-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RwNgqmCi7QNaFgXIhYhC5zRFbibvmV4fxaSXfF7pqWj+eAc/FPw3jtDHo7ASi+lK sWx1o1v0YSHtCv7xQj/C6w== 0000903112-98-000654.txt : 19980317 0000903112-98-000654.hdr.sgml : 19980317 ACCESSION NUMBER: 0000903112-98-000654 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980316 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMPEX CORP /DE/ CENTRAL INDEX KEY: 0000887433 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 133667696 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20292 FILM NUMBER: 98566508 BUSINESS ADDRESS: STREET 1: 500 BROADWAY STREET 2: MAIL STOP 3-36 CITY: REDWOOD CITY STATE: CA ZIP: 94063-3199 BUSINESS PHONE: 4153672011 MAIL ADDRESS: STREET 1: 500 BROADWAY STREET 2: MAIL STOP 3-36 CITY: REDWOOD CITY STATE: CA ZIP: 94063-3199 FORMER COMPANY: FORMER CONFORMED NAME: AMPEX INC /DE/ DATE OF NAME CHANGE: 19940505 FORMER COMPANY: FORMER CONFORMED NAME: AMPEX INC DATE OF NAME CHANGE: 19930328 10-K 1 FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ___________ to ____________ Commission File No. 0-20292 Ampex Corporation (Exact name of Registrant as specified in its charter) Delaware 13-3667696 (State of incorporation) (I.R.S. employer identification number) 500 Broadway Redwood City, California 94063-3199 (Address of principal executive offices, including zip code) (650) 367-2011 (Registrant's telephone number, including area code) ------------------------------------------------------------ Securities registered pursuant to Section 12(b) of the Act: Class A Common Stock, par value $.01 per share Securities registered pursuant to Section 12(g) of the Act: Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The approximate aggregate market value of the voting stock held by non-affiliates of the Registrant as of January 30, 1998 was $115,486,648, based on a price of $3.0625 per share, which was the closing price of the Registrant's Class A Common Stock on the American Stock Exchange on that date. The Class A Common Stock is the only class of voting stock outstanding. As of January 30, 1998 there were 45,973,517 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 1998 Annual Meeting of Stockholders is incorporated by reference into Part III (Items 10, 11, 12 and 13) of this Form 10-K. 679833.6 AMPEX CORPORATION FORM 10-K Year Ended December 31, 1997 INDEX
Page PART I 1 ITEM 1. BUSINESS 1 ITEM 2. PROPERTIES 15 ITEM 3. LEGAL PROCEEDINGS 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT 17 PART II 18 ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 18 ITEM 6. SELECTED FINANCIAL DATA 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 25 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 25 PART III 25 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 25 ITEM 11. EXECUTIVE COMPENSATION 25 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 25 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 26 PART IV 26 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 26 SIGNATURES AND POWER OF ATTORNEY 33
679833.6 -i- PART I ITEM 1. BUSINESS Introduction Ampex Corporation ("Ampex" or the "Company") is a leading innovator in the design and manufacture of high performance scanning recording devices and digital image processors. Its specialized recording products are used for the acquisition of data at high speeds under difficult conditions, such as those in aircraft, and for the storage of mass computer data, especially images. The Company has significant experience in digital image processing and has approximately 1,000 patents and patent applications in this field and in recording technology, from which it has derived significant licensing income. The Company's principal licensees are the manufacturers of consumer video products worldwide. The Company's principal product groups are its mass data storage and instrumentation products and its professional video and other products. The mass data storage and instrumentation products group includes (i) 19- millimeter scanning recorders and library systems (DST(R) and DIS(TM) products) and related tape and after-market equipment; and (ii) data acquisition and instrumentation products (primarily DCRsi(TM) instrumentation recorders) and related tape and after-market equipment. The Company's professional video and other products group includes primarily its DCT(R) video recorders and image processing systems and related tape products and television aftermarket equipment. The Company's DST tape drives and robotic library systems for computer mass data storage offer superior data access times, rapid data transfer rates and low cost per megabyte of storage. Ampex DIS instrumentation recorders allow users to record instrumentation data on DST tape cartridges, so that the data can be used in a computer environment as well as in an instrumentation environment. Ampex DCRsi instrumentation recorders are designed for demanding aeronautical applications such as commercial and military flight testing, as well as other applications involving comparable data-gathering challenges in extreme environments. The Company's DCT video recording products have been developed for high-end digital component recording applications in entertainment and imaging markets. These products are more fully described below under "Products." During its 54-year history, Ampex has developed extensive technical expertise in electronic storage, processing and retrieval of digital images. The Company participates at the high end of the video market with its DCT broadcast video products which were, in 1992, re-engineered to incorporate digital image compression. The major industry market for video technology is in consumer products. Ampex has licensed its patents for consumer markets since 1968, and signed two new licenses in 1997. In the years 1993 through 1997, the Company's licensing income averaged $16.3 million per year, and in fiscal 1997 totaled $12.6 million. Royalty income has fluctuated materially from year to year and there is no assurance that Ampex will continue to generate comparable levels of licensing income in future years. The Company was incorporated in Delaware in January 1992 as the successor to a business originally organized in 1944. References to "Ampex" or the "Company" include subsidiaries and predecessors of Ampex Corporation, unless the context indicates otherwise. The principal executive offices of the Company are located at 500 Broadway, Redwood City, California 94063, and its telephone number is (650) 367-2011. The Company's Class A Common Stock is traded on the American Stock Exchange under the symbol "AXC." Recent Developments In January 1998 the Company issued and sold to a group of institutional investors its 12% Senior Notes due March 15, 2003 (the "Senior Notes") in the aggregate principal amount of $30,000,000, together with warrants to purchase up to 1,020,000 shares of the Class A Common Stock of the Company (the "Warrants"). As a result of the issuance of the Senior Notes, the Company's total indebtedness and debt service obligations have increased substantially from prior levels. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Company expects to use the net proceeds of the Senior Notes 679833.6 (approximately $28.5 million after deduction of estimated fees and expenses) primarily for working capital purposes, expansion of its existing business lines, and possible investments in, or acquisitions of, new businesses. The Company has not entered into any negotiations, arrangements or understandings with any acquisition candidates at the date of this Report, except that the Company has been in discussions regarding the acquisition of the seismic data storage and related software and marketing business and assets of one of its resellers in the oil and gas exploration industry. The acquisition of such business and assets, if completed, would not be material to the Company. There can be no assurance that the Company will successfully complete this acquisition or any other acquisitions of businesses or that the Company will realize any financial benefit therefrom. See "Markets -- Mass Data Storage and Instrumentation Products -- 19-millimeter Products," "-- Research, Development and Engineering" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations for the Three Years Ended December 31, 1997." Forward-Looking Statements This Form 10-K contains predictions, projections and other statements about the future that are intended to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other important factors include, among others: potential inaccuracy of future sales and expense forecasts; effects of increased inventories; potential inability of the Company to execute its marketing, acquisition, investment, licensing and other strategies; potential inability of the Company to integrate acquired businesses; effects of existing and emerging competition and industry conditions; decline in sales to the government; declining sales of professional video products; rapid technological changes and risks of new product and business development efforts; the development of application software for its 19-millimeter products; international operating difficulties; redemption of the Company's outstanding Noncumulative Preferred Stock; possible future issuances of debt or equity securities; and the Company's liquidity and anticipated interest expenses. These forward-looking statements speak only as of the date of this Report. Statements herein with respect to the Company's future strategies, policies or practices are subject to change at any time without prior notice to security holders of the Company, and the Company disclaims any obligation or undertaking to disseminate updates or revisions of any forward-looking statements contained or incorporated herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Each forward-looking statement that the Company believes is material is accompanied by one or more cautionary statements identifying important factors that could cause actual results to differ materially from those described in the forward-looking statement. The cautionary statements are set forth following the forward-looking statement, and/or in other sections of this Form 10-K. IN ASSESSING FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-K, READERS ARE URGED TO READ CAREFULLY ALL CAUTIONARY STATEMENTS -- INCLUDING THOSE CONTAINED IN OTHER SECTIONS OF THIS FORM 10-K. Products As stated above in "Introduction," the Company's principal product groups are its mass data storage and instrumentation products (including DST, DIS and DCRsi) and its professional video and other products (including DCT). For information concerning net sales for each product group, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." Mass Data Storage and Instrumentation Products 19-millimeter Products. In 1992, Ampex entered the high-performance mass data storage market with its DST series of 19-millimeter data storage products, including tape drives and robotic library systems. Based on its 679833.6 -2- own evaluation and that of outside sources, the Company believes its DST and DIS mass data storage products offer a price-performance advantage over alternative magnetic, optical, solid state or disk-based storage systems now available, providing fast data access times, rapid data transfer rates and extremely low cost per megabyte of storage. Access time is one of the most important sustainable advantages of DST products compared to alternative tape-based storage systems. Older tape-based storage products achieve low-cost storage but trade off accessibility; since the data stored is not available for most online or near-online applications, such systems are generally limited to back-up and archival storage applications. DST products, in contrast, combine low storage cost per megabyte with fast access to rapidly transferable information. DST products use software logic that enables a library or even a single tape drive to organize information using partitions, much as disk drives do. Individual segments can then be accessed quickly and updated independently. This proprietary Ampex technology, introduced in 1994, gives DST products the performance of a digital tape drive and the efficiency and access speed of partitioned memory. DST systems also provide rapid data transfer rates that exceed the speed of other mass storage products such as optical disks, allowing a user to download stored information to a computer at a sustained rate of 15 megabytes per second ("MB/sec"), with an option available to increase to a rate of 20 MB/sec. DST and DIS tape drives use core technology developed by Ampex for its digital video recorders. The drives use high-density metal particle tape cartridges, which are available in a range of sizes providing storage capacities from 25 to 165 gigabytes ("GB") per cartridge in single density format and from 50 to 330 GB per cartridge in double 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. The Company recently announced the availability of expansion modules which can expand DST library storage capacity in virtually unlimited increments. Ampex's single-density DST product line currently includes the DST 310 tape drive, the DST 410 automated cartridge library and the DST 810 automated library system. The DST 310 is a single cartridge tape drive that provides convenient and fast backup for applications such as large databases or disk arrays. The DST 310 is capable of accepting 25 GB, 75 GB and 165 GB cartridges. The DST 410 automated cartridge library is an entry- level library with a storage capacity of up to 1.2 TB in less than eight square feet of space. The DST 810 automated library is designed to combine from one to four tape drives, and features a storage capacity of 6.4 TB. The DST 810 library system is optimized for large file size applications and, accordingly, is suited for image-based document storage, medical records, news archives, oil and gas seismic data and CAD/CAM image data, as well as potential video-on-demand applications. These products can deliver a sustained rate of 15 MB/sec across a SCSI-2 interface, search speeds of up to 1600 MB/sec, an average access time of less than 16 seconds and capacity of up to 165 GB on a single cartridge. In the first quarter of 1997, the Company began shipping its new "double-density" versions of its 19- millimeter data storage product line. The DST 310, DST 410 and DST 810 products are all available with double density cartridges, as the DST 312, DST 412 and DST 812 products, respectively. The new versions double the amount of data that can be stored on a single cartridge with a corresponding reduction in the cost per megabyte of the Company's mass data storage products. The DST 312 tape drive can hold 50 GB, 150 GB and 330 GB cartridges, and the DST 412 library can store up to 2.4 TB of data. The DST 812 library system can store 12.8 TB of data at a cost of approximately $.02 per megabyte. Although the new versions are intended to enhance the performance of the Company's data storage products, the Company believes that the availability of these new versions has contributed to the decline in sales of the Company's existing 19-millimeter data storage products. Ampex is currently working to double the per-cartridge capacity of its mass data storage products again which, if successful, could permit the storage of as much as 660 GB of data on a single cartridge. The Company believes that this will enable it to maintain its relative cost advantage as per-megabyte costs of competing storage technologies, such as disk drives, continue to decline. There can be no assurance that these efforts will be successful or, if they are, that future sales will not be adversely affected if the Company experiences any product development delays or transition difficulties. (Subsequent references to storage capacity of the Company's mass storage products in this Form 10-K refer to the Company's new double-density versions unless the context otherwise specifies.) 679833.6 -3- In October 1997, the Company announced the availability for shipment in early 1998 of a new medium-sized library product, the DST 712, which has a maximum storage capacity of 5.8 TB in 7.5 square feet of space and can accommodate one or two tape drives. This automated tape library product was designed to fill the gap between the Company's DST 412 and DST 812 products. The Company also announced its intention to offer an expansion module for the DST 712 and DST 812 products, which will permit additional storage capacity for those products on a cost-efficient, incremental basis. Although the Company believes that its DST drives and library systems offer significant advantages over competitive systems, there are a variety of risks involved in this product line. The Company's DST products incorporate a proprietary magnetic tape format that is not compatible with current industry standard formats. The Company has not licensed its tape format to other manufacturers and as such is the sole source of these products. In addition, other factors relating to the markets for these products and to competition in these markets may affect future sales of DST products. See "Markets--Mass Data Storage and Instrumentation Products," "--Distribution and Customers," "--Competition," and "--New Product Development and Industry Conditions." In 1995, the Company expanded its 19-millimeter product line with the introduction of its DIS instrumentation recorders and library systems. The Company's principal instrumentation products currently are the DIS 120i and DIS 160i instrumentation/data recorders and the DIS 220i automated instrumentation/data library. The Company's DIS products are designed for mass storage of instrumentation data. These recorders use the same 19mm helical scan recording technology used in the Company's DST products. Data from DIS recorders can also be stored on DST cartridges, placed in DST libraries and accessed using DST tape drives, so that all the benefits of DST mass storage products are available, including rapid, random access to the data for subsequent processing. The DIS 120i and 160i drives have capacities of 25, 75 or 165 GB (depending on the DST cartridge used) and record/reproduce rates of 120 Mb and 160 Mb per second, respectively. The DIS 220i automated library, which is the instrumentation version of the DST 410 library, can hold up to 1.2 terabytes of data. The Company introduced double density versions of each of its DIS recorders at the time it similarly upgraded its DST product line. Data Acquisition/Instrumentation Products. Ampex has been well-established for a number of years as a supplier of instrumentation recorders. Ampex has 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. Ampex instrumentation recorders have been used on almost every advanced commercial and U.S. military aircraft, as well as on many foreign aircraft. The Company believes they are well-suited to these demanding aeronautical applications, and other applications involving comparable data-gathering challenges in extreme environments, because of their unmatched performance and reliability. The Company's principal data acquisition/instrumentation products currently are the DCRsi 240, DCRsi 107 and DCRsi 75 digital instrumentation recorders. The DCRsi recorders are rugged, highly reliable and compact recorders that permit uninterrupted data capture over very long periods of time, such as during test flights of new aircraft. The DCRsi 240 instrumentation recorder has the capability of storing 48 GB of data at a record/reproduce rate of up to 240 megabits ("Mb") per second. The DCRsi 107 instrumentation recorder has a similar storage capacity and a record/reproduce rate of 107 Mb per second. During 1995, the Company introduced the DCRsi 75 recorder, a lower cost DCRsi model with a record-reproduce rate of 75 Mb per second. Shipments of DCRsi 75 recorders commenced in 1996. A significant portion of data acquisition and instrumentation recorder sales reflect purchases by the federal government, which can be subject to significant fluctuations. See "Markets--Data Acquisition/Instrumentation Recorders." In addition, other factors relating to the markets for the Company's 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." Professional Video Recording and Other Products 679833.6 -4- The Company's DCT products, which employ a 19-millimeter digital component video recorder format, are designed primarily for use in high-quality post-production applications. DCT products record in a digital component format compatible with "CCIR-601," a worldwide signal standard for digital component television equipment. The Company's DCT 1700d digital tape drive is designed for high-end performance, as its output is not subject to signal degradation even during complex layering and special effects sequences. In order to process the higher data volume involved in digital component recording, DCT recorders employ data compression techniques. Ampex also offers a variety of switchers and systems products as part of the DCT product line, including digital special effects systems and production switchers, that are used in connection with the production of television programming. These products focus on the on-line segment of the professional television industry. On-line operations typically require equipment to operate at high speeds and require the highest picture quality. In order to process video signals at the required speeds, Ampex's products employ advanced proprietary signal processing and other electronic technologies, many of which are also used in the Company's data storage digital recorder systems. Ampex's switchers and systems products also incorporate advanced filtering techniques and incorporate significant special purpose software to manipulate, generate or combine video signals. In the period 1992 to 1994, the Company discontinued sales of many older (primarily analog) recorders, switchers and systems products, which contributed to the decline in sales for this product group in recent years. Sales levels have also been adversely affected by changes in the traditional markets for the Company's professional video products and by the reduction in the Company's distribution network for these products. See "Markets-- Professional Video Recording Products" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations for the Three Years Ended December 31, 1997 -- Professional Video Recording and Other Products." In 1995, 1996 and 1997, sales of these products consisted almost exclusively of DCT video recorders and image processing systems. In view of the recent announcement of standards for the digital transmission of television signals, Ampex believes it is unlikely that such special purpose video products will continue to be sold in material quantities. Accordingly, the Company expects that its sales of products in this market will be limited to after-market products and services, and that such sales will continue to decline in future years. Certain of the Company's DST and DIS products have been used in professional video recording markets, and the Company believes that the potential for increased sales of its 19-millimeter products in these markets could help to offset the decline in sales of its DCT products, but there can be no assurance that this will occur. The Company's other products are currently almost entirely television after-market products (including spare parts) relating to television products that the Company now manufactures, or that it manufactured in prior periods and continues to support. Ampex's after-market activities have declined as a percentage of net sales in recent years as the Company has narrowed its professional television product line, and many of the products that have historically generated a significant portion of these net sales (including Betacam small-format recorder after-market products, turnkey studio facilities, mobile vans, computer core memory products and refurbished equipment accepted as trade-ins on new equipment sales) have been discontinued. Other products also include the sale of a limited number of integrated circuits. See "Markets--Components" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations for the Three Years Ended December 31, 1997 -- Professional Video Recording and Other Products." Markets Mass Data Storage and Instrumentation Products 19-mllimeter Products. The Company's DST mass data storage systems are designed to meet the rapidly changing requirements of the mass data storage market. The market for mass storage devices has undergone an evolution in recent years. Historically, mass storage devices were used to store data off-line as protection against catastrophes affecting on-line storage, to archive data for record retention purposes or as a low-cost means of storing infrequently used data. More recently there is a growing demand for mass storage devices that provide cost-effective storage combined with rapid access to data. The demand for storage devices that can store large amounts of data 679833.6 -5- in a readily accessible manner has grown due to two factors. First, faster and lower-cost computer processors are generating more data. Second, a steadily growing percentage of information is created, stored, accessed and transmitted in visual form (such as drawings, pictures, scanned documents and other images), and the storage of visual information requires much greater capacity than the storage of text. For example, while one page of text requires 2,000 bytes of storage, one second of full-color video requires 30,000,000 bytes. Despite the rapid increase in the need for data storage on the part of most computers users, the Company believes that its mass storage products offer such large capacities and high speeds that they currently exceed the capacity needs and retrieval rates required by the majority of computer users. Accordingly, the Company expects that its sales of these products will continue to be limited to large and technically sophisticated corporations and national and local government agencies for the foreseeable future. Ampex's customers in these industries include Mobil, Amoco, the FBI, NASA, Time Warner, Fox Television and Industrial Light and Magic. The Company also believes that if the new digital television standards are widely adopted, Ampex may be able to sell its DST and DIS products to customers who historically purchased its specialized video products. Ampex's current sales of mass data storage and instrumentation products are concentrated at present in three major vertical industry markets -- the oil and gas exploration industry; government; and the digital video industry organizations. The Company believes that, whereas in prior years organizations involved in the markets described above maintained large technical staffs which were capable of integrating equipment such as the Company's into their existing computer facilities, even the largest of these potential customers are now increasingly likely to purchase complete solutions or even to outsource certain activities and to reduce their in-house technical staffs. This trend is unfavorable to companies like Ampex, which primarily provide system components like mass data storage tape drives. The Company has been working to address this by ensuring that certain widely used software can interface with its products. For example, the Company is seeking to address hierarchical storage management and database backup applications in certain markets, and its DST 310 tape drive and DST 410 and 810 libraries are now supported by certain third party hierarchical storage management and UNIX file system back up software packages. However, the Company cannot predict the extent to which such software will result in increased sales of DST products. In order to capitalize further on the relatively low cost per megabyte and rapid retrieval rates of its products, the Company believes that it may be necessary to offer more specialized and industry-specific services than it currently provides. Accordingly, the Company intends to expand the integration, software and other services that it offers, either by developing these services internally or by investing or acquiring other entities capable of providing such services, together with Ampex equipment, initially in Ampex's existing markets. Ampex has not reached any understanding with respect to any such acquisitions or investments, except that it has been in discussions regarding the acquisition of the seismic data storage and related software and marketing assets of one of its larger resellers in the oil and gas exploration industry. There can be no assurance that the Company will successfully complete any such acquisitions or investments or that the Company will recognize any financial benefit from them. Although the emergence of applications that envision the transmission of video, graphics and other images over the Internet or private networks may create new markets for the Company's data storage products, the Company's management believes that these applications will require bandwidth improvements to current information delivery systems before the information storage systems offered by the Company and others will be required. Should this technical obstacle be overcome and commercial markets ultimately develop, the Company believes that it will experience aggressive competition from other companies, and there can be no assurance that the Company will be able to remain competitive against products ultimately offered by such companies. Data Acquisition/Instrumentation Recorders. Ampex's DCRsi recording drives and magnetic media 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 airplanes. DCRsi products are used by U.S. and foreign military and intelligence agencies (including those of Germany, Japan, the United Kingdom and Russia), as well as by manufacturers of commercial airplanes, such as Boeing Corporation, and by Airbus, the consortium of European 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. 679833.6 -6- The storage capacity and data transfer rates of the Company's DCRsi products can be varied continuously from fractions of a megabit per second up to 240 megabits per second on its highest performance versions. These products perform reliably in conditions of extreme shock and vibration, variations in gravitational force and extremes of temperature, humidity and electronic interference, such as those found in aircraft, helicopters and space vehicles. Because these products are widely used in their target markets, recordings made on one machine can subsequently be reproduced on other machines at various customer locations. In ground-based applications, which generally are less harsh environments that do not require the ruggedness of a DCRsi recorder, the storage and analysis functions of DCRsi products can also be performed by the Company's 19-millimeter DST and DIS mass data storage products. The Company has supplied its data acquisition and instrumentation products to U.S. and foreign government agencies for many years, and this continues to be the primary market for the Company's DCRsi products. Sales to government agencies are subject to fluctuation as a result of changes in government spending programs (including defense programs). Sales to these markets could be adversely affected by pressure on government agencies to reduce spending, and any material decline in the current level of government purchases of the Company's products could have a material adverse effect on the Company. Professional Video Recording and Other Products. The Company's DCT professional recording products are designed to provide high-performance capabilities for customers in entertainment and imaging markets. Historically, Ampex sold its professional video products to television companies and broadcasters that used them to produce or edit television commercials or programs for broadcast. More recently, however, the production and editing of television commercials and programs is increasingly being performed by independent organizations rather than by broadcasters or cable television companies themselves. These services are commonly known as "post-production" services. Most of Ampex's video recording product sales are to such post-production facilities or to motion picture studios that use Ampex products for their in-house post-production needs. Post-production customers whose business reputations are based on high picture quality and whose needs include rapid editing capabilities currently represent the major market for the Company's DCT digital component video recording products. The Company does not serve the lower end of the post-production market. Sales of the Company's video recording products have declined in recent years as a result of changing conditions in the traditional markets for the Company's products. In response to these changes, the Company has reduced its product line, marketing expenditures and distribution network for its video products. In addition, the Company believes that the recent announcement of standards for the digital transmission of television signals will cause sales of its special purpose video products to continue to decline in future years. These factors have had and will continue to have a negative impact on sales of the Company's professional video recording and related aftermarket products. Distribution and Customers The Company currently distributes all its 19-millimeter products (including DST and DIS recorders) directly through its internal sales force, as well as through independent value-added resellers. The Company's DST products are sold to customers such as oil and gas companies, imaging companies, information and entertainment delivery companies and broad-band telecommunications companies. The Company is also pursuing opportunities in the market for storage of very large databases maintained by many commercial and government entities. The Company's instrumentation recorders (including its DIS recorders) are sold primarily to government agencies involved in data collection, satellite surveillance and defense-related activities, as well as to defense contractors and other industrial users for testing and measurement purposes. Sales of instrumentation recorders are made through the Company's internal domestic and international sales forces, as well as through independent sales organizations in foreign markets. Ampex's professional video recording products are sold principally to customers in entertainment markets, including independent post-production houses, broadcast and cable networks, motion picture studios and independent 679833.6 -7- television stations. The Company distributes its video products through its internal sales force and through various independent distributors. The Company currently operates a total of nine sales offices, including six in the U.S., one in Germany, one in Japan and one in the United Kingdom. Ampex's sales to U.S. government agencies (either directly or indirectly through government contractors) represented 27.7% of net sales in fiscal 1997 compared to 18.0% in fiscal 1996 and 14.7% in fiscal 1995. Products sold for U.S. government use include primarily instrumentation recording systems. Sales to government customers are subject to fluctuations as a result of changes in government spending programs and are subject to customary contractual provisions permitting termination at the government's election. See "Markets--Mass Data Storage and Instrumentation Products." No single non-governmental customer accounted for more than 10% of Ampex's total net sales in 1996 or 1997. Research, Development and Engineering Scanning recording systems such as those developed by Ampex involve extremely complex technology. As a result, Ampex has developed extensive expertise in a wide area of technical disciplines and has developed fundamental innovations in digital image processing, magnetic recording technology and channel electronics. In 1997, the Company spent approximately 19% of net sales for research and development programs and engineering costs, compared to 17% in 1996 and 16% in 1995. