Company is currently evaluating the effect the adoption of SFAS No. 153 will have on its financial position, cash flows or results of operations, but does not expect it to have a material impact.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs—An Amendment of Accounting Research Bulletin (“ARB”) No. 43, Chapter 4.” SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS No. 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company is currently evaluating the effect the adoption of SFAS No. 151 will have on its financial position, cash flows or results of operations, but does not expect it to have a material impact.

Note 3—Discontinued Operations

The Company disposed of the Media subsidiary in 1995. However, the Company has a continuing liability with respect to environmental matters pertaining to Media’s sites and activities. The measurement of its obligation and recognition of expense for environmental matters directly related to Media’s operations is accounted for under SFAS No. 5, “Accounting for Contingencies.” On January 10, 2005, Media filed under Chapter 11 of the Bankruptcy Code. Based on the Company’s assessment of Media’s financial condition and understanding of its environmental remediation obligations, the Company recorded an estimate of amounts probable of incurrence by the Company for future clean up costs of $2.5 million at December 31, 2004. During 2005, the Company paid $0.1 million against the net liabilities of discontinued operations. The unamortized balance in the net liabilities of discontinued operations pertaining to the environmental matters of the former Media subsidiary totaled $2.4 million at December 31, 2005. The Company expects to be assessed in 2006 its pro

F-16

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

rata share of the remediation costs totaling $1.1 million with the balance to be paid out over the next ten years. This obligation has not been discounted to present value.

In 2001, the Company suspended operations of a subsidiary that manufactured high performance disk arrays and storage area networks, establishing a provision for the costs of closure and impairment of its investment, which the Company believed had no realizable value. The subsidiary’s assets were sold and their proceeds distributed to its creditors. During 2003, the Company paid $0.2 million against the net liabilities of discontinued operations pertaining to the former disk array and storage area network operations. The Company completed making payments as it relates to this discontinued operation in 2004. Due to favorably concluding its obligations with respect to leased facilities, which the Company had guaranteed, the Company recognized a gain on these discontinued operations of $0.3 million in 2004.

In 2001, the Company closed its Internet video operations. During 2003, 2004 and 2005, the Company paid $0.8 million, $0.8 million and $0.4 million, respectively, against the net liabilities of discontinued operations. In 2005, the Company adjusted net liabilities of discontinued operations to reflect revised rental income from subletting previously abandoned leased facilities, which resulted in recognizing a gain on these discontinued operations of $0.9 million. The unamortized balance in the net liabilities of discontinued operations pertaining to the former Internet video operations totaled $0.7 million at December 31, 2005. The Company expects to make payments on office leases and to receive sublet income as it relates to this discontinued operation through 2008. The Company evaluates the amount of net liabilities for discontinued operations, including projected sublet income, on a quarterly basis, and it may make additional adjustments in future periods if the Company determines that its actual obligations will differ significantly from remaining amounts accrued.

A reconciliation of the changes in the net liabilities of the above-discussed discontinued operations is as follows:

	2005			2004
	(in thousands)
Balance at January 1	$	4,545		$	3,147
Additional provision for loss from discontinued operations, net of recovery of $352		—			2,148
Increase in expected future sublet income		(934	)		—
Net payments made during the period		(519	)		(750	)
Balance at December 31	$	3,092		$	4,545

F-17

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 4—Computation of Basic and Diluted Undistributed Income (Loss) per Share

In accordance with the disclosure requirements of SFAS No. 128, a reconciliation of the numerator and denominator of basic and diluted undistributed income (loss) per common share is provided as follows:

	Year Ended December 31,
	2005		2004		2003
	(in thousands, except share and per share amounts)
Numerator
Net income (loss) from continuing operations	$	5,812	$	48,510	$	(1,764	)
Undistributed income applicable to common stockholders	$	6,727	$	46,362	$	20,771
Denominator—Basic
Weighted average number of basic common shares outstanding		3,734,916		3,671,803		3,297,927
Basic income (loss) per share from continuing operations	$	1.56	$	13.21	$	(0.53	)
Basic undistributed income per share applicable to common stockholders	$	1.80	$	12.63	$	6.30
Denominator—Diluted
Weighted average number of common shares outstanding		3,734,916		3,671,803		3,297,927
Effect of dilutive securities:
Stock options		115,930		137,711		50
Weighted average number of diluted common shares outstanding		3,850,846		3,809,514		3,297,977
Diluted income (loss) per share from continuing operations	$	1.51	$	12.73	$	(0.53	)
Diluted undistributed income per share applicable to common stockholders	$	1.75	$	12.17	$	$6.30

In 2003, 515,040 shares of Common Stock were issued to redeem 12,877 shares of Redeemable Preferred Stock, representing all remaining Redeemable Preferred Stock. The common shares have been included in the weighted average number of common shares outstanding from the date of issuance.

Stock options are included in the calculation of weighted average number of diluted common shares outstanding, if the exercise price is lower than the average market value of common shares during the period. The number of stock options outstanding, the range of exercise prices of stock options outstanding and the number of common shares included in the calculation of the weighted average number of diluted common shares outstanding during the period were as follows:

	Year Ended December 31,
	2005		2004		2003
Stock options outstanding		154,066		224,026		41,921
Range of exercise prices	$	1.15 - 38.25	$	1.15 - 21.25	$	2.40 - 72.50
Common shares included in the calculation of weighted average number of diluted common shares outstanding during the period		115,930		137,711		50

F-18

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 5—Supplemental Schedule of Cash Flow Information

	Year Ended December 31,
	2005		2004		2003
	(in thousands)
Interest paid	$	2,852	$	3,303	$	527
Income taxes paid		1,904		1,372		1,101
Preferred stock (redemptions)		—		—		(25,754	)

Income taxes paid in the year ended December 31, 2004 included $0.8 million representing payment to the California Franchise Tax Board to settle income tax and interest assessed for the period 1983 to 1985.

Note 6—Investments

	December 31, 2004						Scheduled Maturity Date
	Carrying Value		Unrealized Gains		Fair Value
Treasury Bills	$	9,134	$	—	$	9,134	April–June 2005
Due within 1 year	$	9,134

There were no short-term investments held by the Company at December 31, 2005.

Note 7—Inventories

	December 31,
	2005			2004
	(in thousands)
Raw materials	$	5,489		$	3,833
Work in process		3,186			3,299
Finished goods		3,354			3,884
		12,029			11,016
Less inventory reserve		(6,167	)		(5,829	)
Total	$	5,862		$	5,187

Inventory write-downs for obsolete and slow-moving items totaled $0.5 million, $1.2 million and $0.2 million in 2005, 2004 and 2003, respectively.

F-19

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 8—Property, Plant and Equipment

	December 31, 2005		December 31, 2004
	(in thousands)
Property Held for Sale
Land	$	—	$	952
Buildings and improvements		—		4,916
Furniture, fixtures and equipment		—		65
		—		5,933
Less accumulated depreciation		—		(3,263	)
Total	$	—	$	2,670

The Company’s subsidiary, Ampex Data Systems Corporation, sold its former manufacturing facility in Colorado Springs, CO on April 15, 2005 and the Company received net proceeds of approximately $3.1 million. A gain on sale of assets of $0.5 million was recognized in “Other (income) expense, net” in the second quarter of 2005.

	December 31, 2005			December 31, 2004
	(in thousands)
Property, Plant and Equipment
Leasehold improvements	$	4,447		$	4,445
Furniture, fixtures and equipment		6,226			7,025
		10,673			11,470
Less accumulated depreciation		(9,458	)		(9,910	)
Total	$	1,215		$	1,560

Depreciation charged to continuing operations was $0.5 million, $0.8 million and $1.0 million in 2005, 2004 and 2003, respectively.

Note 9—Other Accrued Liabilities

	December 31,
	2005		2004
	(in thousands)
Compensation and employee benefits	$	2,396	$	2,446
Deferred revenue		4,059		4,608
Customer deposits		6		380
Taxes		134		1,007
Warranty and other product costs		427		471
Interest payable		107		70
Other		806		777
Total	$	7,935	$	9,759

F-20

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A reconciliation of the changes in the warranty and other product costs liability account is as follows:

	2005			2004
	(in thousands)
Balance at January 1	$	471		$	641
Accruals for warranties issued during the period		31			(6	)
Settlements made during the period in cash or in kind		(75	)		(164	)
Balance at December 31	$	427		$	471

Note 10—Debt

	December 31,
	2005		2004
	(in thousands)
Notes Payable
Note payable—other	$	113	$	131
Total	$	113	$	131
Long-term Debt
20% Senior discount notes	$	—	$	—
Hillside notes payable		19,879		13,979
12% Senior notes		5,846		16,296
Total	$	25,725	$	30,275

Note Payable – Other

The note is a non-interest-bearing demand promissory note held by NH Holding Incorporated, the Company’s former parent. The outstanding balance at December 31, 2005 of $0.1 million is expected to be paid or converted into shares of Common Stock.

Hillside Notes

In 1994, the Company, the Pension Benefit Guaranty Corporation (“the PBGC”) and certain affiliates, including Hillside Capital Incorporated (“Hillside”), who were members of a “group under common control” for purposes of the Employee Retirement Income Security Act (“ERISA”) entered into a Joint Settlement Agreement (“Agreement”) in connection with the 1994 reorganization of the Company’s former parent, NH Holding Incorporated (“NHI”). The Agreement relates to the pension plans of the Company (the “Ampex” pension plan) and of its former Media subsidiaries (the “Media” pension plan), which are substantially under funded. Under the terms of the Agreement, the Company and Hillside are held jointly and severally liable to the PBGC to fund the required contributions under the Ampex and Media pension plans. Pursuant to this Agreement, Hillside is obligated to advance pension contributions for the Ampex and Media pension plans in the event the Company is unable to make the required contributions necessary in order to satisfy the minimum funding standard. Failure by Hillside to advance funds as may be required would enable the PBGC to terminate the plans and seek recovery of termination benefits from Hillside.

During the period 2001 through 2005, Hillside made pension contributions totaling $20.7 million pertaining to the Ampex pension plan and the Media pension plan, of which $5.9 million was paid in 2005 and $10.7 million was paid in 2004. The Company has issued notes to Hillside (“Hillside Notes”) in the amount of the

F-21

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

pension contributions and amounts advanced in prior years. The Company has requested Hillside to fund contributions due in 2006 which are estimated to total $9.5 million and may do likewise in future years based on the Company’s liquidity.

If Hillside is required to make all or a portion of the above pension contributions, the Company will issue additional Hillside Notes. Under the terms of the Hillside Notes, $150,000 is due on the first anniversary of each of the notes with the remainder due on the fourth anniversary of the Notes. Pursuant to amendments to the senior debt agreements, all principal payments on the Hillside Notes will be deferred until after December 31, 2006 with earlier repayment in the event that the Senior Notes have been repaid in full. The Hillside Notes provide for interest paid quarterly at 1 percent plus 175% of the applicable mid-term federal rate (effective rate of 8.75% at December 31, 2005). The Company granted to Hillside a security interest in Data Systems’ inventory as collateral for notes issued to Hillside. The Hillside Notes contain certain restrictive covenants which, among other things, restrict the Company’s ability to declare dividends, sell all or substantially all of its assets or commence liquidation, or engage in specified transactions with certain related parties, breach of which could result in acceleration of the Company’s potential termination liabilities.

Hillside is legally obligated to comply with the terms of the Joint Settlement Agreement, and they have represented that they have sufficient assets to fund pension contributions scheduled in future years. Ampex has no direct or indirect financial ownership interest in Hillside and, accordingly, has no ability to control Hillside or to mandate its compliance with the terms of the Agreement. Accordingly, except for the provisions of the Agreement, Ampex’s ability to borrow pension contributions from Hillside is beyond its control.

Senior Notes and Senior Discount Notes

In March 2004, the Company received consent from the holders of its senior debt securities (i) to extend the maturity date of its 20% Senior Discount Notes from January 5, 2005 to January 5, 2006, (ii) to extend the measurement date from December 31, 2004 to December 31, 2006, by which the Company is required to generate at least $30 million of Available Cash Flow, as defined in the indenture governing the 12% Senior Notes due 2008 and (iii) to defer scheduled principal repayments on Hillside Notes through December 31, 2006. Interest on the Senior Discount Notes and Senior Notes, if not paid in cash, is added to the outstanding debt balance.

In the fourth quarter of 2004, the Company repaid all of the Senior Discount Notes that were outstanding at that date with an accreted value of $10.2 million and redeemed $52.2 million of its Senior Notes and related accrued interest. At that time, the Company satisfied the Available Cash Flow covenant discussed above. In the second quarter of 2005, the Company redeemed an additional $10.4 million of its Senior Notes and related accrued interest.

F-22

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accrued interest, interest expense and principal transactions for the Senior Notes and Senior Discount Notes are as follows:

	For the Year Ended December 31,
	2005			2004
	(in thousands)
Senior Notes
Accrued interest, beginning of the period	$	702		$	2,627
Interest expense		1,181			7,507
Cash payments applied to interest		(1,631	)		(2,217	)
Issuance of Notes in lieu of cash payment of interest		—			(7,215	)
Accrued interest, end of period	$	252		$	702
Cash payments applied to principal	$	(10,000	)	$	(50,000	)
Senior Discount Notes
Accrued interest, beginning of the period	$	—		$	244
Interest expense		—			1,691
Cash payments applied to interest		—			(617	)
Capitalized interest added to principal		—			(1,318	)
Accrued interest, end of period	$	—		$	—
Cash payments applied to principal	$	—		$	(11,075	)

The indenture under which the Senior Notes were issued contains customary affirmative and negative restrictive covenants that limit the payment of dividends, the incurrence of additional indebtedness or liens, certain sales of assets and other actions by the Company and its restricted subsidiaries. In the event of default, the holders of the Notes would be entitled to enforce the liens granted by the Company on its future patent royalty stream and to apply amounts collected to repayment of the Notes.

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, 2005, for years subsequent to 2006:

Year	(in thousands)
2007	$	1,688
2008		8,437
2010		9,850
2011		5,750
Total	$	25,725

F-23

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 11—Other Liabilities

	December 31,
	2005		2004
	(in thousands)
Reserve for tax liabilities	$	1,150	$	1,150
Other postemployment benefits		185		202
Environmental		90		100
Other, including amounts due NHI, the former parent		504		416
Total	$	1,929	$	1,868

The reserve for tax liabilities represents disputed income and excise tax assessments levied in prior years against certain foreign subsidiaries of the Company, which are inactive.

Note 12—Commitments and Contingencies

Leases

The Company leases certain manufacturing and office facilities and equipment under operating lease agreements. At December 31, 2005 future annual lease obligations under leases with noncancellable lease terms in excess of one year were as follows:

Year	(in thousands)
2006	$	3,297
2007		3,192
2008		1,909
2009		116
Thereafter		—
Total	$	8,514

The future annual operating obligations include operating lease obligations on facilities used in continuing operations and discontinued operations. The amounts above exclude sublease rental income of $0.8 million due in the future under noncancellable subleases. Total rent expense for all operating leases for continuing operations was $2.6 million, $1.9 million and $1.7 million for the years ended December 31, 2005, 2004 and 2003, respectively. Sublease income received on abandoned leases related to discontinued operations totaled $0.4 million and $79 thousand in 2005 and 2004, respectively. There was no sublease income in 2003.

Legal Proceedings and Foreign Tax Assessments

In October 2004, the Company initiated litigation against Eastman Kodak Company (“Kodak”) for their infringement of one of its patents, the “121” patent, in the International Trade Commission (“ITC”) and also, at the same time, in U.S. District Court in Delaware (“District Court”). In the ITC proceeding the remedies available would be to bar Kodak from the importation or sale of digital still cameras or in certain circumstances to require Kodak to post a forfeitable bond on digital still cameras imported into the United States, in each case for the life of the “121” patent which expires in April 2006. In the separate District Court case, the Company is seeking monetary damages for infringement of the patent. As discussed below, until recently the District Court suit, although filed, had not proceeded as it was automatically stayed for the duration of the ITC proceeding.

F-24

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company had several settlement discussions with Kodak but, although it has negotiated licenses with thirteen other manufacturers of digital still cameras, the Company believes that it is unlikely that an out-of-court settlement with Kodak can be reached. The Company withdrew its litigation in the ITC on July 29, 2005, in order to accelerate the proceedings in the District Court to seek unspecified financial damages for unauthorized use of the Company’s patent from August 2001 (the date on which the Company gave notice of infringement) through April 11, 2006, and the Company intends to pursue the litigation vigorously. A trial date has been scheduled for December 2006.

Also, the Company is currently a defendant in lawsuits that have arisen in the ordinary course of its business. Certain subsidiaries have been assessed income and value-added taxes together with penalties and interest. 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.

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. Also, the Company may have continuing liability with respect to environmental contamination related to the facilities and disposal activities of its former Media subsidiary. The Company is also subject to the federal Occupational Safety and Health Act and other laws and regulations affecting the safety and health of employees in its facilities. Management believes that the Company is generally in compliance in all material respects with all applicable environmental and occupational safety laws and regulations or has plans to bring operations into compliance. Management does not anticipate that capital expenditures for pollution control equipment for fiscal 2006 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. The Company has three environmental investigations, remediation and/or monitoring activities outstanding at December 31, 2005. Two sites are associated with the operations of Media while the third relates directly to a disposal activity of the Company. Some of these activities involve the participation of state and local government agencies. Although the Company disposed of Media in November 1995, it remains liable with respect to environmental contamination at these sites if Media fails to discharge its responsibilities with respect to such sites. On January 10, 2005, Media filed under Chapter 11 of the Bankruptcy Code. In prior years, the Company had been named as a potentially responsible party by the United States Environmental Protection Agency with respect to four other 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. In the second quarter of 2005, the Company was informed that these former Media sites have been remediated to the satisfaction of the EPA. Accordingly, the Company believes that there is no further liability with respect to these Superfund sites.

With respect to environmental matters involving site contamination, the Company continually conducts studies, individually or jointly with other responsible parties, to determine the feasibility of various remedial techniques to address environmental matters. It is the Company’s policy to record appropriate liabilities for environmental matters when remedial efforts or damage claim payments are probable and the costs can be reasonably estimated. Such liabilities are based on the Company’s best estimate of the undiscounted future costs required to complete the remedial work. At December 31, 2005, the Company has recorded a liability of $0.1 million for pending environmental liabilities associated with activities by the Company and has recorded a liability within discontinued operations of $2.4 million, of which $1.1 million is classified as a current liability as it is expected to be paid in 2006, for the estimated expenses it projects it will incur with respect to the two Media

F-25

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

sites discussed above. Although the Company does not currently possess sufficient information to reasonably estimate the amounts of liabilities to be recorded upon future completion of studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with environmental matters can be determined, it could be material to its consolidated results of operations or operating cash flows in the periods recognized or paid. However, considering the past experience and existing reserves, the Company does not expect that these environmental matters will have a material effect on its consolidated results of operations or operating cash flows in the periods recognized or paid. These liabilities have not been discounted, as neither the amount nor the timing of future payments are fixed. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. Given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other potentially responsible parties, technology and information related to individual sites, the Company does not believe it is possible to develop an estimate of the range of reasonably possible environmental loss in excess of its accruals. The Company expects to fund expenditures for these matters from operating cash flow. The timing of cash expenditures depends on a number of factors, including regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties.

Guarantees

The Company, as permitted under Delaware law and in accordance with its Bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while they were serving at its request in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company has a Director and Officer Insurance Policy that enables the Company to recover a portion of any future amounts paid. As a result of the insurance policy coverage, the Company believes the fair value of these indemnification agreements is minimal.

The Company’s sales agreements indemnify its customers for any expenses or liability resulting from claimed infringements of patents, trademarks or copyrights of third parties. The terms of these indemnification agreements are generally perpetual any time after execution of the agreement. The maximum amount of potential future indemnification is unlimited. However, to date, the Company has not paid any claims or been required to defend any lawsuits with respect to any claim.

The Company has guaranteed certain lease payments with respect to equipment and real estate of subsidiaries. The Company has recorded accrued restructuring costs or net liabilities of discontinued operations for substantially the full amount of its guarantee, net of the anticipated sublease income expected to be realized. If no sublease income were realized, the Company’s additional unreserved exposure would be $0.8 million.

Products sold are generally covered by a warranty for periods ranging from 90 days to one year. The Company accrues a warranty reserve for estimated costs to provide warranty services. The estimate of costs to service the Company’s warranty obligations is based on historical experience and expectation of future conditions. To the extent that the Company experiences increased warranty claim activity or increased costs associated with servicing those claims, the warranty accrual will increase resulting in decreased gross profit.

Plan Sponsor of Pension and Other Retirement Plans

The Company is the Plan Sponsor of various domestic and foreign non-contributory defined benefit pension plans. In addition, the Company provides supplemental retirement payments to certain former employees of the Company, which were earned under prior corporate ownership. See Note 16.

F-26

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 13—Preferred Stock

Beginning in June 1999, the Company became obligated to redeem the Redeemable Preferred Stock in quarterly installments. For the year ended December 31, 2003, the Company issued 64,440 shares of its Common Stock to satisfy the quarterly redemption requirements. On October 2, 2003, the Company redeemed all remaining Redeemable Preferred Stock. In 2003, the Company recognized a benefit to common stockholders from extinguishment of preferred stock totaling $24.0 million, which represented the excess of the face amount of the preferred stock redeemed over the market price of the common stock issued.

Note 14—Related Party Transactions

Equity Investment:

The Company evaluates new investment and income-generating opportunities, subject to restrictions imposed under its debt agreements, and has incurred business development costs of $1.0 million, $0.6 million and $0.7 million in 2005, 2004 and 2003, respectively. These costs consist primarily of consulting fees and office rent paid to a non-affiliated British investment advisory company hired to identify investment opportunities. The Company currently expects to discontinue such payments after March 31, 2006.

The Company made an investment in a limited partnership in 2003, which the Company accounted for under the equity method of accounting. The investment partnership purchased approximately 28% of a publicly-held British promotional products company, which the non-affiliated British investment advisory company identified as a turnaround investment. In addition, the Company was entitled to receive a percentage of incentive fees earned by the general partner of the investment limited partnership. In the first quarter of 2004, the partnership sold a portion of its investment in the British promotional products company and the Company recognized its pro rata share of the gain on that sale. Subsequently in 2004, the partnership sold or distributed to its partners all of the remaining shares of the company. No further investment activities are envisioned by this partnership. The Company has received total distributions of $3.3 million on its $1 million investment, which includes incentive fees received of $0.6 million from the general partner.

The following table provides summarized financial information on a 100% basis for the limited partnership accounted for under the equity method as of December 31, 2004 and for the year then ended (in thousands):

Earnings Data:

Income from operations	$	71
Equity in net income of products company		213
Gain on sale of stock of products company		8,597
Net gain	$	8,881

In 2005, the investment advisory company identified Elementis Group plc (“Elementis”), a UK specialty chemicals company, as a turnaround investment and organized a limited partnership to invest in the company. Ampex elected not to invest in the limited partnership, but Ampex is entitled to receive reimbursement of business development expenses and to receive additional incentive fees from the general partner, as discussed more fully below.

Edward Bramson was appointed the non-executive Chairman of the Board of Directors of Elementis on June 6, 2005 and its interim CEO on August 9, 2005. Mr. Bramson does not intend to remain CEO of Elementis

F-27

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

subsequent to the implementation of an operational turnaround plan. Mr. Bramson has assigned his Elementis director fees to the Company and has foregone any compensation from Elementis in exchange for a portion of the incentive fees, if any, which may ultimately be received by the Company.

Equity Investment—Subsequent Event (Unaudited):

As discussed above, the Company is entitled to receive reimbursement of business development expenses and to receive additional incentive fees from the general partner based upon any gains realized by the limited partnership upon the sale of its investment in a UK specialty chemicals company. Based on the market value of the specialty chemicals company at December 31, 2005, the Company estimates that it would have been entitled to receive reimbursement of business development expenses and incentive fees of approximately $4.1 million from the general partner, had the partnership’s investment been sold on that date. In the first quarter of 2006, the Company expects to realize a reimbursement of business development expenses incurred during the investment holding period, September 2004 to March 2006, and a portion of the incentive fee resulting from the sale of approximately two thirds of the limited partnership’s investment in Elementis. The Company may be entitled to additional incentive fees upon the sale by the limited partnership of the remaining share of Elementis and such incentive fees will be based on any gain that may be realized at the time of the sale.

Capital Transaction:

During the period from 1995 to 1998, the Company sold shares of its Class A Common Stock at the then-current fair market value to First Jeffson Corporation (“FJC”) and to Second Jeffson Corporation (“SJC”), affiliated corporations controlled by Edward Bramson, the Chairman and Chief Executive Officer of Ampex Corporation. The purchase price was paid partly in cash and partly with promissory notes. The notes were collateralized by a pledge of the shares of Class A Common Stock that were purchased. For several years, the market value of the pledged shares was substantially less than the principal amount of the notes. In 2002, these companies advised the Company that there could be no assurance that they would be able to obtain additional funds from Mr. Bramson or others to make future payments of interest or principal on the notes. In 2002, the Company offset the “Notes receivable from stockholders” against “Other additional capital” in the Consolidated Balance Sheets, effectively negating the original transactions. During 2003, FJC failed to make scheduled interest payments amounting to $205,953 on outstanding notes aggregating $2,794,050 that were to mature in January 2005 and October 2007. Accordingly, in March 2004, after reviewing the matter with legal advisors, Ampex foreclosed on these notes and caused the 85,000 pledged shares, which had a fair market value of $153,000, to be registered in the Company’s name. In connection with the foreclosure transaction, FJC also transferred to the Company 500 additional shares of Class A Common Stock and $12,600 in cash, which represented substantially all of FJC’s other assets. The foreclosure action did not affect the Company’s net assets or results of operations, exclusive of tax benefits that may be realized in future years. The Company has cancelled the shares received from FJC and has excluded them from shares outstanding at December 31, 2005 and 2004. Interest and principal paid by FJC on the notes in prior years totaling $2.4 million will be retained by Ampex.

The Company continues to hold the note issued to it by SJC, which is a 5.74% non-recourse note secured by a pledge of 20,000 shares of Class A Stock. The principal amount of the note totaled $1,848,000 at December 31, 2005 and is scheduled to mature in October 2008. Under the terms of the note, interest of $106,075 is forgiven annually so long as Mr. Bramson continues as an officer and director of the Company. Should SJC not repay the note when it matures, Ampex’s only recourse is to the 20,000 pledged shares, which had a market value of $407,800 at December 31, 2005. Should Ampex be required to foreclose on the note in the future, there is no assurance that the value of the pledged shares would be sufficient to repay the note in full. However, management believes that there would be no financial statement effect on net income or net assets of the Company from a future foreclosure, except for possible future tax benefits that may be realized in future years.

F-28

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 15—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 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 11, 2005, at the Company’s Annual Meeting, stockholders authorized the issuance of an additional 300,000 shares of Common Stock under the 1992 Stock Incentive Plan. The Company is authorized to issue up to 712,500 shares of Common Stock under the Stock Incentive Plan of which 311,292 shares are available for grant.

At December 31, 2005, there were 154,066 options outstanding under the Stock Incentive Plan, including 126,066 vested options. The exercise prices range from $1.15 to $38.25 per share and vesting schedules vary from immediate vesting to vesting over a three-year period.

	Shares Available for Grant		Number of Options		Price per Share		Aggregate Exercise Price			Weighted Average Exercise Price
Balances, December 31, 2002	225,967		129,198		$	2.40-97.50	$	1,790,047		$	13.80
Granted	(750	)	750			5.20		3,900			5.20
Canceled	45,374		(45,374	)		3.60-97.50		(606,106	)		13.36
Adjusted	102		(153	)		—		(7,526	)		—
Exercised	—		(42,500	)		3.40		(144,500	)		3.40
Balances, December 31, 2003	270,693		41,921			2.40-72.50		1,035,815			24.71
Granted	(260,500	)	260,500			1.15-2.40		359,575			1.38
Canceled	28,395		(28,395	)		2.40-72.50		(779,082	)		27.44
Exercised	—		(50,000	)		1.15		(57,500	)		1.15
Balances, December 31, 2004	38,588		224,026			1.15-21.25		558,808			2.49
Authorized	300,000		—			—		—			—
Granted	(28,000	)	28,000			38.25		1,071,000			38.25
Canceled	704		(704	)		8.00		(5,632	)		8.00
Exercised	—		(97,256	)		1.15-21.25		(210,182	)		2.16
Balances, December 31, 2005	311,292		154,066		$	1.15-38.25	$	1,413,994		$	9.18

For the years ended December 31, 2005, 2004 and 2003, the weighted average fair value of options granted was $26.14, $0.83 and $4.64 per share, respectively.

F-29

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The options outstanding and currently exercisable by exercise price at December 31, 2005 are as follows:

Options Outstanding					Options Currently Exercisable
Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$1.15-$2.39	102,733	1.18	$	1.26	102,733	$	1.26
$2.40-$21.50	23,333	2.02		9.13	23,333		9.13
$21.51-$38.25	28,000	2.36		38.25	—		—
	154,066	1.52	$	9.18	126,066	$	2.72

The fair values of options at the date of grant were estimated using the Black-Scholes model with the following weighted average assumptions:

	December 31,
	2005		2004		2003
Expected life (years)	1.9		1.0		1.0
Risk-free interest rate	3.60	%	1.29	%	1.27	%
Expected volatility	146	%	235	%	319	%
Expected dividend yield	—		—		—

Note 16—Pension and Other Retirement Plans

The following is a summary of pension and other retirement plans:

	December 31,
Current Obligations	2005		2004
	(in thousands)
Ampex pension plan	$	—	$	3,668
Media pension plan		—		961
Foreign subsidiary plan		151		163
Supplemental retirement plan		713		709
Total current pension and other retirement plans	$	864	$	5,501

	December 31,
Long-term Obligations	2005		2004
	(in thousands)
Ampex pension plan	$	61,266	$	48,431
Media pension plan		25,415		18,809
Foreign subsidiary plan		2,632		2,480
Supplemental retirement plan		6,635		6,405
Total long-term pension and other retirement plans	$	95,948	$	76,125

Pension contributions for the Ampex and Media pension plans due in 2006, which are estimated to total $9.5 million, have been excluded from current pension and other retirement plans and have been classified as long-term obligations. Payment of the 2006 pension contributions will be funded pursuant to the terms of the Joint

F-30

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Settlement Agreement whereby long-term notes will be issued to Hillside in the amount of the contributions. The Company may request Hillside to make pension contributions due in future years based on the Company’s liquidity. See Note 10.

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. The Company is also the Plan Sponsor of the pension plan of Media, a former subsidiary that was sold in 1995. In early 1994, the Company amended the plans 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 plans.

The 1995 sale agreement for Media required the buyer, Quantegy Corporation, to pay directly or to reimburse Ampex for required contributions to the Media pension plan. This agreement was intended to make Ampex whole from any expense or cash outlay as it pertained to the Media pension plan. However, the Company remained the Plan Sponsor of the Media pension plan and remained obligated to make pension contributions to that plan. During 2003, the Company and Media entered into the Retirement Plan Funding and Settlement Agreement, which provided for monthly payments of $74,000 by Media to Ampex in settlement of future pension contributions that may be required under the Media pension plan and that would be funded by the Company. During 2004 and 2003, Media paid directly or reimbursed Ampex for pension contributions made on Media’s behalf of $0.8 million and $0.8 million, respectively. During 2005, Media did not pay directly or reimburse Ampex for pension contributions made on Media’s behalf. Reimbursement payments reduce actuarially determined “Media pension costs” and are reflected in the “Statement of Operations and Comprehensive Income (Loss)” when such payments are assured of collection.

On January 10, 2005, Media filed under Chapter 11 of the Bankruptcy Code. Accordingly, the Company does not expect to receive any additional payments or to be reimbursed for future pension contributions that Ampex will be required to make under the Media pension plan as its Plan Sponsor.

Actuarially determined pension expense for the Ampex and Media pension plan in 2005, 2004 and 2003 consisted of the following:

	December 31,
	2005			2004			2003
	(in thousands)
Ampex Pension Plan
Interest on projected benefit obligation	$	11,024		$	11,352		$	11,789
Expected return on assets		(11,255	)		(11,453	)		(12,302	)
Recognized actuarial loss		2,641			1,991			983
Net periodic pension cost	$	2,410		$	1,890		$	470

F-31

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The net periodic pension costs for the Ampex pension plan are included in the “Selling and administrative” expenses on the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).

	December 31,
	2005			2004			2003
	(in thousands)
Media Pension Plan
Interest on projected benefit obligation	$	3,598		$	3,454		$	3,470
Expected return on assets		(3,330	)		(2,974	)		(2,804	)
Recognized actuarial loss		506			1,695			1,531
Curtailment loss		—			2,541			—
Net periodic pension cost		774			4,716			2,197
Reimbursements received from Quantegy		—			(780	)		(814	)
Net periodic pension cost (net of reimbursements)	$	774		$	3,936		$	1,383

In the fourth quarter of 2004, the net periodic pension cost for the Media pension plan includes a curtailment loss of $2.5 million due to the termination of employees’ services earlier than actuarially expected, resulting from Media’s bankruptcy filing.

The funded status and amounts included in the consolidated balance sheets are as follows:

	December 31,
	2005			2004
	(in thousands)
Ampex Pension Plan
Actuarial present value of benefits:
Vested and total accumulated benefits	$	199,769		$	190,151
Projected benefit obligation	$	(199,769	)	$	(190,151	)
Less: plan assets at fair value		138,503			138,052
		(61,266	)		(52,099	)
Unrecognized net loss		—			—
Accrued pension cost	$	(61,266	)	$	(52,099	)
	December 31,
	2005			2004
	(in thousands)
Media Pension Plan
Actuarial present value of benefits:
Vested and total accumulated benefits	$	66,225		$	61,462
Projected benefit obligation	$	(66,225	)	$	(61,462	)
Less: plan assets at fair value		40,810			41,691
		(25,415	)		(19,770	)
Unrecognized net loss		—			—
Accrued pension cost	$	(25,415	)	$	(19,770	)

F-32

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following provides a reconciliation of benefit obligations, plan assets and funded status of the domestic plans:

	December 31,
	2005			2004
	(in thousands)
Ampex Pension Plan
Change in benefit obligation:
Benefit obligation at the beginning of the year	$	190,151		$	180,542
Interest cost		11,024			11,352
Actuarial loss		13,114			4,683
Benefits paid		(14,520	)		(14,426	)
Benefit obligation at the end of the year	$	199,769		$	190,151
Change in plan assets:
Fair value of plan assets at the beginning of the year	$	138,052		$	130,000
Actual return on plan assets		6,248			14,606
Company contributions		8,723			7,872
Benefits paid		(14,520	)		(14,426	)
Fair value of plan assets at the end of the year	$	138,503		$	138,052
Accrued benefit liability	$	(61,266	)	$	(52,099	)
Accumulated other comprehensive income		90,276			74,796
Net amount recognized	$	29,010		$	22,697
	December 31,
	2005			2004
	(in thousands)
Media Pension Plan
Change in benefit obligation:
Benefit obligation at the beginning of the year	$	61,462		$	56,714
Interest cost		3,598			3,454
Actuarial loss		4,809			1,776
Curtailment loss		—			2,541
Benefits paid		(3,644	)		(3,023	)
Benefit obligation at the end of the year	$	66,225		$	61,462
Change in plan assets:
Fair value of plan assets at the beginning of the year	$	41,691		$	37,571
Actual return on plan assets		1,802			4,296
Company contributions		961			2,847
Benefits paid		(3,644	)		(3,023	)
Fair value of plan assets at the end of the year	$	40,810		$	41,691
Accrued benefit liability	$	(25,415	)	$	(19,770	)
Accumulated other comprehensive income		24,501			18,669
Net amount recognized	$	(914	)	$	(1,101	)

F-33

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Actuarial assumptions used to determine benefit obligations during the year follows:
	December 31,
	2005		2004
Assumed discount rate	5.65	%	6.00	%
Rate of compensation increase	N/A		N/A

At December 31, 2005, the Company changed the accounting estimates to lower the assumed discount rate from 6.0% to 5.65% and switched to the RP 2000 mortality table from the 1983 group annuity mortality table, in order to reflect the best estimate of the plans’ future experience with respect to those assumptions. Our actuaries compute the discount rate. It represents a weighted average interest rate inherent in a theoretical portfolio of currently available, high quality, fixed income investments that are scheduled to mature over future periods corresponding to when benefits to plan participants are projected to be paid. The mortality assumption reflects the most recent actuarial computations of male and female life expectancies. These changes increased the actuarial loss by $12.3 million under the Ampex plan and $4.3 million under the Media plan. Actuarial losses are amortized into periodic pension cost over the life expectancy of the retirees of each plan and are expected to add $0.6 million to the annual pension cost under the Ampex plan and $0.2 million to the annual pension cost under the Media plan in future periods.

Actuarial assumptions used to determine the net periodic pension cost during the year follows:

	December 31,
	2005		2004
Assumed discount rate	6.00	%	6.25	%
Rate of compensation increase	N/A		N/A
Expected long-term rate of return	8.0	%	8.0	%

An estimated decrease of 25 basis points in the long-term rate of return and an estimated decrease of 25 basis points in the discount rate would increase net pension expense by approximately $0.3 million for the Ampex plan and $0.1 million for the Media plan.

Pension contributions in 2005 totaled $8.7 million for the Ampex Plan and $1.0 million for the Media Plan of which $5.9 million was funded through the issuance of Notes to Hillside. Pension contributions in 2004 totaled $7.9 million to the Ampex Plan and $2.8 million to the Media Plan, which were funded through the issuance of Notes to Hillside. See Note 10.

The Company’s defined benefit plan and the Media defined benefit plan participate in a Master Trust Agreement. Each plan has an undivided interest in the assets of the Master Trust, and ownership is represented by the proportionate dollar interest. In September 2002, the Company and Hillside entered into an agreement whereby an affiliate of Hillside assumed fiduciary responsibility for the management of substantially all of the Master Trust’s assets. As a result of this transition, changes were made to certain of the Trust’s investment managers to place a greater percentage of assets with managers having an active investment strategy as opposed to investment in broad index funds. Such changes were initiated to seek to limit volatility that had been experienced in preceding years.

The Master Trust is invested in a diversified portfolio of cash and short-term securities, equity securities and debt securities, with the vast majority of investments under professional management. Company directed investments consist of cash, investments in limited partnerships that invest in distressed debt securities, equity

F-34

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

securities of non-public companies and equity securities of the Company. The Trust does not invest in real estate or derivative securities. The Company and Hillside have established an asset allocation range where equity securities (including non-investment grade debt securities) comprise between 40% to 60% of invested plan assets, with investment grade debt securities comprising the balance of invested assets. Asset allocation percentages are designed to achieve the Trust’s long-term expected rate of return and to cushion the portfolio against adverse market swings that may be experienced in debt or equity markets. The amount of cash and short-term investments held by the Master Trust is based on the investment manager’s assessment of market conditions, amounts required to fund monthly benefit payments and plan expenses and capital commitments to investment partnerships. In addition, the Company and Hillside have established parameters in the selection of investment managers including historical track record, investment style and minimum dollar value of assets under management. Investment performance is evaluated over an investment cycle, measured against broad market indices that best reflect the particular managers’ investment strategy.

The weighted average percentage of fair value for each major category of total plan assets at fair value as of the measurement dates at December 31, 2005 and December 31, 2004 is as follows:

	December 31,
	2005		2004
Equity securities	51	%	52	%
Debt securities	35	%	36	%
Cash and short-term investments	14	%	12	%

The market value of the Company’s equity securities held by the trust was $3.5 million and $6.8 million at December 31, 2005 and December 31, 2004, respectively.

The Company has assumed a long-term rate of return on the Trust’s assets of 8% per annum for 2005 and 2004, which is slightly less than the historical average rate of return realized over the past 14 years. Realized returns in 2005 were less than the target rate while in 2004 realized returns exceeded the target rate. In recent prior years, the fund has sustained negative returns or realized returns that have been below the target rate. However, the Company believes that a target rate of return of 8% is achievable when forecasting performance of a diversified portfolio of equity and debt securities over a long-term investment horizon. Future results may differ from this assumption and if significant differences affect historical returns over several years, the Company would adjust the rate of return assumption to reflect such changes.

The following table reflects the total expected future benefit payments by the Company and Media to plan participants and have been estimated based on the same assumptions used to measure the benefit obligation at the end of the year:

	Ampex Pension Plan		Media Pension Plan
	(in thousands)
2006	$	14,608	$	3,930
2007		14,692		3,887
2008		14,865		3,861
2009		14,910		3,880
2010		15,091		3,856
2011-2015		75,608		19,629

F-35

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following schedule lists the annual estimated contributions as computed by the plans’ actuary for the Ampex pension plan and Media pension plan through 2010. The following amounts are substantially less than the unfunded accumulated benefit obligation recognized by the Company as liabilities on its Consolidated Balance Sheets due to differing actuarial assumptions prescribed by ERISA in each instance. The Company has requested Hillside to fund contributions due in 2006 which are estimated to total $9.5 million pursuant to the terms of the Joint Settlement Agreement and may do likewise in future years based on the Company’s liquidity. See Note 10.

	Estimated Contributions
	Ampex Pension Plan		Media Pension Plan
	(in thousands)
2006	$	1,641	$	7,827
2007		19,338		4,976
2008		9,201		3,769
2009		3,629		1,298
2010		400		—
Total	$	34,209	$	17,870

The determination of the obligation and expense for pension benefits is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, the discount rate, expected long-term rate of return on plan assets and mortality assumptions for the plan participants.

Certain of the Company’s employees employed by a foreign subsidiary are covered by an unfunded pension plan maintained in accordance with local laws. The components of the foreign pension expense were as follows:

	Year Ended December 31,
	2005		2004		2003
	(in thousands)
Interest cost	$	135	$	130	$	130
Net periodic pension cost	$	135	$	130	$	130

The amounts included in the Consolidated Balance Sheets for the foreign plan are as follows:

	December 31,
	2005			2004
	(in thousands)
Actuarial present value of benefits:
Vested and total accumulated benefits	$	2,783		$	2,744
Projected benefit obligation	$	(2,783	)	$	(2,744	)
Less: plan assets at fair value		—			—
Accrued pension cost	$	(2,783	)	$	(2,744	)
Accrued benefit liability	$	(2,783	)	$	(2,744	)
Accumulated other comprehensive income		494			101
Net amount recognized	$	(2,289	)	$	(2,643	)

F-36

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following provides a reconciliation of benefit obligations of the foreign plan:

	December 31,
	2005			2004
	(in thousands)
Change in benefit obligation:
Benefit obligation at the beginning of the year	$	2,744		$	2,454
Interest cost		135			130
Actuarial gain		430			103
Currency (gain)/loss		(380	)		199
Benefits paid		(146	)		(142	)
Benefit obligation at the end of the year	$	2,783		$	2,744

Actuarial assumptions used to determine the net periodic benefit cost and benefit obligations follows:

	December 31,
	2005		2004
Assumed discount rate	4.00	%	5.50	%
Rate of compensation increase	N/A		N/A
Expected long-term rate of return	N/A		N/A

The expected future benefit payments of the foreign plan are as follows:

Year	(in thousands)
2006	$	150
2007		154
2008		161
2009		164
2010		165
2011 - 2015		908

The determination of the obligation and expense for pension benefits is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, the discount rate, expected long-term rate of return on plan assets and mortality assumptions for the plan participants.