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 3 of Notes to Consolidated Financial Statements. These continuous research and development efforts have resulted in a substantial patent portfolio covering not only existing products, but also covering technological innovations that may result or be useful in future commercial products. With respect to current products, the Company has allocated a major portion of its research and development budget in recent years to the 19-millimeter digital recording technology included in its DST, DIS and DCT products. The Company will continue to fund future generations of its mass data storage and instrumentation products, and presently is working to double the current per-cartridge capacity of these products to 660 GB of data and to increase their data transfer rates above the current 15-20 MB/sec levels. If successful, these efforts will further enhance the cost- efficiency of these products. Ampex also plans to introduce lower cost versions of its data acquisition and instrumentation products, and to improve the ability of these products to interface with other companies' products. The Company hopes to develop an expansion module that will increase the solid state memory capacity of its DCRsi products, thereby increasing the speed of their data acquisition functions. See "Products--Mass Data Storage and Instruments" above. Ampex will also continue researching other new product opportunities that capitalize on its expertise and patented technology in digital image processing, magnetic recording and channel electronics. All of the Company's research, development and engineering efforts are 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. Keepered Media Development Program Ampex has previously disclosed that it has been engaged since late in 1994 in a research and development program to attempt to commercialize its "keepered media" technology for use in the hard disk drives that are attached to most computers. A description of this technology and certain developments and uncertainties related to the development program are set forth in the Company's 1996 Annual Report on Form 10-K (the "1996 Form 10-K") and its 1996 and 1997 Quarterly Reports on Form 10-Q. In order to understand properly the following information, it is necessary to refer to these earlier reports. As previously disclosed, keepered media technology was originally intended for use in inductive head-based disk drives, which are rapidly being replaced by magneto-resistive ("MR") head-based technology. In 1996 and 679833.6 -8- 1997, the Company spent a significant portion of its research, development, and engineering budget on the development of keepered media. The Company continues to believe that keepered media could have commercial potential. However, management has concluded that this technology will not generate revenue in the near future and, accordingly, the Company has reduced the level of its development expenditure for keepered media, but is continuing its research for advanced uses of the technology. In the fourth quarter of 1997, the Company incurred charges of $0.9 million in connection with the transfer of the keepered media program to a long-term development project. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations for the Three Years Ended December 31, 1997 -- Research, Development and Engineering" and "-- Restructuring Changes (Credits)." The Company has discontinued its previously disclosed programs relating to the development of disk drives based on inductive heads, and has terminated one of its previously announced contractual arrangements for the development of keepered media. The Company's research indicates that it is unlikely that keepered media will offer significant capacity gains with current generation MR heads unless such heads are substantially modified from current designs, and management believes it is unlikely that disk drive manufacturers will modify existing head designs. However, as new generations of heads are developed with higher capacity, the benefits of keepered media, such as improved thermal stability, could become significant. The Company is targeting its continuing research on keepered media for such higher density uses, but it is impossible to forecast when, or if, keepered media will be adopted for commercial disk drives. In addition to continuing research, the Company is giving consideration to the development of products that would incorporate keepered media in its own high performance digital tape drives. The Company is unable to forecast when or if it will receive any revenues from keepered media, and the Company's business plans do not assume that any such revenue will be received. Patents, Licenses and Trademarks As a result of its on-going research and development expenditures, the Company has developed substantial proprietary technology, certain of which it has elected to patent or to seek to patent. As of December 31, 1997, Ampex held over 1,000 patents and patent applications, including approximately 350 patents in the U.S., approximately 550 corresponding patents in other countries, and approximately 150 U.S. and foreign patent applications pending. The majority of these patents and pending patents relate to the Company's recording technology. The Company continually reviews its patent portfolio and allows non-strategic patents to lapse, thereby minimizing substantial renewal fees. Ampex has granted numerous royalty-bearing patent licenses to, and holds patent licenses from, third parties. Certain of the Company's patented innovations have been adopted for use in mass market consumer products, and as a result, the Company receives the majority of its licensing royalties from foreign manufacturers of VCRs and 8-mm camcorders. The Company intends to negotiate license agreements with remaining unlicensed manufacturers of 8-mm camcorders, but there can be no assurance that any such licensing efforts (including any necessary litigation) will be successful. In the last two years the Company has been pursuing licensing opportunities in the market for television receivers, from which it has not previously derived any material licensing income. The Company believes it may have several patents that could be useful in television receivers and is taking various steps to enforce them, including in one instance litigation. Since the fourth quarter of 1995, the Company has been involved in patent infringement litigation with a major foreign manufacturer of VHS video recorders and television receivers. In response to the Company's lawsuit, this manufacturer filed a lawsuit against Ampex alleging patent infringement. This litigation relates not only to videotape recorders, a traditional source of the Company's royalty income, but also to television receivers from which the Company has not previously generated any income. There can be no assurance that the Company will be successful in this litigation, but to the extent that it prevails in this litigation, it may be able to obtain additional royalty income from the licensing of its patents that are used in the manufacture of television receivers. See "Legal Proceedings." 679833.6 -9- The Company believes that it has other patents, not the subject of this litigation, that may also be used in the manufacture of television receivers. In addition, Ampex is evaluating the extent to which its technology may be employed or useful in video games, and will continue to evaluate additional products as potential licensing opportunities to the extent that its technical and financial resources permit. Ampex has not granted any licenses under its scanning recorder patents specifically for data storage applications, but it may do so in the future if it determines that this would support the Company's marketing strategy. It is not possible to predict the amount of royalty income that will be received in the future. Royalty income has historically fluctuated widely due to a number of factors that the Company cannot predict, such as the extent of use of the Company's patented technology by third parties, the extent to which the Company must pursue litigation in order to enforce its patents, and the ultimate success of its licensing and litigation activities. Moreover, there can be no assurance that the Company will continue to develop patentable technology that will generate significant patent royalties in future years. U.S. patents are, at present, in force for a period of 20 years from the date of application and patents granted by foreign jurisdictions are generally in force for between 14 years to 20 years from the date of application. Ampex has obtained its present patents over the course of the past 20 years and, accordingly, has patents in force that will expire from time to time over the next 20 years. Patents are important to the current overall business of the Company, both as a source of protection of the proprietary technology used in the Company's current products, and as a source of royalty income. While results of operations would be adversely affected by the loss of patents that generate significant royalty income, management believes that none of Ampex's current product lines is materially dependent upon a single patent or license or group of related patents or licenses, and that timely introduction of products incorporating new technologies or particularly suited to meet the needs of a specific market or customer group is a more important determinant of the success of Ampex's current business. Nevertheless, there can be no assurance that the Company will continue to develop patentable technology that will be able to generate significant patent royalties in future years to replace patents as they expire. See "Research, Development and Engineering." Ampex regards its trademark Ampex(R) and the Ampex logo as valuable to its businesses. Ampex has registered its trademark and logo in the U.S. and a number of foreign countries. U.S. trademark registrations are generally valid for an initial term of 10 years and renewable for subsequent 10-year periods. The Company's former magnetic tape subsidiaries (the "Media" subsidiaries), which were sold by the Company in November 1995, have a non-exclusive license to use the Ampex trademark on their audio, video and instrumentation media products through July 2000. Ampex has not granted any other material rights to use its name or logo to any other third party. Other trademarks of Ampex include DCT, DST, DCRsi and DIS. Manufacturing The Company's products are manufactured at Ampex's facilities in Redwood City, California and Colorado Springs, Colorado. Products are designed and engineered primarily in Redwood City, California. Because the Company's mass data storage products incorporate many of the technologies and components of the Company's 19mm-based video tape recorders, the manufacturing process of the mass data storage products has benefited from the existing video recorder production facilities and techniques. In January 1996, the Company sold its Redwood City, California property, and relocated its manufacturing, administrative and RD&E operations to smaller facilities located on a portion of the property that it leased back at the time of sale. In May 1996, the Company sold a portion of its Colorado Springs, Colorado facility which was not required for current operations. See "Properties." The Company believes that its consolidated manufacturing facilities continue to have sufficient capacity to accommodate business growth for its present products in the foreseeable future, and that the relocations will not have a long-term adverse effect on the Company's manufacturing capacity or on its ability to meet the customer demands for its products in a timely manner. 679833.6 -10- The Company maintains insurance, including business interruption insurance, that management considers to be adequate and customary under the circumstances. However, there is no assurance that the Company will not incur losses beyond the limits of, or outside the coverage of, its insurance. Sources of Supply Ampex uses a broad variety of raw materials and components in its manufacturing operations. While most materials are readily available from numerous sources, Ampex purchases certain components, such as customized integrated circuits and flexible magnetic media, from a single domestic or foreign manufacturer. Significant delays in deliveries of, or defects in the supply of, such components could adversely affect Ampex's manufacturing operations pending qualification of an alternative supplier. In addition, the Company produces highly engineered products in relatively small quantities. As a result, its ability to cause suppliers to continue production of certain products on which the Company may depend may be limited. The Company does not generally enter into long-term raw material supply contracts. In addition, many of the components of Ampex's products are designed, developed and manufactured by Ampex itself, and thus are not readily available from alternative sources. Fluctuations in Operating Results; Seasonality; Backlog Ampex's sales 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 royalty income; and numerous other factors. Ampex's 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 its sales revenues from quarter to quarter. In addition, sales to government customers (primarily sales of DCRsi instrumentation products) are subject to fluctuations as a result of changes in government spending programs, which can materially affect the Company's gross margin as well as its sales. Sales of most of the Company's products have historically declined during the first and third quarters of its fiscal year, due to seasonal procurement practices of its customers. A substantial portion of the Company's backlog at a given time is normally shipped within one or two quarters thereafter. Therefore, sales in any quarter are heavily dependent on orders received in that quarter and the immediately preceding quarter. Ampex's backlog of firm orders at December 31, 1997 was $6.9 million, compared to $3.4 million at December 31, 1996 and $13.8 million at December 31, 1995. The backlog at December 31, 1997 was approximately 35% of average quarterly net sales, based on 1997 sales levels. Ampex does not generally include foreign orders in backlog until it has 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 Ampex encounters significant competition in all its product markets. Although its competitors vary from product to product, many are significantly larger companies with greater financial resources, broader product lines and other competitive advantages. Ampex competes in the mass data storage market with a number of well-established competitors, such as IBM, Storage Technology Corporation, Exabyte Corporation, Sony Corporation and Quantum Corporation, as well as smaller companies. In addition, other manufacturers of scanning video recorders may seek to enter the mass data storage market in competition with the Company. For example, in 1996, IBM Corporation announced the general availability of a new high-capacity, high-speed tape storage product designated "Magstar." Also, Sony Corporation in 1995 introduced its DTF tape drive, which is intended for the mass data storage industry. In the mass data storage market, the Company believes that the principal competitive factors are product performance, cost of equipment and media, product reliability and availability of service and support. The Company believes its strongest competitive 679833.6 -11- advantage is in the area of product performance. However, DST products are relatively expensive in comparison to other competitive products, and are generally cost-effective only if the customer requires the high level of performance and storage capacity of DST products. While the Company is working to reduce the cost of its DST products, the prices of other storage systems, such as disk drives, are also declining. In addition, although DST products offer faster data access times than competing tape-based library systems, magnetic disks deliver faster data access than DST products. There can be no assurance that the Company can compete successfully on a long-term basis in the mass data storage market. In the instrumentation market, the Company competes primarily with companies that depend on government contracts for a major portion of their sales in this market, including Sony, Loral Data Systems, Datatape Incorporated and Metrum Incorporated. 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. In the professional video recorder market, Sony and Panasonic are the leading competitors of the Company. Competition in this market is based principally on design and manufacturing expertise, new product development, service, reliability and price. In the high end of the market, management believes that Ampex is competitive in each of these areas, although the Company's sales of these products have declined due to the recently announced digital television transmission standards. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations for the Three Years Ended December 31, 1997 -- Mass Data Storage and Instrumentation Recorders." DCT products are not competitive in the lower end of the market. Sales of these products have been declining in recent years as the Company has discontinued many of its professional video products. New Product Development and Industry Conditions The data storage, instrumentation and video recording 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 sales and results of operations. Although Ampex has completed development of its 19-millimeter digital video tape recorders and its second-generation mass data storage drives and robotic library systems, the Company must continue to invest in research and development programs to improve these products and develop new products. No assurance can be given that existing products will not become obsolete, that any new products will win commercial acceptance or that Ampex's 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. Ampex has been manufacturing its 19-millimeter digital video recorders since 1989, and has been selling its DCT recorders since 1992. However, sales of all of its video recording products have declined substantially in recent years, partly as a result of changes in the market for the Company's products, as lower-cost small format recorders have replaced traditional high-end products for many applications. The Company expects that the traditional markets for its video products will continue to decline. Accordingly, any significant increases in sales of DCT products will depend on the success of the Company's efforts at identifying and developing new markets for the products, and there can be no assurance that the Company can do so. See "Products-Professional Video Recording and Other Products" and "Markets--Professional Video Recording and Other Products." Sales of the Company's instrumentation products can be significantly affected by changes in government spending levels. See "Markets--Mass Data Storage and Instrumentation Products--Data Acquisition Instrumentation Recorders" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 679833.6 -12- The Company significantly restructured its product lines during 1993 and 1994, and the Company has no present plans to discontinue any of its current principal products. However, like all technology companies, the Company must continually reassess its products based on their ability to respond to the changing demands of the marketplace. If, as a result of such a reassessment, the Company decides to discontinue any significant products, such a decision could have a material adverse effect on sales and operating results. International Operations Although the Company's net sales revenues include significant revenue from sales to foreign customers, these sales (particularly sales of professional video products) have been declining in recent years. Sales to foreign customers accounted for approximately 31.2% of net sales in fiscal 1997, compared to 34.1% in fiscal 1996 and 35.6% in 1995. Foreign marketing operations are conducted primarily through local distributors and agents, with support from Ampex's internal marketing and sales organization. See "Distribution and Customers." Foreign operations are subject to the usual risks attendant upon investments in foreign countries, including limitations on repatriation of earnings, restrictive actions by local governments, fluctuations 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 Ampex's international operations, and in other periods the strength of the dollar relative to such currencies has adversely affected its operations. Fluctuations in the value of international currencies can be expected to continue to affect Ampex's 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. The Company currently does not hedge its assets that are denominated in foreign currencies. U.S. export sales are denominated in U.S. dollars. See Note 20 of Notes to Consolidated Financial Statements for additional information concerning the Company's foreign operations. Readiness for Year 2000 Many existing computer systems, applications and other control devices (collectively, "Systems") use only two digits to identify a year in the date field, and will therefore be unable to reflect accurately the change from the year 1999 to the years 2000 and beyond. Unless corrected, these Systems could fail or create erroneous results, rendering them unable to process data related to the year 2000. The Company relies on its Systems in operating and monitoring all major aspects of its business, including financial systems (such as general ledger, accounts payable and payroll modules), customer services, infrastructure, embedded computer chips, networks and telecommunications equipment and products. The Company also relies on the external Systems of its suppliers and other organizations with which it does business. The Company has established a Year 2000 Compliance Committee that is investigating the impact of the year 2000 on the Company's business. The Committee membership includes representatives involved in all major functions of the Company. Its charter is to identify all Systems that, if not in compliance, could adversely affect the Company's business. For critical Systems that are found not to be in compliance, the Committee will develop a plan, including a budget for associated costs, to ensure compliance before the year 2000. It has already been determined that many of the Company's Systems, such as its manufacturing Systems, are in compliance. Other Systems, such as its financial Systems, currently do not comply but are expected to do so this year pursuant to vendor maintenance agreements. To date, no material issue has been identified in any of the other Systems used or relied upon by the Company. However, despite the Company's efforts thus far to address the Year 2000 impact, the Company cannot guarantee that all internal or external Systems will be compliant, or that its business will not be materially adversely affected by any such non-compliance. 679833.6 -13- Environmental Regulation and Proceedings The Company's facilities are subject to numerous federal, state and local laws and regulations designed to protect the environment from waste emissions and hazardous substances. Ampex is also subject to the federal Occupational Safety and Health Act and other laws and regulations affecting the safety and health of employees in its facilities. Management believes that Ampex is generally in compliance in all material respects with all applicable environmental and occupational safety laws and regulations or has plans to bring operations into compliance. Management does not anticipate that capital expenditures for pollution control equipment for fiscal 1998 or 1999 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 been named as a potentially responsible party by the United States Environmental Protection Agency with respect to four contaminated sites that have been designated as "Superfund" sites on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. The Company is engaged in seven environmental investigation, remediation and/or monitoring activities at sites located off Company facilities, including the removal of solvent contamination from subsurface aquifers at a site in Sunnyvale, California, and surface clean-up and the closure of a former site in El Segundo, California. Some of these activities involve the participation of state and local government agencies. The other five sites (including the four Superfund sites) are associated with the operations of the Media subsidiaries formerly owned by the Company. Although the Company sold Media in November 1995, the Company may have continuing liability with respect to environmental contamination at these sites if Media fails to discharge its responsibilities with respect to such sites. During 1997, the Company spent a total of approximately $0.2 million in connection with environmental investigation, remediation and monitoring activities and expects to spend a similar amount in fiscal 1998 for such activities. Because of the inherent uncertainty as to various aspects of environmental matters, including the extent of environmental damage, the most desirable remediation techniques and the time period during which cleanup costs may be incurred, it is not possible for the Company to estimate with any degree of certainty the ultimate costs that it may incur with respect to the currently pending environmental matters referred to above. Nevertheless, at December 31, 1997, the Company had an accrued liability of $2.1 million for pending environmental liabilities associated with the Sunnyvale site and certain other sites currently owned or leased by the Company. The Company has not accrued any liability for contingent liabilities it may incur with respect to former Media sites discussed above. Based on facts currently known to management, management believes it is only remotely likely that the liability of the Company in connection with such pending matters, either individually or in the aggregate, will be material to the Company's financial condition or results of operations or material to investors. While the Company believes that it is generally in compliance with all applicable environmental laws and regulations or has plans to bring operations into compliance, it is possible that the Company will be named as a potentially responsible party in the future with respect to additional Superfund or other sites. Furthermore, because the Company conducts its business in foreign countries as well as in the U.S., it is not possible to predict the effect that future domestic or foreign regulation could have on Ampex's business, operating results or cash flow. There can be no assurance that the Company will not ultimately incur liability in excess of amounts currently reserved for pending environmental matters, or that additional liabilities with respect to environmental matters will not be asserted. In addition, changes in environmental regulations could impose the need for additional capital equipment or other requirements. Such liabilities or regulations could have a material adverse effect on the Company in the future. 679833.6 -14- Employees As of December 31, 1997, Ampex employed 509 people worldwide, compared to 527 at December 31, 1996 and 531 at December 31, 1995. Approximately 8% of Ampex's current worldwide workforce is employed in the Company's international operations, compared to 7% at December 31, 1996 and 6% at December 31, 1995. No employees are covered by any collective bargaining Agreement. The Company is dependent on the performance of certain key members of management and key technical personnel. The Company has not entered into employment agreements with any such individuals. Edward J. Bramson, who has served as the Company's Chief Executive Officer since 1991, is also engaged in the management of certain companies affiliated with Sherborne Holdings Incorporated, a privately owned Delaware holding company and a Company stockholder. Mr. Bramson currently devotes most of his time to the management of the Company. The loss of the services of Mr. Bramson or other key individuals could have a material adverse effect on the Company. Pension Plan Matters In 1994, the Company, the Pension Benefit Guaranty Corporation (the "PBGC") and certain affiliates (the "Affiliates") who were members of a "group under common control" for purposes of the Employee Retirement Income Security Act ("ERISA") entered into certain agreements in connection with the liquidation of the Company's former parent, NH Holding Incorporated ("NHI"), relating to the pension plans of the Company and of its former Media subsidiaries, which are currently underfunded. See Note 16 of Notes to Consolidated Financial Statements. Pursuant to these agreements, the Affiliates agreed that if during the terms of the agreements Ampex fails to make a required contribution to the pension plans, the Affiliates will make or advance funds to permit Ampex to make such contribution, and Ampex agreed to repay such amounts in accordance with the terms of the agreements. Ampex has agreed to grant the Affiliates a security interest in certain assets as collateral for any advances which the Affiliates may be required to make in the future pursuant to the agreements. The agreements contain certain restrictive covenants which, among other things, restrict Ampex's ability to declare dividends, sell all or substantially all its assets or commence liquidation, or engage in specified transactions with certain related parties, breach of which could result in acceleration of the Company's potential termination liabilities. In 1994, the Company discontinued accrual of benefits under the pension plans, but has continued to fund its plan in accordance with ERISA (and remains contingently liable to fund the Media plan if Media fails to do so). No claims have been asserted or, to the knowledge of management, are threatened under these agreements. ITEM 2. PROPERTIES As of December 31, 1997, the Company's principal properties were as follows:
Approximate Square Footage Location Activities Conducted of Facility - -------- -------------------- ----------- Redwood City, California Executive offices, RD&E and manufacturing (1) 195,840 Colorado Springs, Colorado Manufacturing 229,961 Chineham, Basingstoke, England Sales and service (2) 7,184 Tokyo, Japan Sales and service (3) 3,886 Sulzbach, Germany Sales and service (3) 13,530