In accordance with SFAS No. 87, “Employers’ Accounting for Pensions,” the Company has recorded a cumulative minimum pension liability for the underfunded plans of $112.8 million representing the excess of unfunded accumulated benefit obligations over previously recorded pension cost liabilities at December 31, 2005. 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. Stockholders’ deficit was charged $21.8 million in 2005, credited $1.8 million in 2004 and charged $8.9 million in 2003, respectively.

The Company remains obligated to make supplemental retirement benefit payments to certain retired employees pursuant to plans that were established under prior ownership. Benefit payments are determined based on a percentage of the employee’s compensation and are funded out of cash flow generated by the business. The Company has accrued the actuarial present value of the estimated future payments due under the plans based on

F-37

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the discount rate and mortality assumption used in the defined benefit plan. Amounts included in “Other accrued liabilities” and “Other liabilities” were $0.7 million and $6.6 million at December 31, 2005 and $0.7 million and $6.4 million at December 31, 2004, respectively.

The expected future benefit payments of the supplemental plans are as follows:

Year	(in thousands)
2006	$	713
2007		734
2008		761
2009		787
2010		808
2011 - 2015		3,545

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 $0.2 million, $0.2 million and $0.2 million for the year ended December 31, 2005, 2004 and 2003, respectively.

Note 17—Restructuring Charges (Credits)

Restructuring charges (credits) for the years ended December 31, 2005, 2004 and 2003 consist of the following:

	Year Ended December 31,
	2005		2004			2003
	(in thousands)
Provisions for (recovery of) lease obligations	$	—	$	(1,410	)	$	3,098

A reconciliation of the changes in the restructuring liability accounts is as follows:

	2005			2004
	(in thousands)
Balance at January 1	$	2,267		$	4,750
Recovery during the period		—			(1,410	)
Payments made during the period		(627	)		(1,073	)
Balance at December 31	$	1,640		$	2,267

Data Systems vacated certain administrative offices in Redwood City, CA in 2001 and 2002 to consolidate operations to lower continuing operating expenses and recorded a net restructuring charge of $4.2 million. In 2003, the Company established an additional reserve of $3.1 million to reflect the inability to sublease the premises due to the continued depressed real estate market. In 2004, the Company decided to seek a buyer for its Colorado Springs manufacturing facility and reutilize, in part, the Redwood City leased facilities that had been charged to restructuring in prior periods. As a result, the Company recognized a restructuring credit of $1.4 million. The Company remeasured the restructuring accrual pursuant to SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Lease costs associated with the manufacturing activities in Redwood City are charged as incurred to the “Cost of product sales” of Data Systems. During 2005, 2004 and 2003, the Company paid and charged the restructuring accrual $0.6 million, $1.1 million and $1.3 million, respectively, related to costs associated with the vacated portion of the facilities. The Company has paid and

F-38

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

charged the restructuring accrual $4.3 million since the inception of the 2001-2002 restructuring program. The unamortized balance in accrued restructuring totaled $1.6 million at December 31, 2005. This obligation has been discounted at 5.5% per annum. The Company expects to make payments as it relates to the remaining balance of accrued restructuring through 2008. The Company evaluates the amount of accrued restructuring costs, including projected sublet income, on a quarterly basis, and it may make additional adjustments in future periods if the Company determines that its actual obligations will differ significantly from remaining amounts accrued.

Note 18—Income Taxes

Income (loss) from continuing operations before income taxes for domestic and foreign operations consisted of the following:

	Year Ended December 31,
	2005			2004			2003
	(in thousands)
Domestic	$	6,957		$	49,814		$	(4,898	)
Foreign		(396	)		(206	)		(38	)
	$	6,561		$	49,608		$	(4,936	)

The provision for (benefit of) income taxes consisted of the following:

	Year Ended December 31,
	2005			2004			2003
	(in thousands)
Current:
Federal current provision	$	627		$	12,724		$	(1,930	)
Benefit of utilization of NOL		(627	)		(12,724	)		—
Federal alternative minimum tax		36			800			—
State		145			50			(2,000	)
Foreign		—			(62	)		(238	)
Foreign withholding taxes on royalty income		568			310			996
		749			1,098			(3,172	)
Deferred:
Federal		—			—			—
State		—			—			—
Foreign		—			—			—
		—			—			—
	$	749		$	1,098		$	(3,172	)

F-39

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In 2005, the federal current provision and benefit of utilization of net operating loss (“NOL”) carryforwards have been computed before windfall tax deductions from employee stock option exercises. Accordingly, an offset to the federal alternative minimum tax provision has been recognized in “Other Additional Capital.” The Company’s effective tax rate is lower than the statutory rate due to the utilization of NOLs and permanent differences. The difference between taxes computed by applying the statutory federal corporate income tax rate (effective for 2005, 2004, and 2003) to income (loss) before income taxes and the actual provision for income taxes was as follows:

	Year Ended December 31,
	2005			2004			2003
	(in thousands)
Federal income tax provision at statutory rate	$	2,296		$	17,363		$	(1,728	)
Federal alternative minimum tax		36			800			—
State income tax		145			50			—
Change in valuation allowance		(1,761	)		(4,464	)		—
Utilize US consolidated losses		(627	)		(12,724	)		—
Domestic losses not benefited		—			—			1,715
Foreign withholding taxes		568			310			996
Reversal of prior years’ foreign, federal, state and deferred income taxes		—			—			(4,164	)
Other, net		92			237			9
	$	749		$	1,098		$	(3,172	)

During the year ended December 31, 2003, the Company benefited from a non-cash reversal of reserves of $4.2 million provided on prior years’ foreign, federal, state and deferred income taxes for years where the Company reached a settlement with tax authorities or where years have been closed to audit or otherwise determined not to be required.

The following table shows the major components of the deferred income tax assets (liabilities) as of December 31, 2005 and 2004:

	December 31,
	2005			2004
	(in thousands)
Pension contributions in excess of pension expense	$	(10,435	)	$	(9,252	)
Inventory basis differences		2,240			2,164
Restructuring reserves and other liabilities not yet deductible for tax purposes		5,055			6,125
Loss carryforwards (principally NOLs)		69,300			71,045
Property, plant and equipment
Basis differences		529			1,042
Credit from prior year’s minimum tax		2,046			1,991
Other		1,802			1,815
Less valuation allowance		(70,537	)		(74,930	)
Net deferred tax assets	$	—		$	—

The Company must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities,

F-40

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

The Company must assess the likelihood that it will be able to recover the net deferred tax assets. If recovery is not likely, the Company must increase its provision for taxes by recording a valuation allowance against the deferred tax assets and NOLs that the Company estimates will more likely than not ultimately not be recoverable. Since the Company has reported losses in recent years, it cannot determine that it is probable that it will recover the deferred tax assets. Accordingly, the Company has established a valuation allowance equal to such deferred tax assets. There was a decrease in the valuation allowance of $4.4 million during 2005.

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due. If the Company ultimately determines that payment of these amounts is unnecessary, it reverses the liability and recognizes a tax benefit during the period in which it determines that the liability is no longer necessary. The Company records an additional charge in its provision for taxes in any period in which it determines that the recorded tax liability is less than it expects the ultimate assessment to be.

The provision for income taxes consists primarily of foreign withholding taxes on royalty revenue. In addition, the Company recognized the benefit of utilizing NOLs to offset federal income taxes of $0.6 million in 2005 and $12.7 million in 2004. At December 31, 2005, the Company had NOLs for federal income tax purposes of approximately $173 million expiring in the years 2006 through 2023. Of this amount, $3.0 million pertains to windfall tax deductions from employee stock options, which when realized, will be credited to “Other additional capital.” Accordingly, the Company has the ability to shelter a substantial amount of future federal taxable income, including future licensing revenue, if any is ultimately realized. In addition, the Company has federal capital loss carryforwards totaling $8.8 million at December 31, 2005, which may be utilized against capital gains, if any, generated in future periods. Effective July 1, 2004 the U.S./Japanese tax treaty eliminated withholding tax on royalty payments. Prior to July 1, 2004, the Company’s Japanese licensing revenue was subject to foreign tax withholding of up to 10% of licensing revenue.

Note 19—Segment Reporting

The Company has two operating segments, referred to as the Recorders segment and the Licensing segment. The Recorders segment includes the sale and service of data storage systems, instrumentation recorders and professional video products, all of which are made by the manufacturing subsidiary Data Systems. The Licensing segment involves the licensing of Ampex intellectual property through the corporate licensing division. 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 (loss) from continuing operations before income taxes and equity in loss (income) of limited partnership, including sale of investment excluding restructuring charges (credits), corporate administrative costs and elimination entries. Corporate administrative costs are not allocated to either business segment.

F-41

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

There were no intersegment sales or transfers.

	Year Ended December 31, 2005
	(in thousands)
	Recorders		Licensing		Eliminations and Corporate			Totals
Revenues from external customers	$	24,240	$	28,914	$	—		$	53,154
Interest income		214		—		50			264
Interest expense		—		—		2,481			2,481
Depreciation, amortization and accretion		217		—		453			670
Segment income (loss)		2,502		17,310		(13,251	)		6,561
Segment assets		21,647		—		5,055			26,702
Expenditures for segment assets		103		—		11			114
	Year Ended December 31, 2004
	(in thousands)
	Recorders		Licensing		Eliminations and Corporate			Totals
Revenues from external customers	$	28,582	$	72,869	$	—		$	101,451
Interest income		103		—		58			161
Interest expense		1,691		—		8,041			9,732
Depreciation, amortization and accretion		403		—		371			774
Segment income (loss)		318		65,343		(19,612	)		46,049
Segment assets		20,210		—		12,409			32,619
Expenditures for segment assets		129		—		45			174
	Year Ended December 31, 2003
	(in thousands)
	Recorders		Licensing		Eliminations and Corporate			Totals
Revenues from external customers	$	33,305	$	10,054	$	—		$	43,359
Interest income		52		—		51			103
Interest expense		2,181		—		6,819			9,000
Depreciation, amortization and accretion		516		—		573			1,089
Segment income (loss)		4,424		8,421		(14,224	)		(1,379	)
Segment assets		29,111		—		6,086			35,197
Expenditures for segment assets		11		—		14			25

F-42

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A reconciliation of “Segment income (loss)” to “Net income (loss)” as reported on the Consolidated Statements of Operations and Comprehensive Income (Loss) is as follows:

	Year Ended December 31,
	2005			2004			2003
	(in thousands)
Segment income (loss) reported above	$	6,561		$	46,049		$	(1,379	)
Restructuring charges (credits)		—			1,410			(3,098	)
Provision for (benefit of) income taxes		(749	)		(1,098	)		3,172
Equity in loss (income) of limited partnership, including sale of investment		—			2,149			(459	)
Income (loss) from discontinued operations		915			(2,148	)		—
Net income (loss)	$	6,727		$	46,362		$	(1,764	)

Note 20—Foreign Operations

The following table shows certain financial information relating to the Company’s operations in various geographical areas:

	Year Ended December 31,
	2005			2004			2003
	(in thousands)
Total revenue:
United States	$	51,500		$	99,034		$	41,160
Europe, Africa and the Middle East (principally United Kingdom)		1,215			1,518			2,421
Other foreign (principally Japan)		3,882			3,126			1,753
Eliminations and corporate expenses		(3,443	)		(2,227	)		(1,975	)
Total	$	53,154		$	101,451		$	43,359

U.S. revenues include all licensing revenue and export sales. Revenues in locales other than the U.S. are generally attributed to countries based on the location of the customer.

	Year Ended December 31,
	2005			2004			2003
	(in thousands)
Income (loss) from continuing operations before income taxes and equity in loss (income) of limited partnership, including sale of investment:
United States	$	6,885		$	47,481		$	(4,424	)
Europe, Africa and the Middle East (principally
United Kingdom)		(100	)		(191	)		(36	)
Other foreign (principally Japan)		(224	)		169			(17	)
Total	$	6,561		$	47,459		$	(4,477	)
Income (loss) from discontinued operations:
United States	$	915		$	(2,148	)	$	—

F-43

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Year Ended December 31,
	2005		2004
	(in thousands)
Identifiable assets:
United States	$	11,784	$	12,964
Europe, Africa and the Middle East (principally United Kingdom)		219		243
Other foreign (principally Japan)		1,391		1,004
Eliminations and corporate assets		13,308		18,408
Total	$	26,702	$	32,619

Transfers between geographic areas are at cost plus a reasonable profit. Identifiable assets are classified by the location of the Company’s facilities and includes accounts receivable, inventories, other assets and property, plant and equipment. Export sales other than to Japan and United Kingdom totaled less than 10% of the Recorders segment revenue. Corporate assets consisted principally of cash, investments, interest receivable and deferred financing fees at December 31, 2005 and 2004.

Note 21—Major Customers

In 2005, the Company recognized revenue from Matsushita Electric Industrial Ltd. representing 11.9% of total revenue. In 2004, the Company recognized revenue from Sony Corporation and Canon Inc. representing 39.4% and 19.2% of total revenue, respectively. In 2003, the Company recognized revenue from Matsushita Electric Industrial Ltd. and BAE Systems representing 14.9% and 14.4% of total revenue, respectively.

Note 22—Unaudited Quarterly Financial Information

The following is a summary of the unaudited quarterly financial information for the years ended December 31, 2005 and 2004.

Fiscal 2005	(in thousands, except share and per share data)
Quarters ended	March 31		June 30		Sept. 30			Dec. 31
Total revenue	$	17,931	$	15,821	$	10,728		$	8,674
Operating income (loss)		6,978		3,037		1,041			(1,856	)
Income (loss) from continuing operations		5,924		2,499		(173	)		(2,438	)
Income (loss) applicable to common stockholders		5,924		2,499		(173	)		(1,523	)
Basic income (loss) per share from continuing operations	$	1.60	$	0.67	$	(0.05	)	$	(0.64	)
Basic income (loss) per share applicable to common stockholders	$	1.60	$	0.67	$	(0.05	)	$	(0.40	)
Diluted income (loss) per share from continuing operations	$	1.52	$	0.64	$	(0.05	)	$	(0.64	)
Diluted income (loss) per share applicable to common stockholders	$	1.52	$	0.64	$	(0.05	)	$	(0.40	)

F-44

AMPEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fiscal 2004	(in thousands, except share and per share data)
Quarters ended	March 31			June 30			Sept. 30			Dec. 31
Total revenue	$	9,889		$	8,913		$	8,322		$	74,327
Operating income (loss)		1,373			(1,718	)		(26	)		61,215
Income (loss) from continuing operations		(250	)		(4,181	)		(1,890	)		54,831
Income (loss) applicable to common stockholders		(250	)		(4,181	)		(1,538	)		52,331
Basic income (loss) per share from continuing operations	$	(0.07	)	$	(1.15	)	$	(0.52	)	$	14.89
Basic income (loss) per share applicable to common stockholders	$	(0.07	)	$	(1.15	)	$	(0.42	)	$	14.21
Diluted income (loss) per share from continuing operations	$	(0.07	)	$	(1.15	)	$	(0.52	)	$	14.18
Diluted income (loss) per share applicable to common stockholders	$	(0.07	)	$	(1.15	)	$	(0.42	)	$	13.53

During the fourth quarter of 2005, the Company recorded incentive bonuses totaling $0.4 million, adjustments to the long-term liability for payments under supplemental retirement plans for certain employees that had retired under former corporate ownership totaling $1 million, an adjustment to the income tax provision of $0.9 million and adjustments to discontinued operations to recognize additional sublease income expected to be received through 2008 totaling $0.9 million. During the fourth quarter of 2004, the Company recorded additional accruals for discontinued operations for estimated environmental costs to be incurred in future years related to the operations of Media totaling $2.5 million.

F-45

AMPEX CORPORATION

INDEX TO FINANCIAL STATEMENT SCHEDULE

Schedule II — Valuation and Qualifying Accounts S-2

S-1

AMPEX CORPORATION

SCHEDULE II —VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

Description	Balance at beginning of period		Additions to cost and expenses			Charges to other accounts (1)		Deductions (2)			Balance at end of period
Allowance for doubtful accounts:
December 31, 2003	$	112	$	25		$	—	$	—		$	137
December 31, 2004	$	137	$	(56	)	$	—	$	(7	)	$	74
December 31, 2005	$	74	$	7		$	—	$	(3	)	$	78

(1) Includes transfers and reclassifications to other accounts.

(2) Includes write-offs and disposition of accounts receivable.

S-2

AMPEX CORPORATION

2005 FORM 10-K

EXHIBIT INDEX

Description
10.16	Lease and First Amendment of Lease dated August 14, 1997 and April 19, 1999, respectively, each by and between 135 East 57th Street LLC, as landlord, and the Company, as tenant, with respect to approximately 19,000 square feet of premises located at 135 East 57th Street, New York, New York.
10.17	Agreement of Sublease dated April 23, 2004, between the Company, as sublessor, and Calypso Capital Management, LLC, as sublessee, with respect to approximately 12,800 square feet of premises located at 135 East 57th Street, New York, New York.
10.25	Letter agreements dated as of March 31, 2005 and June 30, 2005, each between HIP-IV Incorporated (“HIP-IV”) and AFC Holdings Corporation (“AFC”), relating to the assignment of incentive fees by HIP-IV to AFC.
21.1	Subsidiaries of the Company.
23.1	Consent of Independent Registered Public Accounting Firm.
23.2	Consent of Independent Registered Public Accounting Firm.
24.1	Power of Attorney (included in the signature page of this Report).
31.1	Chief Executive Officer certification pursuant to Rules 13a – 14(a) and 15d – 14(a) of the Exchange Act.
31.2	Chief Financial Officer certification pursuant to Rules 13a – 14(a) and 15d – 14(a) of the Exchange Act.
32.1	Chief Executive Officer and Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-10.16

Exhibit 10.16

AGREEMENT OF LEASE

between

TRST NEW YORK, INC., LAFP NEW YORK INC.

and THE ALASKA PERMANENT FUND,

as tenants in common,

Landlord

and

AMPEX CORPORATION,

Tenant

Dated: August 14, 1997

Premises:

135 East 57th Street

New York, New York 10022

TABLE OF CONTENTS

Article			Page
ARTICLE 1		GLOSSARY	-3-
ARTICLE 2		DEMISE, PREMISES, TERM, RENT	-8-
ARTICLE 3		ESCALATION	-9-
ARTICLE 4		ELECTRICITY	-20-
ARTICLE 5		USE AND OCCUPANCY	-21-
ARTICLE 6		ALTERATIONS	-22-
ARTICLE 7		REPAIRS; FLOOR LOAD	-28-
ARTICLE 8		WINDOW CLEANING	-30-
ARTICLE 9		REQUIREMENTS OF LAW	-30-
ARTICLE 10		SUBORDINATION	-33-
ARTICLE 11		RULES AND REGULATIONS	-37-
ARTICLE 12		INSURANCE, PROPERTY LOSS OR DAMAGE; REIMBURSEMENT	-37-
ARTICLE 13		DESTRUCTION BY FIRE OR OTHER CAUSE	-41-
ARTICLE 14		EMINENT DOMAIN	-43-
ARTICLE 15		ASSIGNMENT, SUBLETTING, MORTGAGE ETC.	-45-
ARTICLE 16		ACCESS TO PREMISES	-54-
ARTICLE 17		RESERVED	-56-
ARTICLE 18		DEFAULT	-56-
ARTICLE 19		REMEDIES AND DAMAGES	-59-
ARTICLE 20		FEES AND EXPENSES	-62-
ARTICLE 21		NO REPRESENTATIONS BY LANDLORD	-62-
ARTICLE 22		END OF TERM	-63-
ARTICLE 23		OMITTED	-64-
ARTICLE 24		NO WAIVER	-64-
ARTICLE 25		WAIVER OF TRIAL BY JURY	-65-
ARTICLE 26		INABILITY TO PERFORM	-65-
ARTICLE 27		BILLS AND NOTICES	-66-
ARTICLE 28		SERVICES AND EQUIPMENT	-67-
ARTICLE 29		PARTNERSHIP TENANT	-72-
ARTICLE 30		VAULT SPACE	-73-
ARTICLE 31		SIGNS	-74-
ARTICLE 32		BROKER	-74-
ARTICLE 33		INDEMNITY	-75-
ARTICLE 34		ADJACENT EXCAVATION; SHORING	-76-
ARTICLE 35		SECURITY DEPOSIT	-76-
ARTICLE 36		RENT REGULATION	-79-
ARTICLE 37		OPTION TO RENEW	-79-
ARTICLE 38		COVENANT OF QUIET ENJOYMENT	-81-
ARTICLE 39		MISCELLANEOUS	-82-
SCHEDULE A	–	Floor Plan of the Premises
SCHEDULE B	–	Rules and Regulations
SCHEDULE C	–	Cleaning Services
SCHEDULE D	–	ERISA Certificate
SCHEDULE E	–	Mortgagee Subordination, Non-Disturbance and Attornment Agreement
SCHEDULE F	–	Tenant’s Layout Plans

(i)

AGREEMENT OF LEASE, made as of the 14th day of August 1997, between TRST NEW YORK, INC., LAFP NEW YORK INC. and THE ALASKA PERMANENT FUND, a constitutional fund created by Article IX, Sec. 15 of the Alaska Constitution, by and through The Alaska Permanent Fund Corporation, a public corporation and government instrumentality created by Alaska Statutes 37.13 to manage the assets of the fund, as tenants in common, having an address at c/o GE Capital Investment Advisors, One Boston Place, 18th Floor, Boston, Massachusetts 02108, as Landlord, and AMPEX CORPORATION, a Delaware corporation having an address at Park Avenue Tower, 65 East 55th Street, New York, New York 10022, as Tenant.

REFERENCE PAGE

In addition to other terms elsewhere defined in this Lease, the following terms whenever used in this Lease shall have the meanings set forth in this Reference Page.

(1) Premises:	The entire 32nd floor of the Building, as approximately shown on the floor plan annexed hereto as Schedule A.
(2) Commencement Date:	The date of this Lease.
(3) Rent Commencement Date:	The date that is eight months after the Commencement Date.
(4) Fixed Expiration Date:	The day preceding the tenth (10th) anniversary of the Rent Commencement Date.
(5) Term:	Approximately Ten Years and Eight Months.
(6) Fixed Rent:	(a) $344,250 per annum from the Rent Commencement Date through the day preceding the fifth (5th) anniversary of the Rent Commencement Date; and (b) $364,500 per annum from the fifth (5th) anniversary of the Rent Commencement Date through the Fixed Expiration Date.

(7) Monthly Installment(s) of Fixed Rent:	(a) $28,687.50 per month from the Rent Commencement Date through the day preceding the fifth (5th) anniversary of the Rent Commencement Date; and (b) $30,375 per month from the fifth (5th) anniversary of the Rent Commencement Date through the Fixed Expiration Date.
(8) Tenant’s Tax Share:	1.89%
(9) Tenant’s Share:	1.99%
(10) Base Tax Factor:	The Taxes payable for the Tax Year beginning July 1, 1997.
(11) Base Operating Factor:	The Operating Expenses paid or incurred with respect to the Operating Year beginning January 1, 1997.
(12) Security Deposit:	$86,062.50, which sum shall be increased by Tenant on the fifth anniversary of the Rent Commencement Date to $91,125.
(13) Permitted Use:	General, executive and administrative offices in connection with Tenant’s business as a manufacturer and distributor of data storage, instrumentation recorder and professional video recording products, and uses incidentally and directly related thereto.
(14) Broker(s):	The Galbreath Company, L.P. and Jones Lang Wootton USA.
(15) Landlord’s Contribution:	$236,250.
(16) Renewal Term:	Five years.

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WITNESSETH:

The parties hereto, for themselves, their legal representatives, successors and assigns, hereby agree as follows:

ARTICLE 1

GLOSSARY

The following terms shall have the meanings indicated below:

“Additional Rent” shall have the meaning set forth in Section 2.2.

“Administrative Code” shall mean the Administrative Code of the City of New York, as amended.

“Alteration Fee” shall have the meaning set forth in Section 6.2.

“Alterations” shall mean alterations, decorations, installations, repairs, improvements, additions, replacements or other physical changes in or about the Premises, other than those, if any, made by Landlord in order to prepare the Premises for Tenant’s initial occupancy.

“Applicable Rate” shall mean the lesser of (x) six percent (6%) per annum above the Base Rate, and (y) the maximum rate permitted by applicable law.

“ASHRAE” shall mean the American Society of Heating, Refrigeration and Air-Conditioning Engineers.

“Bankruptcy Code” shall mean 11 U.S.C. Section 101 et seq., or any statute, federal or state, of similar nature and purpose.

“Base Rate” shall mean the rate of interest publicly announced from time to time by Citibank, N.A., or its successor, as its “base rate” (or such other term as may be used by Citibank, N.A., from time to time, for the rate presently referred to as its “base rate”).

“Building” shall mean the buildings, equipment and other improvements and appurtenances of every kind and description now located or hereafter erected, constructed or placed upon the Land and any and all alterations, renewals, and replacements thereof, additions thereto and substitutions therefor.

“Building Systems” shall mean the base building mechanical, electrical, sanitary, heating, air conditioning, ventilating, elevator, plumbing, life-safety and other service systems of the Building, but shall not include installations made by Tenant or fixtures or appliances.

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“Business Days” shall mean all days, excluding Saturdays, Sundays and all days observed as holidays by the State of New York, the federal government or the labor unions servicing the Building, which on the date of this Lease are as follows: New year’s Day, Martin Luther King Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Thanksgiving Day, the day immediately following Thanksgiving Day and Christmas Day. Such holidays are subject to change after the date of this Lease.

“Control” shall have the meaning set forth in Section 15.3.

“Deficiency” shall have the meaning set forth in Section 19.2.

“Escalation Rent” shall mean payments required to be made by Tenant pursuant to Article 3.

“Event of Default” shall have the meaning set forth in Section 18.1.

“Expiration Date” shall mean the Fixed Expiration Date or such earlier or later date on which the Term sooner or later ends pursuant to any of the terms, conditions or covenants of this Lease or pursuant to law.

“Existing Mortgage” shall mean the consolidated mortgages aggregating $176,000,000.00 between Madison Lexington Venture and Teachers’ Retirement System of Texas, Los Angeles Fire and Police Pension System, The Alaska Permanent Fund, by and through The Alaska Permanent Fund Corporation, dated March 6, 1990, and recorded March 7, 1990 in Reel 1673 page 1410.

“Existing Mortgagees” shall mean the holders of the Existing Mortgage on the date of this Lease.

“Government Authority (Authorities)” shall mean the United States of America, the State of New York, the City of New York, any political subdivision thereof and any agency, department, commission, board, bureau or instrumentality of any of the foregoing, now existing or hereafter created, having jurisdiction over the Real Property or any portion thereof.

“Ground Lease” shall mean the ground lease dated December 19, 1972 (as amended) between William F. Wallace and Stratford C. Wallace as trustees under a trust agreement dated June 2, 1969 between Dolorita Fitzgerald Wallace, a/k/a Dolorita F. Wallace, as settlor, and said trustees, as Landlord, and Madison Realty Associates, as Tenant.

“Ground Lessor” shall mean the ground lessor under the Ground Lease.

“HVAC” shall mean heat, ventilation and air conditioning.

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“HVAC Systems” shall mean the Building Systems providing HVAC.

“Hazardous Materials” shall have the meaning set forth in Section 9.2.

“Indemnitees” shall mean Landlord, its trustees, partners, shareholders, officers, directors, employees, agents and contractors, the Manager (and the partners, shareholders, officers, directors and employees of Landlord’s agents and contractors and of the Manager), the Lessor and any Mortgagee(s).

“Initial Alterations” shall mean Alterations made by Tenant to prepare the Premises for Tenant’s initial occupancy.

“Land” shall mean the land known by the address of 135 East 57th Street, New York, New York 10022.

“Landlord” on the date as of which this Lease is made, shall mean collectively, TRST New York, Inc., LAFP New York Inc. and The Alaska Permanent Fund, as tenants in common, but thereafter, “Landlord” shall mean only the fee owner of the Real Property or, if there then exists a Superior Lease, the tenant thereunder.

“Landlord’s Operating Statement” shall mean a statement containing a computation of Escalation Rent due pursuant to the provisions of Section 3.3 furnished by Landlord to Tenant.

“Landlord’s Statement” shall mean either a Landlord’s Operating Statement or a Landlord’s Tax Statement.

“Landlord’s Tax Statement” shall mean a statement containing a computation of Escalation Rent due pursuant to the provisions of Section 3.2 furnished by Landlord to Tenant.

“Lessor(s)” shall mean Ground Lessor and any other lessor under a Superior Lease.

“Manager” shall mean The Galbreath Company, L.P. or any successor contractor under Landlord’s contract for the management of the Building.

“Mortgage(s)” shall mean any trust indenture or mortgage (including the Existing Mortgage) which may now or hereafter affect the Real Property, the Building or any Superior Lease and the leasehold interest created thereby, and all renewals, extensions, supplements, amendments, modifications, consolidations and replacements thereof or thereto, substitutions therefor, and advances made thereunder.

“Mortgagee(s)” shall mean any trustee under or mortgagee or holder of a Mortgage.

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“Notice(s)” shall have the meaning set forth in Section 27.1.

“Operating Expenses” shall have the meaning set forth in Section 3.1.

“Operating Hours” shall mean 8:00 a.m. to 6:00 p.m. on Business Days.

“Operating Year” shall mean each calendar year that includes any part of the Term.

“Overtime Periods” shall have the meaning set forth in section 28.2.

“Parties” shall have the meaning set forth in Section 39.2.

“Partnership Tenant” shall have the meaning set forth in Article 29.

“Person(s) or person(s)” shall mean any natural person or persons, a partnership, a corporation and any other form of business or legal association or entity.

“Persons Within Tenant’s Control” shall mean and include Tenant, all of Tenant’s respective principals, officers, agents, contractors, servants, employees, licensees and invitees.

“Real Property” shall mean the Building and the Land.

“Recapture Space” shall have the meaning set forth in Section 15.4.

“Recapture Sublease” shall have the meaning set forth in Section 15.4.

“Recapture Subtenant” shall have the meaning set forth in Section 15.4.

“Rental” shall mean and be deemed to include Fixed Rent, Additional Rent and any other sums payable by Tenant hereunder.

“Requirements” shall mean (i) all present and future laws, rules, ordinances, regulations, statutes, requirements, codes and executive orders, extraordinary as well as ordinary, retroactive and prospective, of all Government Authorities now existing or hereafter created, and of any applicable fire rating bureau, or other body exercising similar functions, affecting the Real Property, or any street, avenue or sidewalk comprising a part or in front thereof or any vault in or under the same, or requiring removal of any encroachment, or affecting the maintenance, use or occupation of the Real Property, (ii) all requirements, obligations and conditions of all instruments of record on the date of this Lease, and (iii) all requirements, obligations and

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conditions imposed by the carrier of Landlord’s hazard insurance policy for the Building.

“Rules and Regulations” shall mean the rules and regulations annexed hereto as Schedule B, and such other and further reasonable rules and regulations and standards as Landlord and Landlord’s agents may from time to time adopt, on notice to Tenant to be given as Landlord may elect.

“Sublease Additional Rent” shall have the meaning set forth in Section 15.5.

“Sublease or Assignment Statement” shall have the meaning set forth in Section 15.4.

“Substantially Completed” or “Substantial Completion” shall, whenever used in this Lease be deemed to mean that stage of the progress of any work performed by Landlord as shall enable Tenant to have (a) the services to be provided to Tenant pursuant to Article 28 hereof, and (b) access to the Premises to commence Tenant’s use and occupancy of the Premises for Tenant’s normal business purposes without material interference by reason of the completion of unfinished details of such work.

“Superior Lease(s)” shall mean the Ground Lease and any other ground or underlying leases of the Real Property or the Building heretofore or hereafter made by Landlord and all renewals, extensions, supplements and modifications thereof.

“Taxes” shall have the meaning set forth in Section 3.1.

“Tax Year” shall mean each period of twelve (12) months, commencing on the first day of July of each year, that includes any part of the Term, or such other period of twelve (12) months as may be duly adopted as the fiscal year for real estate tax purposes by the City of New York.

“Tenant”, on the date as of which this Lease is made, shall mean the Tenant named in this Lease, but thereafter “Tenant” shall mean only the tenant under this Lease at the time in question; provided, however, that the Tenant named in this Lease and any successor tenant hereunder shall not be released from liability hereunder in the event of any assignment of this Lease.

“Tenant’s Operating Payment” shall have the meaning set forth in Section 3.3.

“Tenant’s Projected Operating Share” shall have the meaning set forth in Section 3.3.

“Tenant’s Property” shall mean Tenant’s movable fixtures and movable partitions, telephone and other equipment, furniture, furnishings and other movable items of personal property.

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“Tenant’s Tax Payment” shall have the meaning set forth in Section 3.2.

“Unavoidable Delays” shall have the meaning set forth in Article 26.

ARTICLE 2

DEMISE, PREMISES, TERM, RENT

Section 2.1. Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the Premises for the Term to commence, subject to Article 23, on the Commencement Date and to end on the Fixed Expiration Date, unless earlier terminated or extended as provided herein.

Section 2.2. Commencing upon the Rent Commencement Date, Tenant shall pay to Landlord, in lawful money of the United States of America, without notice or demand (except as otherwise specifically set forth in this Lease with respect to Additional Rent), by good and sufficient check drawn to Landlord’s order on a bank or trust company with an office in the Borough of Manhattan, the City of New York, State of New York, at the office of Landlord or at such other place as Landlord may designate from time to time, the following:

(A) the Fixed Rent, at the annual fixed rental rate set forth in the Reference Page, which shall be payable in equal Monthly Installments of Fixed Rent in advance on the first day of each and every calendar month during the Term, except that the first Monthly Installment of Fixed Rent shall be payable by Tenant upon execution of this Lease; and

(B) Additional rent (“Additional Rent”) consisting of all other sums of money (including, without limitation, Escalation Rent) as shall become due from and be payable by Tenant hereunder (for default in the payment of which Landlord shall have the same remedies as for a default in the payment of Fixed Rent).

Section 2.3. If the Rent Commencement Date is other than the first day of a calendar month, Fixed Rent for such month shall be prorated on a per diem, basis.

Section 2.4. If prior to the Rent Commencement Date, Tenant shall occupy any portion of the Premises for the performance of work in the Premises or otherwise, Tenant shall, commencing as of the date of such occupancy, pay Landlord’s charges for (i) electricity, at the rate of $2.75 per rentable square foot per year (with respect to the portion of the Premises so occupied), and (ii) such items for which Tenant is separately billed hereunder, including, without limitation, overtime use of freight elevator and HVAC service and extra cleaning services.

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Such charges and items shall be payable to Landlord on demand. On the date of this Lease, Landlord’s Building standard charge for (x) overtime use of freight elevator service is $150 per hour, and (y) overtime use of Building HVAC service (but not the supplemental air-conditioning system installed by Tenant in the Premises) is $150 per hour. Such amounts may be increased from time to time after the date hereof, provided that Landlord shall not discriminate against Tenant in increasing same.

Section 2.5. Tenant shall pay the Fixed Rent and Additional Rent when due without abatement, deduction, counterclaim, setoff or defense for any reason whatsoever, except said abatement as may be occasioned by the occurrence of any event permitting an abatement of Fixed Rent and Escalation Rent as specifically set forth in Articles 13 and 14.

ARTICLE 3

ESCALATION

Section 3.1. For the purposes of this Article 3, the following terms shall have the meanings set forth below:

(A) “Operating Expenses” shall mean the aggregate of those costs and expenses (and taxes thereon, if any) paid or incurred by Landlord or on behalf of Landlord with respect to the operation, cleaning, repair, safety, replacement, management, security and maintenance of the Real Property, Building Systems, sidewalks, curbs, plazas, and other areas adjacent to the Building, and with respect to the services provided to tenants, including, without limitation: (i) salaries, wages and bonuses paid to, and the cost of any hospitalization, medical, surgical, union and general welfare benefits (including group life insurance), any pension, retirement or life insurance plans and other benefits or similar expenses relating to employees of Landlord engaged in the operation, cleaning, repair, safety, replacement, management, security or maintenance of the Real Property and the Building Systems or in providing services to tenants; (ii) social security, unemployment and other payroll taxes, the cost of providing disability and worker’s compensation coverage imposed by any Requirement, union contract or otherwise with respect to said employees; (iii) the cost of electricity, gas, oil, steam, water, sewer rental, HVAC and other utilities furnished to the Building and utility taxes; (iv) the expenses incurred for casualty, rent, liability, fidelity, plate glass and any other insurance; (v) the cost of repairs, maintenance and painting, including the cost of acquiring or renting all supplies, tools, materials and equipment used in operating or repairing the Building; (vi) expenditures, whether by purchase or lease, for capital improvements and capital equipment that under generally applied real estate practice are expensed or regarded as deferred expenses and capital expenditures, whether by purchase or lease, that are made by reason of Requirements or for

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emergency or labor-saving devices or security or property protection systems or in lieu of a repair, in each case such capital expenditures to be included in Operating Expenses for the operating Year in which such costs are incurred and every subsequent Operating Year, on a straight-line basis, to the extent that such items are amortized over an appropriate period, but not more than ten (10) years, with interest calculated at an annual rate equal to three (3%) percent over the Base Rate in effect at the time of Landlord’s having made said expenditure; (vii) the cost or rental of all supplies, tools, materials, equipment and Building Systems; (viii) the cost of uniforms, work clothes and dry cleaning; (ix) the cost of window cleaning, janitorial, concierge, guard, watchman or other security personnel, service or system, if any; (x) management fees; (xi) charges of independent contractors performing work included within this definition of Operating Expenses; (xii) telephone and stationery costs; (xiii) legal, accounting and other professional fees and disbursements incurred in connection with the operation and management of the Real Property; (xiv) association fees and dues; (xv) the cost of decorations; (xvi) depreciation of hand tools and other movable equipment used in the operation, cleaning, repair, safety, management, security or maintenance of the Building; and (xvii) exterior and interior landscaping.

Provided, however, that the foregoing costs and expenses shall exclude or have deducted from them, as the case may be:

(a) executives’ salaries (including salaries, wages and bonuses paid to, and the cost of any hospitalization, medical, surgical, union and general welfare benefits (including group life insurance), any pension, retirement or life insurance plans and other benefits or similar expenses relating to employees of Landlord engaged in the operation, cleaning, repair, safety, replacement, management, security or maintenance of the Real Property and the Building Systems or in providing services to tenants) above the grade of building manager;

(b) amounts received by Landlord through proceeds of insurance to the extent they are compensation for sums previously included in Operating Expenses;

(c) cost of repairs or replacements incurred by reason of fire or other casualty or condemnation to the extent Landlord is compensated therefor;

(d) costs incurred in performing work or furnishing services or utilities for any tenant (including Tenant), whether at such tenant’s or Landlord’s expense, to the extent that such work or service is in excess of any work or service or utilities that Landlord is obligated to furnish to Tenant at Landlord’s expense;

(e) Taxes;

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(f) financing or refinancing costs, mortgage interest and amortization payments, brokerage commissions, points, origination fees, mortgage recording taxes, title charges and similar charges in connection with any mortgage financing or refinancing of the Building;

(g) leasing commissions, rental concessions and lease buy-outs;

(h) any expense for which Landlord is entitled to be reimbursed by any tenant as an additional charge in excess of Fixed Rent and Escalation Rent;

(i) depreciation;

(j) overhead and profit increment paid to affiliates of Landlord for goods and services to the extent that such costs exceed the costs of such services were they not rendered by an affiliate;

(k) rental under any ground or underlying lease;

(l) professional fees (including attorneys’ fees and disbursements) not allocated to the operation or management of the Real Property and professional fees (including attorneys’ fees and disbursements) allocable to disputes with other tenants or occupants of the Building or associated with the enforcement of the terms of any other leases or the defense of Landlord’s title to, or interest in, the Building, or allocable to the preparation of leases for other tenants and prospective tenants;

(m) advertising, promotional and entertainment expenses with respect to the Property, and all other costs incurred in procuring tenants or renewing leases;

(n) costs allocable to providing heat and other services to tenanted areas below the third floor of the Building;

(o) the cost of tenant improvements and alterations made for tenants or prospective tenants of the Building, including the costs of painting and decorating any tenant’s space or any tenantable space;

(p) interest on and amortization of Landlord’s debts (except debts incurred to purchase items the cost of which would otherwise be deemed an Operating Expense);

(q) brokerage commissions, attorneys’ fees and disbursements, transfer taxes, recording charges and any other costs or expenses incurred in connection with the sale or conveyance of all or any portion of the Real Property or

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any interest therein or in any person of whatever tier owning an interest therein;

(r) any charge for Landlord’s income taxes or excess profit taxes or any franchise taxes, unincorporated business taxes, gains taxes or estate or inheritance taxes imposed upon the income of Landlord;

(s) the cost of electricity consumed in the Premises and in any tenantable area in the Building and the cost of supplying electric current in any area of the Building other than a common area; and Landlord’s cost of electricity or other service sold to tenants in the Building for which Landlord is to be reimbursed as a charge in addition to the fixed rent and additional rent payable under the lease with that tenant;

(t) capital expenditures, as determined under GAAP, except as otherwise expressly set forth herein;

(u) the cost to Landlord of performing work expressly provided in this Lease to be performed at Landlord’s expense;

(v) costs incurred to test, remove, abate and/or contain hazardous wastes or asbestos-containing materials located in or about the Building (whether voluntarily or pursuant to any lease or contract obligation or current or future Requirement);

(w) fine art work purchased for the lobby or other common areas of the Building;

(x) costs incurred due to violations by Landlord, or by any other tenant in the Building, of the terms and conditions of a lease, and penalties or interest for late payment of taxes (unless such penalties or interest result from Tenant’s late payment of Rent);

(y) to the extent any costs includible in Operating Expenses are incurred with respect to both the Building and other properties (including, without limitation, salaries, fringe benefits and other compensation of Landlord’s personnel who provide services to both the Building and other properties), there shall be excluded from Operating Expenses a fair and reasonable portion thereof which is properly allocable to such other properties;

(z) the cost of any judgment, settlement or arbitration award resulting from any liability of Landlord (other than liability for amounts otherwise includible in Operating Expenses hereunder);

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(aa) the cost of purchasing any separate electrical meter Landlord is required to provide, at its expense, to any of the tenants of the Building;

(bb) costs incurred with respect to any specialty facility in the Building (such as an observatory, broadcasting facility, luncheon club, athletic or recreational club, child care facility, cafeteria or dining facility or garage) which is operated by Landlord and is not available for use by Tenant or its employees;

(cc) any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord;

(dd) expenses allocable directly and solely to the retail space in the Building;

(ee) costs incurred in connection with the construction of additional tenantable space in the Building;

(ff) repairs, alterations, additions, improvements or replacements made to rectify or correct any defect in the original design, construction materials or workmanship of the Building;

(gg) Landlord’s general corporate overhead expenses not related to the Building; and

(hh) Management fees in excess of three percent of the Building’s annual gross revenues.