- ------------------- (1) The majority of this property (186,440 square feet) is leased under leases entered into in connection with the January 1996 sale of this property. The remainder (9,400 square feet) is leased on a short-term basis. (2) These facilities are leased under a ten-year lease, which is terminable at the option of the Company or the landlord in 2002. 679833.6 -15- (3) These facilities are leased under leases that expire at various times through 2000. In addition to the properties and leased facilities listed above, Ampex leases office space and warehouse facilities from time to time at various domestic and foreign locations. In addition, the Company has outstanding lease obligations with respect to various facilities whose functions were terminated in connection with the Company's prior period restructuring of its business operations. The Company is subleasing portions of these facilities pending termination of the underlying leases. On January 25, 1996, the Company completed the sale of its real property in Redwood City, California. All of the functions that were located at the Redwood City site have been relocated to portions of the facility that have been leased back from the purchaser under two separate leases. One lease covers approximately 132,150 square feet in buildings leased for a term of from 10 to 13 years. The second lease covers a 54,290 square foot building occupied on an interim basis under similar terms, but the lease contains a provision allowing a move to a new 60,000 square foot building upon its completion, which is expected to occur in 1998. When the move to this new building is complete, the lease for the 54,290 square foot building will terminate and the Company will enter into a new ten-year lease for the 60,000 square foot property. The lease for the 132,150 square foot property will then become co-terminous with the new lease, so that both such leases are expected to terminate in 2008; however, the Company has a one-time option to terminate the lease for the 132,150 square foot facility in 2001. The Company believes that its current facilities, including machinery and equipment, are generally in good condition, well-maintained and suitable for their intended uses, and that its facilities have, and will continue to have, adequate capacity to accommodate the Company's present needs and business growth for its present products in the foreseeable future. ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation incidental to its business. In the opinion of management, no such current or pending lawsuits, either individually or in the aggregate, are likely to have a material adverse effect on the Company's financial condition, results of operations or cash flows. On September 22, 1995, the Company filed a lawsuit against Mitsubishi Electric Corporation and Mitsubishi Electric America Inc. ("Mitsubishi") in the U.S. District Court for the District of Delaware, alleging patent infringement and breach of license agreement in connection with the manufacture of VHS video recorders and television receivers, and seeking damages and injunctive relief. In response to the Company's lawsuit, on December 12, 1995, Mitsubishi filed a lawsuit against Ampex in the U.S. District Court for the Central District of California, alleging patent infringement of two Mitsubishi patents by certain Ampex video and data recorder products, and seeking unspecified damages and injunctive relief. In March 1997, the California court determined that Ampex has no liability to Mitsubishi patents. Mitsubishi's request for a new trial and for judgment as a matter of law was denied. In July 1997, the court affirmed its decisions in favor of Ampex and Mitsubishi filed a notice of appeal with the Court of Appeals for the Federal Circuit. In April 1997, a jury in the U.S. District Court for the District of Delaware returned a verdict in favor of Ampex in its patent infringement lawsuit against Mitsubishi and awarded damages to Ampex of approximately $8.1 million for infringing a patent used in connection with the manufacture of certain television receivers. The defendants asserted various defenses and in June 1997 the judge granted a post-trial motion by Mitsubishi to set aside the verdict and award of damages on the theory of prosecution history estoppel. In August 1997, Ampex's motion for retrial was denied and the Company filed a notice of appeal with the Court of Appeals for the Federal Circuit. The Company does not expect the Courts of Appeals to issue their decision in this case or in the case described in the foregoing paragraph before the latter part of 1998. In view of the substantial uncertainty remaining in this litigation, no income from this verdict has been recorded in the Company's financial statements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations for the Three Years Ended December 31, 1997 -- Selling and Administrative Expenses" and "--Royalty Income," 679833.6 -16- above. The June 1997 decision relates only to infringement of one of the Company's patents which is used in picture-in-picture television sets. Ampex has asserted additional claims against Mitsubishi with respect to infringement of Ampex patents in connection with various VCR products. No date has been set for trial of these claims. See also "Environmental Regulation and Proceedings" and Note 12 of Notes to Consolidated Financial Statements for additional information with respect to pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company and their ages as of February 1, 1998 are as follows:
Name Age Position ---- --- -------- Edward J. Bramson 46 Chairman and Chief Executive Officer Craig L. McKibben 47 Vice President, Chief Financial Officer and Treasurer Robert L. Atchison 60 Vice President Richard J. Jacquet 58 Vice President Joel D. Talcott 56 Vice President and Secretary
Each of the executive officers of the Company serves in such capacity at the discretion of the Board. Edward J. Bramson is Chairman of the Board, Chief Executive Officer and a director of the Company. He has been an officer and director of the Company since 1987, and since January 1991 has been Chief Executive Officer of the Company. He is also Chairman and Chief Executive Officer of Sherborne Holdings Incorporated, Sherborne & Company Incorporated and Sherborne Investments Corporation, is a limited partner of Newhill Partners, L.P. and the managing member of SH Securities Co., L.L.C. These entities, which are private investment holding companies, may be deemed to be affiliates of the Company. Mr. Bramson is also a director of Hillside Capital Incorporated, a private industrial holding company with which he has been associated since 1976. From 1987 until 1994, Mr. Bramson was a director and executive officer of NH Holding Incorporated ("NHI"), the Company's former parent. See "Relationship with NH Holding Incorporated," below. Craig L. McKibben is Vice President, Treasurer, Chief Financial Officer and a director of the Company. Mr. McKibben has been an officer and a director of the Company since 1989. From 1983 to 1989, he was a partner at the firm of Coopers & Lybrand, independent public accountants. He is also Vice President and a director of Sherborne Holdings Incorporated and of Sherborne & Company Incorporated. Since 1989, Mr. McKibben has been a director and executive officer of NHI. See "Relationship with NH Holding Incorporated," below. Robert L. Atchison is Vice President of the Company. Since January 1994, he has been responsible for all operating activities of the Company, and in 1996 assumed responsibility for certain of the Company's sales and marketing activities. From April 1991 to January 1994, he was responsible for engineering and operations for the Company. Mr. Atchison also serves as President and a director of Ampex Data Systems Corporation, a wholly owned subsidiary of the Company. He has served as an executive officer of the Company and various subsidiaries since 1987. Richard J. Jacquet is Vice President of the Company. Since January 1994, he has been responsible for all administrative functions of the Company. From 1989 to January 1994, he was responsible for personnel and human resources matters for the Company. Mr. Jacquet has been associated with the Company since 1988, serving as Director of Human Resources prior to his appointment in 1989 as Vice President. 679833.6 -17- Joel D. Talcott is Vice President and Secretary of the Company, positions he has held since 1987. He has served as General Counsel since January 1996, a position he also held from 1987 to January 1994. He is also responsible for the Company's patent licensing activities (having served as Patent Counsel from 1981 to 1987), and has supervisory responsibility for investor relations and corporate communications functions. Mr. Talcott is an officer and director of Ampex Data Systems Corporation, a wholly-owned subsidiary of the Company. Relationship with NH Holding Incorporated From May 1987 until December 1994, the Company was a subsidiary of NH Holding Incorporated ("NHI"). Messrs. Bramson, McKibben and Slusser were the directors of NHI, and Messrs. Bramson and McKibben were executive officers of NHI. On December 28, 1994 (the "Consummation Date"), the United States Bankruptcy Court for the District of Delaware confirmed a plan of reorganization for NHI (the "NHI Plan"), pursuant to which all of the assets of NHI (including 16,000,000 shares of Class A Stock of the Company) were distributed to NHI's former creditors. Since the Consummation Date, Mr. McKibben has been serving as the sole officer and director of NHI and the disbursing agent under the NHI Plan. PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) The following table sets forth the high and low prices for the Company's Class A Common Stock for each quarter during fiscal 1996 and 1997. Since January 16, 1996, the Class A Common Stock has been traded on the American Stock Exchange under the symbol "AXC." The trading price of the Company's Class A Common Stock has been and can be expected to be subject to significant volatility, reflecting a variety of factors, including quarterly variations in operating results, analysts' estimates, announcements of new product introductions and other announcements by the Company or its competitors 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 technology companies for reasons that often are unrelated or disproportionate to operating performance. Fiscal Year High Low ----------- ---- --- 1997 First Quarter $10.50 $5.63 Second Quarter 7.38 5.44 Third Quarter 6.25 3.88 Fourth Quarter 4.56 2.13 1996 First Quarter 7.06 3.63 Second Quarter 15.75 5.38 Third Quarter 9.50 5.13 Fourth Quarter 11.38 6.25 As of January 30, 1998, there were 833 holders of record of the Company's Class A Common Stock. The Company has not declared any dividends on its Common Stock since its incorporation in 1992 and has no present intention of paying dividends on its Common Stock. The Company is also restricted by the terms of the Indenture for the Senior Notes and certain other agreements and of its outstanding Noncumulative Preferred Stock as to the declaration of dividends. Under current circumstances, the Company may not pay any cash dividends on 679833.6 -18- its Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and Notes 10 and 13 of Notes to Consolidated Financial Statements. (b) The following sets forth information as to securities sold by the Company during the past three years which were not registered under the Securities Act of 1933, as amended (the "Securities Act"): On January 28, 1998, the Company issued and sold $30 million of its Senior Notes and Warrants to purchase 1,020,000 shares of its Class A Common Stock to a group of "qualified institutional buyers" as that term is defined in Rule 144A under the Securities Act. The transaction was exempt from registration under the Securities Act by reason of Section 4(2) thereof and Regulation D thereunder as a transaction by an issuer not involving any public offering. Each Warrant is exercisable to purchase one share of the Company's Class A Common Stock at $2.25 per share, and expires on March 15, 2003. On October 29, 1997, November 7, 1997 and February 18, 1998, the Company issued a total of 400,000 shares of its Class A Common Stock to Edward J. Bramson, chief executive officer of the Company. The shares were sold for an aggregate purchase price of $1,268,752, of which 20% was paid in cash and the balance by promissory notes of Mr. Bramson. All such shares have been pledged to the Company as security for the promissory notes. Mr. Bramson represented that the acquisition of such shares was made for investment and not with a view to resale or other distribution absent registration under the Securities Act or the availability of an exemption therefrom. The transaction was exempt from registration under the Securities Act by reason of Section 4(2) thereof as a transaction not involving any public offering. On October 23, 1996, the Company issued 400,000 shares of Class A Stock to SH Securities Co. LLC ("SH LLC"), a limited liability company controlled by Mr. Bramson, chief executive officer of the Company. The shares were sold for an aggregate price of $2,750,000, of which $550,000 was paid in cash and the balance by a promissory note issued by SH LLC. All such shares have been pledged to the Company as security for the promissory note issued by SH LLC. The purchaser represented that the acquisition of such securities was made for investment and not with a view to resale or other distribution absent registration under the Securities Act or the availability of an exemption therefrom. The transaction was exempt from registration under the Securities Act by reason of Section 4(2) thereof as a transaction by an issuer not involving any public offering. Information as to additional sales of unregistered securities by the Company during the past three years is contained in Item 15 of Amendment No. 2 to Registration Statement on Form S-1 of the Company (File No. 33- 91312) filed with the Securities and Exchange Commission and is incorporated herein by reference. All such sales were made to affiliates of the Company or to institutional investors who represented that the acquisition of such securities was made for investment and not with a view to resale or other distribution absent registration under the Securities Act or the availability of an exemption therefrom. The transactions were exempt from registration under the Securities Act by reason of Section 4(2) thereof as transactions by an issuer not involving any public offering. ITEM 6. SELECTED FINANCIAL DATA The financial data required by Item 6 is included immediately following Item 14 hereof. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the financial condition and results of operations of the Company and its subsidiaries should be read in conjunction with the Consolidated Financial Statements and the Notes thereto, included elsewhere in this Report. 679833.6 -19- Product Groups The Company's principal product groups are: its mass data storage and instrumentation products and its professional video and other products. The mass data storage and instrumentation products group includes: (i) 19- millimeter scanning recorders and library systems (DST and DIS products) and related tape and after-market equipment; and (ii) data acquisition and instrumentation products (primarily DCRsi instrumentation recorders) and related tape and after-market equipment. The Company's professional video and other products group includes primarily its DCT video recorders and image processing systems and related tape products and television aftermarket equipment. These product groups are described below. No other class of similar products accounted for more than 10% of net sales during the comparison periods discussed below. In recent years, the Company has focused its efforts on high-performance digital data storage and delivery systems for the emerging commercial mass data storage market, and has discontinued many older products and businesses. The Company operates in one industry segment for financial reporting purposes: the design, development, production and distribution of high-speed, high-capacity magnetic recording products and systems. The following table shows sales of the Company's products by product group for the past three years. Net Sales (in millions) 1997 1996 1995 Mass data storage/instrumentation $63.7 $71.6 $65.6 Professional video and other products 16.6 24.9 30.1 ---- ---- ---- Total net sales 80.3 96.5 95.7 Results of Operations for the Three Years Ended December 31, 1997 Net Sales. Net sales decreased by 16.8% to $80.3 million in 1997 from $96.5 million in 1996, compared to $95.7 million in 1995. The anticipated continuing decline in sales of professional video and other products accounted for the majority of the decline in net sales during 1997 and 1996. In 1997, sales of the Company's 19-millimeter product line declined from 1996 levels and sales of instrumentation recorders increased modestly during the period. The Company doubled the capacity of its 19-millimeter product line early in 1997 and passed along this improvement to the customer at no increase in selling price. Although the Company shipped more megabytes of 19-millimeter tape-based storage, its revenues for this product category declined during the 1997 fiscal year, due also to declining sales to customers in the oil and gas industry and the government. In 1996, the increase in sales of 19-millimeter tape-based mass data storage and instrumentation products offset the decline in sales of professional video recording products and other products. The Company's backlog of firm orders increased to $6.9 million at December 31, 1997 from $3.4 million at December 31, 1996. The Company typically operates with low levels of backlog, requiring it to obtain the vast 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 has significantly impacted sales levels and often orders are received late in the quarter making it difficult to predict sales levels in future periods. See "Business -- Fluctuations in Operating Results; Seasonality; Backlog." Management currently believes that net sales of its existing products will decline materially in the first quarter of 1998 and in fiscal 1998, relative to comparable 1997 periods. Mass Data Storage Products and Instrumentation Recorders. Sales of mass data storage products and instrumentation recorders and related after-market products decreased by 11.0% from 1996 to 1997, after experiencing a 9.1% increase in 1996 from 1995 levels. Early in 1997, the Company doubled the density of its 19- 679833.6 -20- millimeter tape-based storage products without increasing the selling price in order to retain the price/performance advantage over competing tape-based storage products and hard disk drives. Accordingly, while the Company shipped a larger amount of capacity measured in megabytes, revenues in this product category declined in 1997 from 1996 levels. Revenues from these products in 1997 were also affected by declining sales to customers in the oil and gas industry and the government. In addition to retaining its price/performance advantage, broader commercial acceptance of its 19-millimeter storage systems will depend significantly on the integration and vendor support of third party application software, which are often beyond the Company's control. The cost-efficiency of the Company's 19-millimeter storage systems has historically been dependent on data intensive applications, such as those which incorporate video, graphics and other images, requiring storage capacity materially greater than those required by traditional alphanumeric applications. The Company has concentrated its sales and marketing efforts primarily in certain specialized vertical markets, such as digital special effects creation and 3-D seismic data gathering and analysis, that can utilize the unique performance capabilities of the Company's 19-millimeter scanning recorders. Industry sources predict that by 2002, image-based storage content will account for 40% of all storage, up from 15% today. In order to capitalize on this increasing demand for storage, the Company may be required to increase its sales and marketing efforts to penetrate the commercial data processing market, and there is typically a lag from the time such efforts are initiated until additional revenues are generated. A significant portion of instrumentation product sales reflect purchases by the federal government. Direct and indirect sales to U.S. government agencies amounted to $22.3 million, $17.4 million and $14.0 million in 1997, 1996 and 1995, respectively, representing 27.7%, 18.0% and 14.7% of net sales in those years. While sales to government agencies have historically consisted primarily of data acquisition and instrumentation recorders, the Company has recently experienced an increase in sales of 19-millimeter-based data storage products to these customers. Sales to government agencies fluctuate as a result of changes in government spending programs (including defense programs), and may be adversely impacted by Congressional appropriations discussions. The Company is unable to forecast the extent to which sales may be adversely affected in future periods by these factors. Professional Video Recording and Other Products. Sales of professional video recording products and all other products (consisting primarily of television after-market products) continued to decline as anticipated and as previously disclosed. In 1997 and 1996, sales of the Company's DCT products accounted for all of the Company's professional television product sales. The Company's DCT digital products were designed for existing broadcast transmission standards, which are expected to become obsolete upon the adoption of new digital transmission standards that were recently announced. The Company anticipates that its professional video product sales will continue to decline pending the establishment of new standards and until new products can be introduced that are designed for them. The Company also anticipates a continuing reduction in the sale of television after-market products for these same reasons. Such sales declines could have a materially adverse effect on the Company. There can be no assurance as to when broadcasters will re-equip for the new transmission standards or whether the Company will be successful in any future efforts it may undertake to design and sell new products based on such standards. The Company is exploring ways to increase its market presence in the professional video industry, capitalizing on its reputation in television and video recording, which may include acquisitions of products and/or businesses that serve these markets. There can be no assurance that the Company will be successful in integrating these products and businesses into its operations. Gross Profit. Gross profit as a percentage of net sales was 48.8% in 1997, 45.7% in 1996 and 45.9% in 1995. The improved gross margin percentages reflect the effects of the Company's cost containment activities, which have reduced fixed manufacturing and administrative costs, as well as an improved sales mix of newer, high-margin products. If sales of the Company's relatively high-margin instrumentation recorders are adversely affected by pressure on government agencies to further reduce spending, gross margins in future periods could be adversely affected. Also, the Company may elect to use aggressive pricing as a marketing strategy to enter new markets for its storage products. While these efforts would be designed ultimately to increase revenues and profitability, they might reduce the gross margin percentage of net sales in the current period. 679833.6 -21- Selling and Administrative Expenses. Selling and administrative expenses as a percentage of net sales were 30.4% in 1997, 28.1% in 1996 and 23.7% in 1995. Spending levels included $4.2 million in 1997, $4.9 million in 1996 and $0.1 million in 1995 relating to patent infringement litigation with a foreign consumer products manufacturer. While the Company anticipates that the appeal of this litigation will be heard late in 1998, it anticipates that it will not incur material costs related to this matter in 1998. Excluding such costs, selling and administrative costs declined in 1997, reflecting savings realized in facility operating costs from levels incurred in 1996 as a result of relocating the Company's headquarters into smaller facilities. The Company anticipates that it will need to increase its sales and marketing efforts to be successful in penetrating the commercial data markets with its 19-millimeter storage products. Also, if it pursues additional opportunities in video and image processing, the Company forecasts that selling and administrative expenses may increase as a percentage of sales in future periods until such new business efforts begin to generate additional revenues. Research, Development and Engineering Expenses. Research, development and engineering expenses represented 19.3%, 16.5% and 16.3% of net sales in 1997, 1996 and 1995, respectively. The Company does not capitalize a material amount of RD&E expenditures. The majority of RD&E expenses in each of these years was used to enhance the price/performance levels of the Company's mass data storage products, as well as to integrate the Company's storage systems with various computer manufacturers' servers, workstations and other computer systems. Since the second half of 1994, the Company has been investing in the development of keepered media technology and has spent $3.6 million, $1.9 million and $1.0 million in 1997, 1996 and 1995, respectively, on commercializing this technology for use in hard disk drives. The keepered media development program was substantially completed during 1997. The Company has transferred this program to a long-term research and development project to assess whether the technology might be commercially employed with advanced head technologies. Continuing expenses for keepered media research are estimated to be less than $0.5 million annually. The Company is committed to investing in research, development and engineering programs at levels that can be supported by current levels of sales. Royalty Income. Royalty income was $12.6 million in 1997, $10.5 million in 1996 and $15.0 million in 1995. The Company's royalty income derives from patent licenses, and the Company receives most of its royalty income from licenses with companies that manufacture consumer video products (such as VCRs and camcorders) and, in certain cases, professional video tape recorders. During this period a growing portion of royalty income related to 8-mm video recorders and camcorders. In 1996, the Company negotiated its first license for use of certain of its patents in the manufacture of 6-mm digital video recorders. The Company intends to pursue additional digital video recorder licensees. The Company is also assessing whether its patented technology is being used by manufacturers of video games, DVD recorders and digital television receivers. There can be no assurance that the Company's technology is being utilized by the manufacturers of these products or, if used, whether the Company will be able to negotiate license agreements with the manufacturers. Royalty income has historically fluctuated widely due to a number of factors that the Company can not predict or control, such as the extent of use of the Company's patented technology by third parties, the materiality of any non-recurring royalties received as the result of negotiated settlements for products sold by manufacturers prior to entering into licensing agreements with the Company, the extent which the Company must pursue litigation in order to enforce its patents, and the ultimate success of its licensing and litigation activities. The costs of patent litigation can be material, and the institution of patent enforcement litigation may also increase the risk of counterclaims alleging infringement by the Company of patents held by third parties or seeking to invalidate patents held by the Company. See "Legal Proceedings," above. Restructuring Charges (Credits). In connection with the Company's restructuring that was substantially completed in 1993, the Company had accrued for the estimated future costs of vacated leased property and the closure of certain foreign subsidiaries. In the past three years, the Company has entered into transactions that reduced its anticipated obligations under several vacated leases. In addition, certain expenses related to the closure of foreign subsidiaries were less than originally anticipated. In 1997, the amount of restructuring credit recognized in income is net of a reserve that was recorded to write-off certain fixed assets and to provide for certain other costs totaling $0.9 million in connection with the transfer of the keepered media program to a long-term research and development project. As of December 31, 1997, the Company had a remaining balance of $3.3 million of accrued 679833.6 -22- restructuring costs. The Company will continue to evaluate the amount of accrued restructuring costs on a quarterly basis, and the Company may make additional adjustments in future periods if it determines that its actual obligations will differ significantly from the amounts accrued. Operating Income. Operating income was $13.5 million (16.8% of net sales) in 1997, $12.0 million (12.5% of net sales) in 1996 and $23.1 million (24.2% of net sales) in 1995. Operating income was positively impacted by the receipt of negotiated license settlements in addition to regular recurring license payments, improved gross margins due to an improved sales mix of products, continuing focus on cost controls on recurring selling and administrative expenses and restructuring credits. Patent infringement litigation costs, RD&E spending on keepered media and continuing declines in sales, particularly sales of professional video and other products, adversely impacted operating income as discussed above. Interest Expense. Interest expense was not material in 1997, $0.8 million in 1996 and $3.8 million in 1995. In the first quarter of 1996, the holders of the then outstanding 8% zero coupon convertible notes with a principal amount at maturity of $27.4 million converted the notes into approximately 8.5 million shares of Common Stock. Also, in January 1996, the mortgage on the real property in Redwood City, California was repaid from the cash proceeds of the sale of such property. In January 1998, the Company issued $30.0 million of 12% Senior Notes due 2003 and warrants to purchase approximately 1.02 million shares of Common Stock to certain institutional investors. Accordingly, leverage and interest expense will increase in 1998 from current levels. Amortization of Debt Financing Costs. These amounts reflect periodic amortization of financing costs over the remaining terms of the debt. Due to the conversion of the zero coupon notes and the repayment of the mortgage in 1996, the remaining deferred financing costs were written off during 1996. Financing costs associated with the January 1998 issuance of the 12% Senior Notes, estimated to total $1.5 million, will be charged to expense over 5 years. Interest Income. Interest income is earned on cash balances, and in 1997 and 1996 interest income was imputed on the notes received in connection with the sale of the Company's Redwood City, California property in 1996. The notes were fully paid in 1997. Pending application of the proceeds of the Senior Notes, they have been invested in short-term government securities. Other (Income) Expense, Net. Other (income) expense, net consists primarily of foreign currency transaction gains and losses resulting from the Company's foreign operations. In 1996, such amounts included a gain of $0.9 million on the sale of the smaller of its two manufacturing facilities in Colorado Springs, Colorado, offset by moving-related expenditures of $0.9 million at the Redwood City, California facility. Provision for Income Taxes. The Company was not required to include any material provision for U.S. Federal income tax in any of the last three fiscal years due to the utilization of net operating loss carryforwards and timing differences. At December 31, 1997, the Company had net operating loss carryforwards for income tax purposes of $100.0 million, expiring in the years 2005 through 2009. As a result of financing transactions that were completed in 1994 and 1995, the Company is limited in the amount of net operating loss carryforwards that can offset consolidated Federal taxable income in a given year. See Note 19 of Notes to Consolidated Financial Statements. The Company derives pretax foreign income from its international operations, which are conducted principally by its foreign subsidiaries. In addition, the Company's royalty income is subject, in certain cases, to foreign tax withholding. Such income is taxed by foreign taxing authorities, and the Company's domestic interest and amortization expenses and operating loss carryforwards are not deductible in computing such foreign taxes. The provisions for income taxes in 1997, 1996 and 1995 consist primarily of foreign income taxes and withholding taxes on royalty income. Gain of Business Held for Disposition. In November 1995, the Company completed the disposition of the Media subsidiaries, which had been accounted for as a business held for disposition since the quarter ended June 1993. The sale did not result in the receipt of any cash proceeds by the Company, and the non-recurring gain of 679833.6 -23- $43.9 million in 1995 represented the elimination of net liabilities of Media, less taxes and other costs. See Note 2 of Notes to Consolidated Financial Statements. Net Income. The Company reported net income of $14.8 million in 1997, $12.7 million in 1996 and $63.3 million in 1995. Net income benefited from the non-recurring gain of $43.9 million on the sale of Media in 1995 and from the factors discussed above in "Operating Income." Liquidity and Capital Resources. Cash Flow. At December 31, 1997, the Company had cash and short-term investments of $41.8 million, an increase from $30.7 million at December 31, 1996. In addition, in January 1998, the Company issued $30.0 million of Senior Notes. The net proceeds of the Senior Notes are available for general corporate purposes, including acquisitions of and investments in new business. Pending application for such purposes, the net proceeds are being invested in short-term government securities. The increase in cash and short-term investments in 1997 and in 1996 was due in part to receipt of the proceeds of repayment of certain notes received from the sale of portions of the Company's Redwood City, California facilities in 1996. The Company's operating activities generated cash of $4.6 million in 1997 and used cash of $6.1 million in 1996. The improvement in operating cash flow resulted from the factors discussed above in "Operating Income." The Company's decision to increase inventories to support sales of its 19-millimeter DST and DIS products is the primary reason for the increase of $2.3 million in inventories at December 31, 1997 from December 31, 1996. The increased investment in inventories, particularly with respect to its library systems, which have a limited sales history, may expose the Company to an increased risk of inventory write-offs. The Company has available a working capital and letter of credit facility that allows it to borrow up to $7.0 million through May 2000, based on eligible accounts receivable. At December 31, 1997, the Company had no material borrowings outstanding and had letters of credit issued against the facility totaling $2.7 million. Financing Transactions. In January 1996, the Company repaid the balance of the $7.4 million mortgage loan on the Redwood City, California property from a portion of the cash proceeds of the sale. Also, during 1996, the Company's convertible notes with an aggregate face amount at maturity of $27.4 million were converted into approximately 8.5 million shares of Common Stock, and warrants to purchase approximately 1.7 million shares were exercised. As of December 31, 1997, the Company became obligated to redeem the 69,970 outstanding shares of its 8% Noncumulative Preferred Stock, to the extent of funds legally available therefor (generally the excess of the value of assets over liabilities), at a redemption price of $1,000 per share. As of December 31, 1997, the Company did not have any funds legally available to redeem the Noncumulative Preferred Stock, and the Company cannot predict when, and to what extent, it will generate any legally available funds to redeem the Noncumulative Preferred Stock. The Company will remain obligated to redeem such shares from time to time in future fiscal periods to the extent funds become legally available for redemption, and will generally be precluded from declaring any cash dividends on, or repurchasing shares of, its Common Stock, until the Noncumulative Preferred Stock has been redeemed in full. Redemption of the Noncumulative Preferred Stock for cash in future periods could have a negative impact on the Company's liquidity. Under certain circumstances the Company may redeem the Noncumulative Preferred Stock by issuing Common Stock. See Note 13 of Notes to Consolidated Financial Statements. In the second quarter of 1996, the Company filed a shelf registration statement with the Securities and Exchange Commission covering 1,150,000 shares of Common Stock which may be offered from time to time by the Company, the proceeds of which would be used for general corporate purposes. The sale of Common Stock covered by the shelf registration statement could adversely affect the market price for the Common Stock, and would dilute current stockholders' interest by approximately 2% if all such shares were to be issued. The Company does not currently anticipate proceeding with this financing based on the current market price of the Company's Common Stock. 679833.6 -24- In January 1998, the Company issued $30.0 million of its Senior Notes, together with Warrants to purchase 1.02 million outstanding shares of Common Stock. The Warrants are exercisable at $2.25 per share at any time on or prior to March 15, 2003. The Warrants, if exercised, would represent approximately 2% of the Company's outstanding shares of Common Stock on a diluted basis. As a result of the issuance of the Senior Notes, the Company's total indebtedness and future debt service obligations have increased significantly from prior levels. The Company is required to use its best efforts to register the Senior Notes and Warrants with the Securities and Exchange Commission in order to permit public resales of these securities in accordance with the Securities Act of 1933, as amended. The net proceeds of the offering have been invested in short-term government securities, the yield on which investments is substantially lower than the interest charges on the Senior Notes. The Company has wide discretion as to how the proceeds may be invested, including for the acquisitions of and investments in new businesses. Any such investments or acquisitions, if made, might not pay a current return, which could require the Company to fund debt service obligations on the Senior Notes out of its liquidity and cash flow from its existing operations. The Indenture under which the Senior Notes were issued contains customary affirmative and negative restrictive covenants that limit, among other things, the incurrence of additional senior debt, the payment of dividends, the sale of assets and other actions by the Company and certain restricted subsidiaries. Under such Indenture the Company may, in general, issue additional senior debt, without meeting certain fixed charges coverage tests, up to $15.0 million. The Company has no present plans to issue any such additional debt, but may do so in the future if investment or acquisition opportunities are subsequently identified that require additional capital funds. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by Item 8 and the financial statement schedules required by Item 14(d) are included following Item 14 hereof. The supplementary data called for by Item 8 is not applicable to the Company. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information required by this item is incorporated herein by reference to the Company's Proxy Statement for its 1998 Annual Meeting of Stockholders (the "Proxy Statement"). Information regarding executive officers is included in Part I hereof as Item 4A and is incorporated by reference into this Item 10. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the Company's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the Company's Proxy Statement. 679833.6 -25- ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the Company's Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents Filed with this Report 1. Financial Statements (see Item 8 above) Ampex Corporation Consolidated Financial Statements as of December 31, 1997, 1996 and 1995 and for each of the three years in the period ended December 31, 1997 2. Financial Statement Schedules (see Item 8 above) Schedule II Valuation and Qualifying Accounts 3. Exhibits Exhibit Number Description Purchase and Sale Agreement dated as of November 29, 1995, 2.1 between the Company, as seller, and The Martin Group of Companies, as buyer, relating to the Company's real property in Redwood City, California, and First Amendment to Purchase and Sale Agreement dated January 19, 1996 (filed as Exhibit 2.01 to the Company's Form 8-K dated January 25, 1996 (the "January 1996 8-K") and incorporated herein by reference). 2.2 Secured Purchase Money Promissory Note in the face amount of $6.5 million, and Secured Purchase Money Promissory Note (Phase 2 Land) in the face amount of $11.0 million, each dated January 24, 1996, made by Martin/Campus Associates, L.P., and payable to the Company (filed as Exhibit 2.02 to the January 1996 8-K and incorporated herein by reference). 2.3 Stock Purchase Agreement dated as of November 10, 1995, among the Company, Quantegy Acquisition Corp., Ampex Media Holdings Incorporated, Ampex Media Corporation and Ampex Recording Media Corporation (filed as Exhibit 10.1 to the Company's Form 8-K dated November 13, 1995 and incorporated herein by reference). 3.1 Restated Certificate of Incorporation of the Company dated June 1, 1993 (filed as Exhibit 4.01 to the Company's Form 10-Q for the quarter ended March 31, 1993 and incorporated herein by reference); Certificate of Amendment of Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on April 22, 1994 (filed as Exhibit 3.2 to the Company's Form 8-K filed on May 2, 1994 (the "May 1994 8-K") and incorporated herein by reference); and Certificate of Amendment of Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on April 20, 1995 (filed as Exhibit 4.1 to the Company's Form 10-Q for the quarter ended March 31, 1995 (the "First Quarter 1995 10-Q") and incorporated herein by reference). 3.2 Certificate of Ownership and Merger of Ampex Video Systems Corporation and Ampex Recording Systems Corporation into Ampex Systems Corporation (filed as Exhibit 3.2 to the Company's Form 10-Q for the quarter ended March 31, 1994 (the "First Quarter 1994 10-Q") and incorporated herein by reference). 679833.6 -26- 3.3 Certificate of Ownership and Merger of Ampex Systems Corporation into the Company (filed as Exhibit 3.1 to the May 1994 8-K and incorporated herein by reference). 3.4 Certificate of Designations, Preferences and Rights of the Company's 8% Noncumulative Preferred Stock (filed as Exhibit 3.1 to the Company's Form 8-K filed on February 24, 1995 (the "February 1995 8-K") and incorporated herein by reference). 3.5 By-Laws of the Company, as amended through April 20, 1995 (filed as Exhibit 4.2 to the First Quarter 1995 10-Q and incorporated herein by reference). 4.1 Form of Class A Common Stock Certificate (filed as Exhibit 4.4 to the Company's Post-Effective Amendment No. 1 on Form S-3 to Form S-1 (File No. 33-91312) (the "1996 Form S-3") and incorporated herein by reference). 4.2 Form of Class C Common Stock Certificate (filed as Exhibit 4.5 to the Form S-3 and incorporated herein by reference). 4.3 Form of 8% Noncumulative Preferred Stock Certificate (filed as Exhibit 4.6 to the Form S-3 and incorporated herein by reference). 4.4 Exchange Agreement for 8% Noncumulative Preferred Stock and Common Stock, dated as of February 14, 1995, among the Company and the Initial Holders named therein (filed as Exhibit 4.1 to the February 1995 8-K and incorporated herein by reference). 4.5 Exchange Agreement for 8% Step-Up Rate Cumulative Convertible Preferred Stock, Warrants and Common Stock, dated as of April 22, 1994, among the Company and the Initial Holders named therein (filed as Exhibit 4.1 to the May 1994 8-K and incorporated herein by reference). 4.6 Exchange Agreement for Zero-Coupon Convertible Notes, Warrants and Common Stock, dated as of April 22, 1994, among the Company and the Initial Holders named therein (filed as Exhibit 4.2 to the May 1994 8-K and incorporated herein by reference). 4.11 Registration Rights Agreement for Notes dated as of April 22, 1994 among the Company and the Initial Holders named therein (filed as Exhibit 4.6 to the May 1994 8-K and incorporated herein by reference). 4.12 Registration Rights Agreement for Warrants and Shares dated as of April 22, 1994 among the Company and the Initial Holders named therein (filed as Exhibit 4.7 to the May 1994 8-K and incorporated herein by reference). 4.13 Registration Rights Agreement for 8% Noncumulative Preferred Stock dated as of February 14, 1995 among the Company and the Initial Holders named therein (filed as Exhibit 4.2 to the February 1995 8-K and incorporated herein by reference). 4.14 Registration Rights Agreement for Shares dated as of February 14, 1995 among the Company and the Initial Holders named therein (filed as Exhibit 4.3 to the February 1995 8-K and incorporated herein by reference). 4.15 Stock Purchase Agreement, dated February 10, 1995, between the Company and Edward J. Bramson, and related promissory note issued to the Company by Sherborne Investments Corporation (each filed as an Exhibit to Amendment No. 6 to Schedule 13D, filed on February 679833.6 -27- 23, 1995 by Edward J. Bramson and the other filing parties named therein, and incorporated herein by reference). 4.16 Stock Subscription and Debt Exchange Agreement dated as of January 25, 1993 between the Company and Sherborne Group Incorporated, and Registration Rights Agreement dated as of January 25, 1993 between the Company and Sherborne Group Incorporated, executed in counterpart by Sherborne Holdings Incorporated (each filed as an Exhibit to Amendment No. 1 to Schedule 13D, filed on February 3, 1993 by Sherborne Group Incorporated, Sherborne Holdings Incorporated and the other filing parties named therein, and incorporated herein by reference). 4.17 Letter Agreement between the Company and Sherborne Group Incorporated, dated December 22, 1993, providing for the issuance of shares of Class A Common Stock to Sherborne Group Incorporated in exchange for cancellation of debt (filed as Exhibit 4.24 to the Company's Form 10-K for fiscal 1993 (the "1993 10-K") and incorporated herein by reference). 4.18 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 10-K and incorporated herein by reference). 4.19 Warrant Agreement, dated as of January 28, 1998, between the Registrant and American Stock Transfer &Trust Company, as warrant agent, including form of Warrant Certificate (filed as Exhibit 4.2 to the Registrant's Form 8-K filed on February 2, 1998 (the "February 1998 8-K") and incorporated herein by reference). 4.20 Indenture, dated as of January 28, 1998, between the Company and IBJ Schroder Bank & Trust Company, as trustee, relating to the Registrant's 12% Senior Notes due 2003, including forms of 12% Senior Notes (filed as Exhibit 4.1 to the February 1998 8-K and incorporated herein by reference). 4.21 Purchase Agreement, dated January 26, 1998, between the Registrant and First Albany Corporation, relating to the Registrant's 12% Senior Notes due 2003 (filed as Exhibit 1.1 to the February 1998 8-K and incorporated herein by reference). 4.22 Exchange and Registration Rights Agreement, dated as of January 28, 1998, between the Registrant and First Albany Corporation, relating to the Registrant's 12% Senior Notes due 2003 (filed as Exhibit 4.3 to the February 1998 8-K and incorporated herein by reference. 4.23 Warrants and Warrants Share Registration Rights Agreement, dated as of January 28, 1998, between the Registrant and First Albany Corporation (filed as Exhibit 4.4 to the February 1998 8-K and incorporated herein by reference). 10.1 Tax Indemnification Agreement dated as of July 24, 1992 among Sherborne Group Incorporated, NH Holding Incorporated, the Company and certain affiliates and former affiliates of the Company (filed as Exhibit 10.11 to the Company's Form 10-Q for the quarter ended September 30, 1992 (the "Third Quarter 1992 10-Q") and incorporated herein by reference). 10.2 Ampex Corporation 1992 Stock Incentive Plan and related documents, as amended through August 22, 1996 (filed as Exhibit 4.03 to the Company's Post-Effective Amendment No. 1 to Registration Statement on Form S-8 (File No. 333-05623) and incorporated herein by reference). 679833.6 -28- 10.3* Ampex Systems Corporation Savings Plan (1997 Restatement). 10.4* Ampex Systems Corporation Employees' Retirement Plan, as amended and restated as of January 1, 1997. 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 (filed No. 33-47660) and incorporated herein by reference). 10.6 Ampex Corporation Retiree & Disabled Retiree Medical Care Plan, as amended and restated effective April 22, 1994 (filed as Exhibit 10.8 to the 1994 10-K and incorporated herein by reference). 10.7 Form of Indemnification Agreement entered into between the Company and directors Bramson, McKibben, Slusser and Stoltzfus (filed as Exhibit 10.16 to the Company's Form 10-Q for the quarter ended June 30, 1993 (the "Second Quarter 1993 10-Q") and incorporated herein by reference). 10.8 Office Sharing Agreement and Assignment and Assumption of Lease, each dated as of July 24, 1992 and each between the Company and Sherborne Group Incorporated (filed as Exhibit 10.20 to the Third Quarter 1992 10-Q and incorporated herein by reference), and related Sublease dated October 4, 1993 and Letter Agreement dated October 28, 1993 (filed as Exhibit 10.20 to the 1993 10-K and incorporated herein by reference). 10.9 Loan and Security Agreement by and between Ampex Finance Corporation and Congress Financial Corporation dated May 5, 1994 (filed as Exhibit 10.2 to the First Quarter 1994 10-Q and incorporated herein by reference) and Amendment Agreement dated as of July 31, 1995, second Amendment Agreement, dated March 29, 1996 (filed as Exhibit 10.2 to Second Quarter 1996 10-Q and incorporated herein by reference) and third Amendment Agreement, dated December 26, 1996 (filed as Exhibit 10.13 to the 1996 Form 10-K and incorporated herein by reference). 10.10 Form of Employment Security Letter entered into between the Company and Messrs. Atchison, McKibben, Jacquet and Talcott (executive officers of the Company), dated May 19, 1993, with addendum dated June 10, 1993 (filed as Exhibit 10.32 to the Second Quarter 1993 10-Q and incorporated herein by reference). 10.11 Stock Purchase Agreement, dated October 22, 1996, between the Company and Edward J. Bramson (filed as Exhibit 10.15 to the Company's Form 10-K for fiscal 1996 (the "1996 10- K") and incorporated herein by reference). 10.12 Lease dated January 19, 1996 by and between Martin/Campus Associates, L.P. as landlord and the Company as tenant, with respect to approximately 132,150 square feet of premises located on Douglas Avenue and on Broadway in Redwood City, California (filed as Exhibit 2.03 to the January 1996 8-K and incorporated herein by reference) as amended by amendment dated December 20, 1996 (filed as Exhibit 10.17 to the 1996 10-K and incorporated herein by reference). 10.13 Lease dated January 19, 1996 by and between Martin/Campus Associates, L.P. as landlord and the Company as tenant, with respect to approximately 54,290 square feet of premises located on Bay Road in Redwood City, California (filed as Exhibit 2.04 to the January 1996 8-K and incorporated herein by reference). 679833.6 -29- 10.14 Lease dated January 19, 1996 by and between Martin/Campus Associates, L.P. as landlord and the Company as tenant, with respect to approximately 359,218 square feet of premises located on Bay Road and Broadway in Redwood City, California (filed as Exhibit 2.05 to the January 1996 8-K and incorporated herein by reference). 10.15 Lease dated January 19, 1996 by and between Martin/Campus Associates, L.P. as landlord and the Company as tenant, with respect to approximately 60,000 square feet of premises to be constructed on Broadway in Redwood City, California (filed as Exhibit 2.06 to the January 1996 8-K and incorporated herein by reference). 10.16 TrademarkLicense Agreement dated May 31, 1990, by and between Ampex Corporation (a predecessor of the Company) as licensor, and certain of the Media Subsidiaries as licensee, relating to the Ampex trademark; related Trademark License Agreement dated July 24, 1992, by and between Ampex Systems Corporation (a former subsidiary that was merged into the Company) certain of the Media Subsidiaries; Amendment No. 1 to Trademark License Agreement dated March 23, 1993; Amended and Restated Trademark License Agreement dated June 22, 1993; and First Amendment to Amended and Restated Trademark License Agreement dated November 10, 1995 (filed as Exhibit 10.2 to 1995 10-K and incorporated herein by reference). 10.17 Joint Settlement Agreement by and among Pension Benefit Guaranty Corporation, the Ampex Group (a group of companies that includes the Company), the Limited Hillside Group and the Sherborne Group, dated November 22, 1994 (filed as Exhibit 10.2 to 1995 10-K and incorporated herein by reference). 10.18 Hillside-Ampex/Sherborne Agreement by and among the Ampex Group (a group of companies that includes the Company), the Limited Hillside Group and the Sherborne Group, dated December 1, 1994 (effective November 22, 1994) (filed as Exhibit 10.2 to 1995 10-K and incorporated herein by reference). 10.19 Real Estate Purchase Agreement dated as of April 16, 1996, between U.S. Filter/Ionpure Inc. and the Company, together with amendments thereto dated as of April 29, 1996 and May 3, 1996, relating to the sale of the Company's Colorado Springs, Colorado facility (filed as Exhibit 10.1 to Second Quarter 1996 10-Q and incorporated herein by reference). 10.20* 10.2Stock Purchase Agreement, dated as of October 29, 1997, between the Registrant and Edward J. Bramson. 10.21* Stock Purchase Agreement, dated as of November 7, 1997, between the Registrant and Edward J. Bramson. 10.22* Stock Purchase Agreement dated as of February 18, 1998 between the Registrant and Edward J. Bramson. 21.1* Subsidiaries of the Company 23.1* Consent of Independent Accountants 25.1* Power of Attorney (included in the signature page of this Report) 27.1* Financial Data Schedule - ------------------- * Filed herewith 679833.6 -30- (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the fourth quarter of 1997. (c) Exhibits. See Item 14(a)(3) above. (d) Financial Statement Schedules. See Items 8 and 14(a)(2) above. 679833.6 -31- SELECTED FINANCIAL DATA The following table summarizes certain selected financial data, which have been derived from and should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto, and with "Management's Discussion and Analysis of Financial Condition and Results of Operations," both of which are included elsewhere herein. There have been no cash dividends declared for the periods presented. In November 1995, the Company completed the divestiture of its Media subsidiaries, which had been accounted for as a business held for disposition since the second quarter of 1993. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," Note 2 of Notes to Consolidated Financial Statements and Note 1 to the table below. Statement of Operations Data (1):
Year Ended December 31, -------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (in thousands, except per share data) Net sales $80,311 $96,485 $95,662 $127,212 $169,711 Gross profit 39,171 44,078 43,886 49,795 48,523 Selling and administrative 24,452 27,084 22,626 24,279 66,219 Restructuring charges (credits) (1,659) (453) (2,480) -- 230,523 Income (loss) from continuing operations 14,803 12,741 19,407 15,542 (295,261) Net income (loss) 14,803 12,741 63,293 15,542 (296,404) Diluted income (loss) per share from continuing operations 0.32 0.28 0.47 0.36 (16.67) Diluted income (loss) per share 0.32 0.28 1.40 0.36 (16.74) Balance Sheet Data (1) At December 31, ---------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (in thousands) Working capital $44,607 $39,277 $ 10,742 $ (3,960) $ (41,429) Total assets 81,671 84,492 88,651 87,459 129,446 Long-term debt 2 914 31,585 30,805 90,641 Redeemable preferred stock 69,970 69,970 69,970 83,977 -- Total stockholders' equity (deficit) (90,015) (86,360) (127,357) (195,240) (210,481) - --------------------------
(1) The statement of operations data for all periods presented have been reclassified to reflect the results of operations of Media as discontinued operations, with the sale of discontinued operations reflected in the statement of operations for 1995. The balance sheet data for 1993 and 1994 reflect the assets and liabilities of Media as a single line item, "net liabilities of business held for disposition." This line item is inapplicable for subsequent periods as the sale of Media was completed in November 1995. 679833.6 -32- AMPEX CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Accountants............................................F-2 Consolidated Balance Sheets As of December 31, 1997 and 1996.......................................F-3 Consolidated Statements of Operations For Each of the Three Years in the Period Ended December 31, 1997......F-4 Consolidated Statements of Cash Flows For Each of the Three Years in the Period Ended December 31, 1997......F-5 Consolidated Statements of Stockholders' Deficit For Each of the Three Years in the Period Ended December 31, 1997......F-6 Notes to Consolidated Financial Statements...................................F-7 F-1 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Stockholders Ampex Corporation We have audited the accompanying consolidated balance sheets of Ampex Corporation as of December 31, 1997 and 1996, and the related consolidated statements of operations, cash flows and stockholders' deficit for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 consolidated financial position of Ampex Corporation as of December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. San Francisco, California February 20, 1998 679833.6 F-2 AMPEX CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
December 31, December 31, 1997 1996 --------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 24,076 $ 13,410 Short-term investments 17,685 17,241 Notes receivable - 7,926 Accounts receivable (net of allowances of $1,484 and $2,241) 13,246 16,721 Inventories 16,380 14,095 Other current assets 1,347 2,709 --------------- --------------- Total current assets 72,734 72,102 Property, plant and equipment 8,892 10,059 Other assets 45 2,331 --------------- --------------- Total assets $ 81,671 $ 84,492 =============== =============== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Notes payable $ 933 $ 1,075 Accounts payable 5,173 7,148 Income taxes payable 373 571 Accrued restructuring costs 1,706 2,002 Other accrued liabilities 19,942 22,029 --------------- --------------- Total current liabilities 28,127 32,825 Long-term debt 2 914 Other liabilities 70,708 60,233 Deferred income taxes 1,267 1,314 Accrued restructuring costs 1,612 5,596 --------------- --------------- Total liabilities 101,716 100,882 --------------- --------------- Commitments and contingencies (Note 12) Redeemable nonconvertible preferred stock, $1,000 liquidation value: Authorized: 69,970 shares 1997 and 1996 Issued and outstanding - 69,970 shares 1997 and 1996 69,970 69,970 Stockholders' deficit: Preferred stock, $1.00 par value: Authorized: 930,030 shares 1997 and 1996 Issued and outstanding - none 1997 and 1996 - - Common stock, $.01 par value: Class A: Authorized: 125,000,000 shares 1997 and 1996 Issued and outstanding - 45,936,707 shares 1997; 45,434,417 shares 1996 459 454 Class C: Authorized: 50,000,000 shares 1997 and 1996 Issued and outstanding - none 1997 and 1996 - - Other additional capital 383,513 382,042 Note receivable from stockholder (4,818) (3,979) Accumulated deficit (440,068) (454,871) Cumulative translation adjustments 507 526 Minimum pension liability adjustment (29,608) (10,532) --------------- --------------- Total stockholders' deficit (90,015) (86,360) --------------- --------------- Total liabilities and stockholders' deficit $ 81,671 $ 84,492 =============== =============== The accompanying notes are an integral part of these condolidated financial statements. F-3
AMPEX CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data)
Year Ended December 31, --------------------------------------------------------- 1997 1996 1995 ------------------ ----------------- ----------------- Net sales $ 80,311 $ 96,485 $ 95,662 Cost of sales 41,140 52,407 51,776 ------------------ ----------------- ----------------- Gross profit 39,171 44,078 43,886 Selling and administrative 24,452 27,084 22,626 Research, development and engineering 15,464 15,930 15,622 Royalty income (12,550) (10,497) (15,006) Restructuring charges (credits) (1,659) (453) (2,480) ------------------ ----------------- ----------------- Operating income 13,464 12,014 23,124 Interest expense 86 756 3,775 Amortization of debt financing costs - 85 126 Interest income (2,991) (3,257) (1,145) Other (income) expense, net 59 35 40 ------------------ ----------------- ----------------- Income from continuing operations before income taxes 16,310 14,395 20,328 Provision for income taxes 1,507 1,654 921 ------------------ ----------------- ----------------- Income from continuing operations 14,803 12,741 19,407 Gain of business held for disposition (net of taxes of $1,137 in 1995) - - 43,886 ------------------ ----------------- ----------------- Net income $ 14,803 $ 12,741 $ 63,293 ================== ================= ================= Basic income per share : Income per share from continuing operations $ 0.32 $ 0.29$ 0.58 Income per share from discontinued operations 0.00 0.00 1.38 ------------------ ----------------- ----------------- Income per share $ 0.32 $ 0.29 $ 1.96 ================== ================= ================= Weighted average number of common shares outstanding 45,616,344 43,307,645 31,964,682 ================== ================= ================= Diluted income per share : Income per share from continuing operations $ 0.32 $ 0.28$ 0.47 Income per share from discontinued operations 0.00 0.00 0.93 ------------------ ----------------- ----------------- Income per share $ 0.32 $ 0.28$ 1.40 ================== ================= ================= Weighted average number of common shares outstanding 46,461,321 44,723,031 47,145,357 ================== ================= ================= The accompanying notes are an integral part of these condolidated financial statements.
F-4 AMPEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year Ended December 31, -------------------------------------------------------- 1997 1996 1995 ----------------- ------------------ ----------------- Cash flows from operating activities: Net income $ 14,803 $ 12,741 $ 63,293 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and accretion 2,244 2,803 6,714 Net gain on sale of assets - 932 - Write-off of long-lived assets 445 - - Net increase in notes receivable (874) (1,519) - Deferred income taxes (47) (65) - (Increase) decrease in accounts receivable 4,243 (1,848) (2,848) Increase in inventories (2,285) (1,583) (2,666) Net (increase) decrease in other assets 3,516 (1,922) 105 Increase (decrease) in accounts payable (2,269) (2,492) 2,832 Net decrease in accrued liabilities and income taxes payable (4,170) (1,898) (9,515) Net decrease in long-term receivables 132 26 393 Net decrease in accrued restructuring costs (4,280) (3,131) (7,810) Net decrease in other non-current obligations (6,883) (8,129) (3,669) Net decrease in net liabilities associated with business held for disposition - - (43,886) ----------------- ------------------ ----------------- Net cash provided by (used in) operating activities 4,575 (6,085) 2,943 ----------------- ------------------ ----------------- Cash flows from investing activities: Purchases of short-term investments (78,629) (72,670) (39,303) Proceeds received on the maturity of short-term investments 77,957 64,376 27,392 Proceeds from the sale of short-term investments 228 3,938 6,876 Additions to property, plant and equipment (1,560) (2,834) (658) Net proceeds and additions to notes receivable 8,800 (6,407) - Proceeds from the sale of property, plant and equipment - 27,485 120 Deferred gain on sale of assets (814) 5,930 - Decrease in other assets - 2 - ----------------- ------------------ ----------------- Net cash provided by (used in) investing activities 5,982 19,820 (5,573) ----------------- ------------------ ----------------- Cash flows from financing activities: Borrowings under working capital facilities 52,053 48,130 50,527 Repayments under working capital facilities (52,908) (49,410) (49,905) Repayment of secured note payable - (7,333) (3,000) Repayment of notes payable-affiliates (2) (80) (706) Proceeds from issuance of common stock 637 1,624 394 Proceeds from issuance of warrants - 17 - Debt financing costs - - (137) ----------------- ------------------ ----------------- Net cash used in financing activities (220) (7,052) (2,827) ----------------- ------------------ ----------------- Effect of exchange rates on cash 329 (38) 164 ----------------- ------------------ ----------------- Net increase (decrease) in cash and cash equivalents 10,666 6,645 (5,293) Cash and cash equivalents, beginning of period 13,410 6,765 12,058 ----------------- ------------------ ----------------- Cash and cash equivalents, end of period $ 24,076 $ 13,410 $ 6,765 ================= ================== ================= The accompanying notes are an integral part of these condolidated financial statements.
F-5 AMPEX CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT For Each of the Three Years in the Period Ended December 31, 1997 (in thousands)
Note Common Stock Other R'cvble Class A Class C Additional from Shares Amount Shares Amount Capital Stkhlder ----------- ------------ ------------- -------------- --------------------- ------------ Balances, January 1, 1995 20,551 $ 206 6 - $ 338,993 - Net income - - - - - - Translation adjustments - - - - - - Minimum pension liability adjustment - - - - - - Proceeds from exercise of warrants 1,345 13 - - - - Proceeds from issuance of shares 1,500 15 - - 2,400 $ (2,053) Preferred stock accretion - - - - (783) - Stock options exercised 8 - - - 19 - Preferred stock exchange 1,225 12 9,782 $ 98 14,680 - Expenses on exchange - - - - (137) - Conversion of shares 7,681 77 (7,681) (77) - - ----------- --------- ------------- -------- ---------------- ------------- Balances, December 31, 1995 32,310 $ 323 2,107 $ 21 $ 355,172 $ (2,053) Net income - - - - - - Translation adjustments - - - - - - Minimum pension liability adjustment - - - - - - Proceeds from exercise of warrants 1,699 17 - - - - Proceeds from issuance of shares 400 4 - - 2,746 (1,926) Stock options exercised 395 4 - - 797 - Conversion of notes 8,523 85 - - 23,327 - Conversion of shares 2,107 21 (2,107) (21) - - ----------- --------- ------------- -------- ---------------- ------------- Balances, December 31, 1996 45,434 $ 454 - - $ 382,042 $ (3,979) Net income - - - - - - Translation adjustments - - - - - - Minimum pension liability adjustment - - - - - - Proceeds from issuance of shares 325 3 - - 1,045 (839) Stock options exercised 178 2 - - 426 - ----------- --------- ------------- -------- ---------------- ------------- Balances, December 31, 1997 45,937 $ 459 - - $ 383,513 $ (4,818) =========== ========= ============= ======== ================ ============= Cumulative Pension Stockholders' Accumulated Translation Liability Equity Deficit Adjustment Adjustment (Deficit) ------------------- --------------- ----------------- ------------------- Balances, January 1, 1995 $ (530,905) $ 592 $ (4,126) $ (195,240) Net income 63,293 - - 63,293 Translation adjustments - (147) - (147) Minimum pension liability adjustment - - (9,527) (9,527) Proceeds from exercise of warrants - - - 13 Proceeds from issuance of shares - - - 362 Preferred stock accretion - - - (783) Stock options exercised - - - 19 Preferred stock exchange - - - 14,790 Expenses on exchange - - - (137) Conversion of shares - - - - ------------ ------------ --------------- ----------------- Balances, December 31, 1995 $ (467,612) $ 445 $ (13,653) $ (127,357) Net income 12,741 - - 12,741 Translation adjustments - 81 - 81 Minimum pension liability adjustment - - 3,121 3,121 Proceeds from exercise of warrants - - - 17 Proceeds from issuance of shares - - - 824 Stock options exercised - - - 801 Conversion of notes - - - 23,412 Conversion of shares - - - - ------------ ------------ --------------- ----------------- Balances, December 31, 1996 $ (454,871) $ 526 $ (10,532) $ (86,360) Net income 14,803 - - 14,803 Translation adjustments - (19) - (19) Minimum pension liability adjustment - - (19,076) (19,076) Proceeds from issuance of shares - - - 209 Stock options exercised - - - 428 ------------ ------------ --------------- ----------------- Balances, December 31, 1997 $ (440,068) $ 507 $ (29,608) $ (90,015) ============ ============ =============== ================= The accompanying notes are an integral part of these condolidated financial statements.