If Landlord purchases any item of capital equipment or makes any capital expenditure that is intended to have the effect of reducing the expenses that would otherwise be included in Operating Expenses, then the costs of such capital equipment or capital expenditure shall be included in Operating Expenses for the Operating Year in which the costs are incurred and every subsequent Operating Year on a straight-line basis, to the extent that such items are amortized over an appropriate period, but not more than ten (10) years, with interest calculated at an annual rate of three (3%) percent over the Base Rate in effect at the time of Landlord’s having made said expenditure. If Landlord leases any item of capital equipment designed to result in savings or reductions in expenses that would otherwise be included in Operating Expenses, then the rentals and other costs paid with respect to such leasing shall be included in Operating Expenses for the Operating Years in which such rentals and costs are incurred. Notwithstanding the provisions of this paragraph, the maximum amount that may be included in any Operating Year for any such capital equipment or capital expenditure shall be the amount of savings realized by such capital equipment or capital expenditure. To the extent that the amount of such savings is less than the amortized cost plus interest in any one Operating

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Year, Landlord shall include in subsequent Operating Years until fully recovered the amount not included in an Operating Year by reason of such limitation (provided that such limitation is not exceeded in any subsequent Operating Year).

If Landlord is not furnishing any particular work or service (the cost of which if performed by Landlord would constitute an operating Expense) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord for all or any portion of an Operating Year, Operating Expenses for such Operating Year shall be deemed to be increased by an amount equal to the additional Operating Expenses which reasonably would have been incurred during such Operating Year by Landlord if it had, at its own expense, furnished such work or service to such tenant.

Landlord shall not recover the cost of any item of Operating Expenses more than once and shall not collect more than 100% of any Operating Expenses.

(B) “Taxes” shall mean the aggregate amount of real estate taxes and any general or special assessments (exclusive of penalties and interest thereon) imposed upon the Real Property (including, without limitation, (i) assessments made upon or with respect to any “air” and “development” rights now or hereafter appurtenant to or affecting the Real Property, (ii) any fee, tax or charge imposed by any Government Authority for any vaults, vault space or other space within or outside the boundaries of the Real Property, and (iii) any taxes or assessments levied after the date of this Lease for public benefits to the Real Property or the Building); provided that if, because of any change in the taxation of real estate, any other tax or assessment, however denominated (including, without limitation, any franchise, income, profit, sales, use, occupancy, gross receipts or rental tax) is imposed upon Landlord or the owner of the Real Property or the Building, or the occupancy, rents or income therefrom, in substitution for any of the foregoing Taxes or for an increase in any of the foregoing Taxes, such other tax or assessment shall be deemed part of Taxes computed as if Landlord’s sole asset were the Real Property. With respect to any Tax Year, all expenses, including attorneys’ fees and disbursements and experts’ and other witnesses’ fees, incurred in contesting the validity or amount of any Taxes or in obtaining a refund of Taxes shall be considered as part of the Taxes for such Tax Year. Anything contained herein to the contrary notwithstanding, Taxes shall not be deemed to include (a) any taxes on Landlord’s income, (b) franchise taxes, (c) estate or inheritance taxes, or (d) any similar taxes imposed on Landlord, unless such taxes are levied, assessed or imposed as a substitute for the whole or any part of, or as a substitute for an increase in, the taxes, assessments, levies, fees, charges and impositions that now constitute Taxes.

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(C) Notwithstanding anything set forth herein to the contrary, if the assessed value of the Building is increased by reason of a sale thereof on or before the second (2nd) anniversary of the Commencement Date, then the amount of any such increase in assessment attributable to such sale only, shall not be used to determine Escalation Rent on account of Taxes during the initial Term of this Lease, but shall be used thereafter in the case of any Renewal Term. Landlord shall make, in good faith, a reasonable determination of the portion of such increase which is attributable to the sale. Tenant may dispute such determination within ninety (90) days after Landlord shall notify Tenant of such determination. Any dispute between the parties in respect of such determination shall be submitted to and resolved by arbitration as hereinafter provided. Landlord and Tenant shall each select, within thirty days after Tenant’s dispute of Landlord’s determination, an arbiter having at least ten years’ experience in conducting tax certiorari proceedings in New York City. If such arbiters fail to reach a decision within twenty (20) days of the appointment of the second arbiter, then the two arbiters shall jointly select a third arbiter having similar qualifications and the determination of a majority of such arbiters shall be final and binding on the parties. The parties shall each pay the cost of the arbiter each selects and shall equally share the cost of the third arbiter. The provisions of this subparagraph (C) shall not apply to an increase in the assessed value of the Building by reason of the sale of the Building pursuant to the contract of sale entered into prior to the date of this Lease, it being agreed that the amount of any such increase in assessment attributable to such sale shall be used to determine Escalation Rent on account of Taxes.

Section 3.2. (A) Tenant shall pay as Escalation Rent for each Tax Year (including the Tax Year in effect on the Rent Commencement Date) an amount (“Tenant’s Tax Payment”) equal to Tenant’s Tax Share of the amount by which the Taxes for such Tax Year are greater than the Base Tax Factor. Tenant’s Tax Payment shall be payable by Tenant to Landlord in twelve (12) equal monthly installments (subject to the further provisions of this Section 3.2) along with the Monthly Installments of Fixed Rent. If there is any increase in Taxes for any Tax Year, whether during or after such Tax Year, or if there is any decrease in the Taxes for any Tax Year during such Tax Year, Landlord may, and in the case of a decrease in Taxes Landlord shall, furnish a revised Landlord’s Tax Statement for any Tax Year affected, and Tenant’s Tax Payment for such Tax Year shall be adjusted and, (a) within 15 days after Tenant’s receipt of such revised Landlord’s Tax Statement, Tenant shall (with respect to any increase in Taxes for such Tax Year) pay the appropriate increase in Tenant’s Tax Payment to Landlord, or (b) (with respect to any decrease in Taxes for such Tax Year) Landlord shall credit such decrease in Tenant’s Tax Payment against the next installment of Escalation Rent payable by Tenant, or if the overpaid amount exceeds the amount of all remaining Escalation Rent payable under this Lease for the balance of the Term, or if such overpayment shall be

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determined after the Expiration Date, Landlord shall pay the amount of such overpayment to Tenant within 30 days after demand. If, during the Term, Taxes are required to be paid (either to the appropriate taxing authorities or as tax escrow payments to the Lessor or the Mortgagee), in full or in semi-annual or quarterly or other installments on any other date or dates than as presently required, then Tenant’s Tax Payments shall be correspondingly accelerated or revised so that Tenant’s Tax Payments are due at least thirty (30) days prior to the date payments are due to the taxing authorities, the Lessor or the Mortgagee. Landlord shall notify Tenant of same in writing of such acceleration or revision. The benefit of any discount for any early payment or prepayment of Taxes shall accrue solely to the benefit of Landlord and Taxes shall be computed without subtracting such discount.

(B) Only Landlord shall be eligible to institute tax reduction or other proceedings to reduce Taxes. If, after a Landlord’s Tax Statement has been sent to Tenant, a refund of Taxes is actually received by or on behalf of Landlord, then, promptly after receipt of such refund, Landlord shall send Tenant a Landlord’s Tax Statement adjusting the Taxes for such Tax Year (taking into account Landlord’s expenses therefor) and setting forth Tenant’s Tax Share of such refund, and Tenant shall be entitled to receive such amount by way of a credit against the Escalation Rent; provided, however, that Tenant’s Tax Share of such refund shall be limited to the amount of Tenant’s Tax Payment, if any, which Tenant had theretofore paid to Landlord attributable to increases in Taxes for the Tax Year to which the refund is applicable. If the amount of any refund due Tenant cannot be credited in full against the Escalation Rent coming due within the Term (or the Renewal Term, if any), then Landlord shall, within thirty (30) days after the end of the Term (or the Renewal Term, as the case may be), deliver to Tenant Landlord’s check for the portion of the refund due Tenant that was not previously credited against Escalation Rent.

(C) Tenant’s Tax Payment and any credits with respect thereto as provided in this Section 3.2 shall be made as provided in this Section 3.2 regardless of the fact that Tenant may be exempt, in whole or in part, from the payment of any taxes by reason of Tenant’s diplomatic or other tax exempt status or for any other reason whatsoever.

(D) Tenant shall pay to Landlord upon demand as Additional Rent any occupancy tax or rent tax now in effect or hereafter enacted, if payable by Landlord in the first instance of hereafter required to be paid by Landlord.

(E) Each Landlord’s Tax Statement furnished by Landlord with respect to Tenant’s Tax Payment shall be accompanied by a copy of the real estate tax bill or bills for the Tax Year referred to therein, but Landlord shall have no obligation to deliver more than one such copy of the real estate

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tax bill or bills in respect of any Tax Year, and Landlord’s failure to deliver such copy shall not affect Tenant’s obligations as to amount or due date(s) thereof.

Section 3.3. (A) Tenant shall pay as Escalation Rent for each Operating Year (including the Operating Year in effect on the Rent Commencement Date) an amount (“Tenant’s Operating payment”) equal to Tenant’s Share of the amount by which Operating Expenses for such Operating Year are greater than the Base Operating Factor.

(B) Landlord may furnish to Tenant, with respect to each Operating Year, a Landlord’s Operating Statement setting forth Landlord’s estimate of Tenant’s Operating Payment for such Operating Year (“Tenant’s Projected Operating Share”). Tenant shall pay to Landlord on the first day of each month during such Operating Year, as Escalation Rent, an amount equal to one-twelfth of Tenant’s Projected Operating Share for such Operating Year. If, however, Landlord furnishes any such Landlord’s Operating Statement for an Operating Year subsequent to the commencement of such Operating Year, then (a) until the first day of the month following the month in which such Landlord’s Operating Statement is furnished to Tenant, Tenant shall pay to Landlord on the first day of each month an amount (equal to the monthly sum payable by Tenant to Landlord under this Section 3.3 in respect of the last month of the preceding Operating Year; (b) after such Landlord’s Operating Statement is furnished to Tenant or together therewith, Landlord shall give notice to Tenant stating whether the installments of Tenant’s Projected Operating Share previously made for such Operating Year were greater or less than the installments of Tenant’s Projected Operating Share to be made for such Operating Year in accordance with such estimate, and (i) if there is a deficiency, Tenant shall pay the amount thereof within 15 days after demand therefor, or (ii) if there was an overpayment, Landlord shall credit the amount thereof against subsequent payments of Escalation Rent, or if the overpaid amount exceeds the amount of all remaining Escalation Rent payable under this Lease for the balance of the Term, or if such overpayment shall be determined after the Expiration Date, Landlord shall pay the amount of such overpayment to Tenant within 30 days after demand; and (c) on the first day of the month following the month in which such Landlord’s Operating Statement is furnished to Tenant, and monthly thereafter throughout the remainder of such Operating Year, Tenant shall pay to Landlord an amount equal to one-twelfth of Tenant’s Projected Operating Share shown in such Landlord’s Operating Statement. Landlord may at any time or from time to time furnish to Tenant a revised Landlord’s Operating Statement with a new estimate of Tenant’s Projected Operating Share for such Operating Year and, in such case, Tenant’s Projected Operating Share for such Operating Year shall be adjusted and paid or credited, as the case may be, substantially in the same manner as provided in the preceding sentence.

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(C) After the end of each Operating Year Landlord shall furnish to Tenant a Landlord’s Operating Statement for such Operating Year. Each such year-end Landlord’s Operating Statement shall be accompanied by a computation of Operating Expenses for the Building prepared by the Manager or a certified public accountant designated by Landlord from which Landlord shall make the computation of Escalation Rent due in respect of Operating Expenses hereunder. In making computations of Operating Expenses, the certified public accountant or the Manager may rely on Landlord’s estimates and allocations whenever said estimates and allocations are needed for this Article 3. If the Landlord’s Operating Statement shows that the sums paid by Tenant under Section 3.3(B) exceeded Tenant’s Operating Payments required to be paid by Tenant for such Operating Year, Landlord shall credit the amount of such excess against subsequent payments of Escalation Rent, or if the overpaid amount exceeds the amount of all remaining Escalation Rent payable under this Lease for the balance of the Term, or if such overpayment shall be determined after the Expiration Date, Landlord shall pay the amount of such overpayment, to Tenant within 30 days after demand; and if the Landlord’s Operating Statement for such Operating Year shows that the sums so paid by Tenant were less than Tenant’s Operating Payment due for such Operating Year, Tenant shall pay the amount of such deficiency within fifteen (15) days after demand therefor.

Section 3.4. Landlord’s failure to render any Landlord’s Statement with respect to any Tax Year or Operating Year shall not prejudice Landlord’s right thereafter to render a Landlord’s Statement with respect thereto or with respect to any subsequent Tax Year or Operating Year, as the case may be, nor shall the rendering of a Landlord’s Statement prejudice Landlord’s right thereafter to render a corrected Landlord’s Statement for that Tax Year or Operating Year. Nothing herein contained shall restrict Landlord from issuing a Landlord’s Statement at any time there is an increase in Taxes or Operating Expenses during any Tax Year or Operating Year or any time thereafter.

Section 3.5. If the Rent Commencement Date or the Expiration Date occurs on a date other than July 1 or June 30, respectively, any Tenant’s Tax Payment under this Article 3 for the Tax Year in which such Rent Commencement Date or Expiration Date occurs shall be apportioned in that percentage which the number of days in the period from the Rent Commencement Date to June 30 or from July 1 to the Expiration Date, as the case may be, both inclusive, bears to the total number of days in such Tax Year. If the Rent Commencement Date or the Expiration Date occurs on a date other than January 1 or December 31, respectively, any Tenant’s Operating Payment under this Article 3 for the Operating Year in which such Rent Commencement Date or Expiration Date occurs shall be apportioned in that percentage which the number of days in the period from the Rent Commencement Date to December 31 or from January 1 to the Expiration Date, as the case may be, both inclusive, bears to the total number of

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days in such Operating Year. In the event of a termination of this Lease, any Escalation Rent under this Article 3 shall be paid or adjusted within thirty (30) days after submission of a Landlord’s Statement. In no event shall Fixed Rent ever be reduced by operation of this Article 3 and the rights and obligations of Landlord and Tenant under the provisions of this Article 3 with respect to any Escalation Rent shall survive the Expiration Date.

Section 3.6. Any Landlord’s Statement sent to Tenant shall be conclusively binding upon Tenant unless, within thirty (30) days after such Landlord’s Statement is sent, Tenant shall send a written notice to Landlord objecting to such Landlord’s Statement and specifying, to the extent reasonably practicable, the respects in which such Landlord’s Statement is disputed. If Tenant shall send such notice with respect to a Landlord’s Operating Statement, Tenant may select and pay an independent certified public accountant who may examine Landlord’s books and records relating solely to disputed aspects of the Operating Expenses to determine the accuracy of Landlord’s Operating Statement. Tenant recognizes the confidential nature of Landlord’s books and records, and agrees that any information obtained by Tenant’s accountant during any examination shall be maintained in strict confidence by such accountant, without revealing same to any person (except as required by law), including Tenant (except that Tenant’s accountant may inform Tenant of the amount of any overpayment claimed to have been made by Tenant). If, after such examination, such accountant shall dispute such Landlord’s Operating Statement, either party may refer the decision of the issues raised to a reputable independent firm of certified public accountants, selected by Landlord and approved by Tenant, which approval shall not be unreasonably withheld or delayed, and the decision of such accountants shall be conclusively binding upon the parties. The fees and expenses involved in resolving such dispute shall be borne by the unsuccessful party (and if both parties are partially unsuccessful, the accountants shall apportion the fees and expenses between the parties based upon the degree of success of each party). Notwithstanding the giving of such notice by Tenant, and pending the resolution of any such dispute, Tenant shall pay to Landlord when due the amount shown on any such Landlord’s Statement, as provided in this Article 3.

Section 3.7. In determining the amount of the Base Operating Factor and Operating Expenses, if less than 95% of the Building’s rentable area shall have been occupied by tenant(s) at any time during the calendar year 1997 or any Operating Year, Operating Expenses, for the purposes of the Base Operating Factor and for any Operating Year, shall be adjusted to the amount which would normally be expected to be incurred had 95% of all such areas been occupied throughout the calendar year 1997 or any Operating Year. The provisions of this paragraph with respect to adjustments of Operating Expenses for vacancy, shall apply only to Operating Expenses which are variable and which increase in

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the same relationship to the increase in occupancy in the Building and shall not apply to any Operating Expenses which do not vary with the level of occupancy in the Building.

ARTICLE 4

ELECTRICITY

Section 4.1. Tenant shall at all times comply with the rules, regulations, terms and conditions applicable to service, equipment, wiring and requirements of the public utility supplying electricity to the Building. Tenant shall not use any electrical equipment which, in Landlord’s reasonable judgment, would interfere with the electrical service to other tenants of the Building. In the event that, in Landlord’s reasonable judgment, Tenant’s electrical requirements necessitate installation of an additional riser, risers or other proper and necessary equipment, Landlord shall notify Tenant of the same. Tenant shall thereupon immediately cease use of the equipment requiring the installation of such additional riser, risers or other equipment and if Tenant desires to use such equipment, Tenant shall request (in a writing delivered to Landlord within five (5) days after Tenant’s receipt of such notice) that Landlord install the necessary additional riser, risers or other equipment. If Tenant shall fail to cease using such equipment as set forth in the prior sentence, or if Tenant shall make the request set forth in the prior sentence, then Landlord shall install such additional riser, risers or other equipment that Landlord reasonably determines to be necessary to accommodate Tenant’s electrical requirements, within the limits of the switchgear; provided, however, that Landlord reasonably determines that such installation is practicable. Any such installation shall be made at Tenant’s sole expense, chargeable and collectible as Additional Rent and paid within ten (10) days after the rendition of a bill to Tenant therefor. Landlord shall not be liable in any way to Tenant for any failure or defect in the supply or character of electric service furnished to the Premises by reason of any requirement, act or omission of the utility serving the Building or for any other reason not attributable to the gross negligence of Landlord, whether electricity is provided by public or private utility or by any electricity generation system owned and operated by Landlord.

Section 4.2. Tenant shall arrange to obtain electric energy directly from the public utility company furnishing electric energy to the Building. Such electric energy may, at Tenant’s option, be furnished to Tenant by means of existing Building System feeders, risers and wiring to the extent that the same are, in Landlord’s reasonable judgment, available, suitable and safe for such purpose. All meters and additional panel boards, feeders, risers, wiring and other conductors and equipment whatsoever which may be requested by Tenant or otherwise required to obtain electric energy directly from such

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public utility company, whether currently available for Tenant’s use or requiring Landlord’s installation, shall be furnished and installed by Landlord in locations selected by Landlord at Tenant’s sole cost and expense (at the Building standard rates on the date the same shall be furnished and installed by Landlord); but Landlord may, at its option, before commencing any such work or at any time thereafter, require Tenant to furnish to Landlord such security, in form (including, without limitation, a bond issued by a corporate surety licensed to do business in New York) and amount, as Landlord shall deem necessary to assure the payment for such work by Tenant.

Section 4.3. Tenant, at Landlord’s option, shall purchase from Landlord all lighting tubes, lamps, bulbs and ballasts used in the Premises, and Tenant shall pay to Landlord Landlord’s reasonable charges for providing the same (which shall be at competitive rates) and for installing the same, as Additional Rent.

ARTICLE 5

USE AND OCCUPANCY

Section 5.1. Tenant shall use and occupy the Premises for the Permitted Use and for no other purpose.

Section 5.2. Tenant shall not use the Premises or any part thereof, or permit the Premises or any part thereof to be used, (1) for the business of photographic, multilith or multigraph reproductions or offset printing, (2) for a retail commercial banking, thrift institution, loan company, trust company, depository or safe deposit business accepting deposits from the general public, (3) for the sale of travelers checks, money orders, drafts, foreign exchange or letters of credit or for the receipt of money for transmission, (4) by the United States government, the City or State of New York, any foreign government, the United Nations or any agency or department of any of the foregoing having or asserting sovereign immunity, (5) for the preparation, dispensing or consumption of food or beverages in any manner whatsoever, except that Tenant may establish and maintain an area within the Premises for a pantry (containing a sink, Dwyer unit, refrigerator and dishwasher) in which Tenant may warm food (on such Dwyer unit) for consumption only by Tenant’s employees who work in the Premises (and their business guests) and not for the sale of food to any Persons other than such employees (and such business guests), provided, however, that no flue or exhaust vent shall be necessary for such warming and that no odors shall be emitted from the Premises as a result of such cooking and that no such use shall violate the certificate of occupancy for the Building, any Requirements or any other provision of this Lease, (6) as an employment agency, day-care facility, labor union, school, or vocational training center (except for the training of employees of Tenant intended to be employed at the Premises), (7)

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as a barber shop, beauty salon or manicure shop, (8) for product display activities (such as those of a manufacturer’s representative), (9) as offices of any public utility company, (10) for data processing activities (other than those which are ancillary to an otherwise Permitted Use), (11) for the conduct of an auction, (12) for health care activities, (13) for clerical support services or offices of public stenographers or typists (other than those which are ancillary to an otherwise Permitted Use), (14) as reservation centers for airlines or travel agencies, (15) for retail or manufacturing use, or (16) as studios for radio, television or other media. Furthermore, the Premises shall not be used for any purpose that would, in Landlord’s reasonable judgment, tend to lower the first-class character of the Building, create unreasonable or excessive elevator or floor loads, impair or interfere with any of the Building operations or the proper and economic heating, air-conditioning, cleaning or any other services of the Building, interfere with the use of the other areas of the Building by any other tenants, or impair the appearance of the Building. Neither Tenant nor Persons Within Tenant’s Control shall use, generate, store, treat and or dispose of any Hazardous Materials in, on, under or about the Premises, the Building or the Land. Notwithstanding the preceding sentence, Tenant shall be entitled to use ordinary cleaning supplies and consumer products (such as hairspray and prescription medication) in the Premises for their intended uses and subject to, and in accordance with, all applicable Requirements.

Section 5.3. Tenant shall not suffer or permit the Premises or any portion thereof to be used by the public, as such, without restriction or in such manner as would impair Landlord’s or any Lessor’s title to or estate in the Premises or any portion thereof, or in such manner as might reasonably make possible a claim or claims of adverse usage, adverse possession against Landlord or any Lessor or prescription by the public, as such, or of implied dedication, of the Premises or any portion thereof. Tenant hereby acknowledges that Landlord does not hereby consent, expressly or by implication to the unrestricted use or possession of the whole or any portion of the Premises by the public, as such.

ARTICLE 6

ALTERATIONS

Section 6.1. (A) Tenant shall not make or permit to be made any Alterations without Landlord’s prior written consent, which consent shall not be unreasonably withheld or delayed, provided that: (i) the outside appearance of the Building shall not be affected; (ii) the strength of the Building shall not be affected; (iii) the structural parts of the Building shall not be adversely affected; (iv) no part of the Building outside of the Premises shall be affected; and (v) the proper functioning of the

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Building Systems shall not be adversely affected and the use of such systems by Tenant shall not be increased beyond Tenant’s allocable portion of the reserve capacity thereof, if any. If consent to any Alterations is not given, Landlord shall notify Tenant in sufficient detail to enable Tenant to amend its plans and specifications regarding such Alterations to comply with Landlord’s objections. Notwithstanding the foregoing, Tenant, without Landlord’s prior written consent or approval, may make non-structural Alterations (x) for which the cost of labor and materials (as estimated by Landlord’s architect, engineer or contractor) is less than $10,000 individually or $25,000 in the aggregate with any other Alteration constructed in the twelve (12) month period preceding the Alteration in question and (y) that do not violate the provisions contained in clauses (i) through (v) of this Section 6.1(A); provided that (I) at least ten (10) days prior to commencing any such Alterations, Tenant shall provide Landlord with three (3) sets of detailed plans and specifications (except as otherwise provided in Section 6.1(B)) that comply with all Requirements and (II) Tenant shall comply with all other requirements of this Article 6.

(B) (1) Prior to making any Alterations, Tenant shall (i) submit to Landlord three (3) sets of detailed plans and specifications (including layout, architectural, electrical, mechanical and structural drawings), that comply with all Requirements, for each proposed Alteration, and Tenant shall not commence any such Alteration without first obtaining Landlord’s approval of such plans and specifications, which shall not be unreasonably withheld or delayed with respect to non-structural Alterations not affecting any Building Systems, (ii) at Tenant’s expense, obtain all permits, approvals and certificates required by any Government Authorities, and (iii) furnish to Landlord duplicate original policies or certificates thereof of worker’s compensation insurance (covering all persons to be employed by Tenant, and Tenant’s contractors and subcontractors, in connection with such Alteration) and commercial general liability insurance (including premises operation, bodily injury, personal injury, death, independent contractors, products and completed operations, broad form contractual liability and broad form property damage coverages) in such form, with such companies, for such periods and in such amounts as Landlord may reasonably approve, naming Landlord and its agents, any Lessor and any Mortgagee, as additional insureds. Landlord hereby approves the layout plans for the Initial Alterations described in Schedule F annexed to this Lease (provided that nothing contained in this sentence shall diminish Tenant’s obligation to comply with any provision of this Lease relating to the Initial Alterations, including, without limitation, the submission of full plans and specifications for the Initial Alterations to Landlord for approval in accordance with the terms of this Lease, nor shall anything contained in this sentence diminish any rights of Landlord under this Lease, including, without limitation, the right to approve such plans and specifications for the Initial Alterations). Upon completion of each such Alteration, Tenant,

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at Tenant’s expense, shall obtain certificates of final approval of such Alterations required by any Government Authority and shall furnish Landlord with copies thereof, together with the “as-built” plans and specifications for such Alterations. All Alterations shall be made and performed in accordance with the plans and specifications therefor as approved by Landlord (including any changes thereto, or variations therefrom, approved by Landlord), all Requirements and the Rules and Regulations. All materials and equipment to be incorporated in the Premises as a result of any Alterations shall be first quality and no such materials or equipment shall be subject to any lien, encumbrance, chattel mortgage, title retention or security agreement. In addition, no such Alteration for which the cost of labor and materials (as reasonably estimated by Landlord’s architect, engineer or contractor) is in excess of $25,000, either individually or in the aggregate with any other Alteration constructed in any twelve (12) month period, shall be undertaken prior to Tenant’s delivering to Landlord such security for timely lien-free completion thereof as is reasonably satisfactory to Landlord, and such Alteration shall be performed only under the supervision of a licensed architect satisfactory to Landlord. Notwithstanding the preceding sentence, Tenant shall not be required to post security (x) with respect to any Initial Alterations, or (ii) in an amount in excess of the cost of the necessary labor and materials (as reasonably estimated by Landlord’s architect, engineer or contractor). Notwithstanding the provisions of subsection B(l) (i) of this Section 6.1, with respect to any Alterations for which the cost of labor and materials (as estimated by Landlord’s architect or contractor) is less than Twenty-Five Thousand ($25,000) Dollars, either individually or in the aggregate with any other Alterations constructed in any six (6) month period, Tenant shall not be obligated to submit the detailed plans and specifications referred to in subsection (B) (1) (i) (unless required by any Requirements), but in lieu of such detailed plans and specifications, Tenant shall submit to Landlord three (3) sets of documentation sufficient adequately to inform Landlord and its architect and engineer of the Alterations proposed to be made by Tenant.

(2) Subject to the reasonableness standard set forth in subsection (B) (1) above, Landlord reserves the right to disapprove any plans and specifications in part, to reserve approval of items shown thereon pending its review and approval of other plans and specifications, and to condition its approval upon Tenant making revisions to the plans and specifications or supplying additional information. Tenant agrees that any review or approval by Landlord of any plans and/or specifications with respect to any Alteration is solely for Landlord’s benefit, and without any representation, warranty or liability whatsoever to Tenant or any other Person with respect to the adequacy, correctness or sufficiency thereof in compliance with Requirements, or otherwise.

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(3) Landlord shall notify Tenant within 15 Business Days after the receipt by Landlord of Tenant’s original submission of plans and specifications for any Alterations and within 10 Business Days after the receipt by Landlord of Tenant’s resubmission of plans and specifications for any Alterations whether Landlord approves or disapproves (specifying the reasons for such disapproval) of the Alterations shown in such plans and specifications. If Landlord fails to approve or disapprove (specifying the reasons for such disapproval) Tenant’s plans and specifications within the time period specified in the preceding sentence, Tenant shall be entitled to send Landlord a notice stating in capitalized and underlined words, “YOU HAVE FAILED TO RESPOND TO THE PLANS AND SPECIFICATIONS SUBMITTED TO YOU ON [DATE] WITHIN THE [INSERT NUMBER] BUSINESS DAY PERIOD SPECIFIED IN SECTION 6.1 (B) (3) OF OUR LEASE AGREEMENT DATED [DATE]. IF YOU FAIL TO RESPOND THERETO WITHIN 10 BUSINESS DAYS AFTER THE DATE OF GIVING OF THIS NOTICE, SUCH PLANS AND SPECIFICATIONS WILL BE DEEMED TO HAVE BEEN APPROVED BY LANDLORD.” If Landlord fails to approve or disapprove (specifying the reasons for such disapproval) Tenant’s plans and specifications within 10 Business Days after receipt of such notice, Tenant’s plans and specifications shall be deemed approved.

(C) Except as otherwise provided herein, Tenant shall be permitted to perform Alterations (for which Tenant has obtained Landlord’s consent pursuant to Sections 6.1(A) and 6.1(B) above), during Operating Hours, provided that such work does not interfere with or interrupt the operation and maintenance of the Building (as determined by Landlord) or unreasonably interfere with or interrupt the use and occupancy of the Building by any other tenants in the Building. Otherwise, Alterations shall be performed at such times and in such manner as Landlord may from time to time reasonably designate. Except as provided in the penultimate sentence of this subsection (C), all Alterations shall become a part of the Building and shall be Landlord’s property from and after the installation thereof and may not be removed or changed without Landlord’s consent. Notwithstanding the foregoing, if, on or before the date Landlord approves Tenant’s plans and specifications (or other documentation) for such Alterations, Landlord notifies Tenant that Landlord is reserving the right to require Tenant to remove those Alterations that exceed or are different than the customary standard types of Alterations for general, executive and administrative business offices in the Borough of Manhattan, City and State of New York, then Landlord prior to the Expiration Date, may require Tenant to remove such specified Alterations and to repair and restore in a good and workmanlike manner to Building standard condition (reasonable wear and tear and damage for which Tenant is not responsible pursuant to the provisions of Article 13 excepted) any damage to the Premises or the Building caused by such removal. All Tenant’s Property shall remain the property of Tenant and, on or before the Expiration Date, may be removed from the Premises by Tenant at Tenant’s option, provided, however, that Tenant shall repair and restore in a good and

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workmanlike manner any damage to the Premises or the Building caused by such removal. The provisions of this Section 6.1 (C) shall survive the expiration or earlier termination of this Lease.

(D) (1) All Alterations shall be performed, at Tenant’s sole cost and expense, by contractors, subcontractors or mechanics approved by Landlord, which approval shall not be unreasonably withheld or delayed. Prior to Tenant making any Alterations, Landlord or Manager, at Tenant’s request, shall furnish Tenant with a list of contractors, subcontractors and mechanics who may perform Alterations in or to the Premises on behalf of Tenant, which list shall specify at least three subcontractors in each trade. If, within six months after Landlord shall furnish Tenant with such list, Tenant shall enter into a contract with any contractor set forth on the list, Tenant shall not be required to obtain Landlord’s consent to such contractor unless, prior to entering into a contract with such contractor or the commencement of work by the contractor, Landlord notifies Tenant that such contractor has been removed from the list.

(2) Notwithstanding the foregoing, with respect to any Alteration affecting any Building System, (i) Tenant shall employ Landlord’s or the Manager’s designated contractor, and (ii) the Alteration shall, at Tenant’s expense, be designed by either Landlord’s or the Manager’s engineer.

(E) (1) Any mechanic’s lien filed against the Premises or the Real Property for work claimed to have been done for, or materials claimed to have been furnished to, Tenant shall be cancelled or discharged by Tenant, at Tenant’s expense, within 20 days after such lien shall be filed, by payment or filing of the bond required by law, and Tenant shall indemnify and hold Landlord harmless from and against any and all costs, expenses, claims, losses or damages resulting therefrom by reason thereof. Notice is hereby given that Landlord shall not be liable for any labor or materials furnished or to be furnished to Tenant upon credit, and that no mechanic’s or other lien for any such labor or materials shall attach to or affect the reversion or other estate or interest of Landlord in and to the Premises.

(2) If Tenant shall fail to discharge such mechanic’s lien within the aforesaid period, then, in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or by procuring the discharge of such lien by deposit in court or bonding, and in any such event, Landlord shall be entitled, if Landlord so elects, to compel the prosecution of an action for the foreclosure of such mechanic’s lien by the lienor and to pay the amount of the judgment, if any, in favor of the lienor, with interest, costs and allowances.

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(3) Any amount paid by Landlord for any of the aforesaid charges and for all expenses of Landlord (including, but not limited to, attorneys’ fees and and disbursements) incurred in defending any such action, discharging said lien or in procuring the discharge of said lien, with interest on all such amounts at the maximum legal rate of interest then chargeable to Tenant from the date of payment, shall be repaid by Tenant within ten (10) days after written demand therefor, and all amounts so repayable, together with such interest, shall be considered Additional Rent.

Section 6.2. In the case of Alterations (other than the Initial Alterations) costing in excess of Twenty-Five Thousand ($25,000.00) Dollars, Tenant shall pay to the Manager a fee (the “Alteration Fee”) equal to seven (7%) percent of the cost thereof. Such Alteration Fee or any portion thereof shall be paid by Tenant to the Manager within 10 Business Days after the commencement of such Alterations. In addition, Tenant shall reimburse Landlord, within ten Business Days after demand therefor, for any out-of-pocket expense incurred by Landlord for reviewing the plans and specifications for such Alterations (including the Initial Alterations) or inspecting the progress of completion of the same.

Section 6.3. Tenant shall furnish to Landlord copies of records of all Alterations and of the cost thereof within fifteen (15) days after the completion of such Alterations. In connection with any filings by Tenant for permits, approvals or certificates for Tenant’s Alterations, Landlord shall, without incurring any filing or similar fee and at no cost to Landlord, cooperate with Tenant and execute any documents reasonably required by any Government Authority to enable Tenant to obtain such permits, approvals or certificates.

Section 6.4. In consideration of Tenant’s acceptance of the Premises “as-is”, and of Tenant’s performance of the Initial Alterations, Landlord shall pay up to but not in excess of Landlord’s Contribution set forth on the Reference Page for Tenant’s actual costs of performing or installing in the Premises the Initial Alterations, as shown in the plans and specifications referred to in Section 6.1 for such Alterations. For purposes of the preceding sentence, actual costs of performing or installing such Alterations shall include all so-called “hard” and “soft” construction costs, such as costs and fees for design and engineering, Tenant’s professional and construction consultants, reasonable moving expenses, telecommunications equipment and furniture. Provided that there shall not then be existing an Event of Default under the provisions of this Lease, Landlord shall pay for such costs by paying the contractors, suppliers or consultants designated by Tenant or by reimbursing Tenant (at Tenant’s option) from time to time during the progress of such Alterations (but not more than once per month) within 30 days after receipt from Tenant of (i) supporting documentation therefor approved by Tenant, accompanied by a certification of

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the architect supervising the work (for work covered by such architect’s design) and a certification of an officer by a Tenant, stating that the portion of the work for which Tenant is applying for payment has been completed substantially in accordance with the plans and specifications approved by Landlord, (ii) itemized bills for labor and materials constituting portions of such Alterations submitted by the contractors, suppliers or consultants of the services or materials rendered (and where Tenant elects to be reimbursed, such bills shall have been marked “paid” by the contractor, supplier or consultant), and (iii) waivers of liens evidencing the payment for any prior work performed and materials supplied for which Tenant previously applied for payment, executed and acknowledged by the contractors, suppliers and consultants which are entitled by statute to file mechanics liens. Notwithstanding anything to the contrary contained in this Section 6.4, if, at the time Landlord’s payment is required to be made, Tenant is in arrears in the payment of Fixed Rent or Additional Rent, then Landlord may offset the amount of such arrearages against the payment due from Landlord under this Section 6.4. If there shall be existing an Event of Default hereunder at the time Tenant makes application for payment under this Section 6.4, Landlord shall advise Tenant and if Tenant shall cure the same, Tenant shall have the right to reapply to Landlord for payments due Tenant under this Section 6.4.

ARTICLE 7

REPAIRS; FLOOR LOAD

Section 7.1. Tenant, at Tenant’s sole cost and expense, shall take good care of the Premises and the fixtures, equipment and appurtenances therein and make all repairs thereto as and when needed to preserve them in good working order and condition, except for (a) reasonable wear and tear, (b) obsolescence and (c) damage for which Tenant is not responsible pursuant to the provisions of Article 13. Except as otherwise provided in this Section 7.1, Tenant shall not be obligated to repair any Building System. The design and decoration of the elevator areas of each floor of the Premises and the public corridors of any floor of the Premises occupied by more than one (1) occupant shall be under the sole control of Landlord. Notwithstanding any provision contained in this Lease to the contrary, all damage or injury to the Premises, and all damage or injury to any other part of the Building, or to its fixtures, equipment and appurtenances (including Building Systems), whether requiring structural or non-structural repairs, caused by the moving of Tenant’s Property or caused by or resulting from any act or omission of, or Alterations made by, Tenant or Persons Within Tenant’s Control, shall be repaired by Tenant, at Tenant’s sole cost and expense, to the reasonable satisfaction of Landlord (if the required repairs are non-structural in nature and do not affect any Building System), or by Landlord at Tenant’s sole cost

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and expense (if the required repairs are structural in nature or affect any Building System). All of the aforesaid repairs shall be performed in a manner and with materials and design of first class and quality consistent with first-class office buildings in Manhattan, City and State of New York, and shall be made in accordance with the provisions of Article 6. If Tenant shall fail, after 15 days notice (or such shorter period as may be required because of an emergency), to proceed with due diligence to make repairs required to be made by Tenant, the same may be made by Landlord, at the expense of Tenant, and the expenses thereof incurred by Landlord, with interest thereon at the Applicable Rate, shall be paid to Landlord, as Additional Rent, within 15 days after rendition of a bill or statement therefor. Tenant shall give Landlord prompt notice of any defective condition known to Tenant in any Building System located in, servicing or passing through the Premises.

Section 7.2. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law (which, on the date of this Lease, is 50 pounds per usable square foot). Tenant shall not locate or move any safe, heavy machinery, heavy equipment, business machines, freight, bulky matter or fixtures into or out of the Building without Landlord’s prior consent, which consent shall not be unreasonably withheld or delayed, and Tenant shall make payment to Landlord of Landlord’s out-of-pocket costs in connection therewith (if such move is not part of an Alteration, including the Initial Alterations). If such safe, machinery, equipment, freight, bulky matter or fixture requires special handling (as determined by Landlord), Tenant shall employ only persons holding a Master Rigger’s license to do said work. All work in connection therewith shall comply with the Requirements, and shall be done during such hours as Landlord may reasonably designate. Business machines and mechanical equipment shall be placed and maintained by Tenant, at Tenant’s expense, in settings sufficient, in Landlord’s reasonable judgment, to absorb and prevent vibration, noise and annoyance.

Section 7.3. Landlord shall operate, maintain and make all necessary repairs (both structural and non-structural) to the Building Systems and the public portions of the Building, both exterior and interior, in conformance with standards applicable to first-class office buildings in Manhattan, City and State of New York, except for those repairs for which Tenant is responsible pursuant to any other provision of this Lease. Landlord shall use reasonable efforts to minimize interference with Tenant’s use and occupancy of the Premises in making any repairs, alterations, additions or improvements; provided, however, that Landlord shall have no obligation to employ contractors or labor at so-called overtime or other premium pay rates or to incur any other overtime costs in connection with such repairs, alterations, additions or improvements. Notwithstanding the foregoing, if Tenant shall so request, Landlord shall employ contractors or labor at so-called overtime

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or other premium pay rates or incur other overtime costs in making such repairs, alterations, additions or improvements, provided Tenant shall pay to Landlord, as Additional Rent, within 15 days after demand therefor, an amount equal to the excess costs incurred by Landlord by reason of compliance with Tenant’s request. Except as expressly provided in this Lease, there shall be no allowance to Tenant for a diminution of rental value and no liability on the part of Landlord by reason of inconvenience, annoyance or injury to business arising from Landlord, Tenant or others making, or failing to make, any repairs, alterations, additions or improvements in or to any portion of the Building or the Premises, or its fixtures, appurtenances or equipment. Nothing contained in this Section 7.3 shall relieve Landlord from liability to Tenant resulting from the wilful misconduct or negligence of Landlord or its employees, contractors or agents.

ARTICLE 8

WINDOW CLEANING

Section 8.1. Tenant shall not clean, nor require, permit, suffer or allow any window in the Premises to be cleaned, from the outside in violation of Section 202 of the Labor Law, or any other applicable law, or of the rules of the Board of Standards and Appeals, or of any other board or body having or asserting jurisdiction.

ARTICLE 9

REQUIREMENTS OF LAW

Section 9.1. Tenant shall not do, and shall not permit Persons Within Tenant’s Control to do, any act or thing in or upon the Premises or the Building which will violate any Requirements. Tenant shall, at Tenant’s sole cost and expense, take all action, including any required Alterations necessary to comply with all Requirements (including, but not limited to, applicable terms of Local Laws No. 5 of 1973, No. 16 of 1984, No. 76 of 1985, No. 58 of 1987 and the Americans With Disabilities Act of 1990 (the “ADA”), each as modified and supplemented from time to time) which shall impose any violation, order or duty upon Landlord or Tenant arising from, or in connection with, the Premises, Tenant’s occupancy, use or manner of use of the Premises (including, without limitation, any occupancy, use or manner of use that constitutes a “place of public accommodation” under the ADA), or any installations in the Premises, or required by reason of a breach of any of Tenant’s covenants or agreements under this Lease, whether or not such Requirements shall now be in effect or hereafter enacted or issued, and whether or not any work required shall be ordinary or extraordinary or foreseen or unforeseen at the date hereof. Notwithstanding the preceding sentence, Tenant shall not be obligated to perform any Alterations

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necessary to comply with any Requirements, unless compliance shall be required by reason of (i) any cause or condition arising out of any Alterations or installations in the Premises (whether made by Tenant or by Landlord on behalf of Tenant), or (ii) Tenant’s particular use, manner of use or occupancy on behalf of Tenant of the Premises, or (iii) any breach of any of Tenant’s covenants or agreements under this Lease, or (iv) any wrongful act or omission by Tenant or Persons Within Tenant’s Control, or (v) Tenant’s use or manner of use or occupancy of the Premises as a “place of public accommodation” within the meaning of the ADA.