F-6 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 1 - Ampex Corporation Ampex Corporation ("Ampex" or the "Company") is engaged in the design, development, production and distribution of high-performance mass data storage systems, instrumentation recorders and professional video recording products. In November 1995, the Company disposed of a subsidiary, Ampex Media Holdings Incorporated ("AMHI" and, collectively with its subsidiaries, "Media"), which was engaged in the manufacture and sale of magnetic recording media. See Note 2. All references to "Ampex" or the "Company" include subsidiaries and predecessors of Ampex Corporation but exclude Media, unless otherwise indicated. The Company operates in one industry segment for financial reporting purposes: the design, development, production and distribution of high-speed, high-capacity magnetic recording products and systems. Note 2 - Business Held For Disposition In November 1995, the Company completed the disposition of Media, which had been accounted for as a business held for disposition since the second quarter of 1993. The Company recognized a nonrecurring gain for financial reporting purposes of $43.9 million in 1995. The consolidated statements of operations have been reclassified for all periods presented and the assets and liabilities associated with Media's business, which consisted principally of accounts receivable, inventory, fixed assets and debt facilities, were reported as a single line item in the consolidated balance sheets. Net sales of Media were $128.7 million from January 1, 1995 to November 13, 1995 (the date of disposition), and $144.6 million in 1994. The Company recognized a gain for financial reporting purposes on disposition of Media because Media's liabilities exceeded its assets. Costs and expenses reported by the Company for the distribution of tape products were included in the results of business held for disposition to the extent not offset by distribution fees received from Media. Note 3 - Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements are presented on a historical cost basis. All intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to the prior years' financial statements to conform to the current year's presentation. These reclassifications had no effect on the prior years' stockholders' deficit or net income. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents Cash equivalents consist of investments with original maturities of 90 days or less. 691340.1 F-7 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 3 - Summary of Significant Accounting Policies (cont'd.) Short-term Investments Investments with a maturity period greater than three months but less than one year are classified as short-term investments. The Company's short-term investments consist of highly liquid U.S. Treasury instruments and are considered "available-for-sale" securities under Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. Unrealized gains and losses, if material, are reported net of tax as a separate component of stockholders' equity until realized. Realized gains and losses, if any, are determined using the specific identification method. Inventories Inventories are stated at the lower of cost (on a first-in, first-out basis) or market. Property, Plant and Equipment Property, plant and equipment is recorded at cost and is stated net of accumulated depreciation. Depreciation is provided on a straight-line basis over estimated useful lives ranging from 6 to 9 years for machinery and equipment and 5 to 50 years for buildings and improvements. When assets are disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses are included in the results of operations. Carrying Value of Long-Lived Assets The Company writes off the carrying value of long-lived assets to the extent estimated future undiscounted operating cash flows are not sufficient to recover the carrying value of these assets over their remaining useful life. Foreign Currency Translation Assets and liabilities of subsidiaries located outside the United States have been translated at rates in effect at year end. Revenues and expenses are translated at average rates during the year. Local currencies are considered to be the functional currencies for substantially all of the Company's foreign subsidiaries. Accordingly, the effects of translating the financial statements of foreign subsidiaries into U.S. dollars are reported in the cumulative translation adjustment, a separate component of stockholders' deficit. Foreign currency transaction gains and losses, which are included in other expense, were not material in the periods reported. Revenue Recognition Revenue is recognized at the time products are shipped to customers and at the time services are rendered. Research, Development and Engineering Research and development costs are expensed as incurred and amounted to $13.1 million, $14.0 million and $12.3 million in 1997, 1996 and 1995, respectively. Other engineering costs, principally incurred in connection with product introductions and process enhancements, amounted to $2.4 million, $1.9 million and $3.3 million in 1997, 1996 and 1995, respectively. 691340.1 F-8 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 3 - Summary of Significant Accounting Policies (cont'd.) Royalties Royalty income is recorded when earned and receipt is assured. Income Taxes The Company follows Statement of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. See Note 19. 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 temporary cash investments and trade receivables. The Company invests its temporary cash balances in short-term U.S. Treasury obligations and with high credit quality financial institutions and, by policy, limits the investment maturity and the amount of credit exposure to any one financial institution. The Company performs ongoing credit evaluations on its customers, and collateral is generally not required for trade receivables. Fiscal Year The Company's fiscal year is the 52 or 53-week period ending on the Saturday nearest December 31. Fiscal 1997 was a 53-week year. Fiscal 1996 and 1995 were 52-week years. Income Per Common Share The Company has adopted the provisions of Statement of Financial Accounting Standards No.128 ("SFAS 128"), Earnings Per Share, effective December 31, 1997. SFAS 128 requires the presentation of basic and diluted income per common share. Basic income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted income per common share is computed giving effect to all potentially dilutive common shares that were outstanding during the period. Dilutive common shares consist of the incremental common shares issuable upon the conversion of convertible subordinated debt (using the "if converted" method) and exercise of stock options and warrants for all periods. All prior period income per common share amounts have been restated to comply with SFAS 128. Stock Options The Company accounts for stock-based awards to employees in accordance with APB No. 25 ("APB 25"), Accounting for Stock Issued to Employees and has adopted the disclosure-only alternative of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock Based Compensation. See Note 15. 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. Management has determined that it is not practicable to estimate fair value for note payable-other, as no market for such instruments currently exists. See Note 10. 691340.1 F-9 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 3 - Summary of Significant Accounting Policies (cont'd.) Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income. SFAS 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. The impact of adopting SFAS 130, which is effective for the Company in 1998, has not yet been determined. In June 1997, the Financial Accounting Standards Board issued Statement of Accounting Standards No. 131 ("SFAS 131"), Disclosure about Segments of an Enterprise and Related Information. SFAS 131 requires publicly-held companies to report financial and other information about revenue-producing segments of the entity for which such information is available and is utilized by the chief operating decision makers. Specific information to be reported for individual segments includes profit or loss, certain revenue and expense items and total assets. A reconciliation of segment financial information to amounts reported in the financial statements would be provided. SFAS 131 is effective for the Company in 1998 and the impact of adoption has not been determined. Note 4 - Computation of Basic and Diluted Income per Share In accordance with the disclosure requirements of SFAS 128, a reconciliation of the numerator and denominator of basic and diluted income per common share is provided as follows (in thousands, except per share amounts) :
Year Ended December 31, 1997 1996 1995 ---- ---- ---- Numerator - Basic Income from continuing operations ..................... $ 14,803 $ 12,741 $ 19,407 Less preferred stock accretion ........................ - - (783) ------------- ------------- --------------- Adjusted income from continuing operations ............ $ 14,803 $ 12,741 $ 18,624 ============= ============= ============== Net income............................................ $ 14,803 $ 12,741 $ 63,293 Less preferred stock accretion ........................ - - (783) ------------- ------------- --------------- Adjusted net income ................................... $ 14,803 $ 12,741 $ 62,510 ============= ============= ============== Denominator - Basic Weighted average common stock outstanding ............. 45,616 43,308 31,965 ------------ ------------- -------------- Basic income per share from continuing operations.......... $ 0.32 $ 0.29 $ 0.58 ============= ============ ============= Basic income per share...................................... $ 0.32 $ 0.29 $ 1.96 ============= ============ =============
691340.1 F-10 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 4 - Computation of Basic and Diluted Income per Share (cont'd.) Numerator - Diluted Income from continuing operations ..................... $ 14,803 $ 12,741 $ 19,407 Add zero coupon interest .............................. - - 2,550 ------------- ------------- -------------- Adjusted income from continuing operations ............ $ 14,803 $ 12,741 $ 21,957 ============= ============= ============== Net income............................................ $ 14,803 $ 12,741 $ 63,293 Add zero coupon interest............................... - - 2,550 ------------- ------------- -------------- Adjusted net income ................................... $ 14,803 $ 12,741 $ 65,843 ============= ============= ============== Denominator - Diluted Weighted average common stock outstanding ............. 45,616 43,308 31,965 Effect of dilutive securities: Stock options...................................... 845 1,231 509 Warrants........................................... - 184 2,546 Conversion of zero coupon notes.................... - - 8,522 Conversion of redeemable preferred stock........... - - 3,603 ------------ ------------- -------------- 46,461 44,723 47,145 ------------ ------------- -------------- Diluted income per share from continuing operations........ $ 0.32 $ 0.28 $ 0.47 ============= ============ ============= Diluted income per share.................................... $ 0.32 $ 0.28 $ 1.40 ============= ============ =============
Stock options to purchase 566,775 shares of common stock at prices ranging from $3.19 to $10.50 per share were outstanding at December 31, 1997, but were not included in the computation of diluted income per share because the exercise price was greater than the average market value of the common shares. In January 1998, warrants to purchase 1,020,000 shares of common stock were issued in connection with a private placement. The warrants, if exercised, would represent approximately 2% of the Company's common shares on a diluted basis. See Note 22. Stock options to purchase 273,500 shares of common stock at $10.50 per share were outstanding at December 31, 1996, but were not included in the computation of diluted income per share because the exercise price was greater than the average market value of the common shares. Stock options to purchase 2,500 shares of common stock at $6.00 per share were outstanding at December 31, 1995, but were not included in the computation of diluted income per share because the exercise price was greater than the average market value of the common shares. Note 5 - Supplemental Schedule of Cash Flow Information
Year Ended December 31, 1997 1996 1995 ---- ---- ---- (in thousands) Interest paid.......................................... $ 86 $ 265 $ 1,310 Income taxes paid ..................................... $ 1,752 $ 1,706 $ 1,436
691340.1 F-11 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 6 - Short-Term Investments The carrying and market values of short-term investments are as follows at December 31, 1997 and 1996:
Available - For - Sale December 31, 1997 Scheduled Carrying Unrealized Fair Maturity Value Gains Losses Value Date ----- ----- ------ ----- ---- (in thousands) U.S. Government and Agency Obligations $ 17,685 $ - $ - $ 17,685 Jan.-Mar. 1998 Available - For - Sale December 31, 1996 Scheduled Carrying Unrealized Fair Maturity Value Gains Losses Value Date (in thousands) U.S. Government and Agency Obligations $ 17,241 $ - $ - $ 17,241 Jan.-Mar. 1997
Short-term investment purchases and maturities for the years ended December 31, 1997 and 1996 were as follows:
December 31, 1997 1996 ---- ---- (in thousands) Purchases............................................................... $ 78,629 $ 72,670 Maturities.............................................................. 78,185 68,314 ------------- -------------- Net change.............................................................. $ 444 $ 4,356 ============= ============== Note 7 - Inventories December 31, 1997 1996 (in thousands) Raw materials........................................................... $ 6,686 $ 6,097 Work in process......................................................... 5,424 5,160 Finished goods.......................................................... 4,270 2,838 ------------- -------------- Total.............................................................. $ 16,380 $ 14,095 ============= ==============
Inventories are stated net of reserves for obsolete and slow moving items of $15.6 million and $20.1 million at December 31, 1997 and 1996, respectively. Inventory disposals which had previously been fully reserved totaled $4.0 and $4.4 million, during 1997 and 1996, respectively. 691340.1 F-12 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 8 - Property, Plant and Equipment
December 31, 1997 1996 ---- ---- (in thousands) Land.................................................................... $ 952 $ 952 Buildings and improvements.............................................. 8,338 10,943 Furniture, fixtures and equipment....................................... 29,740 43,381 Construction in progress................................................ 439 - ------------- -------------- 39,469 55,276 Less accumulated depreciation........................................... (30,577) (45,217) -------------- --------------- Total.............................................................. $ 8,892 $ 10,059 ============== ==============
Depreciation charged to operations was $2.2 million, $2.1 million and $3.7 million in 1997, 1996 and 1995, respectively. During the year, the Company retired fixed assets with a gross value of $17.0 million and a net book value of $0.1 million. In January 1996, the Company completed the sale of its real property in Redwood City, California for $36.0 million. The net book value of the property at the time of the sale was $26.2 million. The sale resulted in a gain of approximately $8.3 million. Of this amount, approximately $2.4 million represents imputed interest on the secured notes (and is being recognized over the terms of the notes), and $4.1 million is being recognized over a five-year period representing the noncancelable portion of two of the Company's leases relating to the property. The remaining $1.8 million is being deferred for four years. If, at that time, the Company decides to continue the two leases for an additional six- to nine-year period, the $1.8 million will be recognized over the remaining terms of the leases; otherwise, the $1.8 million gain will be offset by lease cancellation fees of the same amount. At December 31, 1997 and 1996, the balance of the deferred gain was $4.4 and $5.2 million, respectively. In May 1996, the Company completed the sale of the smaller of its two manufacturing facilities in Colorado Springs, Colorado for $3.6 million, and realized a gain of $0.9 million on the sale. The net book value of the property at the time of the sale was $2.4 million. Note 9 - Other Accrued Liabilities
December 31, 1997 1996 ---- ---- (in thousands) Compensation and employee benefits...................................... $ 6,213 $ 6,552 Pension................................................................. 6,339 5,435 Warranty and other product costs........................................ 1,363 2,337 Customer deposits....................................................... 163 - Other................................................................... 5,864 7,705 ------------- -------------- Total............................................................... $ 19,942 $ 22,029 ============= ==============
691340.1 F-13 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 10 - Debt December 31, 1997 1996 ---- ---- (in thousands) Notes Payable Working capital facilities.......... $ 769 $ 909 Note payable - other................ 164 166 ------------- -------------- $ 933 $ 1,075 ============= ============== Long-term Debt Working capital facilities.......... $ 2 $ 914 ------------- -------------- $ 2 $ 914 ============= ============== Working Capital Facilities Ampex has a loan from a foreign bank and a revolving credit line with a domestic financial institution to finance working capital requirements. Average borrowings under these agreements in 1997 were $1.2 million at an average interest rate of 2.5%, and in 1996 were $2.3 million at an average interest rate of 2.5%. Maximum borrowings outstanding at any time during 1997 and 1996 were $1.8 million and $3.3 million, respectively. At December 31, 1997 and 1996, under these agreements $0.8 million and $1.8 million were outstanding, respectively. The Company's domestic revolving credit agreement permits borrowings up to $7.0 million, based on eligible accounts receivable as defined in the agreement, less a standby letter of credit facility in the amount of $2.5 million. At December 31, 1997 under the domestic revolving credit agreement there was $1,616 outstanding and at December 31, 1996 there was $4,669 outstanding. The Company pays a monthly commitment fee of 0.5% per annum based on the average daily unused amount. The borrowings are collateralized by certain current assets of the Company. Note Payable - Other The note is a non-interest bearing demand promissory note held by NHI. The remaining balance of $0.2 million at December 31, 1997 is expected to be paid or converted to shares of Common Stock in 1998. 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, 1997, for years subsequent to 1998 : Year (in thousands) ---- -------------- 1999....................................... $ 2 691340.1 F-14 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 11 - Other Liabilities December 31, 1997 1996 ---- ---- (in thousands) Pension.................................... $ 31,510 $ 18,370 Reserve for contingent liabilities......... 27,015 27,015 Other postemployment benefits.............. 6,478 6,894 Other...................................... 5,705 7,954 ----------- ----------- Total.................................. $ 70,708 $ 60,233 =========== =========== The increase in the pension liability was attributable to an increase in the minimum pension liability resulting from adoption of updated group mortality assumptions, lowering the discount rate from 7.25% in 1996 to 7.0% in 1997 due to a decline in long-term interest rates, less the gain on the fair value of the plan assets. See Note 16. Note 12 - Commitments and Contingencies Leases The Company leases certain manufacturing and office facilities and equipment under operating lease agreements. As of December 31, 1997 future annual lease obligations under leases with noncancellable lease terms in excess of one year were as follows: Year (in thousands) 1998....................................... $ 3,770 1999....................................... 3,607 2000....................................... 3,291 2001....................................... 3,249 2002....................................... 509 Thereafter................................. 2,569 ------------ $ 16,995 Total rent expense for all operating leases was $4.9 million, $5.1 million and $2.9 million for the years ended December 31, 1997, 1996 and 1995, respectively. 691340.1 F-15 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 12 - Commitments and Contingencies (cont'd.) In January 1996, the Company completed the sale of its real property in Redwood City, California and leased back a portion of the property from the purchaser. Future annual lease obligations, included in the above table, under two lease agreements with noncancellable lease terms until April 2001 approximates $1.8 million per year. An additional $1.8 million representing a potential lease termination penalty was included in the table above. The Company funded $3.8 million of leasehold improvements in 1996 which, with interest, was refunded by the property owner through rent credits and a buy-out in 1997. Rent credits of $1.0 and $0.4 million were used in 1997 and 1996, respectively. In October 1997, the property owner paid the balance of $2.7 million. The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of December 31, 1997: Year (in thousands) 1998....................................... $ 143 1999....................................... 91 2000....................................... 23 2001....................................... 17 ------------ Net minimum lease payments 274 Less amount representing interest (46) ------------ Present value of net minimum lease payments $ 228 ============ The gross book value and accumulated depreciation of capital leases at December 31, 1997 were $0.4 million and $0.1 million, respectively. Legal Proceedings The Company is currently a defendant in lawsuits that have arisen in the ordinary course of its business. Management does not believe that any such lawsuits or unasserted claims will have a material adverse effect on the Company's financial position, results of operations or cash flows. In addition, certain subsidiaries have been assessed income and value added taxes together with penalties and interest by Italian tax authorities. The Company has been indemnified by its former owner for costs of defending this action as well as for payments in excess of certain amounts that have been provided for in the accompanying financial statements. Environmental Matters The Company currently is involved in various stages of investigation and cleanup relative to environmental protection matters, some of which relate to past disposal practices. Some of these matters are being overseen by state or federal agencies. Management has recorded certain amounts related to investigation and cleanup costs and believes that the final disposition of these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. Guarantees The Company has certain arrangements with banks primarily to facilitate the issuance of performance guarantees or letters of credit. At December 31, 1997 and 1996, the Company was contingently liable for $2.4 million and $2.0 million, respectively, of general performance guarantees and letters of credit. The Company has not recorded reserves for potential losses for these items at December 31, 1997 and 1996. 691340.1 F-16 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 13 - Preferred Stock In February 1995, the Company completed a refinancing in which all outstanding Redeemable Convertible Preferred Stock, which had an aggregate value at January 31, 1995 of approximately $84.8 million, was exchanged for shares of a new series of 8% Noncumulative Redeemable Preferred Stock with an aggregate liquidation value of $70.0 million and 11 million shares of Common Stock. The transaction eliminated the obligation of the Company to accrue dividends on preferred stock unless dividends are declared on Common Stock and eliminated the right of the holders of the Redeemable Convertible Preferred Stock to convert their shares into up to 27.9 million shares of Common Stock. The Noncumulative Redeemable Preferred Stock is subject to mandatory redemption after December 31, 1997, out of funds legally available therefor (generally the excess of assets over liabilities). Mandatory or optional redemption payments are payable in cash or, at the option of the Company, in shares of Common Stock, provided that, as a condition to redemption in shares, the average market price of the Company's Common Stock must have been at least $4 per share during the 10 trading days preceding the notice of redemption. Common Stock issued to redeem the Preferred Stock shall be valued at 90% of fair market value. As at December 31, 1997, the Company did not have funds legally available to redeem any of the Preferred Stock. As legally available funds begin to be generated, the Company will be required to redeem such shares thereafter to the extent funds become legally available therefor, and will be precluded from declaring dividends on its Common Stock until the Preferred Stock has been redeemed. Note 14 - Related Party Transactions During 1997 and 1996, the Company received 5-year notes for the purchase of Common Stock by an affiliated company in the principal amounts of $838,750 and $2,200,000, respectively. The notes bear annual interest at 6.34% and 6.72%, respectively, and are collateralized by the purchased shares. In June 1996, the Company received a partial payment on the notes outstanding of $273,700. 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 "non-qualified stock options" and "incentive stock options" to acquire Class A Stock and/or the granting of stock appreciation rights to obtain, in cash or shares of Class A Stock, the benefit of the appreciation of the value of shares of Class A Stock after the grant date. On January 10, 1995 the Committee approved the repricing of 104,000 options that had been granted on April 14, 1994 and 50,000 options that had been granted on November 4, 1994 to an exercise price of $1.50 per share, which was the fair market value of the stock on January 10, 1995. Prior to the repricing, the options had an exercise price of $2.375 per share. 691340.1 F-17 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 15 - Common Stock, Stock Options and Warrants (cont'd.) On May 19, 1995, at the Company's Annual Meeting, stockholders authorized the issuance of an additional 1,500,000 shares under the 1992 Stock Incentive Plan, of which 1,100,000 shares had been authorized by the Company's Board of Directors on June 16, 1994, and 400,000 had been authorized on December 16, 1994. On June 7, 1996, at the Company `s Annual Meeting, stockholders authorized the issuance of an additional 2,000,000 shares under the 1992 Stock Incentive Plan. The Company is currently authorized to issue up to 4,250,000 shares of Class A Stock under the Stock Incentive Plan. On October 28, 1997, the Committee authorized the holders of 918,100 "out-of-the-money" stock options with exercise prices ranging from $3.625 to $10.50, to voluntarily elect to cancel those options in exchange for an equivalent number of new options. The new options were granted at an exercise price of $3.125, which was the fair value of the Class A Stock on October 28, 1997, and with new vesting and expiration schedules. Of the 918,100 options eligible for exchange, option holders elected to exchange 664,250 options that had exercise prices ranging from $4.875 to $10.50. At December 31, 1997 there were 2,309,865 options outstanding, including 1,404,725 vested options. The exercise prices range from $1.50 to $10.50 per share and vesting schedules vary from immediate vesting to vesting over a five-year period.
Weighted Shares Number Price Aggregate Average Available of Per Exercise Exercise for Grant Options Share Price Price --------- ------- ----- ----- ----- Balances, December 31, 1994 455,500 1,794,500 $ 1.50-6.00 $ 3,354,001 $ 1.87 Granted (517,400) 517,400 1.50-3.69 1,475,825 2.85 Canceled 297,560 (297,560) 1.50-2.38 (637,178) 2.14 Exercised (7,900) 2.38 (18,763) 2.38 --------- --------- ------------ ------------- --------- Balances, December 31, 1995 235,660 2,006,440 $ 1.50-3.69 $ 4,173,885 $ 2.08 Authorized 2,000,000 Granted (914,750) 914,750 3.75-10.50 6,781,750 7.41 Canceled 129,390 (129,390) 1.50-6.44 (390,054) 3.01 Exercised (394,900) 1.50-3.63 (800,350) 2.03 --------- --------- ------------ ------------- --------- Balances, December 31, 1996 1,450,300 2,396,900 $ 1.50-10.50 $ 9,765,231 $ 4.07 Granted (990,000) 990,000 2.38-7.94 3,789,813 3.83 Canceled 899,745 (899,745) 1.50-10.50 (6,023,836) 6.70 Exercised (177,290) 1.50-5.75 (384,298) 2.17 --------- --------- ------------ ------------- --------- Balances, December 31, 1997 1,360,045 2,309,865 $ 1.50-10.50 $ 7,146,910 $ 3.09 ========= ========= ============ ============= =========
For the years ended December 31, 1997 and 1996, the weighted average fair value of options granted was $2.76 and $5.17 per share, respectively. At December 31, 1997 and 1996, there were no warrants outstanding. During 1996 and 1995, there were 1,699,499 and 1,344,985 shares, respectively, of Common Stock at $0.01 per share issued on the exercise of warrants. 691340.1 F-18 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 15 - Common Stock, Stock Options and Warrants (cont'd.) The Company has elected to account for employee stock options using the intrinsic value method prescribed by APB 25, and therefore compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Had compensation cost for the Company's stock-based compensation plan been determined on the fair value of the grant dates for awards under those plans consistent with the method of SFAS 123, the Company's net income and diluted income per share would have been reduced to the pro forma amounts indicated below :
December 31, 1997 1996 1995 ---- ---- ---- (in thousands) Net income : As reported.............................................. $ 14,803 $ 12,741 $ 63,293 ------------- ------------- ------------ Pro forma................................................ $ 12,360 $ 11,616 $ 63,118 ------------- ------------- ------------ Diluted income per share : As reported.............................................. $ 0.32 $ 0.28 $ 1.40 ------------ ------------- ------------ Pro forma................................................ $ 0.27 $ 0.26 $ 1.39 ------------ ------------- ------------
The above proforma disclosures are not necessarily representative of the effects on reported net income (loss) for future years. The fair values of options at the date of grant was estimated using the Black-Scholes model with the following weighted average assumptions:
December 31, 1997 1996 1995 ---- ---- ---- Expected life (years).................................... 1.5 - 5.5 1.67-5.0 1.0-4.0 ------------- ------------ ----------- Risk-free interest rate.................................. 5.6-6.54% 5.2-6.7% 5.6-7.9% ------------- ------------ ----------- Expected volatility...................................... 0.85-1.41 1.38-1.46 1.49-1.61 ------------- ------------ ----------- Expected dividend yield.................................. - - - ------------- ------------ -----------
The options outstanding and currently exercisable by exercise price at December 31, 1997 are as follows:
Options Currently Options Outstanding Exercisable ------------------- ----------- Weighted Average Weighted Weighted Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life Price Exercisable Price ------ ----------- ---- ----- ----------- ----- $1.50-$2.38 1,080,840 6.40 $ 1.74 1,070,340 $ 1.74 $3.13-$6.06 1,104,025 4.22 3.70 235,033 4.33 $6.13-$7.94 35,000 1.89 6.84 9,352 6.88 $10.50 90,000 1.20 10.50 90,000 10.50 --------- ---- ------- --------- ------- 2,309,865 5.09 $ 3.09 1,404,725 $ 2.77 ========= ==== ======= ========= =======
691340.1 F-19 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 16 - Pension Plans The Company's domestic employees participate in a qualified noncontributory defined benefit pension plan. Benefits are based on years of service and salary levels during the highest 60 consecutive months of the last 120 consecutive months of service. In early 1994, the Company amended the plan to terminate benefit service and compensation credit accruals as of February 1, 1994. The impact of this curtailment was not material to the Company's liability accounts relating to its pension plan. Certain of the Company's employees employed by its foreign subsidiaries are covered by contributory pension plans maintained and funded in accordance with local laws. Pension expense for the domestic plan in 1997, 1996 and 1995 consisted of the following:
Year Ended December 31, 1997 1996 1995 ---- ---- ---- (in thousands) Service cost........................................... $ - $ - $ - Interest on projected benefit obligation.............. 11,389 11,500 11,723 Actual return on assets................................ (7,673) (22,061) (11,313) Amortization of unrecognized prior service costs....... (4,401) 10,481 - ---------------- --------------- -------------- Net periodic pension cost (benefit)................ $ (685) $ (80) $ 410 =============== =============== ==============
The domestic plan funded status and amounts included in the consolidated balance sheets are as follows:
December 31, 1997 1996 ---- ---- (in thousands) Actuarial present value of benefits: Vested.............................................................. $ 178,171 $ 164,027 Nonvested........................................................... 658 606 ------------- -------------- Total accumulated benefits........................................ $ 178,829 $ 164,633 ============= ============== Projected benefit obligation............................................ $ (178,829) $ (164,633) Less: plan assets at fair value......................................... 144,705 144,848 ------------- -------------- (34,124) (19,785) Unrecognized net loss................................................... - - Tax benefit of excess pension liability................................. - - -------------- -------------- Accrued pension cost......................................................... $ (34,124) $ (19,785) ============== ===============
In connection with the sale of Media, the Company became the sponsor of the Media pension plan, and its ultimate liability will remain the same as it was prior to the sale. Media has agreed to provide continued funding for the plan, but if it fails to do so, the Company may be required to make funding payments or to make any required termination liability payments. As of December 31, 1997, the Company's consolidated balance sheets included $1.9 million in "other liabilities" for the Media plan's underfunded status. The Media plan's projected benefit obligation and plan assets at fair value were approximately $39.7 million and $36.2 million, respectively. 691340.1 F-20 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 16 - Pension Plans (cont'd.) Actuarial assumptions as of December 31, 1997 and 1996 are as follows: December 31, 1997 1996 ---- ---- Assumed discount rate...................... 7.0% 7.25% Rate of compensation increase.............. N/A N/A Expected long-term rate of return.......... 9.0% 9.0% Assets of the domestic pension plan are invested in directed trusts. At December 31, 1997 and 1996, assets of the directed trusts were primarily invested in U.S. government obligations, corporate stocks and bonds and units of common investment funds consisting of short-term interest bearing instruments and common stock. In accordance with Statement of Financial Accounting Standards No. 87, the Company has recorded an additional minimum pension liability for the underfunded plan of $29.6 million at December 31, 1997 and $10.5 million at December 31, 1996, representing the excess of unfunded accumulated benefit obligations over previously recorded pension cost liabilities. To the extent that these additional liabilities exceed related unrecognized prior service cost and net transition obligations, the increase or decrease in liabilities is charged directly to stockholders' deficit. For 1997 and 1996, $19.1 and $(3.1) million, respectively, was charged (credited) to stockholders' deficit. The components of foreign pension expense were as follows:
Year Ended December 31, 1997 1996 1995 ---- ---- ---- (in thousands) Service cost........................................... $ 41 $ 1,225 $ 88 Interest cost.......................................... 127 136 664 Return on assets....................................... - - (1,695) Amortization and deferral.............................. 10 13 969 -------------- ------------- -------------- Net periodic pension cost (benefit)................ $ 178 $ 1,374 $ 26 ============== ============= ==============
The reconciliation of the funded status of the foreign plans is as follows:
December 31, 1997 1996 ---- ---- Plans In Which Plans In Which Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets -------- ------ -------- ------ (in thousands) Actuarial present value of benefits: Vested....................................... $ - $ 1,630 $ - $ 1,710 Nonvested.................................... - 20 - 125 ------------ ----------- ------------ ------------ Total accumulated benefits................. $ - $ 1,650 $ - $ 1,835 ============ =========== ============ ============ Projected benefit obligation................... $ - $ (1,823) $ - $ (2,034) Less: plan assets at fair value............... - - - - ------------ ----------- ------------ ------------ - (1,823) - (2,035) Remaining unrecognized transition net (asset) obligation....................... - (115) - (65) ------------ ------------ ------------ ------------- Prepaid (accrued) pension cost................. $ - $ (1,938) $ - $ (2,099) ============ ============ ============ =============
691340.1 F-21 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 16 - Pension Plans (cont'd.) Effective July 1, 1996, the United Kingdom defined benefit pension plan was terminated and replaced by a new defined contribution retirement plan. Due to the termination, there was no accrued or prepaid pension cost remaining at December 31, 1996 and service cost included the amount which reflects all components of the prorated net pension cost. 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 $0.7 million, $0.8 million and $0.7 million for the years ended December 31, 1997, 1996 and 1995, respectively. Note 17 - Royalty Income In 1997, 1996 and 1995, the Company received and recognized non-recurring royalty payments attributable to the settlement of patent litigation and other negotiated settlements related to prior sales of products by licensees. Such non-recurring royalties amounted to $4.6 million, $2.0 million and $10.5 million in 1997, 1996 and 1995, respectively. The balance of royalties earned in these years represents royalties for product shipments in the current period. Note 18 - Restructuring Charges (Credits) In connection with the Company's decision to refocus its business toward mass data storage products and to narrow its product line in its traditional television markets, the Company began to restructure operations in 1990. These efforts were essentially completed by the end of 1994. Restructuring charges (credits) for the years ended December 31, 1997 and 1996 consist of the following :
Year Ended December 31, 1997 1996 1995 ---- ---- ---- (in thousands) Provisions for vacated lease obligations................. $ (2,603) $ (200) $ (1,480) Write-down of property, plant and equipment.............. 858 - - Provisions for employee separation costs................. 86 - - Costs associated with closure of foreign subsidiaries......................................... - (253) (1,000) -------------- ------------- --------------- $ (1,659) $ (453) $ (2,480) =============== ============= ===============
In 1997, 1996 and 1995 excess accruals of $2.6, $0.5 and $2.5 million (reflecting lower than anticipated expenses for the closure of foreign subsidiaries and lease obligations) were credited to operating income. Accruals for restructuring costs totaled $3.3 million at December 31, 1997 including $2.4 million relating to vacated or abandoned leases. 691340.1 F-22 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 19- Income Taxes Income from continuing operations before income taxes for domestic and foreign operations consisted of the following:
Year Ended December 31, 1997 1996 1995 ---- ---- ---- (in thousands) Domestic ................................................ $ 15,389 $ 16,016 $ 20,822 Foreign ................................................ 921 (1,621) (494) ----------- ----------- ----------- $ 16,310 $ 14,395 $ 20,328 =========== =========== ===========
The provision for income taxes consisted of the following:
Year Ended December 31, 1997 1996 1995 ---- ---- ---- (in thousands) Current: Federal.............................................. $ (77) $ 178 $ (500) State................................................ (24) 92 50 Foreign.............................................. 358 312 5 Foreign withholding taxes on royalty income............................................. 1,250 1,072 1,366 -------------- ------------- -------------- 1,507 1,654 921 -------------- ------------- -------------- Deferred: Federal.............................................. - - - Foreign.............................................. - - - -------------- ------------- -------------- $ 1,507 $ 1,654 $ 921 ============== ============= ==============
The difference between taxes computed by applying the statutory federal corporate income tax rate (effective for 1997, 1996, and 1995) to income from continuing operations before income taxes and the actual provision for income taxes was as follows:
Year Ended December 31, 1997 1996 1995 (in thousands) Federal income tax provision at statutory rate.................................... 5,709 $ 5,038 $ 7,114 Foreign losses not benefited............................. - 879 178 Rates in excess of U.S................................... 972 951 1,605 Temporary differences not previously benefited........... (4,254) (2,286) (7,534) Net operating losses not previously benefited............ (769) (3,205) - Other, net............................................... (151) 277 (442) ---------- ---------- -------------- $ 1,507 $ 1,654 $ 921 ========== ========== ==============
691340.1 F-23 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 19 - Income Taxes (cont'd.) An income tax liability of $1.1 million, representing the alternative minimum tax due on the disposition of Media, has been recognized against the gain of business held for disposition in 1995. The following table shows the major components of the deferred income tax assets and liabilities as of December 31, 1997 and 1996:
December 31, 1997 1996 ---- ---- (in thousands) Inventory basis differences........................................... $ 5,608 $ 5,996 Restructuring reserves and other liabilities not yet deductible for tax purposes....................................... 12,158 17,910 Loss carryforwards.................................................... 34,998 33,360 Foreign withholding taxes on undistributed earnings of foreign subsidiaries........................................... (1,267) (1,314) Property, plant and equipment basis differences ................................................ 721 73 Credit from prior year's minimum tax.................................. 1,235 1,315 Other ............................................................... 8,770 8,909 Less valuation allowance.............................................. (63,490) (67,563) -------------- ------------ Deferred tax liability......................................... $ (1,267) $ (1,314) ============== ============
A valuation allowance has been established to reduce the deferred tax asset to the amount expected to be realized. As at December 31, 1997, the Company had net operating loss carryforwards for income tax purposes of $100.0 million expiring in the years 2005 through 2009. As a result of the financing transactions that were completed in April 1994 and February 1995, the Company's ability to utilize its net operating losses and credit carryforwards as an offset against future consolidated federal income tax liabilities will be restricted in its application, which will result in a material amount of the net operating loss never being utilized by the Company. 691340.1 F-24 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 20- Foreign Operations The following table shows certain financial information relating to the Company's continuing operations in various geographical areas:
Year ended December 31, 1997 1996 1995 ---- ---- ---- (in thousands) Net Sales: United States........................................ $ 73,441 $ 92,711 $ 91,908 Europe, Africa and the Middle East................... 16,338 20,744 21,324 Other foreign........................................ 3,124 4,884 5,572 Eliminations (1)..................................... (12,592) (21,854) (23,142) --------------- -------------- --------------- Total........................................ $ 80,311 $ 96,485 $ 95,662 ================ =============== ==============
(1) Inter-area sales, primarily from the United States.
Year Ended December 31, 1997 1996 1995 ---- ---- ---- (in thousands) Income before income taxes: United States........................................ $ 6,699 $ 8,918 $ 9,256 Europe, Africa and the Middle East................... 498 1,352 3,704 Other foreign........................................ 905 350 1,116 Royalties............................................ 12,550 10,497 15,006 Eliminations and corporate expenses.................. (4,342) (6,722) (8,754) --------------- -------------- -------------- Total........................................ $ 16,310 $ 14,395 $ 20,328 ============== ============== ============== Year Ended December 31, 1997 1996 ---- ---- (in thousands) Identifiable assets: United States.......................................................... $ 34,488 $ 48,521 Europe, Africa and the Middle East..................................... 5,448 6,565 Other foreign.......................................................... 1,094 1,484 Eliminations and corporate assets...................................... 40,641 27,922 ------------- -------------- Total.......................................................... $ 81,671 $ 84,492 ============= ==============
Transfers between geographic areas are at cost plus a reasonable profit. Sales from the United States include export sales to unaffiliated customers of $5.6 million, $7.3 million and $7.1 million in 1997, 1996 and 1995, respectively. Identifiable assets are classified by the location of the Company's facilities and include cash, accounts receivable, inventory and property, plant and equipment. Corporate assets consisted principally of cash and short-term investments at December 31, 1997 and 1996. 691340.1 F-25 AMPEX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 21 - Major Customers Direct and indirect sales to various U.S. government agencies amounted to approximately $22.3 million, $17.4 million and $14.0 million for 1997, 1996 and 1995, respectively. In 1997, 1996 and 1995 no other single customer accounted for more than 10% of total net sales. Note 22 - Subsequent Event In January 1998, the Company issued $30.0 million 12% Senior Notes due March 15, 2003, together with warrants to purchase 1,020,000 Common Shares. The warrants are exercisable at $2.25 per share at any time on or prior to March 15, 2003. The warrants, if exercised, would represent approximately 2% of the Company's Common Shares on a diluted basis. The indenture under which the Notes were issued contains customary affirmative and negative restrictive covenants that limit, among other things, the incurrence of additional senior debt, the payment of dividends, the sale of assets and other actions by the Company and certain restricted subsidiaries. Under such indenture the Company may, in general, issue additional senior debt, without meeting certain fixed charges coverage tests, up to $15.0 million. The Company has no present plans to issue any such additional debt, but may do so in the future if investment opportunities are subsequently identified that require additional capital funds. Note 23 - Quarterly Financial Information (Unaudited) The following is a summary of the unaudited quarterly financial information for the years ended December 31, 1997 and 1996.
(In thousands, except share data) Fiscal 1997 Quarters ended March 31 June 30 Sept. 30 Dec. 31 - -------------- ---------- ----------- ---------- ----------- Net sales $ 21,081 $ 21,299 $ 18,182 $ 19,749 Gross profit 10,519 10,618 8,232 9,802 Net income 4,944 2,336 2,604 4,919 Basic and diluted income per share $ 0.11 $ 0.05 $ 0.06 $ 0.11 Fiscal 1996 Quarters ended March 31 June 30 Sept. 30 Dec. 31 - -------------- ---------- ----------- ---------- ----------- Net sales $ 24,232 $ 24,420 $ 23,604 $ 24,229 Gross profit 10,861 10,902 11,022 11,293 Net income 3,473 3,972 3,103 2,193 Basic and diluted income per share $ 0.09 $ 0.09 $ 0.07 $ 0.05
691340.1 F-26 AMPEX CORPORATION INDEX TO FINANCIAL STATEMENT SCHEDULE Page Report of Independent Accountants on Financial Statement Schedule......... S-2 Schedule II - Valuation and Qualifying Accounts..................... S-3 S-1 DOCUMENT NO. 691346.1 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE Board of Directors and Stockholders Ampex Corporation Our report on the consolidated financial statements of Ampex Corporation is included on page F-2 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page S-1 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. San Francisco, California February 20 , 1998 S-2 DOCUMENT NO. 691349.1 AMPEX CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Balance at Additions Charges to Balance at beginning of cost and other end of Description period expenses accounts (1) (Deductions) (2) period - ----------- ------------- ------------- ------------ ------------- ------------- Allowance for doubtful accounts and sales returns December 31, 1995 $ 5,404 $ (858) $ (221) $ (1,784) $ 2,541 - ----------------- December 31, 1996 $ 2,541 $ (192) $ (94) $ (14) $ 2,241 - ----------------- December 31, 1997 $ 2,241 $ (395) $ (67) $ (295) $ 1,484 - ----------------- Allowance for obsolete and slow moving inventory December 31, 1995 $ 29,477 $ 1,930 $ 1,958 $ (7,692) $ 25,673 - ----------------- December 31, 1996 $ 25,673 $ (362) $ - $ (5,234) $ 20,077 - ----------------- December 31, 1997 $ 20,077 $ 25 $ (3) $ (4,470) $ 15,629 - -----------------
- ------------------------------------ (1) Includes transfers and reclassifications to other accounts. (2) Includes write-offs of accounts receivable and inventories. S-3 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 13, 1998 KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint Edward J. Bramson, Joel D. Talcott, Vicki Gruber Callahan or any of them, with full power to act, his attorney-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 Chairman, Chief Executive Officer March 13, 1998 - --------------------- Edward J. Bramson and Director (Principal Executive Officer) /s/ Craig L. McKibben Vice President, Chief Financial Officer, March 13, 1998 - --------------------- Craig L. McKibben Treasurer and Director (Principal Financial Officer and Principal Accounting Officer) /s/ Douglas T. McClure, Jr. Director March 13, 1998 - --------------------------- Douglas T. McClure, Jr. /s/ Peter Slusser Director March 13, 1998 Peter Slusser /s/ William A. Stoltzfus, Jr. Director March 13, 1998 - ----------------------------- William A. Stoltzfus, Jr.
679833.6 -33- AMPEX CORPORATION 1997 FORM 10-K EXHIBIT INDEX Exhibit Number Description - ------ ----------- 10.3 Ampex Systems Corporation Savings Plan (1997 Restatement). 10.4 Ampex Systems Corporation Employees' Retirement Plan, as amended and restated as of January 1, 1997. 10.20 Stock Purchase Agreement, dated as of October 29, 1997, between the Registrant and Edward J. Bramson. 10.21 Stock Purchase Agreement, dated as of November 7, 1997, between the Registrant and Edward J. Bramson. 10.22 Stock Purchase Agreement dated as of February 18, 1998 between the Registrant and Edward J. Bramson. 21.1 Subsidiaries of the Company. 23.1 Consent of Independent Accountants. 25.1 Power of Attorney (included in the signature page of this Report). 27.1 Financial Data Schedule. 679833 EX-10.3 2 THE AMPEX CORPORATION SAVINGS PLAN EXHIBIT 10.3 THE AMPEX CORPORATION SAVINGS PLAN (1997 Restatement) 688857.1 THE AMPEX CORPORATION SAVINGS PLAN (1997 Restatement) Table of Contents INTRODUCTION...................................................................1 ARTICLE I DEFINITIONS . ............................................ 3 ARTICLE II ELIGIBILITY.................................................16 ARTICLE III PARTICIPATION...............................................19 ARTICLE IV COMPANY CONTRIBUTIONS.......................................27 ARTICLE V CHANGE IN ALLOCATION TO INVESTMENT FUNDS....................36 ARTICLE VI CHANGE IN OR SUSPENSION OF EMPLOYEE CONTRIBUTIONS...............................................38 ARTICLE VII TRUST FUNDS, TRUSTEE AND INVESTMENT MANAGER.....................................................39 ARTICLE VIII VALUATION OF TRUST FUNDS....................................47 ARTICLE IX DISTRIBUTION UPON SEPARATION FROM SERVICE...................48 ARTICLE X WITHDRAWAL DURING EMPLOYMENT................................54 ARTICLE XI VESTING AND FORFEITURES.....................................57 ARTICLE XII ADMINISTRATION..............................................58 ARTICLE XIII NONASSIGNABILITY............................................64 ARTICLE XIV AMENDMENT, TERMINATION, MERGER OR CONSOLIDATION...............................................66 ARTICLE XV GENERAL PROVISIONS..........................................68 688857.1 ARTICLE XVI TOP HEAVY...................................................70 EXECUTION.....................................................................74 688857.1 THE AMPEX CORPORATION SAVINGS PLAN (1997 Restatement) INTRODUCTION Effective July 24, 1992, Ampex Systems Corporation ("Ampex") became the successor to Ampex Corporation. Effective April 22, 1994, Ampex Corporation became the successor to Ampex Systems Corporation. Effective May 1, 1956, Ampex Corporation had established the Ampex Corporation Employees' Profit Sharing and Retirement Trust, so that its eligible employees and the eligible employees of other corporations which adopted the Trust with the consent of Ampex Corporation could provide for their future security by accumulating funds and sharing in their respective employer's profits. Thereafter, the document evidencing the Trust was amended and restated in the form of a separate plan document entitled "Ampex Corporation Employees' Supplemental Retirement Plan" (the "Plan"), and the trust incorporated therein was set forth in a trust agreement entitled "Ampex Corporation Employees' Supplemental Retirement Trust". The Plan was further amended and restated effective August 1, 1984, as "The Ampex Corporation Savings and Signal Stock Purchase Plan", among other things to include a qualified cash or deferred arrangement in accordance with the provisions of Section 401(k) of the Code. The Plan was further amended and restated, effective September 20, 1985, as "The Ampex Corporation Savings and Stock Purchase Plan" and subsequently amended, effective August 1, 1986 and September 21, 1986. The Plan was further amended and restated in its entirety, effective December 16, 1988, as "The Ampex Corporation Savings Plan" and subsequently amended on two occasions, effective 688857.1 January 1, 1987 and January 1, 1992. The Plan was further amended and restated in its entirety, effective January 1, 1993 as "The Ampex Systems Corporation Savings Plan", and was subsequently amended on five occasions. The Plan is hereby further amended and again restated in its entirety, effective January 1, 1997, as "The Ampex Corporation Savings Plan" in order to incorporate the relevant provisions of the last five amendments into one restated Plan document, to delete Plan provisions that are no longer relevant, and to make certain clarifying changes to the Plan, as such Plan was in effect on December 31, 1996. No provision of this Plan as hereby amended and restated shall divest any previously accrued or vested interest. The Plan is intended to retain its status as a tax-exempt and qualified profit sharing plan under Section 401(a) of the Internal Revenue Code of 1986 as amended and as an employee pension plan which is subject to the provisions of the Employee Retirement Income Security Act of 1974 as amended. The Plan is also intended to qualify as a "404(c) plan" within the meaning of Section 404(c) of ERISA. The Plan is further intended to be an "eligible individual account plan" under Section 407 of ERISA, that is designed to hold up to 100% of its assets in stock of Ampex Corporation ("Ampex Stock"). Notwithstanding the foregoing, any Plan provision regarding the investment of Participants' accounts in shares of Ampex Stock or the payment of contributions in shares of Ampex Stock shall not be effective until such date as the Board of Directors of Ampex specifies in a duly adopted resolution (which effective date shall not be retroactive). 688857.1 2 ARTICLE I DEFINITIONS 1.1 "Accounts" of a Participant shall mean his Company Matching Account, Employee Regular Account, Employee Tax Saver Account, and Rollover Account, as the context indicates. 1.2 "Administrator" shall mean Ampex acting through its officers, except that if Ampex appoints a Committee under Article XII, the term shall mean the Committee as to duties, powers and responsibilities specifically conferred thereon by Ampex. 1.3 "Affiliate" shall mean any employer which is not a Company but which, at the time of reference, was, with a Company, a member of a controlled group of corporations or a trade or business under common control, as determined under Section 414(b) and (c) of the Code and, for purposes of Section 415 of the Code, under Section 415(h) of the Code. 1.4 "Ampex" shall mean (a) until July 24, 1992, Ampex Corporation, originally a California corporation, and then a Delaware corporation, which recently changed its name to Xepma I Inc., (b) from July 24, 1992 until April 22, 1994, Ampex Systems Corporation, a Delaware corporation, which succeeded to the business of Xepma I Inc., and (c) on and after April 22, 1994, Ampex Corporation, a Delaware Corporation (the successor in interest to Ampex Systems Corporation). 1.5 "Annual Addition" of a Participant for the Plan Year in question shall mean the sum of: (a) Company Matching Contributions and forfeitures allocated to his Company Matching Account for that Plan Year; (b) Employee Tax Saver Contributions allocated to his Tax Saver Account for that Plan Year; (c) Company or Affiliate contributions and forfeitures 688857.1 3 allocated to his account under all other qualified defined contribution plans, if any, of the Company or any Affiliate for that Plan Year; (d) The sum of his Employee Regular Contributions under the Plan and his personal contributions under all other qualified defined contribution plans, if any, of the Company and all Affiliates for that Plan Year; (e) Company or Affiliate contributions allocated after 1984 to all individual medical accounts (within the Section 415(1) (1) of the Code), if any, which are under any qualified defined benefit plan of the any Affiliate; and (f) For purposes of applying the limitation in Section 415(c) (1) (A) of the Code, Company or Affiliate contributions paid or accrued, if any, and allocated to the separate account of a Key Employee for the purpose of providing post-retirement medical benefits. 1.6 "Basic Compensation" shall mean full salary, wages and, in the case of persons employed in a sales or sales supervisory capacity, commissions based on sales under a policy approved by a divisional general manager, due for a particular pay period of a Company, exclusive of overtime, shift differential, unused vacation paid upon termination of employment, bonuses or any other form of premium or incentive pay, and with respect to a Participant to whom ss. 4.1 applies, before any reduction under ss. 3.2(a)(ii). (a) No portion of the Basic Compensation of any Employee which exceeds the dollar limit prescribed in Section 401(a)(17) of the Code (as adjusted pursuant to Sections 401(a)(17) and 415(d) of the Code) shall be taken into account for any purpose under the Plan for any Plan Year, and (b) in applying the dollar limit, ss. 1.26(e) shall apply except that the term "Family Member" shall only include a spouse or a lineal descendant who has not attained age 19 before the close of the Plan Year. 1.7 "Basic Contributions" shall mean the aggregate of a Participant's Employee Tax Saver and Employee Regular 688857.1 4 Contributions for a month which does not exceed an amount equal to 8% of the Participant's Basic Compensation for that month. 1.8 "Board of Directors" shall mean the Board of Directors of Ampex. 1.9 "Break in Service Year" of any Employee or former Employee shall mean a period of twelve consecutive months during which the Employee receives no Credited Service; provided, however, that if the Employee provides to the Committee such timely information as the Committee may reasonably require to establish that the Employee is absent owing to pregnancy of the Employee, birth of a child of the Employee, placement of a child with the Employee in connection with adoption of the child by the Employee or the care of the child following such birth or placement (a "Child-Related Absence"), no Break In Service Year shall include any portion of the twelve-consecutive month period beginning on the first day for which the Employee, because of the Child-Related Absence, is not credited with Credited Service pursuant to ss. 1.16. 1.10 "Code" shall mean the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section. 1.11 "Committee" shall mean the Committee, if any, appointed pursuant to Article XII. 1.12 As the context requires, "Company" or "Companies" shall mean Ampex, any Affiliate which has adopted or which subsequently adopts the Plan as a whole or as to one or more divisions or classifications in accordance with Article XV, and any successor thereto which continues the Plan under ss. 14.3(a), acting through their respective officers. 1.13 "Company Matching Account" shall mean the account that holds a Participant's Company Matching Contributions and the investment results thereof. 1.14 "Company Matching Contributions" shall mean 688857.1 5 contributions made by a Company under ss. 4.2 or 4.3. 1.15 "Contribution" shall mean a contribution referred to in ss. 1.14, 1.21 or 1.23, as the context dictates. 1.16 (a) "Credited Service" shall mean that period of time, beginning on the date on which an Employee first renders one Hour of Service, that the Employee performs services for the Company. An Employee's Credited Service shall be determined without regard to whether he is a Participant during his period of service with the Company and shall also include those periods, up to one year each, during which the Employee is on a leave of absence, is disabled, is on sick leave, or is on vacation or holiday. In addition, if an Employee ceases to be an Employee and then resumes Employee status within twelve consecutive months immediately following the date of such cessation, his Credited Service shall also include each day during the period following the time he ceases to be an Employee and ending with the day he again becomes an Employee. An Employee's Credited Service shall be expressed in years and portions of years and shall be measured in cumulative daily increments (including holidays, weekends and other nonworking days) with 365 days of Credited Service equaling a year of Credited Service irrespective of whether the year of Credited Service was completed within a twelve-consecutive-month period. For purposes of determining an Employee's Credited Service under this provision, the term "Employee" shall mean any employee of a Company or an Affiliate, and the term "Company" shall include all Affiliates. If the Company maintains an employee plan of a predecessor employer, all service for the predecessor employer shall be treated as service for the Company for purposes of computing Credited Service. (b) In the case of an Employee who was or would be entitled to be credited with "years of service" under the provisions of the Plan as in effect before May 23, 1987, Credited Service shall also include (1) a number of years equal to the number of "years of service" credited to such employee 688857.1 6 before January 1, 1987; and (2) the greater of: (i) the service taken into account under such previous provisions from January 1, 1987 to and including May 22, 1987; or (ii) the period of service that would be credited to such employee under the method described in subsection (a) during the Plan Year beginning on January 1, 1987. 1.17 "Deferral Compensation" shall mean, for purposes of applying ss.ss. 1.18, 3.11 and 4.4 and the discrimination tests of Sections 401(k)(3) and 401(m)(2) of the Code with respect to any eligible Employee (as described in ss.ss. 1.18 and 4.4(b)), the sum of (a) his or her Statutory Compensation, (b) his or her Employee Tax Saver Contributions, and (c) any other amounts which are contributed to an employee benefit plan by a Company or Affiliate pursuant to a salary reduction agreement and are not includible in gross income under Section 125, 401(k), 402 (a) (8) or 402(h) of the Code. Compensation for periods prior to the time that the individual becomes a Participant shall not be taken into account. (1) No amount in excess of the dollar limit prescribed in Section 401 (a) (17) of the Code (as adjusted pursuant to Sections 401(a)(17) and 415(d) of the Code) shall be taken into account under this S 1.15 for any Plan Year, and (2) in applying the dollar limit, ss. 1.26(e) shall apply except that the term "Family Member" shall only include a spouse or a lineal descendant who has not attained age 19 before the close of the Plan Year. 1.18 "Deferral Percentage" shall mean: (a) with respect to Highly Compensated Employees, the average of the decimal numbers, obtained by (i) dividing (a) the amount (if any) credited to Employee Tax Saver Account of each such Employee who is employed by a Company to which ss. 4.1 is applicable, and who is eligible to participate in the Plan, for the Plan Year in question, by (b) his Deferral Compensation for such Plan Year, and (ii) applying all aggregation rules set forth in ss. 3.11(b); and 688857.1 7 (b) with respect to Employees who are not Highly Compensated Employees, the average of the decimal numbers, obtained by (i) dividing (a) the amount (if any) credited to Employee Tax Saver Account of each such Employee who is employed by a Company to which ss. 4.1 is applicable, and who is eligible to participate in the Plan, for the Plan Year in question, by (b) his Deferral Compensation for such Plan Year, and (ii) applying the aggregation rule set forth in ss. 3.11(b)(i). 1.19 "Employee" shall mean any employee of any Company or Affiliate, excluding: (a) a temporary employee, that is, one who (i) is employed to do a specific job for a limited period of time, and (ii) performs less than 1,000 Hours of Service in any twelve- consecutive-month period; (b) a director who is not otherwise an Employee; and (c) a nonresident alien who is not receiving U.S. source income from a Company or an Affiliate. 1.20 "Employee Regular Account" shall mean the account that holds a Participant's Employee Regular Contributions, amounts previously held in his "Employee Special Account" under the Plan as in effect before December 16, 1988, and the investment results thereof. 1.21 "Employee Regular Contributions" or "Regular Contributions" shall mean a Participant's contributions of up to and including 18% of his Basic Compensation made in accordance with Article III. 1.22 "Employee Tax Saver Account" shall mean the account that holds a Participant's Employee Tax Saver Contributions and the investment results thereof. 1.23 "Employee Tax Saver Contributions" or "Tax Saver Contributions" shall mean contributions of a Company on behalf of a Participant of up to and including 16% of his Basic Compensation, made in accordance with ss. 4.1. 1.24 "ERISA" shall mean the Employee Retirement Income 688857.1 8 Security Act of 1974, as amended. Reference to a specific section of ERISA shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section. 1.25 "Hardship" of a Participant shall mean, subject to such limitations as may be imposed by law or regulation, an immediate and heavy, and as to such Participant, an unusual, financial need involving the Participant's primary residence, his education affecting his employment with a Company, education of his children or other dependents, medical, dental or funeral expenses for members of his family, judgments, awards or other liabilities which might otherwise result in levy of execution upon the property or compensation of himself and/or his spouse, or other events of equal seriousness and financial impact, all as determined by the Administrator in its discretion in accordance with uniform and nondiscriminatory standards adopted for this purpose and uniformly interpreted and consistently applied. 1.26 "Highly Compensated Employee" shall mean any Employee who performs services for a Company or Affiliate during the Determination Year and who: (a) During the Look-Back Year (i) was a 5-percent owner (within the meaning of Section 414(q) (3) of the Code) (a "5% owner"), (ii) received Compensation in excess of $75,000 (as adjusted pursuant to Sections 414(q) (1) and 415(d) of the Code), (iii) received Compensation in excess of $50,000 (as adjusted pursuant to Sections 414(q) (1) and 415(d) of the Code) and was a member of the top-paid group (within the meaning of Section 414(q)(4) of the Code) for such Year, or (iv) was an officer of a Company or Affiliate and received Compensation for such Year that is greater than 50% of the dollar limitation in effect under Section 415(b)(1)(A) and (d) of the Code or (if no officer has Compensation in excess of that threshold for such Year) the highest paid officer for such Year; 688857.1 9 (b) (i) Would be described in clause (ii) , (iii) or (iv) of subsection (a) above if the term "Determination Year" were substituted for the term "Look-Back Year", and (ii) is one of the 100 Employees who received the most Compensation for the Determination Year; or (c) Is a 5% Owner at any time during the Determination Year. (d) Subject to the satisfaction of such conditions as may be prescribed under Section 414(q)(12)(B)(ii) of the Code, Ampex may elect for any Plan Year to apply subsection (a)(ii) above by substituting "$50,000'. for "$75,000" and not to apply subsection (a)(iii) above. (e) If an Employee is, at any time during a Determination or Look-Back Year, a spouse, lineal ascendant or descendant, or spouse of a lineal ascendant or descendant (a "Family Member") of either (i) a 5% Owner who is an active or former Employee or (ii) a Highly Compensated Employee who is one of the ten most highly compensated employees ranked on the basis of Compensation paid for such Year (a "Family Employee"), then for such Year the Family Member and the Family Employee shall be aggregated and treated as one Employee receiving Compensation and contributions under the Plan equal to the sum of such Compensation and contributions received by the Family Member and the Family Employee. (f) The determination of who is a Highly compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, the top 100 Employees and the number of Employees treated as officers, shall be made in accordance with Section 414(q) of the Code. (g) For purposes of this ss. 1.26, (i) "Determination Year" shall mean the Plan Year for which the determination is being made; (ii) "Look-Back Year" shall mean the Plan Year immediately preceding the Determination Year; and (iii) "Compensation" shall mean Deferral Compensation (as defined in ss. 1.17, but without regard to the last sentence thereof). 688857.1 10 1.27 (a) An "Hour of Service" of an Employee shall mean: (i) Each hour for which an Employee is either directly or indirectly paid or entitled to payment by a Company or an Affiliate for the performance of duties during the applicable computation period. These hours shall be credited to the Employee for the computation period in which the duties were performed; and (ii) Each hour in or attributable to a period of time during which he performs no duties (irrespective of whether he had had a Separation from Service) due to a vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or a leave of absence, for which he is so paid or so entitled to payment; provided, however, that: (a) no more than 501 Hours of Service shall be credited under this paragraph to an Employee on account of any such period; and (b) no such hours shall be credited to an Employee if attributable to payments made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, unemployment compensation or disability insurance laws or to a payment which solely reimburses the Employee for medical or medically related expenses incurred by him. (iii) Each hour for which he is entitled to back pay, irrespective of mitigation of damages, either awarded or agreed to by a Company or an Affiliate. (iv) Solely for purposes of ss. 1.9, each hour in or attributable to a Plan Year during which the Employee performs no duties for a Company or an Affiliate (irrespective of whether he had a Separation from Service) due to an absence from work: (a) by reason of pregnancy of the Employee, (b) by reason of the birth of a child of the Employee, (c) by reason of the placement of a child 688857.1 11 with the Employee in connection with the adoption of such child by the Employee, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. subject, however, to the provisions of paragraphs (v),(vi) and (vii). (v) The hours described in paragraph (iv) are: (a) the Hours of Service which otherwise would normally have been credited to the Employee but for such absence, or (b) in any case in which the Plan is unable to determine such hours, eight Hours of Service per day of such absence; provided, however, that the total number of hours treated as Hours of Service under paragraph (iv) by reason of such pregnancy or placement shall not exceed 501. (vi) The hours described in paragraph (v) shall be treated as Hours of Service under paragraph (iv): (a) only in the Plan Year in which the absence from work for such reason or purpose begins if the Employee would be prevented from incurring a Break in Service Year in such Plan Year solely because of the provisions of paragraphs (iv) and (v); or (b) in any other case, in the immediately following Plan Year. (vii) No credit for hours referred to in paragraphs (iv), (v) and (vi) shall be given unless the Employee furnishes to the Administrator such timely information as the Administrator may reasonably require to establish: (a) that the absence from work is for a reason or purpose referred to in paragraph (iv), and (b) the number of days for which there was such an absence. (b) Hours of Service under subsections (a)(ii) and (a)(iii) shall be calculated in accordance with 29 C.F.R. Section 2530.200b-2(b). Each Hour of Service shall be 688857.1 12 attributed to the Plan Year or initial eligibility year in which it occurs except to the extent that a Company or an Affiliate, in accordance with 29 C.F.R. Section 2530.200b-2(c), credits such Hours to another computation period under a reasonable method consistently applied. (c) The number of an Employee's Hours of Service shall be determined from the records of his Company or Affiliate. (d) Where such records do not permit determination of an Employee's actual hours, Hours of Service before 1976 shall be the product of: (i) forty, and (ii) the number of weeks in which he had an Hour of Service. 