Section 9.2. Tenant covenants and agrees that Tenant shall, at Tenant’s sole cost and expense, comply at all times with all Requirements governing the use, generation, storage, treatment and/or disposal of any “Hazardous Materials” (which term shall mean any biologically or chemically active or other toxic or hazardous wastes, pollutants or substances, including, without limitation, asbestos, PCBs, petroleum products and by-products, substances defined or listed as “hazardous substances” or “toxic substances” or similarly identified in or pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq., and as hazardous wastes under the Resource Conservation and Recovery Act, 42 U.S.C. 6010, et seq., any chemical substance or mixture regulated under the Toxic Substance Control Act of 1976, as amended, 15 U.S.C. 2601, et seq., any “toxic pollutant” under the Clean Water Act, 33 U.S.C. 466 et seq., as amended, any hazardous air pollutant under the Clean Air Act, 42 U.S.C. 7401 et seq., hazardous materials identified in or pursuant to the Hazardous Materials Transportation Act, 49 U.S.C. 1802, et seq., and any hazardous or toxic substances or pollutant regulated under any other Requirements). Tenant shall agree to execute, from time to time, at Landlord’s request, affidavits, representations and the like concerning Tenant’s best knowledge and belief regarding the presence of Hazardous Materials in, on, under or about the Premises, the Building or the Land. Tenant shall indemnify and hold harmless all Indemnitees from and against any loss, cost, damage, liability or expense (including attorneys’ fees and disbursements) arising by reason of any clean-up, removal, remediation, detoxification action or any other activity required of any Indemnitees by any Government Authority by reason of the presence in or about the Building or the Premises of any Hazardous Materials, as a result of or in connection with the act or omission of Tenant or Persons Within Tenant’s Control or the breach of this Lease by Tenant or Persons Within Tenant’s Control. The foregoing covenants and indemnity shall survive the expiration or any termination of this Lease. Landlord represents that, to Landlord’s knowledge, as of the date of this Lease, the Premises are free of Hazardous Materials. Landlord shall deliver to Tenant an ACP-5 certificate in respect of the Premises.

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Section 9.3. If Tenant shall receive notice of any violation of, or defaults under, any Requirements, liens or other encumbrances applicable to the Premises, Tenant shall give prompt notice thereof to Landlord.

Section 9.4. If any governmental license or permit shall be required for the proper and lawful conduct of Tenant’s business and if the failure to secure such license or permit would, in any way, affect Landlord or the Building, then Tenant, at Tenant’s expense, shall promptly procure and thereafter maintain, submit for inspection by Landlord, and at all times comply with the terms and conditions of, each such license or permit.

Section 9.5. Tenant, at Tenant’s sole cost and expense and after notice to Landlord, may contest, by appropriate proceedings prosecuted diligently and in good faith, the legality or applicability of any Requirement affecting the Premises provided that: (a) neither Landlord nor any Indemnitees shall be subject to criminal penalties, nor shall the Real Property or any part thereof be subject to being condemned or vacated, nor shall the certificate of occupancy for the Premises or the Building be suspended or threatened to be suspended, by reason of non-compliance or by reason of such contest; (b) before the commencement of such contest, if Landlord or any Indemnitees may be subject to any civil fines or penalties or if Landlord may be liable to any independent third party as a result of such non-compliance, then Tenant shall furnish either (i) a bond protecting Landlord of a surety company satisfactory to Landlord, in form and substance reasonably satisfactory to Landlord, and in an amount at least equal to one hundred twenty (120%) percent of Landlord’s estimate of the sum of (A) the cost of such compliance, (B) the penalties or fines that may accrue by reason of such non-compliance (as reasonably estimated by Landlord) and (C) the amount of such liability to independent third parties, and shall indemnify Landlord (and any Indemnitees) against the cost of such compliance and liability resulting from or incurred in connection with such contest or non-compliance; or (ii) other security reasonably satisfactory in all respects to Landlord; (c) such non-compliance or contest shall not constitute or result in a violation (either with the giving of notice or the passage of time or both) of the terms of any Mortgage or Superior Lease, or if such Superior Lease or Mortgage conditions such non-compliance or contest upon the taking of action or furnishing of security by Landlord, such action shall be taken or such security shall be furnished at the expense of Tenant; and (d) Tenant shall keep Landlord regularly advised as to the status of such proceedings.

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ARTICLE 10

SUBORDINATION

Section 10.1. This Lease shall be subject and subordinate to each Superior Lease and to each Mortgage, whether made prior to or after the execution of this Lease, and to all renewals, extensions, supplements, amendments, modifications, consolidations and replacements thereof or thereto, substitutions therefor, and advances made thereunder. This clause shall be self-operative and no further agreement of subordination shall be required to make the interest of any Lessor or Mortgagee superior to the interest of Tenant hereunder. In confirmation of such subordination, however, Tenant shall promptly execute and deliver, at its own cost and expense, any document, in recordable form if requested, that Landlord, any Lessor or any Mortgagee may request to evidence such subordination; and if Tenant fails to execute, acknowledge or deliver any such document within 15 days after request therefor, Tenant hereby irrevocably constitutes and appoints Landlord as Tenant’s attorney-in-fact, coupled with an interest, to execute, acknowledge and deliver any such document for and on behalf of Tenant. Tenant shall not knowingly do anything that would constitute a default under any Superior Lease or Mortgage, or knowingly omit to do anything that Tenant is obligated to do under the terms of this Lease so as to cause Landlord to be in default thereunder (and if Tenant shall do so (or, as the case may be, omit to do so), Tenant shall, upon demand by Landlord, immediately cease doing same or perform such omitted act, as the case may be). If, in connection with the financing of the Real Property, the Building or the interest of the lessee under any Superior Lease, or if, in connection with the entering into of a Superior Lease, any lending institution or Lessor, as the case may be, requests reasonable modifications of this Lease that do not increase rent or change the Term of this Lease, or materially and adversely affect the rights or obligations of Tenant under this Lease, Tenant shall make such modifications.

Section 10.2. If, at any time prior to the expiration of the Term, any Superior Lease shall terminate or shall be terminated for any reason, or any Mortgagee comes into possession of the Real Property or the Building or the estate created by any Superior Lease by receiver or otherwise, Tenant agrees, at the election and upon demand of any owner of the Real Property or the Building, or of the Lessor, or of any Mortgagee in possession of the Real Property or the Building, to attorn, from time to time, to any such owner, Lessor or Mortgagee or any person acquiring the interest of Landlord as a result of any such termination, or as a result of a foreclosure of the Mortgage or the granting of a deed in lieu of foreclosure, upon the then executory terms and conditions of this Lease (except as provided below), for the remainder of the Term, provided that such owner, Lessor or Mortgagee, as the case may be, or receiver caused to be appointed by any of the foregoing, is then entitled to possession of the

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Premises. Any such attornment shall be made upon the condition that no such owner, Lessor or Mortgagee shall be:

(1) liable for any act or omission of any prior landlord (including, without limitation, the then defaulting landlord); or

(2) subject to any defense or offsets (except as expressly set forth in this Lease) which Tenant may have against any prior landlord (including, without limitation, the then defaulting landlord) ; or

(3) bound by any payment of Rental which Tenant might have paid for more than the current month to any prior landlord (including, without limitation, the then defaulting landlord); or

(4) bound by any obligation to make any payment to Tenant which was required to be made prior to the time such owner, Lessor or Mortgagee succeeded to any prior landlord’s interest; or

(5) bound by any obligation to perform any work or to make improvements to the Premises except for (i) repairs and maintenance pursuant to the provisions of Article 7, (ii) repairs to the Premises or any part thereof as a result of damage by fire or other casualty pursuant to Article 13, but only to the extent that such repairs can be reasonably made from the net proceeds of any insurance actually made available to such owner, Lessor or Mortgagee and (iii) repairs to the Premises as a result of a partial condemnation pursuant to Article 14, but only to the extent that such repairs can be reasonably made from the net proceeds of any award made available to such owner, Lessor or Mortgagee. The provisions of this Section 10.2 shall inure to the benefit of any such owner, Lessor or Mortgagee, shall apply notwithstanding that, as a matter of law, this Lease may terminate upon the termination of any such Superior Lease by summary proceedings or otherwise, and shall be self-operative upon any such demand, and no further agreement shall be required to give effect to said provisions. Tenant, however, upon demand of any such owner, Lessor or Mortgagee, shall execute, from time to time, agreements in confirmation of the foregoing provisions of this Section 10.2, satisfactory to any such owner, Lessor or Mortgagee, and acknowledging such attornment and setting forth the terms and conditions of its tenancy. Tenant hereby waives the provisions of any statute or rule of law now or hereafter in effect which affords Tenant any right to terminate this Lease or to surrender possession of the Premises if the Superior Lease is terminated. Nothing contained in this Section 10.2 shall be construed to impair any right otherwise exercisable by any such owner, Lessor or Mortgagee.

Section 10.3. If requested by any Mortgagee, any Lessor or Landlord, Tenant shall promptly execute and deliver, at Tenant’s

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own cost and expense, any document in accordance with the terms of this Article 10, in recordable form, to evidence such subordination.

Section 10.4. Landlord shall cause the Existing Mortgagees to enter into and deliver an agreement in recordable form with Tenant, substantially in the form annexed to this Lease as Schedule E. With respect to any Mortgage entered into after the date of this Lease (a “New Mortgage”), the provisions of Section 10.1 of this Lease shall only operate to subject and subordinate this Lease to the New Mortgage if the holder of the New Mortgage shall unconditionally deliver a non-disturbance agreement to Tenant in the form generally used by the holder of such New Mortgage, provided the same contains terms that are customarily found in such agreements.

Section 10.5. (A) As long as any Superior Lease or Mortgage exists, Tenant shall not seek to terminate this Lease by reason of any act or omission of Landlord until Tenant has given written notice of such act or omission to all Lessors and Mortgagees at such addresses as may have been furnished to Tenant by such Lessors and Mortgagees and, if any such Lessor or Mortgagee, as the case may be, notifies Tenant within thirty (30) days following receipt of such notice of its intention to remedy such act or omission, until a reasonable period of time shall have elapsed following the giving of such notice, during which period such Lessors and Mortgagees shall have the right, but not the obligation, to remedy such act or omission.

(B) Tenant shall not terminate, nor shall this Lease be terminable by Tenant, by reason of any termination of the Ground Lease, by summary proceedings or otherwise and Tenant shall, without further instruments of attornment, attorn to Ground Lessor (unless Ground Lessor, if not prohibited under the Ground Lease from doing so, elects, in writing, in connection therewith, to terminate this Lease and the right of Tenant to possession of the Premises). Tenant shall waive the provisions of any statute or rule of law now or hereafter in effect which may give or purport to give Tenant any right of election to terminate this Lease or to surrender possession of the Premises in the event the Ground Lease is terminated, and this Lease shall not be affected in any way whatsoever by any such proceeding or termination of the Ground Lease (unless and until Ground Lessor so elects to terminate this Lease and extinguish the leasehold estate demised hereunder).

Section 10.6. (A) Tenant acknowledges that any Lessor may prohibit any modification of this Lease that purports to reduce the Rental, shorten the Term or otherwise materially adversely affect the rights of Landlord hereunder and may prohibit the cancellation or surrender of this Lease without the prior consent of the Lessor thereunder.

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(B) Notwithstanding any other provision contained in this Lease to the contrary, and without in any way limiting the provisions of subsection (A) above, this Lease shall not be modified or amended so as to reduce the Rental, shorten the Term or otherwise materially adversely affect the rights of Landlord hereunder, nor shall Landlord permit the cancellation or accept the surrender of this Lease, without the prior written consent of Ground Lessor in each instance, which consent Ground Lessor shall not unreasonably withhold, except that Ground Lessor’s consent shall not be required (i) to the termination of this Lease by reason of a default on the part of Tenant hereunder or to the institution or prosecution of any action or proceeding against Tenant by reason of such a default or to the execution of any judgment, warrant or other mandate obtained therein, or (ii) if at the time of such modification or amendment, (y) fewer than five years (including any exercised renewal options) shall then remain in the Term of this Lease, or (z) the annual Fixed Rent payable hereunder (and under any other leases between Landlord and Tenant of space in the Building) shall then be equal to or less than 10% of the gross rent roll per annum under all leases affecting the portion of the Building covered by the Ground Lease.

Section 10.7. Landlord represents and warrants to Tenant that as of the date of this Lease, Landlord is the tenant under the Ground Lease and has full power and authority to enter into this Lease.

Section 10.8. At any time and from time to time upon not less than ten (10) days’ prior notice to Tenant by Landlord or a Lessor or Mortgagee, Tenant shall, without charge, execute, acknowledge and deliver a statement in writing addressed to such party as Landlord, Lessor or Mortgagee, as the case may be, may designate, in form reasonably satisfactory to Landlord, Lessor or Mortgagee, as the case may be, certifying all or any of the following: (i) that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and stating the modifications); (ii) whether the Term has commenced (and, if so, the Commencement Date and the Fixed Expiration Date) and whether Fixed Rent and Additional Rent have become payable hereunder and, if so, the first date on which Fixed Rent became payable and the dates to which they have been paid; (iii) whether or not, to the best knowledge of the signer of such certificate, Landlord is in default in performance of any of the terms of this Lease and, if so, specifying each such Event of Default of which the signer may have knowledge; (iv) whether Tenant has accepted possession of the Premises; (v) whether any commitments, arrangements or understandings made to induce Tenant to enter into this Lease have been satisfied; (vi) whether any improvements required to be made by Landlord to prepare the Premises for Tenant’s occupancy have been completed in accordance with this Lease; (vii) whether Tenant has made any claim against Landlord under this Lease and, if so, the nature thereof and the dollar amount, if any, of such

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claim; (viii) either that Tenant does not know of any default in the performance of any provision of this Lease or specifying the details of any default of which Tenant may have knowledge and stating what action Tenant is taking or proposes to take with respect thereto; (ix) that, to the knowledge of Tenant, there are no proceedings pending or threatened against Tenant before or by any court or administrative agency which, if adversely decided, would materially and adversely affect the financial condition or operations of Tenant or, if any such proceedings are pending or threatened to the knowledge of Tenant, specifying and describing the same; and (x) such further information with respect to the Lease or the Premises as Landlord may reasonably request or Lessor or Mortgagee may require; it being intended that any such statement delivered pursuant hereto may be relied upon by Landlord, any prospective purchaser of the Real Property or any part thereof or of the interest of Landlord in any part thereof, by any Mortgagee or prospective Mortgagee, by any Lessor or prospective Lessor, by any tenant or prospective tenant of the Real Property or any part thereof, or by any prospective assignee of any Mortgage.

ARTICLE 11

RULES AND REGULATIONS

Section 11.1. Tenant and Persons Within Tenant’s Control shall comply with the Rules and Regulations. Nothing contained in this Lease shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations or the terms, covenants or conditions in any other lease against any other tenant, and Landlord shall not be liable to Tenant for violation of the same by any other tenant, its employees, agents, visitors or licensees. Landlord shall not discriminate against Tenant in enforcing the Rules and Regulations.

ARTICLE 12

INSURANCE, PROPERTY LOSS OR DAMAGE; REIMBURSEMENT

Section 12.1. (A) No Tenant shall entrust any property to any Building employee. Any Building employee to whom any property is entrusted by or on behalf of Tenant in violation of the foregoing prohibition shall be deemed to be acting as Tenant’s agent with respect to such property and neither Landlord nor its agents shall be liable for any injury or damage to persons or property of Tenant or of others entrusted to employees of the Building, nor for the loss of or damage to any property of Tenant by theft or otherwise. Landlord and Landlord’s agents shall not be liable for any damage to any of Tenant’s Property or for interruption of Tenant’s business, however caused, including but not limited to, damage caused by other tenants or persons in the Building or caused by construction of any private, public or

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quasi-public work. Landlord shall not be liable for any latent defect in the Premises or in the Building (notwithstanding Landlord’s obligation to repair any such latent defect under the circumstances set forth in Section 7.3 of this Lease). Nothing contained in this Section 12.1 shall relieve Landlord from any liability to Tenant resulting from the wilful misconduct or negligence of Landlord or its employees, contractors or agents.

(B) If at any time any windows of the Premises are temporarily closed, darkened or covered for any reason, including Landlord’s own acts, or if any of such windows are permanently closed, darkened or covered by reason of any Requirement, Landlord shall not be liable for any damage Tenant may sustain thereby, and Tenant shall not be entitled to any compensation therefor nor abatement of Fixed Rent or any other item of Rental, nor shall the same release Tenant from Tenant’s obligations hereunder nor constitute an eviction.

(C) Tenant shall give notice to Landlord promptly after Tenant learns of any accident, emergency, occurrence for which Landlord might be liable, fire or other casualty and all damages to or defects in the Premises or the Building for the repair of which Landlord might be responsible or which constitutes Landlord’s property. Such notice shall be given by telecopy or personal delivery to the address(es) of Landlord in effect for notice.

Section 12.2. Tenant shall not do or permit to be done any act or thing in or upon the Premises which will invalidate or be in conflict with the terms of the New York State standard policies of fire insurance and liability insurance (hereinafter collectively referred to as “Building Insurance”); and Tenant, at Tenant’s own expense, shall comply with all rules, orders, regulations and requirements of all insurance boards, and shall not knowingly do or permit anything to be done in or upon the Premises or bring or keep anything therein or use the Premises in a manner which increases the rate of premium for any of the Building Insurance over the rate in effect at the commencement of the Term of this Lease (and if Tenant shall do any of the foregoing, Tenant shall, upon demand by Landlord, immediately cease doing same).

Section 12.3. If, by reason of any failure of Tenant to comply with the provisions of this Lease, the rate of premium for Building Insurance or other insurance on the property and equipment of Landlord shall increase, Tenant shall reimburse Landlord for that part of the insurance premiums thereafter paid by Landlord which shall have been charged because of such failure by Tenant. Tenant shall make said reimbursement on the first day of the month following such payment by Landlord.

Section 12.4. (A) At Tenant’s own cost and expense, Tenant shall obtain, maintain and keep in full force and effect during the Term, commercial general liability insurance (without

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deductible) (including broad form property damage coverages). The limits of liability shall not be less in a combined single limit amount of Five Million and 00/100 ($5,000,000.00) Dollars per occurrence, which amount may be satisfied with a primary commercial general liability policy of not less than $2,000,000 and an excess (or “Umbrella”) liability policy affording coverage, at least as broad as that approved by the primary commercial general liability policy, in an amount not less than $3,000,000. Landlord, the Manager, any Lessors, and any Mortgagees shall be included as additional insureds in said policies and shall be protected against all liability arising in connection with this Lease. All said policies of insurance shall be written as “occurrence” policies. Whenever, in Landlord’s reasonable judgment, good business practice and changing conditions indicate a need for additional amounts or different types of insurance coverage, Tenant shall, within 30 days after Landlord’s request, obtain such insurance coverage, at Tenant’s expense.

(B) Tenant, at Tenant’s sole cost and expense, shall maintain all risk insurance with deductible in amounts reasonably satisfactory to Landlord, protecting and indemnifying Tenant against any and all damage to or loss of any Alterations, and leasehold improvements including any made by Landlord to prepare the Premises for Tenant’s occupancy and Tenant’s Property. All said policies shall cover the full replacement value of the Alterations, leasehold improvements and Tenant’s Property.

(C) All policies of insurance shall be: (i) written as primary policy coverage and not contributing with or in excess of any coverage which Landlord or any Lessor may carry; and (ii) issued by insurance companies rated in Best’s Insurance Guide or any successor thereto (or if there is none, an organization having a national reputation) as having a general policy holder rating of “A” and a financial rating of at lease “13”, and which are licensed to do business in the State of New York. Tenant shall, not later than ten (10) Business Days prior to the Commencement Date, deliver to Landlord either (a) the policies of insurance or (b) certificates thereof with a copy of the declaration page, and shall thereafter furnish to Landlord, at least thirty (30) days prior to the expiration of any such policies and any renewal thereof, a new policy or certificate (with a copy of the declaration page) in lieu thereof. Each of said policies shall also contain a provision whereby the insurer agrees not to cancel, fail to renew, diminish or materially modify said insurance policy(ies) without having given Landlord, the Manager and any Lessors and Mortgagees at least thirty (30) days prior written notice thereof. Tenant shall promptly send to Landlord a copy of each and every notice sent to Tenant by Tenant’s insurer.

(D) Tenant shall pay all premiums and charges for all of said policies, and, if Tenant shall fail to make any payment when due or carry any such policy, Landlord may, but shall not be

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obligated to, make such payment or carry such policy, and the amount paid by Landlord, with interest thereon (at the Applicable Rate) ,shall be repaid to Landlord by Tenant on demand, and all such amounts so repayable, together with such interest, shall be deemed to constitute Additional Rent hereunder. Payment by Landlord of any such premium, or the carrying by Landlord of any such policy, shall not be deemed to waive or release the default of Tenant with respect thereto.

(E) Notwithstanding the limits of insurance specified in this Section 12.4, Tenant agrees to defend, protect, indemnify and hold harmless Landlord, the Manager, any Lessors, Mortgagees and the Indemnitees from and against all damage, loss, liability, cost and expense (including engineers’, architects’ and attorneys’ fees and disbursements) resulting from any of the risks referred to in this Section 12.4. The foregoing obligation of Tenant shall be and remain in full force and effect whether or not Tenant has placed and maintained the insurance specified in this Section 12.4, and whether or not proceeds from such insurance (such insurance having been placed and maintained) actually are collectible from one or more of the aforesaid insurance companies; provided, however, that Tenant shall be relieved of its obligation of indemnity herein pro tanto of the amount actually recovered by Landlord from one or more of said insurance companies by reason of injury, damage or loss sustained on the Premises.

Section 12.5. (A) Landlord shall cause each policy carried by Landlord insuring the Building against loss, damage or destruction by fire or other casualty, and Tenant shall cause each insurance policy carried by Tenant and insuring the Premises and Tenant’s Alterations, leasehold improvements and Tenant’s Property against loss, damage or destruction by fire or other casualty, to be written in a manner so as to provide that the insurance company waives all rights of recovery by way of subrogation against Landlord, Tenant and any tenant of space in the Building in connection with any loss or damage covered by any such policy. Neither party shall be liable to the other for the amount of such loss or damage which is in excess of the applicable deductible, if any, caused by fire or any of the risks enumerated in its policies, provided that such waiver was obtainable at the time of such loss or damage. However, if such waiver cannot be obtained, or shall be obtainable only by the payment of an additional premium charge above that which is charged by companies carrying such insurance without such waiver of subrogation, then the party undertaking to obtain such waiver shall notify the other party of such fact and such other party shall have a period of ten (10) days after the giving of such notice to agree in writing to pay such additional premium if such policy is obtainable at additional cost (in the case of Tenant, pro rata in proportion of Tenant’s rentable area to the total rentable area covered by such insurance); and if such other party does not so agree or the waiver shall not be obtainable, then the provisions of this Section 12.5 shall be null and void as to the

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risks covered by such policy for so long as either such waiver cannot be obtained or the party in whose favor a waiver of subrogation is desired shall refuse to pay the additional premium. If the release of either Landlord or Tenant, as set forth in the second sentence of this Section 12.5, shall contravene any law with respect to exculpatory agreements, the liability of the party in question shall be deemed not released, but no action or rights shall be sought or enforced against such party unless and until all rights and remedies against the other’s insurer are exhausted and the other party shall be unable to collect such insurance proceeds.

(B) The waiver of subrogation referred to in Section 12.5(A) above shall extend to the agents and employees of each party (including, as to Landlord, the Manager), but only if and to the extent that such waiver can be obtained without additional charge (unless such party shall pay such charge). Nothing contained in this Section 12.5 shall be deemed to relieve either party from any duty imposed elsewhere in this Lease to repair, restore and rebuild.

ARTICLE 13

DESTRUCTION BY FIRE OR OTHER CAUSE

Section 13.1. If the Premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give prompt written notice thereof to Landlord. Landlord shall, subject to the provisions of Sections 13.2 and 13.3 below, proceed with reasonable diligence, after receipt of the net proceeds of insurance, to repair or cause to be repaired such damage at its expense, to substantially their condition immediately prior to such damage but in no event greater than the scope of Landlord’s construction of the Premises on the Commencement Date; and, if the Premises, or any part thereof, shall be rendered untenantable by reason of such damage and such damage shall not be due to the fault of Tenant or Persons Within Tenant’s Control, then the Fixed Rent and the Escalation Rent hereunder, or an amount thereof apportioned according to the area of the Premises so rendered untenantable (if less than the entire Premises shall be so rendered untenantable), shall be abated for the period from the date of such damage to the date when the repair of such damage shall have been substantially completed. Tenant covenants and agrees to cooperate with Landlord and any Lessor or any Mortgagee in their efforts to collect insurance proceeds (including rent insurance proceeds) payable to such parties. Landlord shall not be liable for any delay which may arise by reason of adjustment of insurance on the part of Landlord and/or Tenant, or any cause beyond the control of Landlord or contractors employed by Landlord.

Section 13.2. Landlord shall not be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant

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resulting in any way from damage from fire or other casualty or the repair thereof. Tenant understands that Landlord, in reliance upon Section 12.4, will not carry insurance of any kind on Tenant’s Property, Tenant’s Alterations and on leasehold improvements, and that Landlord shall not be obligated to repair any damage thereto or replace the same.

Section 13.3. (A) Notwithstanding anything to the contrary contained in Sections 13.1 and 13.2 above, in the event that:

(i) the Building shall be damaged by a fire or other casualty so that substantial alteration or reconstruction of the Building shall, in Landlord’s sole opinion, be required (whether or not the Premises shall have been damaged by such fire or other casualty and without regard to the structural integrity of the Building); or

(ii) the Premises shall be totally or substantially damaged or shall be rendered wholly or substantially untenantable (and at least 150,000 rentable square feet of the Building other than the Premises shall also have been totally or substantially damaged or shall be rendered wholly or substantially untenantable); or

(iii) there shall be any damage to the Premises within the last two (2) years of the Term (or, if Tenant shall have duly exercised its option to renew the Term of this Lease for the Renewal Term pursuant to Article 37 of this Lease prior to such damage, of the Renewal Term) wherein the cost of repair exceeds an amount equal to six (6) Monthly Installments of Fixed Rent,

then Landlord may, in Landlord’s sole and absolute discretion, terminate this Lease and the term and estate hereby granted, by notifying Tenant in writing of such termination within one hundred twenty (120) days after the date of such damage. In the event that such a notice of termination shall be given, then this Lease and the term and estate hereby granted shall expire as of the date of termination stated in said notice (which date shall not be sooner than the thirtieth day after such notice is given) with the same effect as if that date were the Fixed Expiration Date, and the Fixed Rent and Escalation Rent hereunder shall be apportioned as of such date, or, if the Premises shall have been rendered untenantable by such damage and Tenant does not, in fact, use the Premises during such 120 day period, as of the date of such damage. Notwithstanding the foregoing, if Tenant shall duly exercise any option to renew the Term of this Lease within 15 days after Landlord shall have notified Tenant that Landlord is terminating this Lease, then Landlord’s exercise of its right to terminate this Lease by reason of the provisions of Section 13.3(A) (iii) shall be deemed null and void and this Lease shall continue as if such notice of termination had not been given by Landlord.

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(B) Notwithstanding anything to the contrary contained in this Section 13.3, upon the written request of Tenant, Landlord shall deliver to Tenant an estimate prepared by a reputable contractor selected by Landlord setting forth such contractor’s estimate as to the time reasonably required to repair such damage. If the period to repair set forth in any such estimate exceeds 12 months, Tenant may elect to terminate this Lease by notice to Landlord given not later than thirty (30) days following Tenant’s receipt of such estimate. If the period to repair set forth in any such estimate shall be for less than 12 months (or if the period to repair set forth in any such estimate exceeds 12 months and Tenant does not elect to terminate this Lease), but the repairs shall not have been substantially completed after the expiration of 12 months from the date of such damage (subject to extension of such period by reason of Unavoidable Delays), Tenant may notify Landlord that Tenant intends to terminate this Lease unless the repairs shall be substantially completed within 60 days after the date Tenant’s notice is given to Landlord. If such repairs shall not have been substantially completed by such 60th day, Tenant may elect to terminate this Lease on notice to Landlord given within the 10 day period following such 60th day. If Tenant exercises either of such elections, this Lease and the term and estate hereby granted shall expire as of the 30th day after notice of such election given by Tenant, with the same effect as if that were the Fixed Expiration Date, and the Fixed Rent and Escalation Rent hereunder shall be apportioned as of such termination date.

Section 13.4. Except as may be provided in Section 12.5_, nothing herein contained shall relieve Tenant from any liability to Landlord or to Landlord’s insurers in connection with any damage to the Premises or the Building by fire or other casualty if Tenant shall be legally liable in such respect.

Section 13.5. This Lease shall be considered an express agreement governing any case of damage to or destruction of the Building or any part thereof by fire or other casualty, and Section 227 of the Real Property Law of the State of New York providing for such a contingency in the absence of express agreement and any other law of like import now or hereafter in force, shall have no application in such case.

ARTICLE 14

EMINENT DOMAIN

Section 14.1. If the whole of the Real Property, the Building or the Premises is acquired or condemned for any public or quasi-public use or purpose, this Lease and the Term shall end as of the date of the vesting of title with the same effect as if said date were the Fixed Expiration Date. If only a part of the Real Property and not the entire Premises is so acquired or condemned then, (1) except as hereinafter provided in this

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Section 14.1, this Lease and the Term shall continue in effect but, if a part of the Premises is included in the part of the Real Property so acquired or condemned, from and after the date of the vesting of title, the Fixed Rent, Tenant’s Tax Share and Tenant’s Share shall be reduced in the proportion which the area of the part of the Premises so acquired or condemned bears to the total area of the Premises immediately prior to such acquisition or condemnation; (2) whether or not the Premises are affected thereby, Landlord, at Landlord’s option, may give to Tenant, within sixty (60) days next following the date upon which Landlord receives notice of vesting of title, a thirty (30) day notice of termination of this Lease, provided that Landlord shall elect to terminate leases affecting at least 50% of the office space in the Building (including the Premises); and (3) if the part of the Real Property so acquired or condemned contains more than thirty (30%) percent of the total area of the Premises immediately prior to such acquisition or condemnation, or if, by reason of such acquisition or condemnation, Tenant no longer has access to the Premises, Tenant, at Tenant’s option, may give to Landlord, within sixty (60) days next following the date upon which Tenant receives notice of vesting of title, a thirty (30) day notice of termination of this Lease. If any such thirty (30) day notice of termination is given, by Landlord or Tenant, this Lease and the Term shall come to an end and expire upon the expiration of said thirty (30) days with the same effect as if the date of expiration of said thirty (30) days were the Fixed Expiration Date. If a part of the Premises is so acquired or condemned and this Lease and the Term are not terminated pursuant to the foregoing provisions of this Section 14.1, Landlord, at Landlord’s cost and expense, shall restore that part of the Premises not so acquired or condemned to a self-contained rental unit, exclusive of Tenant’s Alterations and Tenant’s Property. In the event of any termination of this Lease and the Term pursuant to the provisions of this Section 14.1, the Fixed Rent shall be apportioned as of the date of sooner termination and any prepaid portion of the Fixed Rent or Escalation Rent for any period after such date shall be refunded by Landlord to Tenant.

Section 14.2. In the event of any such acquisition or condemnation of all or any part of the Real Property, Landlord shall be entitled to receive the entire award for any such acquisition or condemnation. Tenant shall have no claim against Landlord or the condemning authority for the value of any unexpired portion of the Term and Tenant hereby expressly assigns to Landlord all of its right in and to any such award. Nothing contained in this Section 14.2 shall be deemed to prevent Tenant from making a separate claim in any condemnation proceedings for the value of any Tenant’s Property included in such taking, and for any moving expenses, so long as Landlord’s award is not reduced thereby.

Section 14.3. If the whole or any part of the Premises is acquired or condemned temporarily during the Term for any public or quasi-public use or purpose, Tenant shall give prompt notice

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thereof to Landlord and the Term shall not be reduced or affected in any way and Tenant shall continue to pay in full all items of Rental payable by Tenant hereunder without reduction or abatement, and Tenant shall be entitled to receive for itself any award or payments for such use, provided, however, that:

(1) if the acquisition or condemnation is for a period not extending beyond the Term and if such award or payment is made less frequently than in monthly installments, the same shall be paid to and held by Landlord as a fund which Landlord shall apply from time to time to the Rental payable by Tenant hereunder, except that if, by reason of such acquisition or condemnation, changes or alterations are required to be made to the Premises which would necessitate an expenditure to restore the Premises, then a portion of such award or payment considered by Landlord as appropriate to cover the expenses of the restoration shall be retained by Landlord, without application as aforesaid, and applied toward the restoration of the Premises as provided in Section 14.1; or

(2) if the acquisition or condemnation is for a period extending beyond the Term, such award or payment shall be apportioned between Landlord and Tenant as of the Expiration Date; Tenant’s share thereof, if paid less frequently than in monthly installments, shall be paid to Landlord and applied in accordance with the provisions of clause (1) above; provided, however, that the amount of any award or payment allowed or retained for restoration of the Premises shall remain the property of Landlord if this Lease expires prior to the restoration of the Premises.

ARTICLE 15

ASSIGNMENT, SUBLETTING, MORTGAGE, ETC.

Section 15.1. Except as otherwise provided in this Article 15, Tenant shall not (a) assign this Lease (whether by operation of law, transfers of interests in Tenant or otherwise); or (b) mortgage or encumber Tenant’s interest in this Lease, in whole or in part; or (c) sublet, or permit the subletting of, the Premises or any part thereof; or (d) permit the Premises or any part thereof to be occupied or used for desk space, mailing privileges or otherwise by any person other than Tenant. Tenant shall not advertise or authorize a broker to advertise for a subtenant or assignee, without in each instance, obtaining the prior written consent of Landlord.

Section 15.2. If Tenant’s interest in this Lease shall be assigned in violation of the provisions of this Article 15, such assignment shall be invalid and of no force and effect against Landlord; provided, however, that Landlord may collect an amount equal to the then Fixed Rent plus any other item of Rental from the assignee as a fee for its use and occupancy. If the Premises or any part thereof are sublet to, or occupied by, or used by,

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any person other than Tenant, whether or not in violation of this Article 15, Landlord, after default by Tenant under this Lease, may collect any item of Rental or other sums paid by the subtenant, user or occupant as a fee for its use and occupancy, and shall apply the net amount collected to the Fixed Rent and the items of Rental reserved in this Lease. No such assignment, subletting, occupancy, or use, whether with or without Landlord’s prior consent, nor any such collection or application of Rental or fee for use and occupancy, shall be deemed a waiver by Landlord of any term, covenant or condition of this Lease or the acceptance by Landlord of such assignee, subtenant, occupant or user as Tenant hereunder, nor shall the same, in any circumstances, relieve Tenant of any of its obligations under this Lease. The consent by Landlord to any assignment, subletting, occupancy or use shall not relieve Tenant from its obligation to obtain the express prior consent of Landlord to any further assignment, subletting, occupancy or use. Any person to which this Lease is assigned with Landlord’s consent shall be deemed without more to have assumed all of the obligations arising under this Lease from and after the date of such assignment and shall execute and deliver to Landlord, upon demand, an instrument confirming such assumption. Notwithstanding and subsequent to any assignment, Tenant’s primary liability hereunder shall continue notwithstanding (a) any subsequent amendment hereof, or (b) Landlord’s forbearance in enforcing against Tenant any obligation or liability, without notice to Tenant, to each of which Tenant hereby consents in advance. If any such amendment operates to increase the obligations of Tenant under this Lease, the liability under this Section 15.2 of the assigning Tenant shall continue to be no greater than if such amendment had not been made (unless such party shall have expressly consented in writing to such amendment).

Section 15.3. (A) For purposes of this Article 15, (i) the transfer of a majority of the issued and outstanding capital stock of any corporate tenant, or of a corporate subtenant, or the transfer of a majority of the total interest in any general or limited liability company, partnership tenant or subtenant, or the transfer of control in any limited partnership tenant or subtenant, or the transfer of a majority of the issued and outstanding membership interest in a limited liability company tenant or subtenant, however accomplished, whether in a single transaction or in a series of related or unrelated transactions, shall be deemed an assignment of this Lease, or of such sublease, as the case may be, except that the transfer of the outstanding capital stock of any corporate tenant, or subtenant, shall be deemed not to include the sale of such stock by persons or parties, other than those deemed “affiliates” of Tenant within the meaning of Rule 144 promulgated under the Securities Act of 1933, as amended, through the “over-the-counter market” or through any recognized stock exchange, (ii) any increase in the amount of issued and/or outstanding capital stock of any corporate tenant, or of a corporate subtenant, or of the issued

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and outstanding membership interests in a limited liability company tenant or subtenant and/or the creation of one or more additional classes of capital stock of any corporate tenant or any corporate subtenant, in a single transaction or a series of related or unrelated transactions, resulting in a change in the legal or beneficial ownership of such tenant or subtenant so that the shareholders or members of such tenant or subtenant existing immediately prior to such transaction or series of transactions shall no longer own a majority of the issued and outstanding capital stock or membership interest of such tenant or subtenant, shall be deemed an assignment of this Lease, except that the issuance or increase in the amount of issued and/or outstanding capital stock of any corporate tenant, or of a corporate subtenant, as part of a public offering or “stock-split” of such capital stock of such tenant or subtenant shall not be deemed to be an assignment of this Lease, (iii) an agreement by any other person or entity, directly or indirectly, to assume Tenant’s obligations under this Lease shall be deemed an assignment, (iv) any person or legal representative of Tenant, to whom Tenant’s interest under this Lease passes by operation of law, or otherwise, shall be bound by the provisions of this Article 15, (v) a modification, amendment or extension of a sublease shall be deemed a sublease; and (vi) the change or conversion of Tenant to a limited liability company, a limited liability partnership or any other entity which possesses the characteristics of a limited liability shall be deemed an assignment. Tenant agrees to furnish to Landlord on request at any time such information and assurances as Landlord may reasonably request that neither Tenant, nor any previously permitted subtenant, has violated the provisions of this Article 15.

(B) The provisions of clauses (a), (c) and (d) of Section 15.1 and Section 15.4(B)(3)(iii) shall not apply to transactions with a corporation or a limited liability company into or with which Tenant is merged or consolidated or with a Person to which substantially all of Tenant’s assets are transferred (provided such merger, consolidation or transfer of assets is for a good business purpose and not principally for the purpose of transferring the leasehold estate created by this Lease, and provided further, that the assignee has a net worth at least equal to or in excess of the net worth of Tenant as of the date of this Lease and as of the date immediately prior to such merger or transfer, whichever is greater) or, if Tenant is a partnership, with a successor partnership, nor shall the provisions of clauses (a), (c) and (d) of Section 15.1 apply to transactions with an entity that controls or is controlled by Tenant or is under common control with Tenant. Tenant shall notify Landlord before any such transaction is consummated.

(C) The term “control” as used in this Lease (i) in the case of a corporation shall mean ownership of more than fifty (50%) percent of the outstanding capital stock of that corporation or the possession, directly or indirectly through one or more intermediaries, of the power to direct or cause the

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direction of the management and policies of that corporation, whether through the ownership of voting securities, by contract or otherwise, (ii) in the case of a general or limited liability partnership, shall mean ownership of more than fifty (50%) percent of the general partnership interest of the partnership or the possession, directly or indirectly through one or more intermediaries, of the power to direct or cause the direction of the management and policies of that general or limited liability partnership, whether through the ownership of a partnership interest, by contract or otherwise, (iii) in the case of a limited partnership, shall mean ownership of more than fifty (50%) percent of the general partnership interests of such limited partnership or the possession, directly or indirectly through one or more intermediaries, of the power to direct or cause the direction of the management and policies of that limited partnership, whether through the ownership of a general partnership interest, by contract or otherwise, and (iv) in the case of a limited liability company, shall mean ownership of more than fifty (50%) percent of the membership interests of such limited liability company or the possession, directly or indirectly through one or more intermediaries, of the power to direct or cause the direction of the management and policies of that limited liability company, whether through the ownership of a membership interest, by contract or otherwise.

Section 15.4. (A) Landlord shall not unreasonably withhold or delay its consent to a proposed subletting of the Premises, or an assignment of this Lease, provided that in each such instance, the following requirements shall have been satisfied (if Tenant proposes a partial sublet, references in this Section 15.4 to the Premises shall, unless the context otherwise requires, refer to such portion):

(1) in the case of a proposed subletting, the listing for subletting of the Premises shall not have included a proposed rental rate that is less than the prevailing rate (the “Prevailing Rate”) set by Landlord for comparable space in the Building for a comparable term (or if comparable space for a comparable term is not available in the Building, the fair market rental rate for comparable space for a comparable term, as reasonably determined by Landlord);

(2) without the prior consent of Landlord, neither the name nor the address of the Building shall be used in any advertising for subletting of the Premises (or portion thereof) or an assignment of this Lease;

(3) no Event of Default shall have occurred and be continuing;

(4) the proposed subtenant or assignee shall have a financial standing, be of a character and be engaged in a business, and propose to use the Premises in a manner in keeping with the standards in such respects of the other tenancies in the

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Building and will not cause excessive demands on the Building systems;

(5) if Landlord has or within six (6) months thereafter reasonably expects to have comparable space available in the Building, the proposed subtenant or assignee shall not be (x) a Person with whom Landlord is then negotiating or discussing the leasing of space in the Building (other than an existing subtenant of Tenant in the Premises); or (y) a tenant in or occupant of the Building or any Person that, directly or indirectly, is controlled by, controls or is under common control with any such tenant or occupant (other than an existing subtenant of Tenant in the Premises);

(6) any subletting shall be expressly subject to all of the terms, covenants, conditions and obligations on Tenant’s part to be observed and performed under this Lease and any assignment or subletting shall be subject to the further condition and restriction that this Lease or the sublease shall not be further assigned, encumbered or otherwise transferred or the subleased premises further sublet by the subtenant in whole or in part, or any part thereof suffered or permitted by the assignee or subtenant to be used or occupied by others (except in accordance with the terms of this Lease), without the prior written consent of Landlord in each instance, which consent shall not be unreasonably withheld or delayed in accordance with this Section 15.4;

(7) no subletting shall be for less than one-half of the Premises and shall be regular in shape and at no time shall there be more than two (2) occupants, including Tenant, on the floor of the Building in which the Premises is situated, all of whom shall have direct access through existing public corridors to elevators, fire stairs and core rest rooms;

(8) Tenant shall reimburse Landlord on demand for any reasonable out-of-pocket costs that may be incurred by Landlord in connection with said assignment or sublease, including, without limitation, reasonable attorneys’ fees and disbursements, and the reasonable costs of making investigations as to the acceptability of the proposed assignee or subtenant;

(9) any sublease shall expressly provide that in the event of termination, re-entry or dispossession of Tenant by Landlord under this Lease, Landlord may, at its option, take over all of the right, title and interest of Tenant as sublessor under such sublease, and such subtenant shall, at Landlord’s option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that Landlord shall not be (i) liable for any previous act or omission of Tenant under such sublease, (ii) subject to any offset that theretofore accrued to such subtenant against Tenant, (iii) bound by any previous modification of such sublease or by any previous prepayment of more than one month’s rent unless previously approved by Landlord, (iv) bound by any

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convenant made by Tenant to such subtenant to undertake or complete or make payment to or on behalf of a subtenant with respect to any construction of the Premises or any portion thereof demised by such sublease and (v) bound by any obligations to make any other payment to or on behalf of the subtenant, except for services, repairs, maintenance and restoration provided for under the sublease to be performed after the date of such termination, re-entry or dispossession by Landlord under this Lease and which Landlord is required to perform hereunder with respect to the subleased space at Landlord’s expense;

(10) Tenant shall have complied with the requirements of paragraph (D) of this Section 15.4; and

(11) The nature of the occupancy, the use and the manner of use of the Premises by the proposed subtenant or assignee shall not impose on Landlord any requirements of the ADA in excess of those requirements imposed on Landlord in the absence of such proposed subtenant or assignee or such occupancy, use or manner of use, unless such proposed subtenant or assignee shall have agreed to comply with each of such excess requirements and, at Landlord’s option, shall have furnished Landlord with such security as Landlord may reasonably require to assure that such subtenant or assignee shall so comply.