1.28 "Investment Funds" shall mean (collectively) (a) The Stock Fund (as defined in ss. 1.36), (b) The Prior Fixed Income Fund (as defined in ss. 7.4(a)), and (c) The other investment funds established or maintained pursuant to ss. 7.4(b). As provided in ss.ss. 3.2(b) and 7.5, neither Contributions nor transfers shall be paid into the Prior Fixed Income Fund. 1.29 "Participant" shall mean any person included in the Plan as provided in Article II. 1.30 "Plan" shall mean The Ampex Corporation Savings Plan (formerly the Ampex Systems Corporation Savings Plan), as set forth in this instrument and as heretofore and hereafter amended from time to time. 1.31 "Plan Year" shall mean the calendar year, including such years preceding the adoption of the Plan. 1.32 "Retirement" shall mean retirement on any date permitted by the Ampex Corporation Employees' Retirement Plan or any Company's defined benefit pension plan under which the retirement occurs. 1.33 "Rollover Account" shall mean the account that holds 688857.1 13 transfers to the Plan made by or on behalf of a Participant under ss. 3.13. 1.34 "Separation from Service" of an Employee shall mean the time when the employer-employee relationship with the Company or an Affiliate is terminated for any reason including, but not by way of limitation, a termination by resignation, release, discharge, death, total disability, Retirement or layoff, but excluding any such Separation from Service where there is a simultaneous reemployment by either the Company or an Affiliate. (a) A leave of absence authorized by the Company or an Affiliate in accordance with established policies, military leave or a vacation period shall not constitute a Separation from Service; provided, however, that failure to return to work upon expiration of any leave of absence, military leave or vacation shall be considered a resignation. (b) Any Employee who leaves his Company or Affiliate directly to perform service in the Armed Forces of the United States or the United States Public Health Services under conditions entitling him to reemployment rights as provided in the laws of the United States, shall, solely for the purposes of the Plan and irrespective of whether he is compensated by any Company or Affiliate during such period of service, be considered to be on military leave. Such leave shall expire if such Employee voluntarily resigned from his Company or Affiliate during such period of service, or if he fails to make application for reemployment within the period specified by such laws for the preservation of his reemployment rights. 1.35 "Statutory Compensation" of a Participant for any Plan Year means his compensation for such Plan Year as shown on his IRS Form W-2. 1.36 "Stock Fund" shall mean the Investment Fund, if 688857.1 14 any, that is invested primarily in shares of common stock of Ampex. 1.37 "Supplement" shall mean any supplement or supplements which (a) have been added to the Plan by amendment from time to time, (b) have become a part of and are affixed to the Plan, and (c) remain part of the Plan as of the time of reference. 1.38 "Supplemental Contributions" shall mean the aggregate of a Participant's Tax Saver and Regular Contributions which exceeds an amount equal to 8% of the Participant's Basic Compensation for a month, but does not exceed the percentage provided in ss. 3.12. 1.39 "Trust Agreements" shall mean the trust agreements between Ampex and the Trustees, as they may be amended from time to time, providing for the investment and administration of the Trust Funds. By this reference, the Trust Agreements are incorporated in and made part of the Plan. 1.40 "Trust Funds" shall mean the funds established under Trust Agreements by contributions made pursuant to the Plan from which any amounts payable under the Plan are to be paid. 1.41 "Trustees" shall mean (a) State Street Bank and Trust Company, as trustee of the Trust Fund maintained for investment of the Stock Fund, if any, and the Prior Fixed Income Fund as defined in ss. 7.4(a)) ("Trustee A"), and (b) Fidelity Management Trust Company, as trustee of the Trust Fund maintained for investment of all other assets of the Plan ("Trustee B"). 1.42 "Valuation Date" shall mean any day as of which the values of the Trust Funds are determined by the Trustees in accordance with the provisions of Article VIII. 688857.1 15 ARTICLE II ELIGIBILITY 2.1 (a) Any person who is presently a Participant shall remain a Participant until he has a Separation from Service. (b) Subject to ss. 4.2(c), any Employee of a Company who on any date: (i) has completed at least one Hour of Service; and (ii) is not in a bargaining unit which is covered by a collective bargaining agreement with respect to which retirement benefits were the subject of good faith bargaining (unless such agreement provides for the coverage of Employees in such unit under the Plan), shall become a Participant on the first day of the calendar month that is immediately following the calendar month in which the Employee has satisfied such requirements, provided the Employee has filed an application to participate in accordance with ss. 3.2. (c) Any Participant whose participation terminates shall again become a Participant effective as of his first subsequent Hour of Service as an Employee of a Company in a portion or classification which is not within a bargaining unit described in subsection (b)(ii) if he again files an application to participate in accordance with ss. 3.2. (d) An individual who was not an Employee of a Company, or who was in a bargaining unit described in subsection (b)(ii), on the first day on which he first met all other eligibility requirements shall become a Participant effective as of the next day on which he completes an Hour of Service as an Employee of a Company, in a position or classification which is not within a bargaining unit described in subsection (b)(ii), if he files an application to participate in accordance with ss. 3.2. 688857.1 16 2.2 Notwithstanding ss. 2.1, any Employee who is subject to or eligible to participate in any other savings, thrift or similar contributory plan to which the Company makes contributions on his behalf or with respect to his employment, and which is qualified under Section 401(a) of the Code, shall not be eligible to participate in the Plan. 2.3 (a) A Participant who becomes subject to or eligible to participate in a plan described in ss. 2.2, or who is transferred directly to a position or classification with the Company which is within a bargaining unit covered by a collective bargaining agreement which does not provide for the coverage of Employees in such unit under the Plan and with respect to which retirement benefits were the subject of good faith bargaining, shall thereupon become a Participant on inactive status. (b) All provisions of the Plan will continue to apply to a Participant on inactive status, but such a Participant shall cease making contributions under Article III and shall not share in allocations under ss. 4.2, except that, for the Plan Year in which such change in Plan coverage or transfer occurs, such Participant shall share in such allocations only on the basis of his Basic Compensation received in such Plan Year while a Participant and prior to the effective date of such change or transfer. (c) If a Participant on inactive status ceases to be subject to or eligible to participate in all plans described in ss. 2.2 or is retransferred to a position or classification which is not within a bargaining unit covered by such a collective bargaining agreement, he shall thereupon be restored to active status. If such change in Plan coverage or retransfer occurs during a Plan Year, the retransferred Participant shall share in allocations under ss. 4.2 only on the basis of his Basic Compensation received in such Plan Year on and after the effective date of such retransfer. 2.4 To the extent required by Section 414(n) of the Code, 688857.1 17 any individual who is a leased employee of any Company or Affiliate (within the meaning of Section 414(n) of the Code) (a "Leased Employee") shall be treated as an "employee"; provided, however, that no Leased Employee shall be eligible to become a Participant or to make transfers to the Trust Funds pursuant to ss. 3.13. 688857.1 18 ARTICLE III PARTICIPATION 3.1 Participation in the Plan is voluntary. 3.2 Each eligible Employee who elects to participate in the Plan shall file an application in a manner prescribed by the Administrator, upon forms prescribed and furnished by it, in which he: (a) shall specify either: (i) the amount of Employee Regular Contributions which he wishes to contribute to the Plan, and/or (ii) if ss. 4.1 applies to his Company, the amount by which he wishes to have his Basic Compensation reduced which shall result in Employee Tax Saver Contributions by his Company to the Plan on his behalf; (b) shall specify the percentage or percentages of his Employee Regular Contributions, Tax Saver Contributions and Company Matching Contributions that are to be invested in each of the Investment Funds, except that such Employee Regular Contributions, Tax Saver contributions and Company Matching contributions shall not be invested in the Prior Fixed Income Fund; (c) shall designate a beneficiary or beneficiaries to receive any payment or distribution which may be due upon his death; provided, however, that a married Participant may not designate any beneficiary other than his spouse without the written consent of his spouse, which consent (i) acknowledges the effect of such designation and consent upon the spouse's rights otherwise provided under ss. 9.2(a)(i), (ii) is witnessed by a Plan representative or a notary public, (iii) identifies the beneficiary or beneficiaries 688857.1 19 for which the consent is given, and (iv) applies only to the beneficiary or beneficiaries so designated; and (d) shall submit such other or additional information as in the opinion of the Administrator is desirable or necessary in the operation of the Plan. 3.3 Subject to ss.ss. 3.9, 3.10 and 3.12, a Participant's Employee Tax Saver Contributions may be from 1% through 16%, in whole percentage increments, of his Basic Compensation. 3.4 Subject to ss.ss. 3.11 and 3.12, a Participant's Employee Regular Contributions may be from 1% through 18%, in whole percentage increments, of his Basic Compensation. 3.5 To the extent permitted by Article VI or other provisions of the Plan and approved by the Administrator, a Participant may change, delete or add to any of the specifications or designations made by him in his application under ss. 3.2. 3.6 Employee Regular Contributions shall be deducted from the Participant's pay and paid by the Company on his behalf to the Plan. 3.7 Each Participant may direct from time to time, on such election form as the Administrator may prescribe or in such other manner as the Administrator may designate, and at such times as the Administrator may permit, that the aggregate contributions to his Accounts be allocated to any combination of the Investment Funds (other than the Prior Fixed Income Fund) in whole multiples of a percentage to be determined by the Administrator, provided that the total of the percentages specified shall not exceed 100%. 3.8 A change in beneficiary designation may be made by 688857.1 20 a Participant at any time by written notice filed in the manner prescribed by the Administrator upon forms described and furnished by it; provided, however, that no designation or change of designation shall be effective unless filed in the manner proscribed by the Administrator prior to a Participant's death and unless it complies with the provisions of ss. 3.2(c). 3.9 Notwithstanding any contrary Plan provision, the Administrator (in its discretion) (a) may suspend, limit or modify any Participant's Employee Tax Saver election at any time in order to prevent the cumulative amount of the Participant's Employee Tax Saver Contributions for any calendar year from exceeding the Section 401(k) Ceiling (as defined below); and (b) may (but shall have no obligation whatsoever to) cause any amount allocated to the Plan as an excess deferral (with or without any income allocable to such amount) to be distributed to the Participant in accordance with Section 402(g)(2)(A)(ii) of the Code. "Section 401(k) Ceiling" shall mean a dollar amount equal to $7,000 (as adjusted pursuant to Sections 402(g)(5) and 415(d) of the Code). 3.10 (a) Notwithstanding any contrary Plan provision, one of the following requirements shall be satisfied for each Plan Year: (i) the Deferral Percentage for Highly Compensated Employees shall not exceed the Deferral Percentage for all other Employees by 1.25; or (ii) the Deferral Percentage for Highly Compensated Employees shall not exceed the Deferral Percentage for all other Employees by more than two percentage points, and the Deferral Percentage for Highly Compensated Employees shall 688857.1 21 not exceed the Deferral Percentage for all other Employees multiplied by two. (b) The Administrator (in its discretion) (i) may suspend, limit or modify any Participant's Employee Tax Saver Election at any time in order to satisfy the requirements set forth in subsection (a); and (ii) may make a distribution from the Employee Tax Saver Accounts of Participants who are, and former Participants who were, Highly Compensated Employees to such Participants of amounts proportionate to their respective Employee Tax Saver Contributions for such Plan Year which (alone or in connection with other action taken under ss. 3.9, 3.11(b) or 4.3) will result in a Deferral Percentage for such Plan Year with respect to Employees who are not Highly Compensated Employees which satisfies the requirements set forth in subsection (a). To the extent permitted under Section 401(k) of the Code, a Participant who would otherwise receive a distribution pursuant to this subsection (b) may elect to have all or a portion of such distribution transferred to his Employee Regular Account, provided that the requirements of ss. 3.11 are satisfied. (c) For purposes of determining the Deferral percentages under Subsection (a) for any Plan Year, only Employee Tax Saver Contributions shall be taken into account and only if such contributions (i) are allocated to a Participant's Employee Tax Saver Account as of a date within such Plan Year and (ii) relate to compensation that, but for the election to defer, either would have been paid during such Plan year or is attributable to services performed in such Plan year and would have been paid within two and one-half months after the end of such Plan year. 3.11 (a) In order to assure that the limitation described in Section 401(m) of the Code will be satisfied, the Employee Regular Contributions made by Highly Compensated Employees shall be subject to ss. 4.4. (b) The Deferral Percentage for the Highly Compensated 688857.1 22 Employees or non-Highly Compensated Employees who are employed by a Company to which ss. 4.1 is applicable, and who are eligible to participate in the Plan, for the Plan Year in question, shall be calculated in accordance with ss. 1.18 by computing the average of the decimal numbers (calculated separately for each such Employee) (the "Deferral Rates") determined by dividing (1) the total of all Employee Tax Saver Contributions made by such Employee and credited to his Account for the Plan Year, by (2) such Employee's Deferral Compensation for the Plan Year. In computing any such Employee's Deferral Rate, the following special rules shall apply: (i) If any Company or Affiliate maintains any other cash or deferred arrangement which is aggregated by Ampex with this Plan for purposes of applying Section 401(a)(4) or 410(b) of the Code, then all such cash or deferred arrangements shall be treated as one plan for purposes of applying ss. 3.10. (ii) If a Highly Compensated Employee is a participant in any other cash or deferred arrangement maintained by any Company or Affiliate, then the separate Deferral Rates determined for such Employee under all such cash or deferred arrangements shall be aggregated with the separate Deferral Rate determined for such Employee for purposes of applying ss. 3.10. (iii) If a Highly Compensated Employee is subject to the family aggregation rules of ss. 1.26(e), the Deferral Rate of the family unit shall be determined by using the combined Deferral Rate of all eligible Family Members. (c) In the event that (but for the application of this subsection (c)) the Administrator determines that the Deferral Percentage for the Highly Compensated Employees would exceed the maximum permitted under ss. 3.10(a) for a Plan Year (the "ADP Maximum"), then the Administrator (in its discretion) may reduce, in accordance with ss. 3.10(b), the percentage or amount of Employee Tax Saver Contributions subsequently to be contributed on behalf of the Highly Compensated Employees by such percentage or amount as, and for as long as, the 688857.1 23 Administrator (in its discretion) may determine is necessary or appropriate in the circumstances then prevailing. (d) In the event that the Administrator determines that the Deferral Percentage for the Highly Compensated Employees has exceeded the ADP Maximum for a Plan Year, then the amount of any excess contributions (within the meaning of Section 401(k)(8)(B) of the Code) contributed on behalf of any Highly Compensated Employee, and any income allocable thereto, shall be distributed to the Highly Compensated Employee before the close of the Plan Year that next follows the Plan Year to which the excess contributions relate. (i) The amount of excess contributions for a Highly Compensated Employee shall be determined in the following manner: (a) The Employee Tax Saver Contributions of the Highly Compensated Employee with the highest Deferral Rate shall be reduced to the extent necessary to satisfy the Deferral Percentage test or cause such Rate to equal the Deferral Rate of the Highly Compensated Employee with the next highest Deferral Rate. This process shall be repeated until the Deferral Percentage test is satisfied. (b) The amount of excess contributions for a Highly Compensated Employee shall be equal to his Employee Tax Saver Contributions (calculated using such Employee's original Deferral Rate), minus his Employee Tax Saver Contributions calculated using his Deferral Rate as reduced under paragraph (a) above. (c) The amount of excess contributions, as determined according to the method described in this subsection (d)(i), shall be reduced by any excess deferrals previously distributed to an Employee for the Plan Year under ss. 3.9. (ii) In the case of a Highly Compensated Employee whose Deferral Rate is determined under the family aggregation rules of ss. 3.11(b)(iii), the Deferral Rate shall be reduced in accordance with the "levelling" method described in 688857.1 24 Treasury Regulation Section l.401(k)-1(f)(2). Excess contributions for the family unit shall be allocated among the Family Members in proportion to the Employee Tax Saver Contributions of each Family Member that have been combined. (iii) The income allocable to any excess contribution for the Plan Year shall be determined in accordance with Section 401(k)(8)(A)(i) of the Code, without taking into account any income allocable to those excess contributions for the period between the end of the Plan Year and the date of distribution. 3.12 If the Participant elects both Employee Regular and Employee Tax Saver Contributions, in no event may the amount of such Contributions for a Plan Year exceed the limitations set forth in the following schedule: If the Participant's Employee Then his Employee Regular Tax Saver Contributions equal Contributions cannot exceed this percentage of his Basic this percentage of his Basic Compensation for the Plan Year: Compensation for that Year: 16% 1% 15% 2% 14% 3% 13% 4% 12% 6% 11% 7% 10% 8% 9% 9% 8% 10% 7% 11% 6% 12% 5% 13% 4% 14% 3% 15% 2% 16% 1% 17% 0% 18% 3.13 (a) Notwithstanding any contrary Plan provision, the Administrator may direct Trustee B to accept a direct transfer to its Trust Fund of assets held for the benefit of a Participant in this Plan from such Participant, if the transfer of such assets qualifies as a rollover under section 402(c) or 688857.1 25 408(d)(3)(A)(ii) of the Code. For purposes of this ss. 3.13 and subject to ss. 2.4, the term "Participant" shall include an Employee who has not yet satisfied the requirements of ss. 2.1(b). (b) Assets transferred to the Plan pursuant to this ss. 3.13 shall be transferred only in cash. No transfer of an amount less than $2,000 shall be accepted under this ss. 3.13. (c) Assets transferred to the Plan pursuant to this ss. 3.13 shall be credited to the Participant's Rollover Account. A Participant's interest in his Rollover Account shall be 100% vested and nonforfeitable at all times. A Participant's Rollover Account shall be invested in accordance with the Participant's direction under ss. 3.7. (d) The Administrator may require the Participant, prior to the transfer described in Subsection (a), to furnish a letter from the administrator, trustee, custodian or insurance company of the trust, account or contract from which the transferred amount originated, which shall contain such information as shall be requested by the Administrator to determine whether such transfer qualifies as a tax-free transfer or "rollover amount" or affects the qualified status of this Plan. The decision of the Administrator to accept a transfer shall not give rise to any liability by the Administrator, the Committee, the Company, or the Plan to the Participant or any other party on account of a subsequent determination that such transfer does not qualify as a tax-free transfer or "rollover amount". If it is later determined that a transfer to the Plan made pursuant to this Section did not qualify as a rollover under Sections 402(c) or 408(d)(3)(A)(ii) of the Code, then the balance credited to the Participant's Rollover Account allocable to such transfer shall immediately be distributed to the Participant and shall be deemed never to have been part of the Trust Funds. 688857.1 26 ARTICLE IV COMPANY CONTRIBUTIONS 4.1 (a) As authorized by the Board of Directors, any Company may, by written notice to the Administrator, make this ss. 4.1 applicable to such Company, effective as of the date specified in such notice. (b) Each Company to which this ss. 4.1 applies shall contribute and pay into the Trust Funds for each month an amount equal to the sum of the Employee Tax Saver Contributions attributable to such month elected by Participants in the employ of such Company. Such contribution and payment shall be made on the earliest date that it can be reasonably segregated from the Company's general assets, but in no event later than the latest date on which it becomes a "plan asset" under ERISA or as otherwise prescribed under applicable federal law. (c) The amount of each such Employee Tax Saver Contribution shall be credited to the Employee Tax Saver Account of the Participant for whom it is made. 4.2 (a) Each Company will contribute and pay into the Trust Funds each month, out of its current or accumulated earnings and profits, an amount equal to 50% of the Basic Contributions for such month of each Participant in its employ, reduced (in accordance with ss. 11.3) by a pro rata share of amounts forfeited in such month pursuant to ss. 9.l(b); provided, however, that: (i) Ampex may determine and announce to Employees before any Plan Year the maximum aggregate amount of the Company Matching Contributions (excluding reallocated forfeitures) that shall be made by all Companies on behalf of all Participants for that Plan Year, and (ii) The maximum aggregate amount of the Company Matching Contributions (including reallocated forfeitures) that 688857.1 27 shall be made on behalf of any one Participant for any Plan Year shall be $4,000, and (iii) Company Matching Contributions made on behalf of any Participant (a) in respect of any Plan Year other than the first Plan Year for which Company Matching Contributions may be made on his behalf pursuant to ss. 4.2(c), shall be based only on Basic Contributions that have been made out of the first $100,000 of his Basic Compensation for such Plan Year and (b) in respect of the first Plan Year for which Company Matching Contributions may be made on his behalf pursuant to ss. 4.2(c), shall be based only on Basic Contributions that have been made out of the first $100,000 of his Basic Compensation during the period beginning on the first day of the month in such Plan Year by which he has completed the service requirement described in ss. 4.2(c) and ending on the last day of such Plan Year; provided, however, that all such limitations shall remain in effect for later Plan Years until an increase or a prospective decrease is determined by Ampex and announced to Employees. (b) The Company Matching Contributions made on behalf of each Participant for each month (including a pro rata share of the forfeitures applied to reduce such Contributions) shall be allocated to that Participant and credited to his Company Matching Account. (c) Notwithstanding any other contrary Plan provision, a Company shall not make any Company Matching Contributions for any given month with respect to a Participant unless, on the first day of such month, the Participant has completed (i) one 365-day period commencing on the date of his first Hour of Service or (ii) one Plan Year commencing on or after the date of his first Hour of Service, during which 365- day period or Plan Year he had completed 1,000 or more Hours of Service. 4.3 Notwithstanding ss. 4.2(b), as of the end of each Plan Year for which it is necessary in order to comply with Section 688857.1 28 401(k)(3) of the Code, Ampex (in its discretion) may cause an additional Company Matching Contribution to be made to the Plan by each Company which ss. 4.1 is applicable, for allocation to the Employee Tax Saver Accounts of Participants in its employ who are not Highly Compensated Employees, of amounts proportionate to their respective Employee Tax Saver Contributions otherwise made for such Plan Year which (alone or in connection with other action taken under ss.ss. 3.9, 3.10(b) or 3.11(b)) will result in a Deferral Percentage for such Plan Year with respect to Employees who are not Highly Compensated Employees which satisfies the requirements of ss. 3.10(a). Any such additional Company Matching Contribution may be made only if the applicable requirements set forth in Treasury Department Regulation Section 1.401(k)-1(b)(5) or any successor regulation thereto are satisfied. 4.4 (a) Notwithstanding any contrary Plan provision, one of the following requirements shall be satisfied for each Plan Year: (i) the Contribution Percentage (as defined in ss. 4.4(b)) for Highly Compensated Employees shall not exceed the Contribution Percentage for all other Employees multiplied by 1.25; or (ii) the Contribution Percentage for Highly Compensated Employees shall not exceed the Contribution Percentage for all other Employees by more than two percentage points, and the Contribution Percentage for Highly Compensated Employees shall not exceed the Contribution Percentage for all other Employees multiplied by two. For any Plan Year, the Administrator (in its discretion) may limit the Employee Regular and/or Company Matching Contributions to be contributed by or for the benefit of Highly Compensated Employees in such manner as may be necessary or appropriate to assure that the limitation described in this subsection (a) will be satisfied. 