(B) (1) Should Tenant agree to assign this Lease, other than by an assignment contemplated by Section 15.3, Tenant shall deliver to Landlord as soon as that agreement is consummated, but no less than 45 days prior to the effective date of the contemplated assignment, an executed counterpart of such agreement, and all ancillary agreements with the proposed assignee, and Landlord shall then, have the right to elect, by notifying Tenant within 30 days of such delivery, (i) to terminate this Lease as of such effective date as if such date were the Fixed Expiration Date set forth in this Lease, or (ii) to accept the assignment of this Lease from Tenant, and Tenant shall then promptly execute and deliver to Landlord, or Landlord’s designee if so elected by Landlord, in form reasonably satisfactory to Landlord’s counsel, an assignment that shall be effective as of such effective date.

(2) In the event that this Lease shall be assigned to Landlord or Landlord’s designee or if the Premises shall be sublet to Landlord or Landlord’s designee pursuant to Section 15.4 (B)(3), the provisions of any such assignment or sublease and the obligations of Landlord and the rights of Tenant with respect thereto shall not be binding upon or otherwise affect the rights of any holder of a Mortgage or of a Superior Lease unless such holder shall elect by written notice to Tenant to succeed to the position of Landlord or its designee, as the case may be, thereunder.

(3) Should Tenant agree to sublet the Premises or any portion thereof, other than by a sublease contemplated by

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Section 15.3, Tenant shall deliver to Landlord, as soon as that agreement is consummated, but no less than 45 days prior to the effective date of the contemplated sublease, an executed counterpart of the proposed sublease and all ancillary agreements with the proposed sublessee, and Landlord shall then have the right to elect, by notifying Tenant within 30 days of such delivery, (i) in the case of a proposed subletting for substantially the remainder of the Term, to terminate this Lease as to the portion of the Premises affected by such proposed subletting or as to the entire Premises in the case of a subletting thereof, as of such effective date, (ii) in the case of a proposed subletting of the entire Premises for substantially the remainder of the Term, to accept an assignment of this Lease from Tenant, and Tenant shall then promptly execute and deliver to Landlord, or Landlord’s designee if so elected by Landlord, in form reasonably satisfactory to Landlord’s counsel, an assignment that shall be effective as of such effective date, or (iii) to accept a sublease (a “Recapture Sublease”) from Tenant of the portion of the Premises affected by such proposed subletting or the entire Premises in the case of a proposed subletting thereof (such sublet premises, the “Recapture Space”) for the same term as the proposed sublease, and Tenant shall then promptly execute and deliver such Recapture Sublease to Landlord or Landlord’s designee (the subtenant under such Recapture Sublease, the “Recapture Subtenant”), commencing with such effective date.

(C) (1) If Landlord shall exercise its option set forth in Section 15.4(B)(3)(iii) to enter into a Recapture Sublease, such Recapture Sublease shall:

(a) be at a rate, at all times throughout the term of the Recapture Sublease, equal to (if Tenant had proposed to sublet the Premises) the rate set forth in the proposed sublease;

(b) otherwise be upon the same terms and conditions as those contained in the proposed sublease and the terms and conditions contained in this Lease, except such as are irrelevant or inapplicable and except as otherwise expressly set forth to the contrary in this paragraph (C);

(c) give the Recapture Subtenant the unqualified and unrestricted right, without Tenant’s permission, to assign such sublease and to further sublet the Recapture Space or any part thereof and to make any and all changes, alterations, and improvements in and to the Recapture Space;

(d) provide in substance that any such changes, alterations, and improvements made in the Recapture Space may be removed, in whole or in part, prior to or upon the expiration or other termination of the Recapture Sublease provided that any material damage and injury caused thereby shall be repaired;

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(e) provide that (i) the parties to such Recapture Sublease expressly negate any intention that any estate created under the Recapture Sublease be merged with any estate held by either of said parties, (ii) prior to the commencement of the term of the Recapture Sublease, Tenant, at its expense, shall make such alterations as may be required or reasonably deemed necessary by the Recapture Subtenant to physically separate the Recapture Space from the balance of the Premises and to provide appropriate means of access thereto and to the public portions of the balance of the floor such as toilets, janitor’s closets, telephone and electrical closets, fire stairs, elevator lobbies, etc., and (iii) at the expiration of the term of such Recapture Sublease, Tenant will accept the Recapture Space in its then existing condition, broom clean; and

(f) provide that the Recapture Subtenant or occupant shall use and occupy the Recapture Space for any lawful purpose approved by Landlord.

(2) Until the termination of a Recapture Sublease, performance by Recapture Subtenant under a Recapture Sublease shall be deemed performance by Tenant of any similar obligation under this Lease and Tenant shall not be liable for any default under this Lease or deemed to be in default hereunder if such default is occasioned by or arises from any act or omission of Recapture Subtenant under the Recapture Sublease or is occasioned by or arises from any act or omission of any occupant under the Recapture Sublease.

(3) If Recapture Subtenant is unable to give Tenant possession of the Recapture Space at the expiration of the term of the Recapture Sublease by reason of the holding over or retention of possession of any tenant or other occupant, then (w) Recapture Subtenant shall continue to pay all charges previously payable, and comply with all other obligations under the Recapture Sublease until the date upon which Recapture Subtenant gives Tenant possession of such Recapture Space free of occupancies, (x) neither the Expiration Date nor the validity of this Lease shall be affected, (y) Tenant waives any rights under Section 223-a of the Real Property Law of New York, or any successor statute of similar import, to rescind this Lease and further waives the right to recover any damages from Landlord or Recapture Subtenant that may result from the failure of Landlord or Recapture Subtenant to deliver possession of the Recapture Space at the end of the term of the Recapture Sublease, and (z) Recapture Subtenant, at Recapture Subtenant’s expense, shall use its reasonable efforts to deliver possession of such Recapture Space to Tenant and in connection therewith, if necessary, shall institute and diligently and in good faith prosecute holdover and any other appropriate proceeding against the occupant of such Recapture Space. If Recapture Subtenant shall fail to institute and/or diligently and in good faith prosecute holdover or other appropriate proceedings against the occupant of such Recapture Space, Tenant shall be entitled, after written notice to Landlord

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and Recapture Subtenant, to prosecute the same in Recapture Subtenant’s name, and Recapture Subtenant shall reimburse Tenant for the reasonable cost thereof on demand.

(4) The failure by Landlord to exercise its option under Sections 15.4(B) with respect to any subletting or assignment shall not be deemed a waiver of such option with respect to any extension of such subletting or assignment or any subsequent subletting or assignment.

(D) Tenant shall deliver to Landlord, within five (5) days after execution thereof by Tenant, but at least 45 days prior to the effective date of the contemplated sublease or assignment, an original counterpart of any executed sublease or instrument of assignment, together with (i) Tenant’s and the subtenant’s (or assignee’s) affidavit that such sublease or assignment instrument is the true and complete statement of the subletting or assignment and reflects all sums and other consideration passing between the parties to the sublease or assignment and (ii) all reports, returns, questionnaires and other documents required to be filed under Article 31 of the New York State Tax Law and under Chapter 21 of the New York City Administrative Code.

Section 15.5. (A) If Tenant sublets any portion of the Premises, Landlord shall be entitled to and Tenant shall pay to Landlord, as Additional Rent (the “Sublease Additional Rent”), a sum equal to fifty (50%) percent of any rents, additional charges and other consideration payable under the sublease to Tenant by the subtenant in excess of the Fixed Rent and Escalation Rent accruing during the term of the sublease in respect of the subleased space (at the rate per square foot payable by Tenant under this Lease) pursuant to the terms of this Lease (including, but not limited to, sums paid for the sale or rental of Tenant’s Property and Alterations less the then undepreciated cost thereof determined on the basis of Tenant’s federal income tax returns), after deducting from the total consideration payable under the sublease the following reasonable expenses actually paid by Tenant to unrelated third parties in connection with such subletting and not reimbursed by the subtenant: Brokerage commissions, advertising costs and attorneys’ fees and disbursements (of non-employees of Tenant). Upon request from Landlord, Tenant shall supply Landlord with satisfactory evidence of such deducted expenses. Such Sublease Additional Rent shall be payable as and when received by Tenant.

(B) Landlord may, by notice to Tenant, elect to waive the benefits of this Section 15.5, for any month or months, prospectively or retroactively. Any retroactive waiver shall be accompanied by a return to Tenant of all Sublease Additional Rent theretofore paid to and retroactively waived by Landlord for the months in question.

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Section 15.6. (A) If Tenant shall assign this Lease, Landlord shall be entitled to and Tenant shall pay to Landlord, as Additional Rent, an amount equal to fifty (50%) percent of al sums and other consideration paid to Tenant by the assignee for or by reason of such assignment (including, but not limited to, sums paid for the sale or rental of Tenant’s Property and Alterations less the then undepreciated cost thereof determined on the basis of Tenant’s federal income tax returns), after deducting from the total consideration payable under the sublease the following reasonable expenses actually paid by Tenant to unrelated third parties in connection with such assignment and not reimbursed by the assignee: Brokerage commissions, advertising costs and attorneys’ fees and disbursements (of non-employees of Tenant). Upon request from Landlord, Tenant shall supply Landlord with satisfactory evidence of such deducted expenses. Such Additional Rent shall be payable as and when received by Tenant from the assignee.

(B) Landlord may, by notice to Tenant, elect to waive the benefits of this Section 15.6, prospectively or retrospectively. Any retroactive waiver shall be accompanied by a return to Tenant of all amounts theretofore paid to and retroactively waived by Landlord.

Section 15.7. Landlord shall have no liability for brokerage commissions incurred with respect to any assignment of this Lease or any subletting of all or any part of the Premises by or on behalf of Tenant. Tenant shall pay, and shall indemnify and hold Landlord harmless from and against, any and all cost, expense (including reasonable attorneys’ fees and disbursements) and liability in connection with any compensation, commissions or charges claimed by any broker or agent with respect to any such assignment or subletting.

Section 15.8. Tenant shall not sublease any portion of the Premises or assign this Lease to any Person where the payment, of any item of rent under the sublease or Rental under this Lease depends in whole or in part on the income or profits derived by any such Person from the Premises, other than amounts based on a fixed percentage of gross receipts or gross sales.

ARTICLE 16

ACCESS TO PREMISES

Section 16.1. (A) Tenant shall permit Landlord, Landlord’s agents and public utilities servicing the Building to erect, use and maintain concealed ducts, pipes and conduits in and through the Premises, provided the same do not interfere with Tenant’s use of the Premises or decrease the usable area thereof by more than a de minimis amount. Landlord, any Lessor or such party’s agents shall have the right to enter the Premises at all reasonable times upon (except in case of emergency) reasonable

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prior notice, which notice may be oral, to examine the same, to prior to show the same to prospective purchasers, Mortgagees or lessees of the Building or space therein, and to make such repairs, alterations, improvements or additions (i) as Landlord may deem necessary to the Premises (or as Landlord is otherwise entitled to make under this Lease to the Premises), or to make such repairs, alterations, improvements or additions as Landlord may deem necessary or desirable to any other portion of the Building, or (ii) which Landlord may elect to perform at least ten (10) days after notice (except in an emergency when no notice shall be required) following Tenant’s failure to make repairs or perform any work which Tenant is obligated to make or perform under this Lease, or (iii) for the purpose of complying with Requirements, and Landlord shall be allowed to take all material into and upon the Premises that may be required therefor without the same constituting an eviction or constructive eviction of Tenant in whole or in part and the Fixed Rent (and any other item of Rental) shall in no respect abate or be reduced by reason of said repairs, alterations, improvements or additions, wherever located, or while the same are being made, by reason of loss or interruption of business of Tenant, or otherwise (except as otherwise expressly set forth in this Lease). Notwithstanding the foregoing, for purposes of showing the Premises to prospective lessees, Landlord shall only be entitled to enter the Premises, (i) during the 12 months immediately prior to the Fixed Expiration Date, upon reasonable prior notice (which may be oral), or (ii) at any time after an Event of Default under this Lease, without notice to Tenant.

(B) Any work performed or installations made pursuant to this Article 16 shall be made with reasonable diligence and otherwise pursuant to Section 7.3.

(C) Any pipes, ducts, or conduits installed in or through the Premises pursuant to this Article 16 shall, if reasonably practicable, either be concealed behind, beneath or within partitioning, columns, ceilings or floors located or to be located in the Premises, or completely furred at points immediately adjacent to partitioning, columns or ceilings located or to be located in the Premises.

Section 16.2. If Tenant is not present when for any reason entry into the Premises may be necessary or permissible, Landlord or Landlord’s agents may enter the same without rendering Landlord or such agents liable therefor (if during such entry Landlord or Landlord’s agents accord reasonable care to Tenant’s Property), and without in any manner affecting this Lease.

Section 16.3. Landlord also shall have the right at any time, without the same constituting an actual or constructive eviction and without incurring any liability to Tenant therefor, to change the arrangement or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets or other public parts of the Building, provided

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any such change does not unreasonably interfere with, or deprive Tenant of access to, the Building or the Premises, and provided, further, that if Landlord changes the location of the doorway to the premises, Landlord shall first notify Tenant thereof (which notice may be oral); to put so-called “solar film” or other energy-saving installations on the inside and outside of the windows; and to change the name, number or designation by which the Building is commonly known. All parts (except surfaces facing the interior of the Premises) of all walls, windows and doors bounding the Premises (including exterior Building walls, exterior core corridor walls, exterior doors and entrances), all space in or adjacent to the Premises used for shafts, stacks, stairways, chutes, pipes, conduits, ducts, fan rooms, heating, air cooling, plumbing and other mechanical facilities, service closets and other Building facilities are not part of the premises, and Landlord shall have the use thereof, as well as access thereto through the Premises for the purposes of operation, maintenance, alteration and repair.

ARTICLE 17

RESERVED

ARTICLE 18

DEFAULT

Section 18.1. Each of the following events shall be an “Event of Default” under this Lease:

(A) if Tenant shall on any occasion default in the payment when due of any installment of Fixed Rent or in the payment when due and for five (5) days thereafter of any other item of Rental; provided, however, that the first occasion during each Lease Year on which Tenant shall default in the payment when due of an installment of Fixed Rent shall not constitute an Event of Default hereunder until the fifth day after Landlord shall have given Tenant written notice of such default; or

(B) if Tenant shall fail more than two (2) times in any Lease Year to make a payment when due of any Rental, and Landlord shall have given Tenant notice after the second such occurrence advising Tenant of such occurrences; or

(C) if Tenant shall default in the observance or performance of any term, covenant or condition on Tenant’s part to be observed or performed under any other lease with Landlord or Landlord’s predecessor-in-interest of any other space in the Building, and such default shall continue beyond any grace period set forth in such other lease for the remedying of such default; or

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SCHEDULE A

Floor Plan

8

(D) if the Premises shall become vacant for more than 60 days or shall be abandoned; or

(E) if Tenant’s interest in this Lease shall devolve upon or pass to any person, whether by operation of law or otherwise, except as expressly permitted under Article 15 hereof;

(F) if Tenant shall generally not, or shall be unable to, or shall admit in writing Tenant’s inability to, as to any obligation, pay Tenant’s debts as they become due; or

(G) if Tenant shall commence or institute any case, proceeding or other action (a) seeking relief on Tenant’s behalf as debtor, or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to Tenant or Tenant’s debts under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, or (b) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property; or

(H) if Tenant shall make a general assignment for the benefit of creditors; or

(I) if any case, proceeding or other action shall be commenced or instituted against Tenant (a) seeking to have an order for relief entered against Tenant as debtor or to adjudicate Tenant a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to Tenant or Tenant’s debts under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, or (b) seeking appointment of a receiver, trustee, custodian or other similar official for Tenant or for all or any substantial part of Tenant’s property, which either (i) results in any such entry of an order for relief, adjudication of bankruptcy or insolvency or such an appointment or the issuance or entry of any other order having a similar effect or (ii) remains undismissed for a period of sixty (60) days; or

(J) if any case, proceeding or other action shall be commenced or instituted against Tenant seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of Tenant’s property which results in the entry of an order for any such relief which is not vacated, discharged, stayed or bonded pending appeal within sixty (60) days from the entry thereof; or

(K) if Tenant shall take any action in furtherance of, or indicating Tenant’s consent to, approval of, or acquiescence

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in, any of the acts set forth in subsections 18.1(G), (H), (I) and/or (J) above and/or subsection 18.1(L) below; or

(L) if a trustee, receiver or other custodian shall be appointed for any substantial part of the assets of Tenant which appointment is not vacated or effectively stayed within sixty (60) days; or

(M) if Tenant shall default in the observance or performance of any other term, covenant or condition of this Lease on Tenant’s part to be observed or performed and Tenant shall fail to remedy such default within 20 days after notice by Landlord to Tenant of such default, or if such default is of such a nature that it cannot with due diligence be completely remedied within said period of 20 days and the continuation of which for the period required for cure will not subject Landlord to the risk of criminal liability or termination of any Superior Lease or foreclosure of any Mortgage, if Tenant shall not, (i) within said 20 day period advise Landlord of Tenant’s intention duly to institute all steps necessary to remedy such situation, (ii) duly institute within said 20-day period, and thereafter diligently and continuously prosecute to completion all steps necessary to remedy the same and (iii) complete such remedy within such time after the date of the giving of said notice by Landlord as shall reasonably be necessary.

Section 18.2. If an Event of Default shall occur, Landlord may, at any time thereafter, at Landlord’s option, give written notice to Tenant stating that this Lease and the Term shall expire and terminate on the date specified in such notice, which date shall not be less than three (3) days after the giving of such notice, whereupon this Lease and the Term and all rights of Tenant under this Lease shall automatically expire and terminate as if the date specified in the notice given pursuant to this Section 18.2 were the Fixed Expiration Date and Tenant immediately shall quit and surrender the Premises, but Tenant shall remain liable for damages as provided herein or pursuant to law. Anything contained herein to the contrary notwithstanding, if such termination shall be stayed by order of any court having jurisdiction over any proceeding described in Section 18.1(G), (I) or (J), or by federal or state statute, then, following the expiration of any such stay, or if the trustee appointed in any such proceeding, Tenant or Tenant as debtor-in-possession fails to assume Tenant’s obligations under this Lease within the period prescribed therefor by law or within one hundred twenty (120) days after entry of the order for relief or as may be allowed by the court, or if said trustee, Tenant or Tenant as debtor-in-possession shall fail to provide adequate protection of Landlord’s right, title and interest in and to the Premises or adequate assurance of the complete and continuous future performance of Tenant’s obligations under this Lease, Landlord, to the extent permitted by law or by leave of the court having jurisdiction over such proceeding, shall have the right, at its election, to terminate this Lease on three (3) days’ notice to

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Tenant, Tenant as debtor-in-possession or said trustee and upon the expiration of said three (3) day period this Lease shall cease and expire as aforesaid and Tenant, Tenant as debtor-in-possession or said trustee shall immediately quit and surrender the premises as aforesaid.

Section 18.3. If, at any time, (i) Tenant shall consist of two (2) or more persons, or (ii) Tenant’s obligations under this Lease shall have been guaranteed by any person other than Tenant, or (iii) Tenant’s interest in this Lease has been assigned, the word “Tenant” as used in Section 18.1(G), (I) or (J), shall be deemed to mean any one or more of the persons primarily or secondarily liable for Tenant’s obligations under this Lease. Any monies received by Landlord from or on behalf of Tenant during the pendency of any proceeding of the types referred to in Section 18.1(G), (I) or (J) shall be deemed paid as compensation for the use and occupancy of the Premises and the acceptance of any such compensation by Landlord shall not be deemed an acceptance of Rental or a waiver on the part of Landlord of any rights under Section 18.2.

ARTICLE 19

REMEDIES AND DAMAGES

Section 19.1. (A) If any Event of Default shall occur, or this Lease and the Term shall expire and come to an end as provided in Article 18:

(1) Tenant shall quit and peacefully surrender the Premises to Landlord, and Landlord and its agents may immediately, or at any time after such Event of Default or after the date upon which this Lease and the Term shall expire and come to an end, re-enter the Premises or any part thereof, without notice, either by summary proceedings, or by any other applicable action or proceeding, or by force or otherwise (without being liable to indictment, prosecution or damages therefor), and may repossess the Premises and dispossess Tenant and any other persons from the Premises by summary proceedings or otherwise and remove any and all of their property and effects from the Premises (and Tenant shall remain liable for damages as provided herein or pursuant to law); and

(2) Landlord, at Landlord’s option, may relet the whole or any part or parts of the Premises from time to time, either in the name of Landlord or otherwise, to such tenant or tenants, for such term or terms ending before, on or after the Fixed Expiration Date, at such rent or rentals and upon such other conditions, which may include concessions and free rent periods, as Landlord, in Landlord’s sole discretion, may determine; provided, however, that Landlord shall have no obligation to relet the Premises or any part thereof and shall in no event be liable for refusal or failure to relet the Premises

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or any part thereof, or, in the event of any such reletting, for refusal or failure to collect any rent due upon any such reletting, and no such refusal or failure shall operate to relieve Tenant of any liability under this Lease or otherwise affect any such liability, and Landlord, at Landlord’s option, may make such Alterations, in and to the Premises as Landlord, in Landlord’s sole discretion, shall consider advisable or necessary in connection with any such reletting or proposed reletting, without relieving Tenant of any liability under this Lease or otherwise affecting any such liability.

(B) Tenant hereby waives the service of any notice of intention to re-enter or to institute legal proceedings to that end that may otherwise be required to be given under any present or future law. Tenant, on its own behalf and on behalf of all persons claiming through or under Tenant, including all creditors, does further hereby waive any and all rights that Tenant and all such persons might otherwise have under any present or future law to redeem the Premises, or to re-enter or repossess the Premises, or to restore the operation of this Lease, after (a) Tenant shall have been dispossessed by a judgment or by warrant of any court or judge, or (b) any re-entry by Landlord, or (c) any expiration or termination of this Lease and the Term, whether such dispossess, re-entry, expiration or termination is by operation of law or pursuant to the provisions of this Lease. The words “re-entry”, “re-enter” and “re-entered” as used in this Lease shall not be deemed to be restricted to their technical legal meanings. In the event of a breach or threatened breach by Tenant, or any persons claiming through or under Tenant, of any term, covenant or condition of this Lease, Landlord shall have the right to enjoin such breach and the right to invoke any other remedy allowed by law or in equity as if re-entry, summary proceedings and other special remedies were not provided in this Lease for such breach. The right to invoke the remedies hereinbefore set forth are cumulative and shall not preclude Landlord from invoking any other remedy allowed at law or in equity.

Section 19.2. (A) If this Lease and the Term shall expire and come to an end as provided in Article 18, or by or under any summary proceeding or any other action or proceeding, or if Landlord shall re-enter the Premises as provided in Section 19.1, or by or under any summary proceeding or any other action or proceeding, then, in any of said events:

(1) Tenant shall pay to Landlord all Fixed Rent, Escalation Rent, other Additional Rent and other items of Rental payable under this Lease by Tenant to Landlord to the date upon which this Lease and the Term shall have expired and come to an end or to the date of re-entry upon the Premises by Landlord, as the case may be;

(2) Tenant also shall be liable for and shall pay to Landlord, as damages, any deficiency (“Deficiency”) between

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the Rental for the period which otherwise would have constituted the unexpired portion of the Term and the net amount, if any, of rents collected under any reletting effected pursuant to the provisions of Section 19.1 (A) (2) for any part of such period (after first deducting from the rents collected under any such reletting all of Landlord’s expenses in connection with the termination of this Lease, Landlord’s re-entry upon the Premises and such reletting including, but not limited to, all repossession costs, brokerage commissions, attorneys’ fees and disbursements, alteration costs and other expenses of preparing the premises for such reletting); any such Deficiency shall be paid in monthly installments by Tenant on the days specified in this Lease for payment of installments of Fixed Rent; Landlord shall be entitled to recover from Tenant each monthly Deficiency as the same shall arise, and no suit to collect the amount of the Deficiency for any month shall prejudice Landlord’s right to collect the Deficiency for any subsequent month by a similar proceeding; and

(3) whether or not Landlord shall have collected any monthly Deficiency as aforesaid, Landlord shall be entitled to recover from Tenant, and Tenant shall pay to Landlord, on demand, in lieu of any further Deficiency as and for liquidated and agreed final damages, a sum equal to the amount by which the unpaid Rental for the period which otherwise would have constituted the unexpired portion of the Term exceeds the then fair and reasonable rental value of the Premises for the same period, both discounted to present worth at four (4%) percent per annum less than the Base Rate; if, before presentation of proof of such liquidated damages to any court, commission or tribunal, the Premises, or any part thereof, are relet by Landlord for the period which otherwise would have constituted the unexpired portion of the Term, or any part thereof, the amount of rent reserved upon such reletting shall be deemed, prima facie, to be the fair and reasonable rental value for the part or the whole of the Premises so relet during the term of the reletting.

(B) If the Premises, or any part thereof, shall be relet together with other space in the Building, the rents collected or reserved under any such reletting and the expenses of any such reletting shall be equitably apportioned for the purposes of this Section 19.2. Tenant shall in no event be entitled to any rents collected or payable under any reletting, whether or not such rents exceed the Fixed Rent reserved in this Lease. Solely for the purposes of this Article 19, the term “Escalation Rent” as used in Section 19.2(A) shall mean the Escalation Rent in effect immediately prior to the Expiration Date, or the date of re-entry upon the Premises by Landlord, as the case may be, adjusted to reflect any increase pursuant to the provisions of Article 3 hereof for the Operating Year immediately preceding such event. Nothing contained in Article 18 or this Article 19 shall be deemed to limit or preclude the recovery by Landlord from Tenant of the maximum amount allowed to be obtained as damages by any statute or rule of law, or of any sums or

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damages to which Landlord may be entitled in addition to the set forth in this Section 19.2.

ARTICLE 20

FEES AND EXPENSES

Section 20.1. If (i) an Event of Default shall occur under this Lease, or (ii) Tenant does or permits any act or thing upon the Premises that would cause Landlord to be in default under any superior Lease or Mortgage and Tenant does not cure such act or thing within 15 days (or such shorter period as Landlord may be permitted pursuant to any Superior Lease or Mortgage) after notice thereof, or (iii) Tenant fails to comply with its obligations under this Lease and the preservation of property or the safety of any tenant, occupant or other person is threatened, Landlord may (1) perform the same for the account of Tenant, or (2) make any expenditure or incur any obligation for the payment of money in connection with any obligation owed to Landlord, including, but not limited to, reasonable attorneys’ fees and disbursements in instituting, prosecuting or defending any action or proceeding, and in either case the cost thereof, with interest thereon at the Applicable Rate, shall be deemed to be Additional Rent hereunder and shall be paid by Tenant to Landlord within ten (10) days after rendition of any bill or statement to Tenant therefor. In addition, Tenant shall pay Landlord any reasonable attorneys’ fees and disbursements incurred by Landlord in connection with any proceeding in which the value for the use and occupancy of the Premises by Tenant is being determined (whether or not any such proceeding results from a default by Tenant under this Lease).

Section 20.2. If Tenant shall fail to pay any installment of Fixed Rent, Additional Rent or any other item of Rental for a period longer than five (5) Business Days after the same shall have become due, Tenant shall pay to Landlord, in addition to such installment of Fixed Rent, Additional Rent or other item of Rental, as the case may be, as a late charge and as Additional Rent, a sum equal to interest at the Applicable Rate on the amount unpaid, computed from the date such payment was due, without regard to any such grace period, to and including the date of payment.

ARTICLE 21

NO REPRESENTATIONS BY LANDLORD

Section 21.1. Landlord and Landlord’s agents have made no representations or promises with respect to the Building, the Real Property or the Premises except as herein expressly set forth, and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth

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herein, Tenant shall accept possession of the Premises in its “as-is” condition on the Commencement Date, and Landlord shall have no other obligation to perform any work or make any installations in order to prepare the Premises for Tenant’s occupancy, except that prior to the Commencement Date, Landlord shall replace the water damaged ceiling tiles located in the women’s lavatory in the Premises. The taking of occupancy of the whole or any part of the Premises by Tenant shall be conclusive evidence, as against Tenant, that Tenant accepts possession of the same and that the Premises and the Building were in good and satisfactory condition at the time such occupancy was so taken and that the Premises were substantially as shown on Schedule A. All references in this Lease to the consent or approval of Landlord shall be deemed to mean the written consent or approval executed by Landlord and no other consent or approval of Landlord shall be effective for any purpose whatsoever. Nothing contained in this Section 21.1 shall relieve Landlord of its obligation to pay Tenant Landlord’s Contribution in accordance with Section 6.4 this Lease.

ARTICLE 22

END OF TERM

Section 22.1. Upon the expiration or other termination of this Lease, Tenant shall quit and surrender to Landlord the Premises, vacant, broom clean, in good order and condition, ordinary wear and tear and damage for which Tenant is not responsible pursuant to the provisions of Article 13 excepted, and Tenant shall remove all of Tenant’s Alterations as may be required pursuant to Article 6. Tenant shall also remove all of Tenant’s Property and all other personal property and personal effects of all persons claiming through or under Tenant, and shall pay the cost of repairing all damage to the Premises and the Real Property occasioned by such removal. Any Tenant’s Property or other personal property that remains in the Premises after the termination of this Lease shall be deemed to have been abandoned and either may be retained by Landlord as its property or may be disposed of in such manner as Landlord may see fit. If such Tenant’s Property or other personal property or any part thereof is sold, Landlord may receive and retain the proceeds of such sale as the property of Landlord. Any expense incurred by Landlord in removing or disposing of such Tenant’s Property or other personal property or Alterations required to be removed as provided in Article 6, as well as the cost of repairing all damage to the Building or the Premises caused by such removal, shall be reimbursed to Landlord by Tenant, as Additional Rent, on demand.

Section 22.2. If the Expiration Date falls on a day which is not a Business Day, then Tenant’s obligations under Section 22.1 shall be performed on or prior to the immediately preceding Business Day.

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Section 22.3. Tenant expressly waives, for itself and for any person claiming through or under Tenant, any rights that Tenant or any such person may have under the provisions of Section 2201 of the New York Civil Practice Law and Rules and of any similar or successor law of like import then in force in connection with any holdover proceedings that Landlord may institute to enforce the provisions of this Article.

Section 22.4. If the Premises are not surrendered upon the expiration or other termination of this Lease, Tenant hereby indemnifies Landlord against liability resulting from delay by Tenant in so surrendering the Premises, including any claims made by any succeeding tenant or prospective tenant founded upon such delay and agrees to be liable to Landlord for (i) any payment or rent concession which Landlord may be required to make to any tenant obtained by Landlord for all or any part of the Premises in order to induce such tenant not to terminate its lease by reason of the holding-over by Tenant and (ii) the loss of the benefit of the bargain if any such tenant shall terminate its lease by reason of the holding-over by Tenant.

Section 22.5. Tenant’s obligation under this Article shall survive the expiration or termination of this Lease.

ARTICLE 23

OMITTED

ARTICLE 24

NO WAIVER

Section 24.1. No act or thing done by Landlord or Landlord’s agents during the Term shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept such surrender shall be valid unless in writing signed by Landlord. No employee of Landlord or of Landlord’s agents shall have any power to accept the keys to the Premises prior to the termination of this Lease. The delivery of keys to any employee of Landlord or of Landlord’s agents shall not operate as a termination of this Lease or a surrender of the Premises. If Tenant shall at any time desire to have Landlord sublet the Premises for Tenant’s account, Landlord or Landlord’s agents are authorized to receive the keys for such purpose without releasing Tenant from any of the obligations under this Lease, and Tenant hereby relieves Landlord of any liability for loss of or damage to any of Tenant’s effects in connection with such subletting.

Section 24.2. The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease, or any of the Rules and Regulations, shall not prevent a subsequent act, which would have

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originally constituted a violation, from having all of the force and effect of an original violation. The receipt by Landlord of Fixed Rent, Additional Rent or any other item of Rental with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. The failure of Landlord to enforce any of the Rules and Regulations against Tenant or any other tenant in the Building shall not be deemed a waiver of any such Rules and Regulations. No provision of this Lease shall be deemed to have been waived by Landlord, unless such waiver shall be in writing and shall be signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than the Rental then due and payable shall be deemed to be other than on account of the earliest item(s) of Rental, or as Landlord may elect to apply the same, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance due of the Rental or pursue any other remedy in this Lease provided. This Lease contains the entire agreement between the parties and all prior negotiations and agreements are merged herein. Any executory agreement hereafter made shall be ineffective to change, discharge or effect an abandonment of this Lease in whole or in part unless such executory agreement is in writing and signed by the party against whom enforcement of the change, discharge or abandonment is sought.

ARTICLE 25

WAIVER OF TRIAL BY JURY

Section 25.1. Landlord and Tenant shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of them against the other on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant’s use or occupancy of the Premises, whether during or after the Term, or for the enforcement of any remedy under any statute, emergency or otherwise. If Landlord shall commence any summary proceeding against Tenant, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding (unless failure to impose such counterclaim would preclude Tenant from asserting in a separate action the claim which is the subject of such counterclaim), and will not seek to consolidate such proceeding with any other action which may have been or will be brought in any other court by Tenant or Landlord.

ARTICLE 26

INABILITY TO PERFORM

Section 26.1. This Lease and the obligation of Tenant to pay Rental hereunder and to perform all of the other covenants

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and agreements hereunder on the part of Tenant to be performed shall in no way be affected, impaired or excused because Landlord is unable to fulfill any of Landlord’s obligations under this Lease, expressly or implicitly to be performed by Landlord, or because Landlord is unable to make or is delayed in making any repairs, additions, alterations, improvements or decorations, or is unable to supply or is delayed in supplying any services, equipment or fixtures, if Landlord is prevented from or delayed in so doing by reason of acts of God, casualty, strikes or labor troubles, accident, governmental preemption in connection with an emergency, Requirements, conditions of supply and demand which have been or are affected by war or other emergency, or any other cause whatsoever, whether similar or dissimilar to the foregoing, beyond Landlord’s reasonable control (“Unavoidable Delays”).

ARTICLE 27

BILLS AND NOTICES

Section 27.1. (A) Except as otherwise expressly provided in this Lease, any bills, statements, consents, notices, demands, requests or other communications given or required to be given under this Lease (“Notice(s)”) shall be in writing and shall be deemed sufficiently given or rendered if delivered by hand (against a signed receipt) or if deposited in a securely fastened, postage prepaid envelope in a depository that is regularly maintained by the U.S. Postal Service, sent by registered or certified mail (return receipt requested) and in either case addressed:

if to Tenant, (a) at Tenant’s address set forth in this Lease, if given prior to Tenant’s taking possession of the Premises, or (b) at the Building, if given subsequent to Tenant’s taking possession of the Premises, or (c) at any place where Tenant or any agent or employee of Tenant may be found if given subsequent to Tenant’s vacating, deserting, abandoning or surrendering the Premises, in each case with a copy to David Griffin, Esq., Battle Fowler LLP, 75 East 55th Street, New York, New York 10022, or

if to Landlord at Landlord’s address set forth in this Lease, Attn: Mr. Brian F. Zywiciel, Managing Director, with a copy to GE Capital Investment Advisors, One Boston Place, 18th Floor, Boston, Massachusetts 02108, Attn: Mr. Daniel J. Bradley, Asset Management, and with a copy to any Mortgagee or Lessor who may have requested the same, by Notice given in accordance with the provisions of this Article 27, at the address designated by such Mortgagee or Lessor, or

to such other address(es) as either Landlord or Tenant may designate as its new address(es) for such purpose by notice given to the other in accordance with the provisions of this Article 27.

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(B) Notices shall be deemed to have been rendered or given (a) on the date delivered, if delivered by hand, or (b) two Business Days after the date mailed, if mailed as provided in Section 27.1(A). Notice given by counsel for either party on behalf of such party or by the Manager on behalf of Landlord shall be deemed valid notices if addressed and sent in accordance with the provisions of this Article.

Section 27.2. (A) Notwithstanding the provisions of Section 27.1, Notices requesting services for Overtime Periods pursuant to Article 28 may be given by delivery to the Building superintendent or any other person in the Building designated by Landlord to receive such Notices, and bills may be rendered by delivering them to the Premises without the necessity of a receipt.

(B) If there shall occur any interruption of certified and registered mail service, lasting more than five (5) consecutive Business Days, Notices may be given by telegram or telecopy (fax).

ARTICLE 28

SERVICES AND EQUIPMENT

Section 28.1. Landlord shall, at Landlord’s expense:

(A) Provide passenger elevator service to the Premises on Business Days during Operating Hours and, subject to Section 28.3, have one elevator on call at all other times. Tenant agrees that Landlord may, at its election, install elevators with or without operators and may change the same from time to time.

(B) Provide one (1) freight elevator serving the Premises on call on a “first come, first served” basis on Business Days during Operating Hours, and on a reservation, “first come, first served” basis from 6:00 p.m. to 8:00 a.m. on Business Days and at any time on days other than Business Days.

(C) Maintain and repair the HVAC System installed by Landlord, except for those repairs which are the obligation of Tenant pursuant to Article 7 of this Lease. The HVAC System will be operated by Landlord as and when required by law, or for the comfortable occupancy of the Premises (as reasonably determined by Landlord) during the applicable seasons on Business Days during Operating Hours, and, upon the request of Tenant, at other hours at Landlord’s customary charge therefor; provided that Tenant shall draw and close the draperies or blinds for the windows of the Premises whenever the HVAC System is in operation and the position of the sun shall cause the Premises to be uncomfortably warm and shall, at all times, cooperate fully with Landlord and abide by all of the Rules and Regulations which Landlord may prescribe for the proper functioning of the HVAC

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System. The on-floor portion of the HVAC System will be controlled by landlord, except for the thermostatic controls within the Premises. Tenant agrees to maintain the thermostatic controls within the Premises set within the range of settings mandated by any Requirements for temperature or energy related matters. Tenant expressly acknowledges that some or all windows are or may be hermetically sealed and will not open and Landlord makes no representation as to the habitability of the Premises at any time the HVAC System is not in operation. Tenant hereby expressly waives any claims against Landlord arising out of the cessation of operation of the HVAC System, or the suitability of the Premises when the same is not in operation, whether due to normal scheduling or the reasons set forth in Section 28.3, but nothing contained in this sentence shall relieve Landlord from any liability to Tenant resulting from the wilful misconduct or negligence of Landlord or its employees, contractors or agents. Landlord will not be responsible for the failure of the HVAC System if such failure results from the occupancy of the Premises by more than an average of one person for each one hundred (100) square feet in any separate room or area or if Tenant shall install and operate machines, incandescent lighting and appliances the total connected electrical load in excess of the Building’s electrical specifications, as determined by Landlord’s consulting engineers. If Tenant shall occupy the Premises at an occupancy rate of greater than that for which the HVAC System was designed, or if the total connected electrical load is in excess of the Building’s electrical specifications, as determined by Landlord’s consulting engineers, or if Tenant’s partitions shall be arranged in such a way as to interfere with the normal operation of the HVAC System, Landlord may elect to make changes to the HVAC System or the ducts through which it operates required by reason thereof, and the reasonable cost thereof shall be reimbursed by Tenant to Landlord, as Additional Rent, within 20 days after presentation of a bill therefor. Landlord, throughout the Term, shall have free access to all mechanical installations of Landlord, including but not limited to air-cooling, fan, ventilating and machine rooms and electrical closets, and Tenant shall not construct partitions or other obstructions that may interfere with Landlord’s free access thereto, or interfere with the moving of Landlord’s equipment to and from the enclosures containing said installations. Neither Tenant nor Persons Within Tenant’s Control shall at any time enter the said enclosures or tamper with, adjust, touch or otherwise in any manner affect said mechanical installations, except as set forth herein with respect to the thermostatic controls within the Premises. Without in any way limiting anything set forth in this subparagraph (C), within a reasonable time after Tenant’s request, Landlord shall give Tenant written notice of the Building’s electrical specifications, as determined by Landlord’s consulting engineers.

(D) Furnish hot and cold water for lavatory and drinking and office cleaning purposes. If Tenant requires, uses or consumes water for any other purposes, Tenant agrees that

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Tenant shall install a meter or meters or other means to measure Tenant’s water consumption, and Tenant further agrees to pay for the cost of the meter or meters and the installation thereof, and to pay for the maintenance of said meter equipment and/or to pay Landlord’s out-of-pocket cost of other means of measuring such water consumption by Tenant. Tenant shall reimburse Landlord for the cost of all water consumed (including costs of generating hot water) as measured by said meter or meters or as otherwise measured, including sewer rents, as Additional Rent within 20 days after bills are rendered.

(E) Provided Tenant shall keep the Premises in order, Landlord, at Landlord’s expense, shall cause the Premises, excluding any portions thereof used as security areas or used for the storage, preparation, service or consumption of food or beverages, to be cleaned on Business Days in accordance with the cleaning specifications annexed to this Lease as Schedule C. Tenant shall pay to Landlord as Additional Rent on demand Landlord’s extra charges, actually paid by Landlord to Landlord’s cleaning contractor for the Building, for cleaning work in the Premises or the Building required because of (i) misuse or neglect on the part of Tenant or its agents, employees, contractors, licensees or invitees, (ii) use of portions of the Premises for the storage, preparation, service, or consumption of food or beverages, reproduction, data processing or computer operations, private lavatories or toilets or other special purposes, (iii) any glass surfaces other than exterior Building windows and other glass surfaces required to be cleaned pursuant to Schedule C, (iv) non-Building standard materials or finishes installed by Tenant or at its request, (v) increase in frequency or scope of any of the items set forth in Schedule C requested by Tenant, and (vi) the use of the Premises by Tenant after hours. If, however, any additional cleaning of the Premises is to be done by Tenant, it shall be done at Tenant’s sole expense, in a manner reasonably satisfactory to Landlord and no one other than persons approved by Landlord shall be permitted to enter the Premises or the Building for such purpose. Tenant shall pay to Landlord as Additional Rent the cost of removal of any of Tenant’s refuse and rubbish from the Premises and the Building (x) to the extent that the same, in any one day, exceeds the average daily amount of refuse and rubbish usually attendant upon the use of such Premises as offices, as described and included in Landlord’s cleaning contract for the Building or recommended by Landlord’s cleaning contractor, and (y) to the extent Landlord shall incur extra charges to Landlord’s cleaning contractor for the Building related to or deriving from the preparation or consumption of food or drink. Bills for the same shall be rendered by Landlord to Tenant at such time as Landlord may elect and shall be due and payable as Additional Rent within 20 days after the time rendered. Tenant, at Tenant’s expense, shall cause the Premises to be exterminated on a monthly basis to the satisfaction of Landlord and additionally shall cause all portions of the Premises used for the storage, preparation, service or consumption of food or beverages to be cleaned daily

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in a manner reasonably satisfactory to Landlord, and to be treated against infestation by vermin, rodents or roaches, whenever there is evidence of any infestation. Tenant shall not permit any person to enter the Premises or the Building for the purpose of providing such extermination services, unless such persons have been approved by Landlord (which approval shall not be unreasonably withheld). If so requested by Landlord, Tenant, at Tenant’s expense, shall store any refuse generated by the consumption of food or beverages on the Premises in a cold box or similar facility.

(F) If the “sprinkler system” installed in the Building or any of its appurtenances are damaged or injured or not in proper working order by reason of any act or omission of Tenant or of Persons Within Tenant’s Control, Tenant shall forthwith restore the same to good working condition at Tenant’s expense; and if the New York Board of Fire Underwriters or the New York Insurance Rating Organization or any Government Authority requires or recommends that any changes, modifications, alterations or additional sprinkler heads or other equipment be made or supplied by reason of Tenant’s business, or the location of the partitions, trade fixtures, or other contents of the Premises, Landlord shall, at Tenant’s expense, promptly make and supply such changes, modifications, alterations, additional sprinkler heads or other equipment (pursuant to submission of necessary engineering plans and specifications for Landlord’s approval).

Section 28.2. The Fixed Rent does not reflect or include any charge to Tenant for the furnishing of any necessary freight elevator facilities or HVAC to the Premises during periods (“Overtime Periods”) other than on Business Days during Operating Hours. Accordingly, if Landlord furnishes any such freight elevator facilities or HVAC to the Premises at the request of Tenant during Overtime Periods, Tenant shall pay Landlord Additional Rent for such services at the standard rates then fixed by Landlord for the Building or if no such rates are then fixed, at comparable rates then being charged by first-class office buildings in the Borough of Manhattan, the City and State of New York. Notwithstanding the foregoing, there shall be no charge to Tenant for up to four hours (in the aggregate) of use of freight elevator facilities during Overtime Periods in connection with Tenant’s initial move into the Premises for the conduct of its business therein. Landlord shall not be required to furnish any such services during any Overtime Periods unless Landlord has received advance notice from Tenant requesting such services, which notice must be given prior to 2:30 p.m. on the Business Day upon which such services are needed by Tenant or if such services are needed on a day other than a Business Day, such notice must be given prior to 2:30 p.m. on the Business Day immediately preceding the day upon which such services are needed. If Tenant shall fail to give Landlord such advance notice, then Landlord shall have no liability whatsoever to Tenant, for any annoyance or inconvenience, or any injury from

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interruption of Tenant’s business or otherwise, for so failing to furnish any such services during such Overtime Periods. Any such failure, whether or not notice shall have been given, and whether or not in Overtime Periods, shall not, in any event, constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of Rental, or relieve Tenant from any of its obligations under this Lease, except as provided in Section 28.3 (B).

Section 28.3. (A) Landlord reserves the right to stop the furnishing of the Building services and to stop service of the Building Systems, when (and only for so long as it shall be) ^:necessary, by reason of accident, or emergency, or for Alterations in the judgment of Landlord desirable or necessary to be made, until said Alterations shall have been completed; and Landlord shall have no responsibility or liability for failure to supply air-conditioning, ventilation, heat, elevator, plumbing, electric, or other services during said period or when prevented from so doing by strikes, lockouts, difficulty of obtaining materials, accidents or by any cause beyond Landlord’s reasonable control, or by Requirements or failure of electricity, water, steam, coal, oil or other suitable fuel or power supply, or inability by exercise of reasonable diligence to obtain electricity, water, steam, coal, oil or other suitable fuel or power. No diminution or abatement of rent or other compensation shall or will be claimed by Tenant as a result therefrom, nor shall this Lease or any of the obligations of Tenant be affected or reduced by reason of such interruption, curtailment or suspension, nor shall the same constitute an actual or constructive eviction. Nothing contained in this Section 28.3 shall relieve Landlord from liability to Tenant resulting from the wilful misconduct or negligence of Landlord or its employees, contractors or agents.

(B) If, by reason of Landlord’s failure to make repairs or replacements required to be made by Landlord pursuant to this Lease (a “Landlord Failure”), a material portion of the Premises is rendered untenantable, and Tenant ceases to use such portion of the Premises for the conduct of its business and such Landlord Failure continues unremedied for more than twenty (20) consecutive Business Days after Tenant gives written notice to Landlord of the Landlord Failure and the fact that a material portion of the Premises has been rendered untenantable by reason of such Landlord Failure and that Tenant shall have ceased using such portion of the Premises for the conduct of its business, then the Fixed Rent and the Escalation Rent shall be abated during the time that such portion remains untenantable and unused by reason of such Landlord Failure after such twentieth (20th) Business Day, apportioned according to the rentable area of the Premises so rendered untenantable and unused. Nothing contained in this Section 28.3(B) is intended to, or shall be deemed to, make any event described in or contemplated by Articles 13, 14, 26 or 34 or Sections 7.3 or 28.3(A) or any event resulting from

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an act or omission of Tenant or Persons Within Tenant’s Control a Landlord Failure.

Section 28.4. Tenant agrees to abide by all requirements which Landlord may prescribe for the proper protection and functioning of its Building Systems and the furnishing of the Building services. Tenant further agrees to cooperate with Landlord in any conservation effort pursuant to a program or procedure promulgated or recommended by ASHRAE or any Requirements.

Section 28.5. Landlord shall have no obligation to clean, repair, replace or maintain any “private” plumbing fixtures or facilities (i.e., plumbing fixtures and facilities other than those that would be the common toilets on a floor) or the rooms in which they are located.

Section 28.6. Subject to all of the provisions of this Lease governing Alterations, including (but not limited to) the submission of plans and specifications and the obtaining of Landlord’s consent to same as required under Article 6, Tenant at Tenant’s sole cost and expense, shall have the right to install a supplemental air-conditioning system in the Premises for up to ten tons of air-conditioning. Landlord shall make available to Tenant for its use on a twenty-four (24) hour a day, three hundred sixty-five (365) day a year basis throughout the Term, condenser water for up to ten tons of air-conditioning for Tenant’s supplemental air-conditioning system. Tenant shall bear the cost of the condenser water supplied to Tenant’s supplemental air-conditioning system and shall pay Landlord, as Additional Rent, for the condenser water supplied to Tenant’s supplemental air-conditioning system at the standard rates then fixed by Landlord for making condenser water available for such cooling. Tenant shall pay the actual out-of-pocket cost incurred by Landlord for connecting Tenant’s supplemental air-conditioning system to the condenser water line in the Building. On the date of this Lease, Landlord’s Building standard charge for condenser water is $1,250 per ton per annum. Such amount may be increased from time to time after the date hereof, provided that Landlord shall not discriminate against Tenant in increasing same and further provided that any such increase shall be based upon an actual increase in Landlord’s costs relating thereto.

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ARTICLE 29

PARTNERSHIP TENANT

Section 29.1. If Tenant is a partnership, or is comprised of two (2) or more persons, individually or as co-partners of a partnership (any such partnership and such persons are referred to in this Article 29 as “Partnership Tenant”), or if Tenant’s interest in this Lease shall be assigned to a Partnership Tenant, the following provisions shall apply to such Partnership Tenant:

(a) the liability of each of the parties comprising Partnership Tenant shall be joint and several; (b) each of the parties comprising Partnership Tenant hereby consents in advance to, and agrees to be bound by (i) any written agreement that may here- after be executed by Partnership Tenant or any successor entity, changing, extending or discharging this Lease, in whole or in part, or surrendering all or any part of the Premises to Landlord, and (ii) any Notices that may hereafter be given by Partnership Tenant or by any of the parties comprising Partnership Tenant; (c) any Notices given or rendered to Partnership Tenant or to any of such parties shall be binding upon Partnership Tenant, and all such parties; (d) if Partnership Tenant admits new partners, all of such new partners shall, by their admission to Partnership Tenant, be deemed to have assumed joint and several liability for the performance of all of the terms, covenants and conditions of this Lease on Tenant’s part to be observed and performed; (e) Partnership Tenant shall give prompt notice to Landlord of the admission of any such new partners, and upon demand of Landlord, shall cause each such new partner to execute and deliver to Landlord an agreement in form satisfactory to Landlord, wherein each such new partner assumes joint and several liability for the performance of all the terms, covenants and conditions of this Lease on Tenant’s part to be observed and performed (but neither Landlord’s failure to request any such agreement nor the failure of any such new partner to execute or deliver any such agreement to Landlord shall vitiate the provisions of clause (d) of this Article 29); and (f) any present or future partner of Partnership Tenant who is no longer a partner of Partnership Tenant at the time of any default under this Lease shall, nevertheless, remain liable for the obligations of Tenant under this Lease, as if any such partner had been a partner of Partnership Tenant on the date of such default.

ARTICLE 30

VAULT SPACE

Section 30.1. Notwithstanding anything contained in this Lease or indicated on any sketch, blueprint or plan, any vaults, vault space or other space outside the boundaries of the Real Property are not included in the Premises. Landlord makes no representation as to the location of the boundaries of the Real Property. All vaults and vault space and all other space outside the boundaries of the Real Property which Tenant may be permitted to use or occupy are to be used or occupied under a revocable license, and if any such license is revoked, or if the amount of such space is diminished or required by any Government Authority or by any public utility company, such revocation, diminution or requisition shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of Rental, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord. Any fee, tax or charge imposed by any Government

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Authority for any such vaults, vault space or other space occupied by Tenant shall be paid by Tenant.

ARTICLE 31

SIGNS

Section 31.1. The location, size, materials, quality, design, color and lettering of any signs desired by Tenant shall be subject to the prior approval of Landlord, which approval shall not be unreasonably withheld. Subject to the preceding sentence, Tenant shall be permitted to have the names “AMPEX” and “SHERBORNE” on its signs. At Landlord’s option, Landlord may install any such signs, and Tenant shall pay all costs associated with such installation, as Additional Rent, within 20 days after demand therefor. Landlord shall provide Tenant with Tenant’s Share of the available listings in the directory located in the Building lobby (but in no event less than 10 such listings) at no cost to Tenant (for the name of Tenant and any other Person occupying the Premises or any portion thereof pursuant to this Lease, and their respective officers and employees), provided, however, that if, during the Term, Tenant shall request that such names be changed or that one or more other names be included in such directory, Landlord shall furnish the same, provided that (x) there shall not be more than nine such other names in such directory at any one time and (y) Tenant shall pay Landlord’s Building standard charge for the same).

ARTICLE 32

BROKER

Section 32.1. (A) Tenant represents and warrants to Landlord that Tenant has not dealt with any broker or Person in connection with this Lease other than the Broker. The execution and delivery of this Lease by Tenant shall be conclusive evidence that Tenant acknowledges that Landlord has relied upon the foregoing representation and warranty. Tenant shall indemnify and hold harmless Landlord from and against any and all claims for commission, fee or other compensation by any Person other than the Broker who claims to have dealt with Tenant in connection with this Lease and for any and all costs incurred by Landlord in connection with such claims, including, without limitation, reasonable attorneys’ fees and disbursements. This provision shall survive the expiration or earlier termination of this Lease.

(B) Landlord represents and warrants to Tenant that Landlord has not dealt with any broker or Person in connection with this Lease other than the Broker. The execution and delivery of this Lease by Landlord shall be conclusive evidence that Landlord acknowledges that Tenant has relied upon the

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foregoing representation and warranty. Landlord shall indemnify and hold harmless Tenant from and against any and all claims for commission, fee or other compensation by any Person other than the Broker who claims to have dealt with Landlord in connection with this Lease and for any and all costs incurred by Tenant in connection with such claims, including, without limitation, reasonable attorneys’ fees and disbursements. This provision shall survive the expiration or earlier termination of this Lease.

ARTICLE 33

INDEMNITY

Section 33.1. Tenant shall not do or permit any act or thing to be done upon the Premises or the Real Property that may subject any Indemnitee to any liability or responsibility for injury, damage to persons or property or to any liability by reason of the existence or application of, compliance with or violation of any Requirement, but shall exercise such control over the Premises as to protect each Indemnitee fully against any such liability and responsibility. Tenant shall indemnify and save harmless the Indemnitees from and against (a) all claims of whatever nature against the Indemnitees arising from any act, omission or negligence of Tenant or Persons Within Tenant’s Control, (b) all claims against the Indemnitees arising from any accident, injury or damage whatsoever caused to any person or to the property of any person and occurring in or about the Premises during the Term or during Tenant’s occupancy of the Premises, except to the extent caused by the wilful misconduct or negligence of Landlord or its employees, contractors or agents. (c) all claims against the Indemnitees arising from any accident, injury or damage occurring outside of the Premises but anywhere within or about the Real Property, where such accident, injury or damage results or is claimed to have resulted from an act, omission or negligence of Tenant or Persons Within Tenant’s Control, and (d) any breach, violation or non-performance of any covenant, condition or agreement contained in this Lease to be fulfilled, kept, observed and performed by Tenant. This indemnity and hold harmless agreement shall include indemnity from and against any and all liability, fines, suits, demands, costs and expenses of any kind or nature (including, without limitation, attorneys’ fees and disbursements, which attorneys’ fees and disbursements shall be reasonable in the case of clauses (a), (b) and (c) above only) incurred in or in connection with any such claim or proceeding brought thereon, and the defense thereof. Tenant shall be relieved of the foregoing indemnity obligations to the extent of any net insurance proceeds actually collected by Landlord.

Section 33.2. If any claim, action or proceeding is made or brought against any Indemnitee, against which claim, action or proceeding Tenant is obligated to indemnify such Indemnitee

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pursuant to the terms of this Lease, then, upon demand by the Indemnitee, Tenant, at its sole cost and expense, shall resist or defend such claim, action or proceeding in the Indemnitee’s name, if necessary, by such attorneys as the Tenant shall select, which attorneys (including, without limitation, attorneys for the Indemnitee’s insurer) shall be subject to the approval of the Indemnitee, which approval shall not be unreasonably withheld. Notwithstanding the foregoing, if such attorneys shall be defending both Tenant or any Persons Within Tenant’s Control and an Indemnitee, such Indemnitee may retain its own attorneys to defend or assist in defending any claim, action or proceeding, and Tenant shall pay the reasonable fees and disbursements of such attorneys. The provisions of this Article 33 shall survive the expiration or earlier termination of this Lease.

ARTICLE 34

ADJACENT EXCAVATION; SHORING

Section 34.1. If an excavation shall be made upon land adjacent to the Building, or shall be authorized to be made, Tenant shall, upon reasonable advance notice, afford to the person causing or authorized to cause such excavation, license to enter upon the Premises for the purpose of doing such work as said person shall deem necessary to preserve the walls of the Building from injury or damage and to support the same by proper foundations without any claim for eviction or constructive eviction, damages or indemnity against Landlord, or diminution or abatement of Rental. Landlord hereby assigns to Tenant any claims which Landlord may have against said person to the extent that during the performance of such work, said person shall damage any of Tenant’s Property located in the Premises.

ARTICLE 35

SECURITY DEPOSIT

Section 35.1. Tenant has deposited with Landlord on the signing of this Lease the Security Deposit either in cash or by Letter of Credit as provided in Section 35.2, as security for the faithful performance and observance by Tenant of the terms, provisions and conditions of this Lease. Tenant agrees that in the event of the occurrence of an Event of Default, Landlord may use, apply or retain the whole or any part of any cash Security Deposit, or may draw the entire or a partial amount of the Letter of Credit and use, apply, or retain the whole or any part of such proceeds, as the case may be, to the extent required for the payment of any Fixed Rent, Escalation Rent, or any other sum as to which Tenant is in default, or for any sum that Landlord may expend or may be required to expend by reason of the Event of Default (including any damages or deficiency accrued before or after summary proceedings or other re-entry by Landlord). If

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Landlord applies or retains any portion or all of any cash Security Deposit or proceeds of the Letter of Credit, as the case may be, Tenant shall forthwith restore the amount so applied or retained so that, at all times, the amount of the Security Deposit shall be the amount set forth on the Reference Page. Provided there is no uncured Event of Default, any balance of the cash Security Deposit or proceeds of the Letter of Credit held by Landlord and not used, applied or retained by Landlord as above provided, and any remaining Letter of Credit, shall be returned to Tenant within 30 days (or such longer period as shall be reasonable) after the Expiration Date and after delivery of possession of the entire Premises to Landlord in accordance with the terms of this Lease.

Section 35.2. In lieu of a cash Security Deposit, Tenant may deliver to Landlord a clean, irrevocable and unconditional letter of credit (such letter of credit, and any replacement thereof as provided herein, is called a “Letter of Credit”) issued and drawn upon any commercial bank approved by Landlord (which approval shall not be unreasonably withheld) which is a member of the United States Federal Reserve System with offices for banking purposes in the City of New York (“Issuing Bank”), which letter of credit shall have a term of not less than one year, be in form and content satisfactory to Landlord, be for the account of Landlord (and no other beneficiary) and be in the amount of the Security Deposit set forth in the Reference Page. The Letter of Credit shall provide that:

(1) The Issuing Bank shall pay to Landlord or its duly authorized representative an amount up to the face amount of the Letter of Credit upon presentation of a copy of the Letter of Credit and a sight draft in the amount to be drawn;

(2) The Letter of Credit shall be deemed to be automatically renewed, without amendment, for consecutive periods of one year each during the Term, unless the Issuing Bank sends written notice (the “Non-Renewal Notice”) to Landlord by certified or registered mail, return receipt requested, at least thirty (30) days prior to the expiration date of the Letter of Credit, to the effect that it elects not to have such Letter of Credit renewed;

(3) The expiration date of the Letter of Credit delivered in respect of the last year of the Term shall have an expiration date of not earlier than sixty (60) days after the Fixed Expiration Date; and

(4) The Letter of Credit shall be transferable by Landlord as provided in Section 35.5.

Section 35.3. Simultaneously with the delivery of the first Letter of Credit to Landlord, Tenant shall deliver to Landlord a

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letter from the Issuing Bank confirming that the Issuing Bank will honor any demand for payment made by Landlord in accordance with this Article 35. In the event that any replacement Letter of credit is drawn on a bank other than the original Issuing Bank, Tenant shall deliver a similar letter of confirmation from such new Issuing Bank, together with or prior to the delivery of the replacement Letter of Credit.

Section 35.4. Landlord, after receipt of the Non-Renewal Notice, shall have the right to draw the entire amount of the Letter of Credit and to hold the proceeds as a cash Security Deposit pursuant to the terms of this Article 35. Landlord shall release such proceeds to Tenant upon delivery to Landlord of a replacement Letter of Credit complying with the terms hereof.

Section 35.5. In the event of the sale or lease of the Building or the Real Property, Landlord shall have the right to transfer the cash Security Deposit or Letter of Credit, as the case may be, to the purchaser or lessee, and Landlord shall thereupon be released by Tenant from all liability for the return of such cash Security Deposit or Letter of Credit. In such event, Tenant agrees to look solely to the new Landlord for the return of said cash Security Deposit or Letter of Credit. It is agreed that the provisions hereof shall apply to every transfer or assignment made of the cash Security Deposit or Letter of Credit to a new Landlord. Tenant shall execute such documents as may be necessary to accomplish such transfer or assignment of the Letter of Credit.

Section 35.6. Tenant covenants that it will not assign or encumber, or attempt to assign or encumber, the cash Security Deposit or Letter of Credit deposited hereunder, and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment, or attempted encumbrance. In the event that any bankruptcy, insolvency, reorganization or other debtor-creditor proceedings shall be instituted by or against Tenant, its successors or assigns, or any guarantor of Tenant hereunder, the security shall be deemed to be applied to the payment of the Fixed Rent and Additional Rent due Landlord for periods prior to the institution of such proceedings and the balance, if any, may be retained by Landlord in partial satisfaction of Landlord’s damages. In the event that any bankruptcy, insolvency, reorganization or other debtor-creditor proceedings shall be instituted by or against Tenant, its successors or assigns, or any guarantor of Tenant hereunder, the security shall be deemed to be applied to the payment of the Fixed Rent and Additional Rent due Landlord for periods prior to the institution of such proceedings and the balance, if any, may be retained by Landlord in partial satisfaction of Landlord’s damages.

Section 35.7. If the Security Deposit shall be in cash, Landlord shall deposit the Security Deposit into an interest bearing account at a banking organization selected by Landlord.

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All interest and/or dividends, if any, accruing on the Security Deposit, less a 1% per annum charge for administrative expense, shall be added to, held and included within the term Security Deposit and, provided that no Event of Default shall occur and be continuing, shall accrue to the account of Tenant. Landlord shall not be required to credit Tenant with any interest for any period during which Landlord does not receive interest on the Security Deposit.

ARTICLE 36

RENT REGULATION

Section 36.1. If at any time or times during the Term of this Lease, the Rental reserved in this Lease is not fully collectible by reason of any Requirement, Tenant shall enter into such agreements and take such other steps (without additional expense to Tenant) as Landlord may request and as may be legally permissible to permit Landlord to collect the maximum rents that may from time to time during the continuance of such legal rent restriction be legally permissible (and not in excess of the amounts reserved under this Lease). Upon the termination of such legal rent restriction (a) the Rental shall become and thereafter be payable hereunder in accordance with the amounts reserved in this Lease for the remainder of the Term, and (b) Tenant shall pay to Landlord, if legally permissible, an amount equal to (i) the items of Rental that would have been paid pursuant to this Lease but for such legal rent restriction less (ii) the rents paid by Tenant to Landlord during the period or periods such legal rent restriction was in effect. This provision shall survive the expiration or earlier termination of this Lease to the maximum enforceable extent.

ARTICLE 37

OPTION TO RENEW

Section 37.1. Provided that Tenant shall have performed fully, faithfully and in a timely manner all of its obligations (including the obligation to pay Fixed Rent and Additional Rent) under this Lease during the five-year period immediately preceding the giving of the Renewal Notice (as hereinafter defined) by Tenant, and this Lease shall be in full force and effect as of the date of the Renewal Notice and as of the Fixed Expiration Date and there shall not then be existing an Event of Default under this Lease, Tenant shall have one option to extend the Term of this Lease for the Renewal Term (as set forth in the Reference Page) commencing on the day after the Fixed Expiration Date. Such option shall be exercisable by written notice (the “Renewal Notice”) to Landlord given not later than nine months prior to the Fixed Expiration Date. Notwithstanding the preceding sentence, Landlord, in its sole discretion, may waive

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any Event of Default by Tenant and no such Event may be used by Tenant to negate the effectiveness of Tenant’s exercise of this option. The Renewal Term shall constitute an extension of the initial Term of this Lease and shall be upon all of the same terms and conditions as the initial Term, except that (i) there shall be no further option to renew the Term of this Lease in the Renewal Term, (ii) Landlord shall not be required to furnish any materials or perform any work to prepare the Premises for Tenant’s occupancy and Landlord shall not be required to reimburse Tenant for any Alterations made or to be made by Tenant, (iii) the Fixed Rent for the Renewal Term shall be payable at a rate per annum equal to the fair market rental value of the Premises as of the first day of the Renewal Term, and (iv) during the Renewal Term, (x) the term “Base Tax Factor” shall mean the Taxes payable for the Tax Year beginning July 1, 2007 and (y) the term “Base Operating Factor” shall mean the Operating Expenses paid or incurred with respect to the Operating Year beginning January 1, 2007. Fair market rental value shall be determined by taking into account (1) the condition of the premises in its then “as is” condition, (2) that Landlord has no obligation to perform any work to prepare the Premises for Tenant’s occupancy or to reimburse Tenant for any Alterations to be made by Tenant, (3) that Landlord has no obligation to give Tenant any free rent during the Renewal Term or any other rental concessions, and (4) that the Base Tax Factor and Base Operating Factor will be changed, but without taking into account the fact that (x) the Premises are then encumbered by this Lease giving Tenant the right to extend the Term and (y) Landlord is not paying a full brokerage commission with respect to the Renewal Term as if such Term were a new lease of the Premises. Subject to clause (iv) above, during the Renewal Term, all Escalation Rent that Tenant is obligated to pay under this Lease during the initial Term hereof shall continue without interruption, it being the intention of the parties hereto that the Renewal Term shall be deemed a part of and continuation of the initial Term of this Lease.

Section 37.2. If Tenant has given the Renewal Notice in accordance with Section 37.1 of this Lease, the parties shall endeavor to agree upon the fair market rental value of the Premises, as of the commencement date of the Renewal Term. In the event that the parties are unable to agree upon the fair market value for the Renewal Term within six months prior to the first day of the Renewal Term then the same shall be determined by two senior officers of recognized New York City leasing brokerage firms, one to be selected and paid for by Landlord and one to be selected and paid for by Tenant. The officers selected by the parties shall have at least 10 years experience in (i) the leasing of office space in the Borough of Manhattan, City of New York or (ii) the appraisal of first class office buildings in the Borough of Manhattan, City of New York. The determination of the parties so selected shall be in writing and shall be final and conclusive on Landlord and Tenant and shall constitute the amount described in Section 37.l(iii). If such officers are unable to

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agree on such fair market rental value, they shall select another officer who shall have the same qualifications as are set forth in this Section 37.2 and the determination of a majority of such officers shall be binding upon Landlord and Tenant and shall constitute the amount described in Section 37.1(iii). The fee of the additional officer selected pursuant to the preceding sentence shall be shared equally by Landlord and Tenant. If, as of the commencement date of the Renewal Term, the amount of the Fixed Rent payable during the Renewal Term in accordance with this Article 37 shall not have been determined, then, pending such determination, Tenant shall pay Fixed Rent equal to the Fixed Rent payable pursuant to Article 2 of this Lease in respect of the last year of the initial Term of this Lease. After the final determination of the Fixed Rent payable for the Renewal Term, the parties promptly and appropriately shall adjust rental payments theretofore made during the Renewal Term and shall execute a written agreement specifying the amount of the Fixed Rent as so determined. Any failure of the parties to execute such written agreement shall not affect the validity of the Fixed Rent as so determined.

Section 37.3. It is an express condition of the option granted to Tenant pursuant to the terms of this Article 37 that time is of the essence with respect to Tenant’s exercise of such option within the period above provided.

ARTICLE 38

COVENANT OF QUIET ENJOYMENT

Section 38.1. Landlord covenants that, upon Tenant paying the Fixed Rent and Additional Rent and observing and performing all the terms, agreements, covenants, provisions and conditions of this Lease on Tenant’s part to be observed and performed, Tenant may peaceably and quietly enjoy the Premises, subject nevertheless to the terms and conditions of this Lease, and provided, however, that no eviction of Tenant by reason of any termination of any Superior Lease to which this Lease is subject and subordinate, whether such termination is effected by operation of law, by agreement or otherwise, shall be construed as a breach of this covenant nor shall any action by reason thereof be brought against Landlord, and provided further that this covenant shall bind and be enforceable against Landlord or any successor to Landlord’s interest, subject to the terms hereof, only so long as Landlord or any successor to Landlord’s interest, is in possession and is collecting rent from Tenant but not thereafter.

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ARTICLE 39

MISCELLANEOUS

Section 39.1. This Lease is presented for signature by Tenant and it is understood that this Lease shall not constitute an offer by or be binding upon Landlord unless and until Landlord shall have executed and delivered a fully executed copy of this Lease to Tenant.

Section 39.2. The obligations of Landlord under this Lease shall not be binding upon Landlord named herein after the sale, conveyance, assignment or transfer by such Landlord (or upon any subsequent landlord after the sale, conveyance, assignment or transfer by such subsequent landlord) of its interest in the Building or the Real Property, as the case may be, and in the event of any such sale, conveyance, assignment or transfer, Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord under this Lease thereafter arising, and the transferee shall be deemed to have assumed, subject to the remaining provisions of this Section 39.2, all obligations of the Landlord under this Lease arising after the effective date of the transfer. Notwithstanding the foregoing, Landlord under this Lease shall remain obligated to pay Tenant the full amount of the Landlord’s Contribution after the sale, conveyance, assignment or transfer by Landlord. No trustee, partner, shareholder, director or officer of Landlord, or of any partner or shareholder of Landlord (collectively, the “Parties”) shall have any direct or personal liability for the performance of Landlord’s obligations under this Lease, and Tenant shall look solely to Landlord’s interest in the Real Property (or the proceeds from the sale thereof) to enforce Landlord’s obligations hereunder and shall not otherwise seek any damages against Landlord personally or any of the Parties whatsoever. Tenant shall not look to any other property or assets of Landlord or any property or assets of any of the Parties in seeking either to enforce Landlord’s obligations under this Lease or to satisfy a judgment for Landlord’s failure to perform such obligations.

Section 39.3. Notwithstanding anything contained in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, whether or not expressly denominated Fixed Rent, Escalation Rent, Additional Rent or Rental, shall constitute rent for the purposes of Section 502(b)(7) of the Bankruptcy Code.

Section 39.4. Neither this Lease nor any memorandum of this Lease shall be recorded.

Section 39.5. Except as otherwise expressly stated in this Lease, any consent or approval required to be obtained from Landlord may be granted by Landlord in its sole discretion. In any instance in which Landlord agrees not to act unreasonably,

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Tenant hereby waives any claim for damages against or liability of Landlord that Tenant may have based upon any assertion that Landlord has unreasonably withheld or unreasonably delayed any consent or approval requested by Tenant, and Tenant agrees that its sole remedy shall be an action or proceeding to enforce any related provision or for specific performance, injunction or declaratory judgment. If with respect to any required consent or approval Landlord is required by the express provisions of this Lease not to unreasonably withhold or delay its consent or approval, and if it is determined in any such proceeding referred to in the preceding sentence that Landlord acted unreasonably, the requested consent or approval shall be deemed to have been granted; however, Landlord shall have no liability whatsoever to Tenant for its refusal or failure to give such consent or approval. Tenant’s sole remedy for Landlord’s unreasonably withholding or delaying consent or approval shall be as provided in this Section 39.5.

Section 39.6. Landlord shall have the right at any time, and from time to time, to amend unilaterally the economic provisions of this Lease if Landlord is advised by its counsel that all or any portion of the Rental paid by Tenant to Landlord hereunder is, or may be, taxable income within the meaning of the United States Internal Revenue Code or regulations issued thereunder, and Tenant agrees that it will execute all documents necessary to confirm any such amendment, provided that no such amendment shall increase Tenant’s payment obligations or other liability under this Lease nor reduce Landlord’s obligations hereunder nor change the Term of this Lease nor materially and adversely affect the rights or economic obligations of Tenant under this Lease.

Section 39.7. If Tenant shall remain in possession of the Premises after the Expiration Date, without the execution by both Tenant and Landlord of a new lease, Tenant, at the election of Landlord, shall be deemed to be occupying the Premises as a Tenant from month-to-month, at a monthly rental equal to two (2) times the Rental payable during the last month of the Term, subject to all the other conditions, provisions and obligations of this Lease insofar as the same are applicable to a month-to-month tenancy.

Section 39.8. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted. If any words or phrases in this Lease are stricken out or otherwise eliminated, whether or not any other words or phrases have been added, this Lease shall be construed as if the words or phrases so stricken out or otherwise eliminated were never included in this Lease and no implication or inference shall be drawn from the fact that such words or phrases were stricken out or otherwise eliminated.

Section 39.9. If any of the provisions of this Lease, or the application thereof to any person or circumstance, shall, to

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any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such provisions to persons or circumstances other than those as to whom or which it is held invalid or unenforceable, shall not be affected thereby and shall remain valid and enforceable, and every provision of this Lease shall be valid and enforceable to the fullest extent permitted by law.

Section 39.10. Landlord shall have the right to erect any gate, chain or other obstruction or to close off any portion of the Real Property to the public at any time to the extent necessary to prevent a dedication thereof for public use, provided that Tenant and its employees shall not be denied access to the Premises.

Section 39.11. Tenant hereby represents to Landlord that it is not entitled, directly or indirectly, to diplomatic or sovereign immunity and Tenant agrees that in all disputes arising directly or indirectly out of this Lease Tenant shall be subject to service of process in, and the jurisdiction of the courts of, the State of New York. The provisions of this Section 39.11 shall survive the expiration of this Lease.

Section 39.12. Simultaneously by the execution and delivery of this Lease, and thereafter if requested by Landlord, Tenant shall deliver to Landlord a certificate in the form of Schedule D annexed to this Lease, duly executed and acknowledged relating to the Employee Retirement Income Security Act of 1974, as amended.

Section 39.13. This Lease contains the entire agreement between the parties and all prior negotiations and agreements are merged into this Lease. Except as provided in Section 39.6, this Lease may not be changed, abandoned or discharged, in whole or in part, nor may any of its provisions be waived except by a written agreement that (a) expressly refers to this Lease, (b) is executed by the party against whom enforcement of the change, abandonment, discharge or waiver is sought and (c) is permissible under the Mortgage(s) and the Superior Lease(s).

Section 39.14. Any apportionment or prorations of Rental to be made under this Lease shall be computed on the basis of a three hundred sixty (360) day year, with twelve (12) months of thirty (30) days each.

Section 39.15. The laws of the State of New York applicable to contracts made and to be performed wholly within the State of New York shall govern and control the validity, interpretation, performance and enforcement of this Lease.

Section 39.16. If Tenant is a corporation, each person executing this Lease on behalf of Tenant hereby covenants, represents and warrants that Tenant is a duly incorporated or duly qualified (if foreign) corporation and is authorized to do business in the State of New York (a copy of evidence thereof to

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be supplied to Landlord upon request); and that each person executing this Lease on behalf of Tenant is an officer of Tenant and that he or she is duly authorized to execute, acknowledge and deliver this Lease to Landlord (a copy of a resolution to that effect to be supplied to Landlord upon request).

Section 39.17. The captions are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this Lease nor the intent of any provision thereof.

Section 39.18. The covenants, conditions and agreements contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and their respective legal representatives, successors, and, except as otherwise provided in this Lease, their assigns.

Section 39.19. Notwithstanding anything to the contrary provided in this Lease, in any instance where the consent or approval of the Lessor and/or the Mortgagee is required, Landlord shall not be required to give its consent or approval until and unless such Lessor and/or such Mortgagee has given its consent or approval.

Section 39.20. For the purposes of this Lease and all agreements supplemental to this Lease, unless the context otherwise requires:

(a) The words “herein”, “hereof”, “hereunder” and “hereby” and words of similar import shall be construed to refer to this Lease as a whole and not to any particular Article or Section unless expressly so stated.

(b) Tenant’s obligations hereunder shall be construed in every instance as conditions as well as covenants, each separate and independent of any other terms of this Lease.

(c) Reference to Landlord as having “no liability” or being “without liability” shall mean that Tenant shall not be entitled to terminate this Lease, or to claim actual or constructive eviction, partial or total, or to receive any abatement or diminution of rent (except as otherwise specifically provided in this Lease), or to be relieved in any manner of any of its other obligations hereunder, or to be compensated for loss or injury suffered or to enforce any other right or liability whatsoever against Landlord under or with respect to this Lease or with respect to Tenant’s use or occupancy of the Premises.

(d) Reference to “termination of this Lease” or “expiration of this Lease” and words of like import includes expiration or sooner termination of this Lease and the Term and the estate hereby granted or cancellation of this Lease pursuant to any of the provisions of this Lease or to law.

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Upon the termination of this Lease, the Term and estate granted by this Lease shall end at noon on the date of termination as if such date were the Fixed Expiration Date, and neither party shall have any further obligation or liability to the other after such termination except (i) as shall be expressly provided for in this Lease, and (ii) for such obligations as by their nature under the circumstances can only be, or by the provisions of this Lease, may be, performed after such termination, and, in any event, unless expressly otherwise provided in this Lease, any liability for a payment (which shall be apportioned as of such termination) which shall have accrued to or with respect to any period ending at the time of termination shall survive the termination of this Lease.

(e) Words and phrases used in the singular shall be deemed to include the plural and vice versa, and nouns and pronouns used in any particular gender shall be deemed to include any other gender.

(f) The rule of “ejusdem generis” shall not be applicable to limit a general statement following or referable to an enumeration of specific matters to matters similar to the matters specifically mentioned.

Section 39.19. If Tenant desires to determine any dispute between Landlord and Tenant as to the reasonableness of Landlord’s decision to refuse to consent to any subletting or assignment in accordance with the provisions of Article 15, such dispute shall be settled and finally determined by arbitration in The City of New York in accordance with the following provisions of this Section. Within five Business Days following the giving of any notice by Tenant to Landlord stating that it wishes such dispute to be so determined, Landlord and Tenant shall each give notice to the other setting forth the name and address of an arbitrator designated by the party giving such notice. If either party shall fail to give notice of such designation within said five Business Days, then the arbitrator chosen by the other side shall make the determination alone. The two arbitrators shall designate a third arbitrator. If the two arbitrators shall fail to agree upon the designation of a third arbitrator within five Business Days after the designation of the second arbitrator, then either party may apply to the Supreme Court of the State of New York or to any other court having jurisdiction, for the designation of such arbitrator. All arbitrators shall be persons who shall have had at least ten years of continuous experience in the business of owning or managing real estate in the Borough of Manhattan, The City of New York. The three arbitrators shall conduct such hearings as they deem appropriate, making their determination in writing and giving notice to Landlord and Tenant of their determination as soon as practicable, and if possible, within five Business Days after the designation of the third arbitrator; the concurrence of any two of said arbitrators shall be binding upon Landlord and Tenant, or, in the event no two of

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the arbitrators shall render a concurrent determination, then the determination of the third arbitrator designated shall be binding upon Landlord and Tenant. Judgment upon any award rendered in any arbitration held pursuant to this Section shall be final and binding upon Landlord and Tenant, whether or not a judgment shall be entered in any court. Each party shall pay its own counsel fees and expenses, if any, in connection with any arbitration under this Section, including the expenses and fees of any arbitrator selected by it in accordance with the provisions of this Section, and the parties shall share all other expenses and fees of any such arbitration. The arbitrators shall be bound by the provisions of this Lease, and shall not add to, subtract from or otherwise modify such provisions.

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written.

LANDLORD:
TRST NEW YORK, INC.
By:	/s/ Laurie L. Dotter
	Name: Laurie L. Dotter
	Title: Vice President
LAFP NEW YORK INC.
By:	/s/ Gary Mattingly
	Name: Gary Mattingly
	Title: President
THE ALASKA PERMANENT FUND
GE CAPITAL INVESTMENT ADVISORS
By:	/s/ Michael S Evans
	Name: Michael S Evans
	Title: EVP
TENANT:
AMPEX CORPORATION
By:	/s/ Craig M Kibben
	Name: Craig M Kibben
	Title: V.P.

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SCHEDULE A

FLOOR PLAN OF THE PREMISES

ALL AREAS, DIMENSIONS AND CONDITIONS ARE APPROXIMATE

REALDATAMANAGEMENT An affiliate of Environetics Group Inc.

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SCHEDULE B

RULES AND REGULATIONS

1. The sidewalks, and public portions of the Building, such, as entrances, passages, courts, elevators, vestibules, stairways, corridors or halls shall not be obstructed or encumbered by any tenant or used for any purpose other than ingress and egress to and from any premises.

2. No awnings or other projections shall be attached to the outside walls of the Building. No curtains, blinds, shades, louvered openings or screens shall be attached to or hung in, or used in connection with, any window or door of any premises, without the prior written consent of Landlord, unless installed by Landlord.

3. No sign, advertisement, object, notice or other lettering shall be exhibited, inscribed, painted or affixed by any tenant on any part of the outside of any premises or Building or on windows or corridor walls, or be readily visible from the street or any public atrium. Signs on entrance door or doors shall conform to building standard signs, samples of which are on display in Landlord’s rental office. Signs on doors shall, at the tenant’s expense, be inscribed, painted or affixed for each tenant by sign makers approved by Landlord. In the event of the violation of the foregoing by any tenant, Landlord may remove same without any notice or liability, and may charge the expense incurred by such removal to the tenant or tenants violating this rule.

4. The sashes, sash doors, skylights, windows, heating, ventilating and air conditioning vents and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by any tenant, nor shall any bottles, parcels, or other articles be placed outside of any premises.

5. No show cases or other articles shall be put in front of or affixed to any part of the exterior of the Building, nor placed in the public halls, corridors or vestibules, or be readily visible from the street or any public atrium, without the prior written consent of Landlord.

6. Whenever Tenant shall submit to Landlord any plan, agreement or other document for Landlord’s consent or approval, Tenant agrees to pay Landlord, on demand, all out-of-pocket costs incurred by Landlord in connection with the review of same, including the services of any architect, engineer and/or attorney employed by Landlord to review said plan, agreement or document.

7. The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which

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they were constructed, and no sweepings, rubbish, rags, or other substances shall be thrown therein. All damages resulting from any misuse of the fixtures shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensee, shall have caused the same.

8. No tenant or occupancy shall mark, paint, drill into, or in any way deface any part of the Building or the premises demised to such tenant or occupant, except in accordance with, and as permitted under, the Lease of which these Rules and Regulations are a part. No boring, cutting or stringing of wires shall be permitted, except with the prior consent of Landlord, and as Landlord may direct. No tenant or occupant shall install any resilient tile or similar floor covering in the premises demised to such tenant or occupant except in a manner approved by Landlord.

9. No bicycles, vehicles or animals of any kind (except seeing eye dogs) shall be brought into or kept in or about the premises. No cooking shall be done or permitted by Tenant on said premises except in conformity to law and then only in the utility kitchen, if any, as set forth in Tenant’s layout, which is to be primarily used by Tenant’s employees for eating light snacks and beverages. No tenant shall cause or permit any unusual or objectionable odors to be produced upon or emanate from any premises.

10. No space in the Building shall be used for the manufacturing or distribution or for the storage of merchandise or for the sale at auction or otherwise of merchandise, goods or property of any kind.

11. No tenant shall make, or permit to be made, any unseemly or disturbing noises or disturb or interfere with occupants of the Building or neighboring buildings or premises or those having business with them, whether by the use of any musical instrument, radio, talking machine, unmusical noise, whistling, singing, or in any other way. No tenant shall throw anything out of the doors, or windows or down the passageways.

12. Except as otherwise permitted under the Lease of which these Rules and Regulations are a part, no tenant, nor any of the tenant’s servants, employees, agents, visitors or licensees, shall at any time bring or keep upon any premises any inflammable, combustible or explosive fluid, material, chemical or substances or aerosol containers, other than reasonable amounts of cleaning fluids and solvents (stored in proper containers) required in the normal operation of tenant’s business offices.

13. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by any tenant, nor shall any changes be made in existing locks or the mechanism thereof, without the prior written approval of the Landlord and unless and

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until a duplicate key is delivered to Landlord. Each tenant must, upon the termination of this tenancy, restore to the Landlord all keys of stores, offices and toilet rooms, either furnished to, or otherwise procured by, such tenant, and in the event of the loss of any keys, so furnished, such tenant shall pay to Landlord the cost of replacement thereof. Subject to the requirements of the Lease regarding Alterations, Tenant may use combination locks on the entrance doors of the Premises, provided that Manager shall be given a written copy of the combination thereto prior to the date of installation of such locks.

14. All removals, or the carrying in or out of any safes, freight, furniture or bulky matter of any description must take place during the hours which Landlord or its agent may determine from time to time. Landlord reserves the right to inspect all freight and other material to be brought into or out of the Building and to exclude from the Building all freight or other material which violates any of these Rules and Regulations or the Lease of which these Rules and Regulations are a part.

15. No office tenant shall occupy or permit any portion of the premises demised to it to be occupied as, by or for a public stenographer or public typist, barber shop, bootblacking, beauty shop or manicuring, beauty parlor, telephone or telegraph agency, telephone or secretarial service, messenger service, travel or tourist agency, employment agency, public restaurant or bar, commercial document reproduction or offset printing services, public vending machines, retail, wholesale or discount shop for display or sale of merchandise, retail service shop, labor union, school or classroom, governmental or quasi-governmental bureau, department or agency, including an autonomous governmental corporation, a firm, the principal business of which is real estate brokerage, or a company engaged in the business of renting office or desk space; or for a public finance (personal loan) business, or for manufacturing. No tenant shall engage or pay any employees on any premises, except those actually working for such tenant on said premises, nor advertise for laborers giving an address at said premises.

16. Landlord shall have the right to prohibit any advertising by any tenant mentioning the Building which, in Landlord’s reasonable opinion, tends to impair the reputation of the Building or its desirability as a building for offices, and upon written notice from Landlord, tenants shall refrain from or discontinue such advertising. Nothing contained in this paragraph shall prohibit Tenant from using the Building address on its letterhead, provided the same does not, in Landlord’s reasonable opinion, tend to impair the reputation of the Building or its desirability as a building for offices.

17. In order that the Building can and will maintain a uniform appearance to those outside of same, each Tenant in building perimeter areas shall (a) use only building standard lighting in areas where lighting is visible from the outside of

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the Building unless Landlord specifically approves other lighting in writing and (b) use only building standard venetian or vertical blinds in window areas which are visible from the outside of the Building.

18. Landlord reserves the right to exclude from the Building between the hours of 6:00 P.M. and 8:00 A.M. and at all hours on non-business days all persons who do not present a pass to the Building signed by a tenant. Each tenant shall be responsible for all persons for whom such pass is issued and shall be liable to Landlord for all acts of such persons.

19. The premises shall not be used for lodging or sleeping or for any immoral or illegal purpose.

20. The requirements of tenants will be attended to only upon application at the office of the Building. Building employees shall not perform any work or do anything outside of their regular duties, unless under special instructions from the office of Landlord.

21. Tenants shall purchase from Landlord or its designee all lighting tubes, lamps, bulbs and ballasts used in any premises and tenants shall pay Landlord’s reasonable charges for providing the same (which shall be at competitive rates) and for installing the same, on demand.

22. Each tenant, before closing and leaving the premises demised to such tenant at any time, shall see that all entrance doors are locked and all windows closed.

23. Each tenant shall, at its expense, provide artificial light and electricity in the premises demised to such tenant for landlord’s agents, contractors and employees while performing janitorial or other cleaning services and making repairs or alterations on said premises.

24. Canvassing, soliciting and peddling in the Building are prohibited and each tenant shall cooperate to prevent the same.

25. There shall not be used in any space, or in the public halls of the Building, either by any tenant or by jobbers or others, in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and side guards. No hand trucks shall be used in passenger elevators.

26. If the premises demised to any tenant become infested with vermin such tenant, at its sole cost and expense, shall cause its premises to be exterminated, from time to time, to the reasonable satisfaction of Landlord, and shall employ such exterminators therefor as shall be approved by Landlord (which approval shall not be unreasonably withheld).

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27. Replacement of ceiling tiles after they are removed for Tenant by telephone or other similar installers, in both the premises and the public corridors, will be charged to Tenant on a per tile basis at the then Building standard rates.

28. All movers used by any tenant shall be appropriately licensed and shall maintain appropriate and adequate insurance coverage (proof of such coverage shall be delivered to Landlord prior to movers performing services in or about the Building.) No tenant shall move, or permit to be moved into or out of the Building or the premises demised to such tenant, any heavy or bulky matter, without the specific approval of Landlord, and if any such matter requires special handling, only a person holding a Master Rigger’s license shall be employed to perform such special handling. No tenant shall place, or permit to be placed, on any part of the floor or floors of the premises demised to such tenant, a load exceeding the floor load per square foot which such floor was designed to carry and which is allowed by law. Landlord reserves the right to prescribe the weight, position and method of weight distribution of safes and other heavy matter, which must be placed so as to distribute the weight.

29. All paneling, decoration or other wood products not considered furniture and draperies, carpeting and other furnishings shall be of fire retardant materials. Before installation of any such materials, certification of the materials’ fire retardant characteristics shall be submitted to Landlord, or its agents, in a manner reasonably satisfactory to the Landlord.

30. Tenant shall sort, separate and recycle all refuse and rubbish of Tenant in accordance with the methods and procedures set forth, from time to time, by Landlord and as may be required by any Requirements.

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SCHEDULE C

CLEANING SERVICES

1. General

All flooring swept nightly.

All carpeted areas and rugs carpet-swept nightly and vacuum cleaned weekly.

All private stairways swept nightly.

Wastepaper baskets, ashtrays, receptacles, etc., emptied and cleaned nightly.

Cigarette urns cleaned nightly and sand or water replaced when necessary.

All furniture tops and window sills dusted nightly. All glass furniture tops cleaned nightly. All baseboards and trim dusted nightly. All water fountains washed clean nightly. Slopsink rooms cleaned nightly.

2. Lavatories

All flooring swept and washed nightly. All mirrors, powder shelves, bright work, etc., including flushometers, piping and toilet seat hinges washed and polished nightly.

All basins, bowls, urinals and toilet seats (both sides) washed nightly.

All partitions, tile walls, dispensers and receptacles dusted nightly.

Paper towel and sanitary disposal receptacles emptied and cleaned nightly.

Paper towels, toilet paper and soap to be supplied by Landlord at Tenant’s expense.

3. High Dusting - Office Area

Do all high dusting approximately four times a year, including the following:

Dust all pictures, frames, charts, graphs and panel wall hangings not reached in nightly cleaning.

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Dust all vertical surfaces such as walls, partitions, ventilating louvers and other surfaces not reached in nightly cleaning.

Dust all overhead pipes, sprinklers, etc. Dust all venetian blinds and window frames quarterly.

4. Periodic Cleaning-Office Area Wipe clean all interior metal as necessary.

Dust all door louvers and other ventilating louvers within reach weekly.

5. Periodic Cleaning-Lavatories Machine-scrub flooring when necessary.

Wash all partitions, tile walls and enamel surfaces monthly with proper disinfectant when necessary.

Dust exterior of lighting fixtures monthly. High dust monthly.

6. Windows

Clean the exterior of the glass curtain wall of the Building approximately four (4) times a year, weather permitting.

Clean a normal amount of partition glass approximately four times a year.

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SCHEDULE D

ERISA CERTIFICATE

For the purposes of this certificate, the following capitalized terms shall be defined as follows:

“Affiliate” shall mean any person bearing a relationship described in Section 267(b) or Section 707(b) of the Code to another person;

“Landlord” shall mean TRST New York, Inc., LAFP New York, Inc. and The Alaska Permanent Fund, collectively or individually;

“Code” shall mean the Internal Revenue Code of 1986, as amended, or any successor statute;

“Control” shall mean the power to exercise a controlling influence over the management or policies of a person other than an individual;

“Control Party” with respect to any person shall mean (i) any person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the person; (ii) any corporation, partnership, trust or unincorporated enterprise of which such person is an officer, director, 5% or more partner or employee (but only if the employer of such employee is the plan sponsor of any Plan); (iii) any director of the person, or any employee of the person who earns 10% or more of the yearly wages of such person or has direct or indirect authority, responsibility, or control regarding the custody, management or disposition of plan assets; and (iv) with respect to an employer, any of whose employees are covered by an Plan, a named fiduciary (within the meaning of Section 402(a)(2) of ERISA) of such Plan, if such employer or an affiliate of such employer has the authority alone or shared with others, to appoint or terminate the named fiduciary or otherwise negotiate the terms of the named fiduciary’s employment agreement;

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended;

“GECIA” shall mean GE Capital Investment Advisors;

“Interest” shall mean with respect to ownership of an entity: (i) the combined voting power of all classes of stock entitled to vote or the total value of the shares of all classes of stock of a corporation; (ii) the capital interest or the profits interest of a partnership; or (iii) the beneficial interest of a trust or unincorporated enterprise;

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A person is considered to own an interest held in any capacity if the person has or shares the authority to exercise any voting rights or to direct some other person to exercise the voting rights relating to such interest, or to dispose of or to direct the disposition of such interest.

“Plan” shall mean any employee benefit or retirement plan, fund or program, the assets of which are included in any retirement or pension program of Landlord or GECIA;

“Property” shall mean that certain real property located at 135 East 57th Street, New York, New York 10022, together with all buildings, structures, and improvements thereon and certain personal property, supplies, fixtures and equipment used in connection therewith or stored thereon, a portion of which is the subject of a certain lease agreement dated as of                              by and between Tenant and Landlord;

“Related Party” shall mean (i) an employer or employee organization whose employees or members are covered by any Plan; the owner, directly or indirectly, of 50% or more of such employer or employee organization; or a corporation, partnership, estate or trust 50% or more owned or held, directly or indirectly, by persons described in subparagraph (A), (B), (C), (D) or (E) of Section 4975(e)(2) of the Code; and (ii) a member of the family (including a spouse, ancestor, lineal descendant or spouse of a lineal descendant), or highly compensated employee of a person described in subparagraph (i), all within the meaning of Section 4975 (e)(2) of the Code;

“Transaction” shall mean the lease of 6,750 rentable square feet of space in the Property from Landlord to Ampex Corporation (“Tenant”).

1. Tenant is not an Affiliate of Landlord or GECIA.

2. Tenant is not a Related Party with respect to any Plan.

3. Neither Tenant nor any Control Party with respect to Tenant has or had at the time of the Transaction or has exercised at any time during the one-year period preceding the Transaction, the authority to appoint or terminate GECIA as a manager of any of the assets of any Plan, or to negotiate the terms of any management agreement with GECIA (including renewals or modifications thereof) on behalf of any Plan.

4. Neither Tenant nor any person controlling or controlled by Tenant owns a five percent (5%) or more Interest in Landlord or GECIA nor does Landlord or GECIA (nor any persons controlling or controlled by Landlord or GECIA own a five percent (5%) or more Interest in Tenant.

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IN WITNESS WHEREOF, the undersigned has caused this certificate to be duly executed under seal in its name and behalf by its general partner, officer or attorney thereunto duly authorized as of the date set forth below.

Tenant:

AMPEX CORPORATION

By:

Name:

Title:

Date:                                         

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SCHEDULE E

MORTGAGEE SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

This AGREEMENT, made as of the              day of August 1997, by and between TEACHER RETIREMENT SYSTEM OF TEXAS, LOS ANGELES FIRE AND POLICE PENSION SYSTEM AND THE ALASKA PERMANENT FUND, a constitutional fund created by Article IX, Sec. 15 of the Alaska Constitution, by and through THE ALASKA PERMANENT FUND CORPORATION, a public corporation and government instrumentality created by Alaska Statutes 37.13 to manage the assets of the fund, each with an address c/o GE Capital Investment Advisors, One Boston Place, 18th Floor, Boston, Massachusetts 02108 (hereinafter Called “mortgagee”), and AMPEX CORPORATION, a Delaware corporation having an address at Park Avenue Tower, 65 East 55th Street, New York, New York 10022 (hereinafter called “Tenant”).

WITNESSETH:

WHEREAS, Mortgagee is the holder of the mortgagee’s interest under a mortgage dated as of March 6, 1990 and may hereafter be the holder of additional mortgages (said mortgages, as they may have been heretofore amended, and as they may hereafter be amended, increased, renewed, modified, consolidated, replaced, combined, substituted, severed, split, spread or extended, being hereinafter referred to as the “Mortgage”) encumbering the building and the leasehold interest in the land located at 125-135 East 57th Street in the City, County and State of New York that are more particularly described therein and in Exhibit “A” annexed hereto (hereinafter called the “Property”);

WHEREAS, Tenant and TRST New York, Inc., LAFP New York, Inc. and The Alaska Permanent Fund Corporation, as tenants-in-common (hereinafter called “Landlord”), have entered into that certain agreement of lease, dated as of August 14, 1997 (such agreement of lease, as it may hereafter be amended from time to time being herein referred to as the “Lease”), covering portions of the ground floor, and the second floor of the building (hereinafter called the “Demised Premises”) situated on a part of the Property.

NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Tenant acknowledges and agrees that the Lease now is and shall at all times continue to be, and is hereby expressly made, subject and subordinate in each and every respect to the Mortgage, the lien thereof and the terms and provisions thereof.

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Tenant, upon request, shall execute and deliver any certificate or other instrument that Mortgagee may reasonably request to confirm said subordination.

2. Mortgagee shall not name Tenant as a party defendant to action for foreclosure or other enforcement of the Mortgage unless required to do so by law), nor shall the Lease be terminated by Mortgagee in connection with, or by reason of, foreclosure or other proceedings for the enforcement of the Mortgage, or by reason of a transfer of Landlord’s interest under the Lease pursuant to the taking of a deed or assignment in lieu of foreclosure (or similar device), nor shall Tenant’s use or possession of the Demised Premises be interfered with by Mortgagee, subject to the terms of the Lease.

3. In the event that Mortgagee’s successors and assigns, or any person claiming by, through or under Mortgagee or the Mortgage, including but not limited to any purchaser at a foreclosure sale but excluding Mortgagee and any successor or assignee of Mortgagee which shall control, or is controlled by, or is under common control with, Mortgagee (any of the foregoing, excluding Mortgagee and any successor or assignee of Mortgagee which shall control, or is controlled by, or is under common control with, Mortgagee, being hereinafter referred to as the “Successor”) acquires or succeeds to the interests of Landlord, the Successor shall not be:

(a) bound by any prepayment of fixed rent or additional rent that Tenant might have paid for more than the current month to any prior Landlord; or

(b) bound by any prior amendment or modification of the Lease, or any waiver or forbearance with respect to any obligation of Tenant thereunder, made without the written consent of the then Mortgagee at the time of the making of such amendment, modification, waiver or forbearance; or

(c) subject to any offsets or defenses against or liable for any act or omission of any prior Landlord; or

(d) liable for the performance of or payment for any initial work or installations that are required to be performed or made by the Landlord for the correction of any defect with respect thereto; or

(e) liable for the performance of or payment for any restoration work following any damage to or destruction of the Demised Premises or the Property following any fire or other casualty, unless insurance proceeds actually received by the Successor are sufficient to pay for such work and the Successor does not elect to terminate the Lease in accordance with the terms of the Lease; or

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(f) liable for any security deposit, in whatever form, provided by Tenant, unless such security deposit shall have been received by the Successor.

The terms “Landlord^” and “prior Landlord,” as used herein, shall include Landlord named in the Lease. The term “control” as used in this Section 3 (i) in the case of a corporation shall mean ownership of more than fifty (50%) percent of the outstanding capital stock of that corporation, (ii) in the case of a general partnership, shall mean more than fifty (50%) percent of the general partnership interest of the partnership, and (iii) in the case of a limited partnership, shall mean more than fifty (50%) percent of the general partnership interests of such limited partnership.

4. Tenant acknowledges that a collateral assignment of the Lease has been made to Mortgagee as additional security for the Landlord’s obligations to Mortgagee, but Tenant agrees with Mortgagee that the acceptance by Mortgagee of such assignment does not constitute an assumption by Mortgagee of Landlord’s obligations under the Lease unless and until Mortgagee shall succeed to the position of Landlord by taking possession of the Demised Premises or by foreclosure of the Mortgage or otherwise, that Mortgagee is not bound to Tenant to perform Landlord’s obligations under the Lease unless and until Mortgagee shall succeed to the position of Landlord by taking possession of the Demised Premises or by foreclosure of the Mortgage or otherwise, and that in all events the Successor’s liability to Tenant shall be limited as provided by Sections 3 and 6 hereof.

5. If the interest of the Landlord under the Lease shall be transferred by reason of foreclosure or other proceedings for enforcement of the Mortgage or pursuant to a taking of a deed in lieu of foreclosure (or similar device), Tenant shall be bound to the Successor and, except as provided in this Agreement, the Successor shall be bound to Tenant, under all of the terms, covenants and conditions of the Lease for the balance of the term thereof remaining, with the same force and effect as if the Successor were the Landlord, and Tenant does hereby (i) agree to attorn to the Successor, as its Landlord, (ii) affirm its obligations under the Lease, and (iii) agree to make payments of all sums due under the Lease to the Successor, said attornment, affirmation and agreement to be effective and self-operative, without the execution of any further instruments, upon the Successor succeeding to the interest of the Landlord under the Lease. Tenant agrees, however, upon the election of and written demand by the Successor, within sixty (60) days after the Successor acquires title to the Property, to execute an instrument in confirmation of the foregoing provisions, reasonably satisfactory to both parties, in which Tenant shall acknowledge such attornment. Tenant waives the provisions of any statute or rule of law now or hereafter in effect that may give or purport to give it any right or election to terminate or otherwise adversely affect the Lease or the obligations of Tenant thereunder by reason of

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any foreclosure or similar proceeding. For the purpose of this Article 5, a Successor shall include an entity which shall control, or is controlled by, or is under common ownership with mortgagee.

6. Anything herein or in the Lease to the contrary notwithstanding, in the event that Successor shall acquire title to the Property, or shall otherwise become liable for any obligations of Landlord under the Lease, Successor shall have no obligation, nor incur any liability, beyond Successor’s then interest, if any, in the Property and Tenant shall look exclusively “to such interest of Successor, if any, in the Property for the payment and discharge of any obligations imposed upon Successor hereunder or under the Lease and Successor is hereby released or relieved of any other liability hereunder and under the Lease. Tenant agrees that with respect to any money judgment that may be obtained or secured by Tenant against Successor, Tenant shall look solely to the estate or interest owned by Successor in the Property and Tenant will not collect or attempt to collect any such judgment out of any other assets of Successor. For the purpose of this Article 6, a Successor shall include an entity which shall control, or is controlled by, or is under common control with Mortgagee.

7. This Agreement may not be modified except by an agreement in writing signed by the parties or their respective successors in interest. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto, their respective heirs, representatives, successors and assigns, except that this Agreement shall not inure to the benefit of any assignee of Tenant unless such assignee shall have acquired Tenant’s interest under the Lease pursuant to an assignment permitted under the Lease.

8. Nothing contained in this Agreement shall in any way impair or affect the lien(s) created by the Mortgage except as specifically set forth herein.

9. Tenant agrees that this Agreement satisfies any condition or requirement in the Lease relating to the granting of a non-disturbance agreement by Mortgagee. Tenant further agrees that if there is any inconsistency between the terms and provisions hereof and the terms and provisions of the Lease dealing with non-disturbance by Mortgagee, the terms and provisions hereof shall be controlling.

10. All notices, demands or requests made pursuant to, under or by virtue of this Agreement must be in writing and mailed to the party to whom notice, demand or request is being made by certified or registered mail, return receipt requested, at its address set forth above. Any party may change the place that notices and demands are to be sent by written notice delivered in accordance with this Agreement.

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11. This Agreement shall be governed by the laws of the State of New York. If any term of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term to any person or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

12. Tenant shall notify the Successor (if any) of any default of Landlord under the Lease at the same time that Tenant gives such default notice to Landlord. Tenant agrees that, notwithstanding any provisions of the Lease to the contrary, no such default notice shall be effective and Landlord shall not be in default of the performance of any of Landlord’s obligations under the Lease unless the Successor has received the notice as aforesaid and has failed within a reasonable period of time to commence and diligently to prosecute the cure of Landlord’s default specified in such default notice in accordance with the terms of the Lease.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

MORTGAGEE:
TEACHER RETIREMENT SYSTEM OF TEXAS
By:
	Name:
	Title:
LOS ANGELES FIRE AND POLICE PENSION SYSTEM
By:
	Name:
	Title:
THE ALASKA PERMANENT FUND
By:	The Alaska Permanent Fund Corporation
By:
	Name:
	Title:
TENANT:
AMPEX CORPORATION
By:
	Name:
	Title:

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EXHIBIT A

Description of the Property

ALL that certain lot, piece or parcel of land, situate, lying and being in the Borough of Manhattan, City, County and State of New York, bounded and described as follows:

BEGINNING at the corner formed by the intersection of the northerly side of 57th Street with the westerly side of Lexington Avenue;

running thence Westerly along the northerly side of 57th Street, 215 feet;

thence Northerly and parallel with Park Avenue and part of the distance through a party wall, 100 feet 5 inches to the center line of the block;

thence Easterly along the center line of the block, 108 feet 9 inches to a point 106 feet 3 inches west of the westerly side of Lexington Avenue;

thence Northerly parallel with Lexington Avenue and part of the distance through a party wall, 100 feet 5 inches to the southerly side of 58th Street;

thence Easterly along the southerly side of 58th Street, 37 feet 6 inches;

thence Southerly parallel with Lexington Avenue, 80 feet 5 inches;

thence Easterly parallel with 58th Street and part of the distance through a party wall, 68 feet 9 inches to the westerly side of Lexington Avenue;

thence Southerly along the westerly side of Lexington Avenue, 120 feet 5 inches to the corner aforesaid, the point or place of BEGINNING.

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SCHEDULE F

TENANT’S LAYOUT PLANS

The following scale drawings prepared by McMillan Inc., each dated July 1, 1997:

1. Drawing No. 1: Furniture Plan.

2. Drawing No. 2: Demolition Plan.

3. Drawing No. 5: Elevator Vestibule Plans and Elevations.

4. Drawing No. 6: Reception Area Elevations.

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FIRST AMENDMENT OF LEASE

AGREEMENT, dated this 19^th day of April, 1999, between 135 EAST 57^th STREET LLC, a New York limited liability company having an office at 750 Lexington Avenue, New York, New York 10022 (“Landlord”), and AMPEX CORPORATION, a Delaware corporation having an office at 135 East 57^th Street, New York, New York 10022 (“Tenant”).

WITNESSETH:

WHEREAS, TRST New York, Inc., The Alaska Permanent Fund and LAFP New York, Inc., Landlord’s predecessor-in-interest, and Tenant have heretofore entered into a lease dated as of August 14, 1997 (the “Lease”) for the entire 32^nd floor (“Existing Premises”) in the building known as 135 East 57^th Street, New York, New York (“Building”), for the term ending April 13, 2008; and

WHEREAS, Tenant wishes to rent additional space comprising the entire 20^th floor (the “Additional Premises”) and extend the term of the Lease, and Landlord is willing to do so, upon the terms and conditions hereinafter provided.

NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter provided, Landlord and Tenant agree as follows:

1. Except as otherwise herein defined, all terms contained in this Agreement shall be for the purposes hereof have the same meaning ascribed to them in the Lease.

2. The Fixed Expiration Date of the Lease is hereby extended for the period from April 14, 2008 to and including April 30, 2008.

3. Tenant has examined and agrees to accept the Additional Premises on the Effective Date (as hereinafter defined) in its then “as is” condition and state of repair, and Landlord shall not be required to do any work therein to make the same suitable for the conduct of Tenant’s business.

(A) Landlord has advised Tenant that the Additional Premises are presently occupied by a tenant whose lease expires on August 31, 1999. Notwithstanding the foregoing, Landlord agrees to deliver possession of the Additional Premises to Tenant, vacant and free of occupants on May 1, 1999 (the “Effective Date”). Following the Effective Date, wherever the Demised Premises is referred to in the Lease, the same shall mean, collectively, the Additional Premises, more particularly delineated on the plan annexed hereto as Schedule A, and the Existing Premises. However, if Landlord fails to deliver possession of the Additional Premises to Tenant on or before May 15, 1999. Tenant shall thereafter have the right to terminate this Agreement, provided notice of such termination is given to Landlord on or before June 1, 1999, in which event this Agreement shall be terminated and of no further force and effect and neither party shall have any further rights or obligations hereunder except that in such event Landlord shall promptly return to Tenant the Letter of Credit in the increased amount referred to in Paragraph 6 hereof upon receipt from Tenant of a (illegible) Letter of Credit in the amount of $86,062.50. Any such termination of this

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Agreement shall not affect the Lease which shall remain in full force and effect.

B. Promptly after the Effective Date, Landlord and Tenant will execute a statement in recordable form confirming the Effective Date in accordance with the foregoing provisions.

4. Commencing from and after the Effective Date, the Lease is amended as follows:

A.(i) Fixed Rent payable by Tenant, with respect only to the Additional Premises, shall be as follows:

(a) $650,440.00 per annum from the Effective Date to and including April 30, 2003; and

(b) $688,315.00 per annum from May 1, 2003 to and including April 30, 2008.

(ii) The Monthly Installment(s) of Fixed Rent, with respect only to the Additional Premises, shall be as follows:

(a) $54,203.33 per month from the Effective Date to and including April 30, 2003, provided if the Effective Date is other than the first day of a month, the Monthly Installment of Fixed Rent for such month shall be prorated on a per diem basis, provided that the first Monthly Installment of Fixed Rent of $54,203.33 shall be paid upon the execution of

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this Agreement and applied to the Monthly Installments of Fixed Rent becoming due and payable for the 3^rd, 4^th and 5^th months following the Effective Date.

(b) $57,359.58 per month from May 1, 2003 to and including April 30, 2008.

(c) Notwithstanding the provisions of subdivision (b) above, the Monthly Installment of Fixed Rent for the 1^st and 18^th full months following the Effective Date shall be abated in the amount of $54,203.33 each month, and for the 2^nd, 3^rd, 4^th and 5^th full months following the Effective Date shall be abated in the amount of $35,312,67 each month and the balance of $18,890.66 for each such month shall be paid by Tenant. However, Tenant shall remain responsible for the payment of any and all Additional Rent becoming due and owing during such periods.

B. The Tenant’s Tax Share set forth in Item (8) of the Reference Page, with respect only to the Additional Premises, shall mean 3.24%.

C. The Tenant’s Share set forth in Item (9) of the Reference Page, with respect to the Additional Premises only, shall mean 4%.

D. The Base Tax Factor set forth in Item (10) of the

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Reference Page, with respect to the Additional Premises only, shall mean the Tax Year beginning July 1, 1998.

E. The Base Operating Factor set forth in Item (11) of the Reference Page, with respect to the Additional Premises only, shall mean the Operating Year beginning January 1, 1998.

F. In the event of any proposed subletting of all or any part of the Additional Premises, the provisions of clauses (i), (ii) or (iii) of Section 15.4 (B) (3) shall then only be applicable to the Additional Premises and shall not be applicable to the Existing Premises. In the event of any proposed subletting of all or any part of the Existing Premises, the provisions of clauses (i), (ii) or (iii) of Section 15.4 (B) (3) shall then only be applicable to the Existing Premises and shall not be applicable to the Additional Premises.

G. The provisions of Section 5.4(A)(7) shall apply independently to each of the Existing Premises and Additional Premises with respect to the proposed subletting of either the Existing Premises or the Additional Premises, as the case may be.

5. Subject to the provisions of subdivisions (B), (C), and (E) of Section 6.01 and Section 6.03, Tenant may perform Initial Alterations that may be required to make the

5

Additional Premises suitable for the conduct of its business. In connection therewith Landlord agrees to pay to Tenant, as Landlord’s Contribution, the sum of $190,000.00, subject to and payable in the manner provided in Section 6.04.

6. The amount of the security deposit set forth in Item 12 of the Reference Page shall be increased from $86,062.50 to $248,672.50, Concurrently with the execution of this Agreement Tenant shall deliver to Landlord an amendment of the existing Letter of Credit in the amount of $86,062.50 held by Landlord as security under the provisions of Article 35 increasing the same to the aforesaid amount of $248,672.50. The provision in said Item 12 providing for an increase in the amount of the security deposit on the fifth anniversary of the Commencement Date to $91,125.00 is hereby deleted.

7. Landlord and Tenant represent and warrant the they had no dealings or negotiations with any broker or agent, other than Cohen Brothers Realty Corporation, in connection with this Agreement. Landlord will pay said broker a commission pursuant to separate agreement. Landlord and Tenant agree to indemnify and hold harmless the other from and against any cost, expense or liability for any compensation, commissions or charges arising out of a breach by the other of the representations contained on this paragraph.

8. Except as modified by this Agreement, the Lease and all the terms, covenants and conditions thereof (except those which by their terms are no longer applicable) shall remain in full force and effect and are hereby in all respects ratified and confirmed.

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement on the day and year first above written.

135 EAST 57TH STREET LLC
By:	135 East 57th Street Managing Co., Inc. its managing member
By:	/s/ Charles Steven Cohen
	Charles Steven Cohen, President
AMPEX CORPORATION
By:	/s/ Craig L. McKibben

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EX-10.17

Exhibit 10.17

AGREEMENT OF SUBLEASE

between

AMPEX CORPORATION,

as Sublessor

- and -

CALYPSO CAPITAL MANAGEMENT, LLC

as Sublessee

Premises: The entire 20th Floor 135 East 57th Street New York, New York

TABLE OF CONTENTS

		Page
1.	Term	2
2.	Fixed Rent	3
3.	Electricity Charge	5
4.	Additional Rent	5
5.	Occupancy Tax	6
6.	Use	6
7.	Compliance with Underlying Lease	6
8.	Non-Liability, Indemnity	7
9.	Performance by Underlying Landlord	8
10.	Services	10
11.	Alterations	11
12.	Initial Occupancy	12
13.	Assignment and Subsubletting	12
14.	Insurance	15
15.	Default	16
16.	Destruction by Fire or Other Casualty, Condemnation	17
17.	Attornment	17
18.	Sublease Consent	18
19.	Notice	19
20.	Quiet Enjoyment	19
21.	Surrender of Demised Premises	20
22.	Broker	20
23.	Excluded Provisions	20
24.	Security Deposit	21

-i-

TABLE OF CONTENTS

(continued)

		Page
25.	Inability to Perform, Delays	24
26.	No Waivers	24
27.	Limitations on Sublessee’s Remedies	25
28.	Underlying Lease Compliance	25
29.	Signage	26
30.	Entire Agreement, Miscellaneous	26

SCHEDULE A - Floor Plan

SCHEDULE B - Letter of Credit

-ii-

AGREEMENT OF SUBLEASE (this “Sublease”), dated as of the 23rd day of April, 2004, by and between AMPEX CORPORATION, a Delaware corporation having offices at 135 East 57th Street, New York, New York (“Sublessor”), and CALYPSO CAPITAL MANAGEMENT, LLC a Delaware limited liability company having offices at having offices at 135 East 57th Street, 21st Floor, New York, New York (“Sublessee”).

WITNESSETH:

WHEREAS, Sublessor is the tenant of the entire 20th floor and 32nd floor in the building known as 135 East 57th Street, New York, New York (the “Building”), and Sublessee is desirous of subletting the entire 20th floor of such space consisting of approximately 12,800 rentable square feet as shown cross-hatched on the floor plan annexed hereto as Schedule A (the “demised premises” or “Demised Premises”) from Sublessor upon the terms and conditions hereinafter set forth:

NOW, THEREFORE, in consideration of the rental payments to be made hereunder by Sublessee to Sublessor and the mutual terms, covenants, conditions, provisions and agreements hereinafter set forth, Sublessor does hereby sublet to Sublessee, and Sublessee does hereby take and hire from Sublessor, the demised premises.

This Sublease shall be expressly subject and subordinate to all of the terms, covenants, conditions, provisions and agreements contained in that certain (i) Agreement of Lease dated August 14, 1997, entered into between TRST New York, Inc., LAFP New York Inc. and The Alaska Permanent Fund, as landlord and predecessor in interest to the current landlord of the Building, 135 East 57th Street LLC (hereinafter referred to as “Underlying Landlord”), and Sublessor, as tenant therein (such lease as amended by that certain First Amendment of

Lease dated April 19, 1999 (the “Amendment”) between Underlying Landlord and Sublessor, is hereinafter referred to as the (“Underlying Lease”), except such terms, covenants, conditions, provisions and agreements as are specifically inconsistent with the provisions hereof or are set forth in Paragraph 23 below (the “Excluded Provisions”), and (ii) Ground Lease dated December 19, 1972 (as amended) between William F. Wallace and Stratford C. Wallace, as trustees under a trust agreement dated June 2, 1969 between Dolorita Fitzgerald Wallace, a/k/a Dolorita F. Wallace, as settler, and said trustees as landlord, and Madison Realty Associates, as tenant (the “Ground Lease”). All express provisions of this Sublease shall govern in all circumstances unless use of the demised premises or any action or inaction taken in accordance with said provisions may be the basis of a default under the Underlying Lease, in which case the inconsistency shall be resolved in favor of the provisions of the Underlying Lease. A true copy of the Underlying Lease, with certain of the Excluded Provisions deleted, has been delivered to, and reviewed by, Sublessee.

1. Term.

(A) The term of this Sublease shall commence (the “Commencement Date”) ten (10) days from the date that Sublessor delivers to Sublessee the fully executed Sublease Consent (as hereinafter defined). The term of this Sublease shall terminate on April 29, 2008 (the “Expiration Date”), unless such term shall sooner cease or terminate or be extended pursuant to the terms of this Sublease. Sublessor and Sublessee agree to confirm the actual Commencement Date in writing; however, the failure to so confirm shall have no effect on the Commencement Date.

(B) Notwithstanding anything to the contrary contained herein, if for any reason the term of the Underlying Lease is terminated prior to the Expiration Date of this

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Sublease, this Sublease shall thereupon be terminated and Sublessor shall not be liable to Sublessee by reason thereof unless such termination is due to, or involves, a breach by Sublessor of its obligations under the Underlying Lease or this Sublease.

2. Fixed Rent.

(A) Sublessee shall pay to Sublessor, during the term of this Sublease, an annual rental (“fixed rent”) Four Hundred Seventy-Three Thousand Six Hundred and 00/100 ($473,600.00) Dollars per annum, payable in equal monthly installments of $39,466.67. Notwithstanding the foregoing, there shall be no fixed rent payable for (i) the period commencing on the Commencement Date to and including October 31, 2004 and (ii) the periods set forth on Schedule 2 annexed hereto (collectively, the “Concession Period”). Sublessee’s use of the demised premises during the Concession Period, shall be subject to all the terms and condition of this Sublease (including without limitation Sublessee’s obligation to pay additional rent), except for Sublessee’s obligation to pay fixed rent.

(B) Each monthly installment of fixed rent shall be paid on the first day of each and every calendar month during the term of this Sublease by check drawn on a bank with an office in New York City at which the check can be presented for payment, except that a check for the first full monthly installment of fixed rent shall be deposited in escrow with Sublessee’s counsel, Sadis & Goldberg, LLC (“Escrow Agent”), and Escrow Agent shall release such check to Sublessor upon its receipt of a copy the Sublease Consent executed by Underlying Landlord.

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The fixed rent for any month of the term of this Sublease which does not begin or end on the first or last day of a calendar month shall be prorated on a daily basis in accordance with the fixed rent due for the calendar month. All fixed rent, additional rent (as hereinafter defined) and other sums and charges due to Sublessor under this Sublease shall be paid by Sublessee at the office of Sublessor set forth above, or at such other place as Sublessor may designate, without any notice, setoff or deduction whatsoever. Sublessee’s obligation to make such payments shall survive the Expiration Date or sooner termination of this Sublease.

(C) All other costs and expenses which Sublessee assumes or agrees to pay pursuant to this Sublease shall be deemed “additional rent” and, in the event of non-payment, Sublessor shall have all the rights and remedies herein provided for in case of non-payment of fixed rent. If Sublessee shall fail to pay any installment of fixed rent or additional rent within a period of ten (10) days after the due date of the installment in question, Sublessee shall also pay to Sublessor a late charge equal to one (1%) percent per month of the overdue amount, such late charge to be payable as additional rent hereunder. The payment of such late charge shall be in addition to all other rights and remedies available to Sublessor in the case of non-payment of fixed rent.

(D) Other than the Excluded Provisions, if Sublessor shall be charged with respect to the demised premises for any other sums or charges pursuant to the provisions of the Underlying Lease, including, without limitation, for overtime or other extra services requested by Sublessee, then Sublessee shall be liable for all such sums and charges as additional rent under this Sublease and such sums shall be due and payable by Sublessee to Sublessor within ten (10) days of Sublessee’s receipt of written notice from Sublessor.

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3. Electricity Charge.

(A) Sublessee shall obtain electricity from the public utility company in accordance with the provisions of Article 4 of the Underlying Lease.

(B) Sublessor shall not be liable in any way to Sublessee for any failure or defect in the supply or character of electric current furnished to the demised premises. Sublessee covenants and agrees that, at all times, its connected electrical load shall not cause a default under the Underlying Lease.

4. Additional Rent. Sublessee shall pay to Sublessor, as additional rent, 65.60% of all amounts payable by Sublessor to Underlying Landlord pursuant to Article 3 of the Underlying Lease, which are applicable to the term of this Sublease. For purposes of determining the amounts payable by Sublessee pursuant to this Paragraph 4: Base Operating Factor shall mean the Operating Expenses for the 2004 Operating Year, and Base Tax Factor shall mean the fiscal tax year beginning on July 1, 2004 and ending June 30, 2005. Payment of amounts due hereunder shall be made in the manner and five (5) days before each such date as Sublessor shall be required to pay its corresponding share of such additional rent pursuant to the Underlying Lease. Payments for the first and last years of the term of this Sublease shall be equitably prorated. Promptly after receipt by Sublessor of any real estate tax statement from the Underlying Landlord or of any bill or statement from the Underlying Landlord in respect of which Sublessee shall, pursuant to the terms of this Paragraph 4, be required to pay additional rent, Sublessor shall deliver a comparable statement to Sublessee, together with copies of the statements received by Sublessor from Underlying Landlord, setting forth the amount of additional rent payable by Sublessee hereunder. If Sublessor shall receive a refund of any amounts from Underlying Landlord pursuant to the terms of the Underlying Lease, Sublessor shall promptly notify Sublessee and shall, promptly after receipt thereof, refund to Sublessee the

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portion thereof, if any, constituting fixed rent or additional rent which shall have been paid by Sublessee hereunder.

5. Occupancy Tax. Sublessee shall pay (i) directly to the City of New York all occupancy and rent taxes which may be payable by Sublessee to the City of New York in respect of the fixed rent reserved by this Sublease and (ii) all other taxes, the payment of which shall be imposed directly upon any occupant of the demised premises. Promptly following Sublessor’s request, Sublessee shall provide Sublessor with copies of documentation evidencing payment of all such taxes, including any applicable tax returns filed and canceled checks.

6. Use. Sublessee and its affiliates and subsidiaries shall use the demised premises only for the general, executive and administrative offices. Sublessee and its affiliates and subsidiaries shall use and occupy the demised premises in a manner not inconsistent with the provisions of the Underlying Lease.

7. Compliance with Underlying Lease. Sublessee covenants and agrees to observe and perform all of the terms, covenants, conditions, provisions and agreements to be performed by Sublessor, as tenant pursuant to the Underlying Lease, except for any Excluded Provisions, and further covenants and agrees not to do or suffer or permit anything to be done which would result in a default under or cause the Underlying Lease to be terminated. All of the terms, covenants, conditions, provisions and agreements of the Underlying Lease, excepting any Excluded Provisions, are hereby incorporated herein with the same force and effect as if herein set forth in full and wherever the term “Tenant” occurs in the Underlying Lease, the same shall be deemed to refer to Sublessee. Notwithstanding the foregoing, all grace periods specified in the Underlying Lease shall, for purposes of determining compliance by Sublessee with the provisions hereof, be each reduced by five (5) days. In relation to Sublessee performing the

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obligations of Sublessor, as tenant pursuant to the Underlying Lease, said obligations shall be those of Sublessor in relation to the demised premises.

8. Non-Liability, Indemnity. Sublessee shall indemnify and hold harmless Sublessor, its agents, contractors, servants, licensees, employees or invitees from and against any and all claims, losses, liabilities, damages, costs and expenses (including, without limitation, reasonable attorney’s fees and disbursements) arising from (i) the use, conduct or maintenance of the demised premises or any business therein or any work or thing whatsoever done, or any condition created in or about the demised premises during the term of this Sublease (or any time prior to the Commencement Date that Sublessee may have been given access to the demised premises), (ii) any negligent or otherwise wrongful act or omission of Sublessee, Sublessee’s affiliates and subsidiaries or any of such parties respective agents, contractors, servants, licensees, employees or invitees, (iii) any failure of Sublessee to perform or comply with all of the provisions of this Sublease hereof that are applicable to Sublessee, and (iv) any obligation Sublessor may have to indemnify Underlying Landlord under the Underlying Lease which arises from any failure by Sublessee to perform or comply with the provisions of this Sublease that are applicable to Sublessee. In case any action or proceeding be brought against Sublessor or any agent, contractor, servant, licensee, employee or invitee of Sublessor by reason of any of the foregoing, Sublessee, upon notice from Sublessor, shall defend such action or proceeding by counsel chosen by Sublessee, who shall be reasonably satisfactory to Sublessor. Sublessor shall not unreasonably withhold or delay its consent if the aforementioned counsel is the counsel for Sublessee’s insurance carrier. Sublessee or its counsel shall keep Sublessor fully appraised at all times of the status of such defense and shall not settle same without the written consent of Sublessor, which consent shall not be unreasonably withheld or delayed. Sublessor shall

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indemnify and hold harmless Sublessee, its agents, contractors, servants, licensees, employees or invitees from and against any and all claims, losses, liabilities, damages, costs and expenses (including, without limitation, reasonable attorney’s fees and disbursements) arising from (i) any negligent or otherwise wrongful act or omission of Sublessor or any of its agents, contractors, servants, licensees, employees or invitees, and (ii) any failure of Sublessor to perform or comply with all of the provisions of this Sublease or the Underlying Lease to the extent not resulting from the failure of Sublessee to perform or comply with all the provisions of this Sublease.

9. Performance by Underlying Landlord.

(A) Sublessor does not assume any obligation to perform the terms, covenants, conditions, provisions and agreements contained in the Underlying Lease on the part of Underlying Landlord to be performed or make any representation or warranty made by Underlying Landlord. In the event Underlying Landlord shall fail to perform any of the terms, covenants, conditions, provisions and agreements contained in the Underlying Lease on its part to be performed, Sublessor shall be under no obligation or liability whatsoever to Sublessee. Sublessor shall cooperate with Sublessee, at no cost to Sublessor, in seeking to obtain the performance of Underlying Landlord under the Underlying Lease. If Underlying Landlord shall default in any of its obligations with respect to the demised premises, or there shall exist a bona fide dispute with Underlying Landlord under the terms, covenants, conditions, provisions and agreements of this Sublease and/or the Underlying Lease and Sublessee notifies Sublessor in writing that Sublessee has previously notified Underlying Landlord of such dispute and that such default or notice has been disregarded or not reasonably satisfactorily acted upon (which notice shall not be required if Underlying Landlord has made it clear by notice or prior course of conduct with Sublessee that it will not deal directly with Sublessee), then provided Sublessee is

8

not in default under this Sublease, Sublessor shall use reasonable efforts to enforce its rights under the Underlying Lease for Sublessee’s benefit, including, but not limited to, giving notices, claims and demands to and on Underlying Landlord. Sublessee shall reimburse Sublessor for all out-of-pocket third party costs incurred in connection with the enforcement of such rights. Notwithstanding the foregoing, Sublessor shall have no obligation to commence any action at law or in equity to obtain any relief sought by Sublessee by reason of Underlying Landlord’s breach of its obligations under the Underlying Lease. Sublessee shall indemnify Sublessor against, and hold Sublessor harmless from and against any and all loss, cost, damage, expense or liability (including, but not limited to, reasonable attorneys’ fees and disbursements) incurred by Sublessor by reason of the enforcement of its rights under the Underlying Lease for the benefit of Sublessee, such indemnity shall survive the Expiration Date or sooner termination of this Sublease.

(B) If, after written request from Sublessee, Sublessor shall fail or refuse to take appropriate action for the enforcement of Sublessor’s rights against Underlying Landlord with respect to the demised premises, Sublessee shall have the right to take such action in its own name, and for such purpose and only to such extent, all of the rights of Sublessor under the Underlying Lease are hereby conferred upon and conditionally assigned to Sublessee and Sublessee hereby is subrogated to such rights to the extent that the same shall apply to the demised premises; provided, however, that (i) Sublessee shall only have such rights if Sublessee shall not be in default under this Sublease beyond any applicable notice and cure period, and (ii) Sublessor shall have the right to require Sublessee to discontinue such action if in the reasonable opinion of Sublessor such action may cause a cancellation, forfeiture or termination of the Underlying Lease or Sublessor’s estate and rights thereunder with respect to the demised

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premises. If any such action against Underlying Landlord in Sublessee’s name shall be barred by reason of lack of privity, non-assignability or otherwise, Sublessee may take such action in Sublessor’s name provided Sublessee has obtained the prior written consent of Sublessor, and that copies of all papers and notices of all proceedings shall be promptly given to Sublessor so that Sublessor may be kept fully informed in respect thereof. In connection with the foregoing, Sublessee shall indemnify and hold Sublessor harmless from and against any and all loss, cost, damage, expense or liability (including, but not limited to, reasonable attorneys’ fees and disbursements) incurred by Sublessor by reason of any action by Sublessee against Underlying Landlord, such indemnity shall survive the Expiration Date or sooner termination of this Sublease.

(C) Sublessee shall not be allowed any abatement or diminution of fixed rent or additional rent under this Sublease because of Underlying Landlord’s failure to perform any of its obligations under the Underlying Lease. Notwithstanding the foregoing, in the event that Sublessor receives an abatement or diminution of fixed rent or additional rent from Underlying Landlord that relates to the demised premises, Sublessee shall be entitled to its allocable share of such abatement or diminution less any expenses incurred by Sublessor in obtaining such abatement or diminution from Underlying Landlord; it being understood and agreed that if the abatement relates solely to the demises premises and relates only to the period covered by this Sublease, Sublessee shall be entitled to 100% of such abatement less any expenses as set forth in the preceding sentence.

10. Services. Sublessee shall be entitled to receive all of those services and repairs, if any, which Underlying Landlord may be obligated to provide and to make under the terms, covenants, conditions, provisions and agreements of the Underlying Lease (including any

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rights to maintain its pro rata share of listings on the building directory) and to the extent that Underlying Landlord is not required to provide any such services and repairs, Sublessee shall be responsible therefor, subject to and in accordance with the provisions of the Underlying Lease.

11. Alterations. Sublessee shall not make any changes, alterations, additions or improvements (each, an “Alteration”) to the demised premises without first obtaining the written consent of Underlying Landlord and Sublessor and otherwise in accordance with Article 6 of the Underlying Lease and depositing with Sublessor a bond or other reasonable security satisfactory to Sublessor, in the amount of 110% of the aggregate cost of such Alteration, to insure the lien-free completion of such Alteration. Sublessor’s consent shall not be unreasonably withheld if the written consent of Underlying Landlord is first obtained; provided, that, it will not be unreasonable for Sublessor to condition its consent on Sublessee’s agreement to remove the subject Alteration prior to the Expiration Date. Simultaneously with the submission of documents to Underlying Landlord, Sublessee shall send copies of all such documents regarding alterations to Sublessor. To the extent Sublessee receives consent for an Alteration directly from Underlandlord, Sublessee shall deliver a copy of such consent to Sublessor. Sublessee shall pay all costs and expenses relating to any changes, alterations, additions or improvements and shall cause same to be completed in accordance with the terms, covenants, conditions, provisions and agreements of the Underlying Lease. Sublessee hereby agrees to indemnify, defend and hold Sublessor harmless from and against any and all loss, cost, damage, expense or liability (including, but not limited to, reasonable attorneys’ fees and disbursements) incurred by Sublessor as a result of Sublessee’s failure to comply with the provisions of this Paragraph 11. Notwithstanding anything to the contrary contained herein, Sublessor’s consent shall not be required for any purely cosmetic and/or decorative changes, including but limited to painting and

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carpeting; it being understood and agreed that the foregoing shall not vitiate the requirement for Sublessee to obtain Underlying Landlord’s consent to such Alterations (if Underlying Landlord’s consent would be required under the Underlying Lease) or negate the requirement to post the requisite security as set forth in the first sentence of this Paragraph 11.

12. Initial Occupancy. Sublessee represents that it has inspected the demised premises and agrees to take the same “as is” in their present condition except that Sublessor shall deliver the demised premises vacant and broom clean, and Sublessee acknowledges that no representations with respect to the condition of the demised premises have been made. Sublessor shall also deliver to Sublessee all furniture and fixtures existing in the demised premises as of the date of this Sublease and itemized on Schedule 1 annexed hereto and Sublessee agrees to accept the same in their “AS IS” condition as of the Commencement Date without warranty. Any work required by Sublessee to prepare the demised premises for its occupancy shall be paid for by Sublessee and shall be subject to all of the terms, covenants, conditions, provisions and agreements set forth in the Underlying Lease.

13. Assignment and Subsubletting.

(A) Sublessee shall not (i) assign this Sublease (by operation of law or otherwise), (ii) subsublet all or any part of the demised premises, (iii) mortgage, pledge, hypothecate or otherwise encumber its interest in this Sublease or the demised premises or any interest therein, or (iv) grant any concession, license or otherwise permit the demised premises to be used or occupied by anyone other than Sublessee without first complying with the provisions of Articles 15 of the Underlying Lease and obtaining the prior written consent of the Underlying Landlord and Sublessor.

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(B) Copies of all materials required by the Underlying Lease shall be delivered to Sublessor, together with Sublessee’s request for consent.

(C) Any sale, transfer or hypothecation of the shares or other equity interests in Sublessee, and any merger or consolidation of Sublessee with any other business entity, shall constitute an assignment of this Sublease if and to the extent that any such transaction, if entered into by Sublessor, would constitute an assignment under the terms of the Underlying Lease.

(D) If this Sublease is assigned, or if the demised premises or any part thereof is subsublet or occupied by one other than Sublessee, whether or not Sublessee shall have been granted any required consent, Sublessor may, after default by Sublessee, collect rent and other charges from such assignee, subsubtenant or other occupant, and apply the net amount collected to fixed rent and other charges herein reserved, but no such assignment, subsubletting, occupancy or collection shall be deemed to be a waiver of the requirements of this Paragraph 13 or an acceptance of the assignee, subsubtenant or other occupant as the sublessee under this Sublease. The consent by Sublessor to an assignment or subsubletting shall not in any way be construed to relieve Sublessee from obtaining the consent of Underlying Landlord and Sublessor to any further assignment or subsubletting. No assignment or subsubletting shall, in any way, release, relieve or modify the liability of Sublessee under this Sublease and Sublessee shall be and remain liable under all of the terms, covenants, conditions, provisions and agreements hereof.

(E) If Sublessee shall at any time request the consent of Sublessor to any proposed assignment of this Sublease or subsubletting of all or any portion of the demised premises, Sublessee shall pay on demand the reasonable costs and expenses incurred by Sublessor and Underlying Landlord, including, without limitation, architect, engineer and

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reasonable attorneys’ fees and disbursements, and a reasonable administrative fee for review and/or preparation of documents in connection with any proposed or actual assignment of this Sublease or subsubletting of the demised premises or any part thereof.

(F) In the event of a proposed assignment of this Sublease or subsubletting of the demised premises, Sublessor may elect to require the Sublessee to surrender to Sublessor and vacate the demised premises not later than the date upon which the proposed assignment or subsubletting is proposed to commence and comply on such date with the provisions of this Sublease as to the surrender of the demised premises.

(G) If Underlying Landlord and Sublessor shall give their consent to any assignment of this Sublease or any subsubletting, Sublessee shall, in consideration therefor, pay to Sublessor, as additional rent:

(i) In the case of an assignment, an amount equal to fifty percent (50%) all sums and other consideration paid to Sublessee by the assignee for or by reason of such assignment after deduction of the commercially reasonable and customary costs incurred by Sublessee in effectuating such assignment including reasonable attorneys’ fees, advertising costs, rent concessions, construction costs and brokerage commissions in each case based upon bills, receipts or other evidence of such costs reasonably satisfactory to Sublessor (collectively, “Expenses”).

(ii) In the case of a subsublease, fifty percent (50%) of all of the rents, additional rents or other consideration payable under the subsublease or otherwise to Sublessee by the subsubtenant which are in excess of the fixed rent and additional rent accruing during the term of this Sublease with respect to the subsubleased space (at the rate per square foot payable by Sublessee hereunder) pursuant to the provisions hereof after deduction of the Expenses incurred by Sublessee in connection with such subsublease.

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(H) The sums payable under this subparagraph shall be paid to Sublessor as and when paid by the assignee or subsubtenant, as the case may be.

14. Insurance.

(A) During the term of this Sublease, Sublessee, at its sole cost and expense, shall provide and maintain comprehensive public liability and property damage insurance in conformity with the provisions of Article 12 of the Underlying Lease. Sublessee shall cause Sublessor and Underlying Landlord (and any other parties if required pursuant to the provisions of the Underlying Lease) to be included as additional insureds in said policy or policies which shall contain provisions, if and to the extent available, that it or they will not be cancelable except upon at least thirty (30) days prior written notice to all insureds and that the act or omission of one insured will not invalidate the policy as to the other insureds. Sublessee shall furnish to Sublessor reasonably satisfactory evidence that such insurance is in effect at or before the Commencement Date and, on request, at reasonable intervals thereafter.

(B) Nothing contained in this Sublease shall relieve Sublessee from liability that may exist as a result of damage from fire or other casualty, but each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty. To the extent permitted by law, Sublessor and Sublessee each hereby releases and waives all right of recovery against the other or anyone claiming through or under the other by way of subrogation or otherwise. The foregoing release and waiver shall be in force only if the insurance policies of Sublessor and Sublessee provide that such release or waiver does not invalidate the insurance. If the inclusion of said provision

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would involve an additional expense, either party, at its expense, may require such provision to be inserted in the other’s policy.

(C) Sublessee hereby releases Underlying Landlord or anyone claiming through or under Underlying Landlord by way of subrogation or otherwise to the extent that Sublessor released Underlying Landlord or Underlying Landlord was relieved of liability or responsibility pursuant to the provisions of the Underlying Lease, and Sublessee will cause its insurance carriers to include any clauses or endorsements in favor of Underlying Landlord which Sublessor is required to provide pursuant to the provisions of the Underlying Lease.

15. Default. In the event Sublessee defaults in the performance of any of the terms, covenants, conditions, provisions and agreements of this Sublease or of the Underlying Lease, beyond the expiration of any applicable notice and cure period as may be herein provided, Sublessor shall be entitled to exercise any and all of the rights and remedies to which it is entitled by law and also any and all of the rights and remedies specifically provided for in the Underlying Lease, which are hereby incorporated herein and made a part hereof with the same force and effect as if herein specifically set forth in full, and that wherever in the Underlying Lease rights and remedies are given to Underlying Landlord, the same shall be deemed to refer to Sublessor.

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16. Destruction by Fire or Other Casualty, Condemnation.

(A) If the demised premises or the Building shall be partially or totally damaged or destroyed by fire or other casualty, Sublessee shall have no right to terminate this Sublease and this Sublease shall not be terminated by reason of such casualty unless the Underlying Lease is terminated by Sublessor or Underlying Landlord pursuant to the provisions of Article 13 of the Underlying Lease.

(B) If the demised premises are partially or totally damaged by fire or other casualty as a consequence of which Sublessor shall receive an abatement of rent relating to the demised premises, then in such event, there shall be a corresponding abatement of the fixed rent payable hereunder.

(C) Sublessee shall give Sublessor and Underlying Landlord notice of any fire, casualty or accident in or about the demised premises promptly after Sublessee becomes aware of such event.

(D) If the Underlying Lease is terminated pursuant to the provisions of Article 14 thereof as the result of a taking of all or any portion of the Building by condemnation (or deed in lieu thereof), this Sublease shall likewise terminate. In such event, Sublessee shall have no claim to any portion of the award with respect to any such taking, except to file a claim for the value of its fixtures or for moving expenses; provided, however, that Sublessor’s award is not thereby reduced or otherwise adversely affected.

(E) Subtenant waives the provisions of Section 227 of the New York Real Property Law, which is superseded by the provisions of this Paragraph 16.

17. Attornment. If the Underlying Lease and Sublessor’s leasehold interest in the demised premises shall be terminated, other than as a result of a casualty or condemnation or

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sale in lieu thereof, Sublessee shall, if so requested in writing by Underlying Landlord, attorn to Underlying Landlord pursuant to the terms and conditions of this Sublease (including the payments for Fixed Rent and additional rent), and shall, during the term of this Sublease, perform all of the terms, covenants, conditions, provisions and agreements of this Sublease on the part of Sublessee to be performed. In the event of any such attornment, Underlying Landlord shall not be (i) liable for any act or omission or default of any prior sublessor (including, without limitation, Sublessor); (ii) subject to any offsets or defenses which Sublessee might have against any prior sublessor (including, without limitation, Sublessor); (iii) bound by any fixed rent or additional rent which Sublessee might have paid for more than the then current month to any prior sublessor (including, without limitation, Sublessor); or (iv) bound by any amendment or modification of this Sublease made without Underlying Landlord’s written consent. The foregoing shall be self-operative without the necessity of the execution of any further instruments, but Sublessee agrees, upon the demand of Underlying Landlord, to execute, acknowledge and deliver any instrument or instruments confirming such attornment.

18. Sublease Consent. This Sublease shall become effective only if the written consent hereto of Underlying Landlord is obtained (the “Sublease Consent”). If the Sublease Consent is not obtained, then this Sublease shall be null and void and of no force or effect and Escrow Agent shall return the first month’s rent and the security being held by Escrow Agent and thereupon neither party shall have any further obligation to the other. Upon execution and delivery of this Sublease by Sublessor and Sublessee and confirmation of Escrow Agent’s receipt of the first month’s rent and security, Sublessor shall promptly request the consent of Underlying Landlord to this Sublease. Sublessee agrees to provide such information in connection with such request as Underlying Landlord shall reasonably request. In the event that

18

Underlying Landlord shall notify Sublessor that it will not consent to this Sublease, then Sublessor will promptly notify Sublessee and Escrow Agent of such fact, Escrow Agent shall return to Sublessee the first month’s rent and security, and thereupon this Sublease shall be null and void. If the foregoing consent is not obtained by July 1, 2004 (the “Outside Date”), then either party may terminate this Sublease upon written notice to the other given at any time following the Outside Date but prior to receipt of the Sublease Consent and as of the date of such notice this Sublease shall be deemed void and of no force and effect, and neither party shall have any further obligation or liability to the other, except that Escrow Agent shall return the first month’s rent and security to Sublessee.

19. Notice. Any notice to be given under this Sublease shall be in writing and shall be sent by registered or certified mail, return receipt requested, or by nationally-recognized overnight courier, addressed to (i) Sublessor at its (a) address herein stated, Attention: Craig Mckibben, and (b) with copies to Paul, Hastings, Janofsky & Walker, LLP, 75 East 55th Street, New York, New York 10022 Attention: Michael Zuppone, Esq., and (ii) Sublessee, (a) at its address herein stated, Attention: Andrew Flinn and (b) with a courtesy copy to Sadis & Goldberg, LLC, 463 Seventh Avenue, Suite 1601, New York, New York 10018 Attention: Jeffrey Goldberg, Esq. No notice shall be effective unless given to all of the parties listed hereinabove. Each party shall have the right to designate, by notice in writing, any other address to which such party’s notice is to be sent. Any notice to be given by either party may be given by the attorneys for such party, Any notice shall be deemed given upon delivery (or rejection of delivery).

20. Quiet Enjoyment. Sublessor covenants that Sublessee, on paying the fixed rent and additional rent and performing all the terms, covenants, conditions, provisions and

19

agreements aforesaid, shall and may peacefully and quietly have, hold and enjoy the demised premises for the term aforesaid, free from any interference or hindrance by Sublessor, but subject to the exceptions, reservations and conditions hereof, the Underlying Lease, Ground Lease and any other superior lease or mortgage.

21. Surrender of Demised Premises. On the date upon which the term hereof shall expire and come to an end, whether on the Expiration Date, by lapse of time or otherwise, Sublessee, at Sublessee’s sole cost and expense, shall quit and surrender the demised premises to Sublessor in the same good order and condition as Sublessor is delivering them to Sublessee, subject to the provisions of Article 22 of the Underlying Lease.

22. Broker. Sublessor and Sublessee represent to each other that Cushman & Wakefield, Inc. and Gerber Real Estate Advisors, Inc. (collectively, the “Brokers”) are the only brokers with whom Sublessor and Sublessee dealt in relation to this transaction and that Sublessor and Sublessee has had no dealings, either direct or indirect, with any other real estate agent or broker in connection with this transaction. Sublessor and Sublessee agree to indemnify, defend and hold the other harmless from any loss, liability and expense incurred by Sublessor or Sublessee, as the case may be, as a result of any claim made against such party which is based upon a breach of the representation made by Sublessor and Sublessee in this Paragraph 22. Sublessor’s and Sublessee’s indemnification obligation hereunder shall survive the Expiration Date or sooner termination of this Sublease. Sublessor hereby agrees to pay the Brokers a commission pursuant to a separate agreement.

23. Excluded Provisions. The following provisions of the Underlying Lease are deemed to be Excluded Provisions: Articles 2 (except for clause (ii) of Section 2.4), 32, 35

20

and 37, Sections 10.4, 15.5, 15.6, 27.1 and Schedules “A”, “E” and “F” and with respect to the Amendment: paragraphs 2, 3, 4(A), 4(B), 4(C), 4(D), 4(E), 5, 6, and 7.

24. Security Deposit.

(A) Subject to subparagraph 24(B) below, Sublessee has deposited with Escrow Agent, the sum of $119,466.67 as security for the faithful performance and observance by Sublessee of the terms, covenants, conditions, provisions and agreements of this Sublease. Escrow Agent shall release such security to Sublessor upon its receipt of a copy of the Sublease Consent executed by the Underlying Landlord. It is agreed that in the event Sublessee defaults in respect of any of the terms, covenants, conditions, provisions and agreements of this Sublease, including, but not limited to, the payment of fixed rent and additional rent, Sublessor may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any fixed rent and additional rent or any other sum as to which Sublessee is in default or for any sum which Sublessor may expend or may be required to expend by reason of Sublessee’s default in respect of any of the terms, covenants, conditions, provisions and agreements of this Sublease, including, but not limited to, any damages or deficiency in the reletting of the demised premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Sublessor. If Sublessor so applies or retains any part of the security, Sublessee shall, within five (5) days of demand made by Sublessor in a written notice to Sublessee, promptly deposit with Sublessor the amount so applied or retained so that Sublessor shall have the full deposit on hand at all times during the term of this Sublease. In the event that Sublessee shall fully and faithfully comply with all of the terms, covenants, conditions, provisions and agreements of this Sublease, the security shall be returned to Sublessee after the Expiration Date and after delivery of entire possession of the demised

21

premises to Sublessor in the condition required by the Underlying Lease. In the event of an assignment by Sublessor of its interest under the Underlying Lease, Sublessor shall have the right to transfer the security and Sublessee agrees to look to the new sublessor solely for the return of said security and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new sublessor. Sublessee further covenants that it shall not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Sublessor nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance.

(B) In lieu of the cash security deposit referred to in subparagraph 24(A) above, Sublessee may deliver to Escrow Agent and maintain in effect at all times during the term of this Sublease following delivery thereof, a clean, unconditional and irrevocable letter of credit, in substantially the form annexed hereto as Schedule B, in the amount of $119,466.67 issued by a banking corporation (“Bank”) reasonably satisfactory to Sublessor and having its principal place of business or its duly licensed branch in the City and County of New York at which the letter of credit may be presented for payment. Escrow Agent shall deliver any such letter of credit to Sublessor upon its receipt of a copy of the Sublease Consent executed by the Underlying Landlord. Such letter of credit shall have an expiration date no earlier than the first anniversary of the date of issuance thereof and shall provide that it shall be automatically renewed from year to year unless terminated by the Bank by notice to Sublessor given not less than ninety (90) days prior to the then expiration date therefor. It is agreed that in the event Sublessee defaults in respect of any of the terms, covenants, conditions, provisions or agreements of this Sublease, including, but not limited to, the payment of fixed rent and additional rent, or if the letter of credit is terminated pursuant to the preceding sentence and is not replaced within

22

thirty (30) days prior to its expiration date that (i) Sublessor shall have the right to require the Bank to make payment to Sublessor of so much of the entire proceeds of the letter of credit as shall be reasonably necessary to cure the default, and (ii) Sublessor may apply said sum so paid to it by the Bank to the extent required for the payment of any fixed rent or additional rent or any other sum as to which Sublessee is in default or for any sum which Sublessor may expend or may be required to expend by reason of Sublessee’s default in respect of any of the terms, covenants, conditions, provisions and agreements of this Sublease, including, but not limited to, any damages or deficiency in the reletting of the demised premises, whether such damages or deficiency accrues before or after summary proceedings or other re-entry by Sublessor, without thereby waiving any other rights or remedies of Sublessor with respect to such default. If Sublessor applies any part of the proceeds of the letter of credit, Sublessee, upon demand, shall promptly deposit with Sublessor, the amount so applied or retained so that Sublessor shall have the full deposit on hand at all times during the term of this Sublease. If Sublessee shall fully and faithfully comply with all of the terms, covenants, conditions, provisions and agreements of this Sublease, any letter of credit, or any remaining portion of any sum collected by Sublessor hereunder from the Bank, together with any other portion or sum held by Sublessor as security, shall be returned to Sublessee after the Expiration Date and after delivery of the entire possession of the demised premises to Sublessor in the condition required by the Underlying Lease. In the event of an assignment by Sublessor of its interest under the Underlying Lease, Sublessor shall have the right to transfer the security and Sublessee agrees to look to the new sublessor solely for the return of said security and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new sublessor. Sublessee shall have the right to

23

substitute one letter of credit for another, provided that, at all times, the letter of credit shall meet the requirements of this subparagraph 24(B).

25. Inability to Perform, Delays. If Sublessee shall be delayed in obtaining possession of the demised premises because of any reason beyond the reasonable control of Sublessor, Sublessor shall not be subject to any liability, the effectiveness of this Sublease shall not be affected and the term hereof shall not be extended, but the fixed rent shall be abated (provided Sublessee is not responsible for any such delay in obtaining possession) until possession shall have been made available to Sublessee. The provisions hereof are intended to constitute “an express provision to the contrary” within the meaning of Section 223-a of the New York Real Property Law. In the event possession of the demised premises is not delivered to Sublessee by the Outside Date, for any reason excluding Sublessee’s delay, then at anytime thereafter and before possession is delivered, Sublessee may elect to terminate this Sublease upon notice to Sublessor.

26. No Waivers. Failure by either party in any instance to insist upon the strict performance of any one or more of the obligations of the other party under this Sublease, or to exercise any election herein contained or acceptance of payment of any kind with knowledge of a default by the other party, shall in no manner be or be deemed to be a waiver by such party of any defaults or breaches hereunder or of any of its rights and remedies by reason of such defaults or breaches, or a waiver or relinquishment for the future of the requirement of strict performance of any and all of the defaulting party’s obligations hereunder. Further, no payment by Sublessee or receipt by Sublessor of a lesser amount than the correct amount of fixed rent and/or additional rent due hereunder shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or any letter accompanying any check or

24

payment be deemed to effect or evidence an accord and satisfaction, and Sublessor may accept any checks or payments as made without prejudice to Sublessor’s right to recover the balance or pursue any other remedy in this Sublease or otherwise provided at law or in equity.

27. Limitations on Sublessee’s Remedies.

With respect to any provision of this Sublease which specifically requires that Sublessor shall not unreasonably withhold or unreasonably delay its consent or approval, Sublessee in no event shall be entitled to make, nor shall Sublessee make, any claim, and Sublessee hereby waives any claim, for any sum of money whatsoever as damages, costs, expenses, attorneys’ fees or disbursements, whether affirmatively or by way of setoff, counterclaim or defense, based upon any claim or assertion by Sublessee that Sublessor has unreasonably withheld or unreasonably delayed such consent or approval. Sublessee’s sole remedy for claimed unreasonable withholding or unreasonable delaying by Sublessor of its consent or approval shall be an action or proceeding brought and prosecuted solely at Sublessee’s own cost and expense to enforce such provision, for specific performance, injunction or declaratory judgment.

28. Underlying Lease Compliance.

(A) Sublessor represents and warrants to Sublessee that as of the date hereof (i) the Underlying Lease is in full force and effect; (ii) to the best knowledge of Sublessor, no event has occurred which with the passage of time or giving of notice, or both, shall ripen into a default under the Underlying Lease; (iii) there are presently no offsets or defenses existing against the enforcement of the Underlying Lease and Sublessor holds title to the entire tenant’s interest under the Underlying Lease, and (iv) that the Underlying Lease annexed hereto is a full and complete copy of same.

25

(B) Sublessor covenants and agrees that it will not (i) voluntarily cancel or surrender the Underlying Lease during the term of the Sublease without Sublessee’s consent, or (ii) do or cause to be done or suffer or permit any act or thing to be done which could cause the Underlying Lease to be terminated as a result of a default by Sublessor thereunder, unless Sublessor is prevented from complying with the terms of this subparagraph due to any action or inaction of Sublessee, or (iii) amend or modify the Underlying Lease in any manner which increase the obligations of Sublessee hereunder (other than to a de minimis extent), without obtaining the prior written consent of Sublessee.

29. Signage. Subject to the provisions of the Underlying Lease, Sublessee may, at its sole cost and expense, install “entry suite” signage in the elevator lobby of the 20th floor of the Building, provided that Sublessee remove such “entry suite” signage on or prior to the Expiration Date and repair any damage that may result from such removal. Sublessor shall cause to be provided to Sublessee (subject to the consent of the Underlying Landlord) listings on the Building’s computerized directory, if any, located in the lobby of the Building.

30. Entire Agreement, Miscellaneous.

(A) This Sublease shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of law principles thereof.

(B) The paragraph headings in this Sublease are inserted only as a matter of convenience for reference and are not to be given any effect in construing this Sublease.

(C) If any of the provisions of this Sublease or the application thereof to any person or circumstance shall be, to any extent, held to be invalid or unenforceable, the remainder of this Sublease shall not be affected thereby and shall be valid and enforceable to the fullest extent permitted by law.

26

(D) All of the terms and provisions of this Sublease shall be binding upon and, except as prohibited by Paragraph 13 hereof, inure to the benefit of the parties hereto and their respective permitted successors and assigns.

(E) All prior negotiations and agreements relating to this Sublease and the demised premises are merged into this Sublease. This Sublease may not be amended, modified or terminated, in whole or in part, nor may any of the provisions be waived, except by a written instrument executed by the party against whom enforcement of such amendment, modification, termination or waiver is sought and unless the same is permitted under the provisions of the Underlying Lease.

(F) Each person executing this Sublease hereby represents and warrants that he or she is a duly authorized representative of Sublessor or Sublessee, as the case may be, and has full authority to execute and deliver this Sublease.

(G) This Sublease shall have no binding force and effect and shall not confer any rights or impose any obligations upon either party unless and until both parties have executed it and Sublessor shall have obtained Underlying Landlord’s written consent to this Sublease pursuant to the provisions hereof and delivered to Sublessee an executed copy of such consent. Under no circumstances shall the submission of this Sublease in draft form by or to either party be deemed to constitute an offer for the subleasing of the demised premises.

(H) This Sublease may be executed in several counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

(I) This Sublease and all the obligations of Sublessee to pay fixed rent and additional rent and perform all of its other covenants and agreements hereunder shall in no way be affected, impaired, delayed or excused because Sublessor or Underlying Landlord are unable

27

to fulfill any of their respective obligations hereunder, either explicit or implicit, if Sublessor or Underlying Landlord is prevented or delayed from so doing by reason of strikes or labor trouble or by accident, adjustment of insurance or by any cause whatsoever reasonably beyond Sublessor’s or Underlying Landlord’s control.

(J) Each and every right and remedy of Sublessor under this Sublease shall be cumulative and in addition to every other right and remedy herein contained or now or hereafter existing at law or in equity, by statute or otherwise.

(K) At any time and from time to time Sublessee shall, within seven (7) days after written request by Sublessor, execute, acknowledge and deliver to Sublessor a written statement certifying (i) that this Sublease has not been modified and is in full force and effect or, if modified, that this Sublease is in full force and effect as modified, and specifying such modification(s), (ii) the dates to which the fixed rent and additional rent and other charges have been paid, (iii) that, to the best of Sublessee’s knowledge, no defaults exist under this Sublease or, if any do exist, the nature of such default(s) and (iv) as to such other matters as Sublessor may reasonably request.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement of Sublease as of the day and year first above written.

SUBLESSOR:
AMPEX CORPORATION
By:	/s/ Craig L. McKibben
	Name: Craig L. McKibben
	Title: V.P.
SUBLESSEE:
CALYPSO CAPITAL MANAGEMENT, LLC
By:	/s/ Casey Gard
	Name: Casey Gard
	Title: Managing Member
ESCROW AGENT:
SADIS & GOLDBERG, LLC
By:	/s/ Jeffrey Goldberg
	Name: Jeffrey Goldberg
	Title: Member

SCHEDULE A

Floor Plan

[attached hereto]

A-1

SCHEDULE A

Floor Plan

8

SCHEDULE B

(Bank Letterhead)

Standby Letter of Credit No. _________________

Date of Issue: ____________________________

Issuing Bank: ___________________

Beneficiary:	Applicant:
Ampex Corporation	______________________________
135 East 57th Street	______________________________
New York, New York 10022	______________________________
Amount: _____________________________________

Dear Sir(s):

We hereby issue in your favor our irrevocable Letter of Credit under the above referenced number and amount which is available against presentation of your draft drawn on us at sight and bearing our Letter of Credit number _______________.

The original Letter of Credit plus any subsequent amendments thereto must accompany such draft when presented for payment.

It is a condition of this Letter of Credit that it shall be deemed automatically extended without amendment for periods of one year each from the present or any future expiration date hereof, unless thirty (30) days prior to any expiration date we shall notify you in writing, by certified mail, return receipt requested, that we elect not to consider this Letter of Credit renewed for any such additional period. After receipt by you of such notice, you may, until the expiration date hereof, draw the full amount of the credit hereunder, against your draft.

This Letter of Credit is transferable by the Beneficiary upon payment of our customary transfer charges which shall be debited to the account of applicant.

We hereby engage with you that all drafts drawn under and in compliance with the terms of this irrevocable letter of credit will be duly honored if presented at our counters at [Insert address of a New York City branch] on or before the expiration date indicated above.

**This documentary credit is subject to the International Standby Practices (“ISP98”) International Chamber of Commerce (Publication No. 590), and as to matters not governed by the ISP98, shall be governed by and construed in accordance with the laws of the State of New York.

B-1

SCHEDULE 2

(Schedule of Free Fixed Rent)

May 2005	$7,466.67 (5.68 Days)
June 2005	Entire Month
July 2005	Entire Month
May 2006	$36,266.67 (27.57 Days)
June 2006	Entire Month
July 2006	Entire Month
May 2007	$10,666.67 (8.11 Days)
June 2007	Entire Month
July 2007	Entire Month
March 2008	$27,733.33 (21.08 Days)
April 2008	Entire Month

1

CALYPSO CAPITAL MANAGEMENT, LP

March 29, 2005

Ms. Maria Santana

Ampex Corporation

135 E 57^th Street, 32^nd Floor

New York, NY 10022

Dear Maria,

Calypso Capital Management LP (an affiliated entity of Calypso Capital Management LLC) will be paying the rent for the space located at 135 E 57^th Street, 20^th floor, New York, NY 10022 according to the terms of the sublease with Calypso Capital Management LLC. This does not release Calypso Capital Management LLC from the sublease dated April 23, 2004.

Please sign the bottom of this document to confirm your acceptance of this arrangement.

Thank you,

/s/ Andrew Flinn

Andrew Flinn

Chief Financial Officer

Accepted and Agreed to by:
Ampex	/s/ Craig L. McKibben
By:	3/31/05

135 EAST 57^TH STREET, 20TH FLOOR • NEW YORK, NY 10022

PHONE: 212 829-4072 • FAX: 212 829-4057

EX-10.25

HIP-IV

HIP-IV Incorporated

135 East 57^th Street

New York, NY 10022

Exhibit 10.25

March 31, 2005

AFC Holdings Corporation

135 East 57^th Street

New York, NY 10022

Dear Sirs,

We act as Managing Member of Hanover Investors Partners-V, LLC (the Company), a Delaware limited liability company. As such in accordance with Section 6 (a) of the Limited Liability Company Agreement we are entitled to receive an incentive allocation (Incentive Fee) from the Company, unless otherwise agreed.

In connection with the foregoing, we confirm to you the following:

To the extent that payments are received from the Company on account of HIP-IV’s Incentive Fee we will pay to you (or your designee) promptly after receipt and calculation of relevant expenses, the net amount of such Fee remaining after the deductions from the gross amount of such Fee set forth below:

(a) All legal, accounting, travel and other costs and expenses of the formation and operation of HIP-IV reasonably incurred in connection with the Company other than costs and expenses reimbursed by the Company pursuant to Section 7 (e) of the Limited Liability Company Agreement and other than salaries or other compensation (if any) paid to executive officers of HIP-IV; and

(b) Incentive fees and other amounts paid or payable by HIP-IV to Hanover Investors Limited in accordance with the letter agreement dated March ___, 2005 between HIP-IV and Hanover Investors Limited.

If the foregoing accurately reflects our understanding and agreement regarding this matter, please indicate your acceptance by signing a copy of this letter in the space provided below and returning it to us.

Yours faithfully,

/S/ Edward J. Bramson

Edward J. Bramson

President-HIP-IV Incorporated

HIP-IV

ACKNOWLEDGED AND AGREED
AFC HOLDINGS CORPORATION
By:	/S/ Joel D. Talcott
	Vice President

Enc.: Letter agreement with Hanover Investors Limited

HIP–IV

HIP-IV Incorporated

135 East 57^th Street

New York, NY 10022

June 30, 2005

AFC Holdings Corporation

135 East 57^th Street

New York, NY 10022

Dear Sirs,

We refer to the letter agreement, dated March 31, 2005 (the “Agreement”), between us, pursuant to which HIP-IV Incorporated (“HIP”) has assigned to you any Incentive Fee (net of specified expenses) that HIP may receive as Managing Member of Hanover Investors Partners-V, LLC, a Delaware limited liability company (“Hanover V”), and more particularly to the discussions we have had concerning the terms of an amendment to the Agreement for the purpose of providing HIP with a financial incentive to maximize the amount of the Incentive Fee earned by it to the potential benefit of Ampex. Capitalized terms used but not defined herein shall have the meanings assigned in the Agreement.

Pursuant to our discussions, it is agreed that the Agreement shall be, and is hereby, amended to provide that an amount equal to 1/3 of such Fee shall be retained by HIP, and the balance thereof (2/3) shall be payable to you (or your designee) in accordance with the Agreement, in each case, after the deduction and payment from the gross amount of such Fee of the fees and expenses specified in subparagraphs (a) and (b) of the Agreement as originally executed.

For example, if the gross amount of the Incentive Fee earned by HIP as Managing Member of Hanover V were $1,000,000, and the amount of expenses and fees payable pursuant to subparagraphs (a) and (b) of the Agreement were $200,000 and $320,000, respectively, the net amount of $480,000 would be allocated $160,000 to HIP (1/3) and $320,000 (2/3) to you, pursuant to this arrangement.

Except as expressly set forth in this letter, the Agreement shall remain in full force and effect as originally executed.

If the foregoing accurately reflects our understanding and agreement regarding this matter, please indicate your acceptance by signing a copy of this letter in the space provided below and returning it to us.

Yours faithfully,

/S/ Edward J. Bramson

Edward J. Bramson

President-HIP-IV Incorporated

HIP-IV

ACKNOWLEDGED AND AGREED
AFC HOLDINGS CORPORATION
By:	/S/ Joel D. Talcott
	Vice President

EX-21.1

EXHIBIT 21.1

AMPEX CORPORATION

LIST OF SUBSIDIARIES

Name	Jurisdiction of  Incorporation
Ampex Data Systems Corporation	Delaware
Ampex Data International Corporation	Delaware
Ampex Finance Corporation	Delaware
AFC Holdings Corporation	Delaware
Ampex Holdings Corporation	Delaware
Ampex International Sales Corporation	California
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	Germany
Ampex Great Britain Limited	United Kingdom
Ampex Japan Ltd.	Japan
Ampex S.A. (1)	Belgium

(1) Dissolution pending

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Ampex Corporation:

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. 333-66789), (v) the Registration Statement of Ampex Corporation on Form S-3 (File No. 333-85605), (vi) Registration Statement of Ampex Corporation on Form S-8 (File No. 333-05623), (vii) Post-Effective Amendment No. 1 on Form S-3 to Form S-8 Registration Statement of Ampex Corporation (File No. 333-05623), (viii) Post-Effective Amendment No. 1 to Form S-3 Registration Statement of Ampex Corporation (File No. 333-85605), (ix) Registration Statement of Ampex Corporation Form S-8 (File No. 333-41652), (x) Registration Statement of Ampex Corporation on Form S-8 (File No. 333-81534), (xi) Registration Statement of Ampex Corporation on Form S-2 (File No. 333-88890) and (xii) the Registration Statement of Ampex Corporation on Form S-8 and Post-Effective Amendment (File No. 333-126291), of our reports dated March 15, 2006, relating to the consolidated financial statements and financial statement schedule of Ampex Corporation, and the effectiveness of Ampex Corporation’s internal control over financial reporting, which appear in this Form 10-K.

/S/    BDO SEIDMAN, LLP

BDO Seidman, LLP

San Jose, California

March 28, 2006

EX-23.2

EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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. 333-66789), (v) the Registration Statement of Ampex Corporation on Form S-3 (File No. 333-85605), (vi) Registration Statement of Ampex Corporation on Form S-8 (File No. 333-05623), (vii) Post-Effective Amendment No.1 on Form S-3 to Form S-8 Registration Statement of Ampex Corporation (File No. 333-05623), (viii) Post-Effective Amendment No.1 to Form S-3 Registration Statement of Ampex Corporation (File No. 333-85605), (ix) Registration Statement of Ampex Corporation Form S-8 (File No. 333-41652), (x) Registration Statement of Ampex Corporation on Form S-8 (File No. 333-81534), (xi) Registration Statement of Ampex Corporation on Form S-2 (File No. 333-88890) and (xii) the Registration Statement of Ampex Corporation on Form S-8 and Post-Effective Amendment (File No. 333-126291), of our report dated April 9, 2004, except Note 1 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2004 (not presented herein), as to which date is April 15, 2005, relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K.

/s/    PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

San Jose, California

March 28, 2006

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Edward J. Bramson, Chairman and Chief Executive Officer of Ampex Corporation, certify that:

(1) I have reviewed this annual report on Form 10-K of Ampex Corporation;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	AMPEX CORPORATION
Date:    March 28, 2006	/s/    EDWARD J. BRAMSON
	Edward J. Bramson Chairman and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Craig L. McKibben, Vice President, Chief Financial Officer and Treasurer of Ampex Corporation, certify that:

(1) I have reviewed this annual report on Form 10-K of Ampex Corporation;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	AMPEX CORPORATION
Date:    March 28, 2006	/s/    CRAIG L. McKIBBEN
	Craig L. McKibben Vice President, Chief Financial Officer and Treasurer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Ampex Corporation (the “Company”) on Form 10-K for the year ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned principal executive and principal financial officers of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/    EDWARD J. BRAMSON

Edward J. Bramson

Chief Executive Officer

March 28, 2006

/s/    CRAIG L. McKIBBEN

Craig L. McKibben

Chief Financial Officer

March 28, 2006