688857.1 29 (b) "Contribution Percentage" shall mean: (i) with respect to Highly Compensated Employees, the average of the decimal numbers, obtained by (a) dividing (1) the total amounts (if any) credited to the Employee Regular and Company Matching Accounts of each such Employee who is employed by a Company to which ss. 4.1 is applicable, and who is eligible to participate in the Plan, for the Plan Year in question, by (2) his Deferral Compensation for such Plan Year, and (b) applying the aggregation rules referred to in ss. 4.4(c); and (ii) with respect to Employees who are not Highly Compensated Employees, the average of the decimal numbers, obtained by (a) dividing (1) the total amount (if any) credited to Employee Regular and Company Matching Accounts of each such Employee who is employed by a Company to which ss. 4.1 is applicable, and who is eligible to participate in the Plan, for the Plan Year in question, by (2) his Deferral Compensation for such Plan Year, and (b) applying the aggregation rules referred to in ss. 4.4(c). (c) The Contribution Percentage for the Highly Compensated Employees or non-Highly Compensated Employees who are employed by a Company to which ss. 4.1 is applicable, and who are eligible to participate in the Plan, for the Plan Year in question, shall be calculated by computing the average of the decimal numbers (calculated separately for each such Employee) determined by dividing (i) the total of all Employee Regular and/or Company Matching Contributions (including reallocated forfeitures) made by or on behalf of such Employee and credited to his Employee Regular and/or Company Matching Account for the Plan Year, by (ii) such Employee's Deferral Compensation for the Plan Year. The special aggregation rules set forth in ss. 3.11(b) with respect to calculation of Deferral Percentages shall also apply to the calculation of the actual Contribution Percentages. (d) In the event that (but for the application of 688857.1 30 this subsection (d)) the Administrator determines that the Contribution Percentage for the Highly Compensated Employees would exceed the maximum permitted under ss. 4.4(a) for a Plan Year (the "ACP Maximum"), then the Administrator (in its discretion) may reduce, in accordance with ss. 4.4(a), the percentage or amount of Employee Regular and/or Company Matching Contributions subsequently to be contributed by or on behalf of the Highly Compensated Employees by such percentage or amount as, and for as long as, the Administrator (in its discretion) may determine is necessary or appropriate in the circumstances then prevailing. (e) In the event that the Administrator determines that the Contribution Percentage for the Highly Compensated Employees exceeds the ACP Maximum for a Plan Year, then the amount of any excess aggregate contributions (within the meaning of Section 401(m)(6)(B) of the Code) contributed by or on behalf of any Highly Compensated Employee, and any income allocable thereto, shall be distributed to the Highly Compensated Employee before the close of the Plan Year that next follows the Plan Year to which the excess aggregate contributions relate. (i) The amount of excess aggregate contributions for a Highly Compensated Employee, the income allocable thereto and the application of the family aggregation rules shall be determined in the manner provided in ss. 3.11(d) with respect to excess contributions. (ii) Notwithstanding any contrary Plan provision, except to the extent permitted under Section 401(k) and (m) of the Code, multiple use of the alternative methods of compliance with Section 401(k) and (m) of the Code, as set forth in Section 401(k)(3)(A)(ii)(IX) and (m)(2)(A)(ii) of the Code, shall not be permitted. In the event that multiple use occurs, it shall be corrected by reducing the Deferral Percentage and/or the Contribution Percentage for Highly Compensated Employees (in the discretion of the Administrator) and treating such reductions as excess contributions or excess aggregate 688857.1 31 contributions (as appropriate) under ss. 3.11(d) or this subsection (e). (iii) The foregoing provisions of this ss. 4.4 are intended to satisfy the requirements of Section 401(m) of the Code and, to the extent not otherwise stated above, the provisions of Section 401(m)(2) and (9) of the Code and Treasury Regulation Sections l.401(m)-1(b) and 1.401(m)-2 are incorporated herein by reference. 4.5 Company Matching Contributions shall be paid in cash or in the form of shares of common stock of Ampex. When Company Matching contributions are to be made in the form of shares of common stock of Ampex, the number of shares to be contributed shall be determined pursuant to such method as shall be selected by the Administrator and communicated to the Participants. Notwithstanding the foregoing, this ss. 4.5 shall not be effective until such date as the Board of Directors specifies in a duly adopted resolution (which effective date shall not be retroactive). 4.6 The Company will make no contributions to the Trust Funds related to or resulting from Supplemental Contributions. 4.7 (a) In any Plan Year, which shall be the Plan's "limitation year" within the meaning of Treasury Regulation Section 1.415-2(b), the Annual Addition of a Participant shall not exceed the least of: (i) 25% of such Participant's Statutory for such Plan Year, (ii) $30,000 (as adjusted pursuant to Section 415(d) of the Code), or (iii) that amount which would result in the sum of the "defined benefit plan fraction" for all defined benefit plans of the Companies and the "defined contribution plan fraction" for all defined contribution plans of the Companies equaling or exceeding 1.00 with respect to such Participant. For purposes of this subsection (a): (a) The "defined benefit plan fraction" for 688857.1 32 any Plan Year is a fraction, the numerator of which is the projected annual benefit of the Participant under all the defined benefit plans of the Companies (determined as of the close of the Plan Year) and the denominator of which is the lesser of: (1) the product of 1.25 and $90,000 (as adjusted pursuant to Section 415(d) of the Code), or (2) the product of 1.4 and the Participant's average annual Statutory Compensation for the three consecutive Plan Years during which he was a Participant and had his greatest aggregate Statutory Compensation from the Companies. (b) Subject to paragraph (c), the "defined contribution plan fraction" for any Plan Year is a fraction, the numerator of which is the sum of the annual additions to the Participant's accounts under all defined contribution plans of the Companies for all Plan Years as an Employee (determined as of the close of the Plan Year) and the denominator of such is the lesser of: (1) the product of 1.25 and the sum of the amounts determined under subsection (a)(ii) for all Plan Years as an Employee, or (2) the product of 1.4 and the sum of the amounts determined under subsection (a)(i) for all Plan Years as an Employee. (c) Notwithstanding paragraph (b), with respect to all Plan Years ending before January 1, 1983, the Administrator may elect to multiply the denominator of the defined contribution plan fraction (determined for the Plan Year ending in 1982) by a "transition fraction". The transition fraction shall have (1) a numerator which is the lesser of $51,875 or 1.4 multiplied by the amount determined under subsection (a)(i) for the Plan Year ending in 1981, and (2) denominator which is the lesser of $41,500 or the amount determined under subsection (a)(i) for the Plan Year ending 688857.1 33 1981. (b) If the Annual Addition of a Participant would exceed the limits of subsection (a) as a result of (1) an Allocation of forfeitures, (2) a reasonable error in estimating a Participant's Statutory Compensation, (3) a reasonable error in determining the amount of Employee Tax Saver Contributions that may be made with respect to any Participant without violating the limits of subsection (a) , or (4) other limited facts and circumstances found justifiable by the Commissioner of Internal Revenue, it shall be reduced until it comes within such limits Such reduction shall be accomplished by debiting the necessary amount, in the following order: (i) for such Plan Year, his Employee Regular Contributions which are: (a) Supplemental Contributions, and (b) Basic Contributions; (ii) for such Plan Year and to the extent that clause (3) above applies, his Employee Tax Saver Contributions which are: (a) Supplemental Contributions, and (b) Basic Contributions; (iii) Company Matching Contributions and forfeitures allocated to his Company Matching Account for such Plan Year; and (iv) Employee Tax Saver Contributions allocated to his Employee Tax Saver Account for such Plan Year. The portion of such amount attributable to Employee Regular Contributions or (to the extent described in subsection (b)(ii)) Employee Tax Saver Contributions first shall be refunded to him, and the balance, if any, of such reduction shall be allocated to other Participants in the manner specified in ss. 4.2(b). If any Participant's Annual Addition would, due to such special allocation, exceed the limit of subsection (a), the excess shall be reallocated by a second special allocation, and so on as necessary to allocate such amounts within the limits of 688857.1 34 subsection (a). Any amounts which cannot be so allocated because of the limitations of subsection (a), shall be held in suspense and shall be allocated and reallocated in succeeding Plan Years, in the order of time, prior to the allocation of any other Contributions. (c) In the event the Plan is terminated while excess amounts are then held in suspense under subsection (b), such excess amounts shall be allocated and reallocated as provided in subsection (b), as of the day before the date of the termination as if such day were the last day of such Plan Year. Any amounts which cannot then be so allocated because of the limits of subsection (a) shall revert to the Companies, as provided in the Trust Agreements. 688857.1 35 ARTICLE V CHANGE IN ALLOCATION TO INVESTMENT FUNDS 5.1 Each Participant shall indicate, on such election form as the Administrator may prescribe or in such other manner as the Administrator may designate, and at such times as the Administrator may permit, the amount or percentage of all amounts already allocated to his Accounts that are to be invested in each of the Investment Funds (other than the Prior Fixed Income Fund). Each such Participant may use such election form or opportunity to change the investment of all amounts already allocated to his Account or to indicate that the investment allocation shall remain the same. A Participant may specify as to any Investment Fund by amount or by any percentage that complies with the provisions of ss. 3.7. 5.2 If a Participant fails to direct the manner in which the amounts allocated to his Account are to be invested, such amounts shall be invested in such one of the Investment Funds (other than the Stock Fund, if any, or the Prior Fixed Income Fund) as shall be designated by the Administrator. 5.3 Each Participant, including a Participant who has incurred a Separation from Service but whose entire Account balance has not yet been distributed, may change his investment instruction at such times as the Administrator may permit by filing the election form prescribed by the Administrator or by indicating the desired change in such other manner as the Administrator may designate. 5.4 Each investment direction that is received from a Participant and satisfies all applicable requirement shall be implemented by the Administrator or, upon 688857.1 36 direction by the Administrator, by the Trustee, custodian or recordkeeper (as appropriate) as soon as reasonably practicable following receipt of the direction. The Administrator may impose such timing restrictions and other conditions as shall be necessary or appropriate in order to provide reasonable assurance that the implementation of any investment direction shall not (a) unfairly disadvantage other persons having an interest in any of the Investment Funds involved, (b) jeopardize the benefits provided under the plan for Participants generally, or (c) result in a violation of federal or state securities laws. 688857.1 37 ARTICLE VI CHANGE IN OR SUSPENSION OF EMPLOYEE CONTRIBUTIONS 6.1 Upon 30 days' written notice to the Administrator (or such shorter period as may be determined by the Administrator), a Participant may direct that his Employee Regular Contributions to the Plan, and /or that Employee Tax Saver Contributions made on his behalf, be suspended for a period of not less than three months. Such suspension of Employee Regular Contributions and/or Employee Tax Saver Contributions shall not constitute withdrawal from the Plan, and the Participant may resume his Employee Regular Contributions and/or Employee Tax Saver Contributions upon 30 days' written notice to the Administrator. 6.2 As of such dates, upon receipt of written notice on such form and at such intervals as the Administrator shall specify, a Participant may, not more often than once in each calendar month, change the percentage or percentages of his Basic Compensation to be contributed by him as Employee Regular Contributions or for him as Employee Tax Saver Contributions. 688857.1 38 ARTICLE VII TRUST FUNDS, TRUSTEES AND INVESTMENT MANAGERS 7.1 One or more Trustee shall be designated by Ampex, and Trust Agreements shall be executed between Ampex and the Trustees under the terms of which one or more Trust Funds shall be established to receive and hold contributions, interest and other income and to pay the benefits provided by the Plan. The Trust Funds shall be held, administered, invested and distributed by the Trustees in accordance with the applicable Trust Agreements. The appropriate Trustee shall have the sole and exclusive responsibility regarding the investments of the Trust Funds, expect to the extent that Trust Fund investments are subject to direction by Participants pursuant to ss. 5, direction by investment managers appointed pursuant to ss. 7.2, or designation by the Administrator pursuant to ss. 7.4. 7.2 Pursuant to Sections 402(c)(3) and 405(c)(1) of ERISA, the Administrator may designate one or more investment managers as defined in Section 3(38) of ERISA to manage (including the power to acquire and dispose of) any assets of the Plan, and/or to make professional investment decisions or recommendations. Neither the Companies, the Board of Directors, the Trustees nor the Administrator shall be liable for any act or omission of any such investment manager, except as required by law. 7.3 (a) The Trustees, the Board of Directors, the Administrator and the Committee, if one is appointed, shall be named fiduciaries (within the meaning of Section 402(a)(2) of ERISA) and, as permitted or required by law, shall have exclusive authority and discretion to control and manage the operation and administration of the Plan as 688857.1 39 provided by law within the limits set forth in the Trust Agreement, subject to proper delegations. Such named fiduciaries, the Companies, each investment manager and every person who exercises any discretionary authority or discretionary control respecting management of the Trust Funds or Plan, or exercises any authority or control respecting the management or disposition of the assets of the Trust Funds or Plan, or who renders investment advice for compensation, direct or indirect, with respect to any monies or other property of the Trust Funds or Plan, or who has authority or responsibility to do so or who has any discretionary authority or discretionary responsibility in the administration of the Plan, including any person designated by a named fiduciary to carry out fiduciary responsibilities under the Plan, shall be a fiduciary and as such shall be subject to provisions of the Plan, the Trust Agreements, ERISA and other applicable laws governing fiduciaries. Any person may serve in more than one fiduciary capacity with respect to the Plan. Notwithstanding the foregoing, no Participant or beneficiary shall be deemed to be a fiduciary with respect to the Plan merely by reason of the power to give investment and transfer directions with respect to the Participant's Account. (b) Fiduciary responsibilities under the Plan are allocated as follows: (i) The sole power and discretion to manage and control the Plan's assets, including but not limited to the acquisition and disposition of Plan assets, is allocated to Trustee A (with respect to the Stock Fund, if any, and the Prior Fixed Income Fund) and Trustee B (with respect to all other Plan assets), except to the extent that (a) an investment manager if appointed with the power to control or manager including the power to acquire and dispose of) assets of the Plan, or (b) such power is 688857.1 40 expressly reserved by the Administrator. (ii) The sole duties, responsibilities and powers allocated to the Board of Directors shall be those expressly retained under ss. 14.1. (iii) The sole duties, responsibilities and powers allocated to the Companies shall be those expressly retained under the Plan or the Trust Agreements. (iv) All fiduciary responsibilities not allocated to the Trustees, the Board of Directors, the Companies or any investment manager are hereby allocated to the Administrator, subject to delegation in accordance with ss. 12.1(f). 7.4 All assets of the Plan shall be invested in one or more of the following Investment Funds: (a) Trustee A shall continue to maintain an Investment Fund (the "Prior Fixed Income Fund") for the purpose of investing such portions of Participants' Accounts as are properly allocable to the Prior Fixed Income Fund, until such time as such Investment Fund can be liquidated into cash and reinvested into the other Investment Funds. The Prior Fixed Income Fund shall be primarily invested in guaranteed annuity contracts heretofore entered into by Ampex or the predecessor to Trustee A. Upon the direction of the Board of Directors in a duly adopted resolution, Trustee A shall also establish or maintain an Investment Fund (the "Stock Fund") for the purpose of investing such portions of Participants' Accounts as are properly allocable to the Stock Fund. The Stock Fund shall be primarily invested in shares of common stock of Ampex. To the extent reasonably necessary to meet the cash requirements of the Stock Fund, such Fund may be invested by Trustee A in units, shares or other interests in one or more common, pooled or other collective short-term investment funds which are designated by the Administrator and either (i) maintained by Trustee A, any 688857.1 41 other person described in Section 3(38)(B) of ERISA or an affiliate or any such person, or (ii) registered under the Investment Company Act of 1940. (b) In accordance with directions of the Administrator, Trustee B shall establish or maintain at least four other Investment Funds which shall be maintained for the purpose of investing such portions of Participants' Accounts as are, pursuant to Participants' investment instructions made in accordance with ss.ss. 5.1 and 5.3, properly allocable to each such Fund. Each such other Investment Fund shall be invested in units, shares or other interests in one or more common, pooled or other collective investment funds which are (i) designated by the Administrator, Trustee B or an investment manager appointed pursuant to ss. 7.2 with respect to the Investment Fund, and (ii) either (1) maintained by Trustee B, any other person described in Section 3(38)(B) of ERISA or an affiliate of such person, or (2) registered under the Investment Company Act of 1940. (c) Except to the extent that investment responsibility for one or more of the Investment Funds has been transferred to an investment manager pursuant to ss. 7.2, the Administrator shall designate the common, poled or other collective investment funds in which the Investment Funds shall be invested. The Administrator may from time to time change the number, identity or composition of the Investment Funds made available under this ss. 7.4 and redesignate the collective investment funds in which any of the Investment Funds shall be reinvested in the Investment Funds that realized such income. (d) Temporary cash balances arising in any of the Investment Funds shall be invested where feasible in any collective short-term investment fund described in subsection (a). 7.5 All Contributions and transfers shall be paid 688857.1 42 into the Investment Funds (other than the Prior Fixed Income Fund) pursuant to the Participants' directions made pursuant to ss. 3.7. 7.6 Brokerage fees, commissions, stock transfer taxes and other charges or expenses incident to the purchase and sale of securities by, distributions or withdrawals from, or transfers among the Investment Funds (other than the Stock Fund) shall be paid from the investment Funds involved. Taxes, if any, payable by the Trustees on the assets at any time held in the trust Funds or on the income thereof shall be paid from the Trust Funds. All other expenses and charges incurred in connection with the administration of the Plan, including the Trustees' fees and expenses, investment managers' fees and expenses, and those of their respective counsel, shall be paid from the Trust Funds, if and to the extent not paid by the Companies. 7.7 To the extent that the power to vote securities held in the Trust Funds is delegated to one or more investment managers, the Trustees shall have the authority (in their discretion) to exercise all voting and other shareholder rights with respect to all securities held by it in Investment Funds. 7.8 (a) Subject to the provisions of subsection (b), the following provisions shall apply with respect to voting, tender and exchange offers relating to shares of common stock of Ampex ("Stock") held in the Stock Fund: (i) Whenever any proxies or consents are solicited from the shareholders of Stock, each Participant (or in the event of death, his beneficiary) whose Account is credited with any shares of Stock shall have the right to direct Trustee A in writing as to the manner in which such shares shall be voted. Trustee A or another person designated by Ampex (but not otherwise affiliated with Ampex) to solicit and/or tabulate votes of shareholders of 688857.1 43 Stock generally (a "Recordkeeper") shall utilize its best efforts to distribute or cause to be distributed in a timely manner to each Participant (or beneficiary) a copy of the proxy solicitation material sent to shareholders, together with a form addressed to Trustee A or the Recordkeeper soliciting the Participant's (or beneficiary's) confidential, written instructions as to the manner in which such shares shall be voted. If such instructions are sent to a Recordkeeper, the Recordkeeper shall communicate the instructions to Trustee A. Upon receipt of such instructions, Trustee A or the custodian shall vote such shares as instructed. Shares of Stock (a) as to which Trustee A receives no voting instructions, or (b} which are held in the Stock Fund but are not credited to any Participant's (or beneficiary's) Account, shall be voted by Trustee A in the same proportion as shares are to be voted pursuant to the written voting instructions received by Trustee A. (ii) Each Participant (or, in the event of death, his beneficiary) whose Account is credited with any shares of Stock shall have the right to direct Trustee A in writing as to the manner in which to respond to a tender or exchange offer with respect to such shares. Trustee A or, if Ampex so elects, a Recordkeeper (as defined in subsection (a)(i)) shall utilize its best efforts to distribute or cause to be distributed in a timely manner to each Participant (or beneficiary) such information as will be distributed to shareholders of Stock in connection with any such tender or exchange offer, together with a form addressed to Trustee A or the Recordkeeper soliciting the Participant's (or beneficiary's) confidential, written instructions as to whether such shares shall be tendered or exchanged. If such instructions are sent to a Recordkeeper, the Recordkeeper shall communicate the instructions to Trustee A. If Trustee A receives no 688857.1 44 written directions from a Participant (or beneficiary) as to the manner in which to respond to such a tender or exchange offer, Trustee A shall not tender or exchange any shares of Stock credited to the Account of the Participant (or beneficiary). Shares of Stock which are held in the Stock Fund but are not credited to the Account of any Participant (or beneficiary) shall be tendered or exchanged by Trustee A in the same proportion as the shares which are credited to the Accounts of Participants (or beneficiaries) are to be tendered or exchanged. (b) Notwithstanding any contrary Plan provision, for purposes of applying subsection (a) and Section 403(a)(1) of ERISA, to the extent Section 404(c) of ERISA does not apply, each Participant (or, in the event of death, his beneficiary) shall be deemed to be a "named fiduciary" (within the meaning of Section 402(a) of ERISA) with respect to the shares of Stock as to which such Participant (or beneficiary) has the right of direction regarding voting, tender or exchange. The directions received by Trustee A and any Recordkeeper (as defined in subsection (a)(i)) from the Participants (or beneficiaries) shall be held by Trustee A or the Recordkeeper in strict confidence and shall not be divulged or released to any person, including employees, officers or directors of Ampex or any Affiliate; provided, however, that, to the extent necessary for the operation of the Plan, such directions may be relayed by Trustee A to a recordkeeper or auditor for the Plan which recordkeeper or auditor (a) is not an Affiliate, and (k) agrees not to divulge such directions to any other person, including employees, officers or directors of Ampex or any Affiliate. 7.9 The Trustees shall, except as otherwise provided in the Plan, pay all amounts payable under the Plan to the person or persons designated by the Plan and not to any other person or corporation. The receipt by the person to 688857.1 45 whom such payment is made shall be a complete discharge to the Companies, the Administrator and the Trustees, and their officers, directors and employees for any sum so paid; and when any such payment is tendered as payment in full for all amounts due and payable to such person in accordance with the Plan, shall be a complete discharge to such person of all claims arising under or connected with participation in the Plan or the participation of the person under whom he is claiming. 7.9 The funding policy established in this Article VII may be changed by amending the Plan in accordance with ss. 13.1. 688857.1 46 ARTICLE VIII VALUATION OF TRUST FUNDS The values of Investment Funds shall be determined separately by the applicable Trustee as of the close of each business day. In making such determinations, the Trustees shall take into account the market price or other fair market value of the assets held, accrued income and uninvested cash. Each Participant's Account shall be adjusted to reflect the value of its interest in each of the Investment Funds as of the applicable Valuation Date. Notwithstanding any contrary Plan provision, the Administrator (in its discretion) shall determine the share, unit or other method(s) of accounting for the interest of each Participant's Account in the Investment Funds. 688857.1 47 ARTICLE IX DISTRIBUTION UPON SEPARATION FROM SERVICE 9.1 (a) (i) Upon Separation from Service, a Participant shall be entitled to receive (subject to income tax withholding) the value of his vested Accounts as of the last Valuation Date of the month in which he was last a Participant. Distribution shall be effected by the delivery to him of the number of full shares of stock represented by the value of his vested Accounts in the Stock Fund (with the value of fractional shares to be paid in cash), if any, and by payment to him of the cash value of his vested Accounts in the other Investment Funds. (ii) Such distribution shall be made as soon as practicable after Separation from Service. If the vested balance credited to a terminated Participant's Account exceeds $3,500 as of the Valuation Date that (a) next precedes the date of the distribution, or (b) next preceded the date of any prior distribution or withdrawal from the Account, a distribution shall be made from the Account only if the Participant consents in writing to the distribution on such form as the Administrator shall prescribe. In the absence of such consent, the Participant shall be deemed to have elected to leave his vested Account in the Trust Fund for later distribution. A Participant who so elects to leave his Account in the Trust Funds shall remain a Participant in the Plan until the Account is finally distributed; provided, however, that he shall not have the right to make any further Contributions under Article III. He shall have the right to make transfers of values under ss.ss. 5.1, 5.3 and 5.4, in accordance with his particular eligibility at the time of Separation from Service. 688857.1 48 (iii) In the case only of a Participant who became a Participant before January 1, 1994. and whose Separation from Service occurs by reason of Retirement, the Participant may elect to receive (subject to income tax withholding) either a single-sum distribution, as provided in ss. 9.1(a)(i), or distribution of the value of his Account in the Investment Funds (other than the Stock Fund), in accordance with this subsection (a)(iii), in approximately equal installments (provided that the first installment may be larger than the remaining installments), over a period certain, which shall begin as soon as practicable after his Separation from Service. (a) The period of time over which such installment distributions are made shall not exceed the shorter of (1) ten years from the applicable benefit commencement date, (2) the joint life and last survivor expectancy of the Participant and his spouse (if designated as his beneficiary), or (3) the joint life and last survivor expectancy of the Participant and his designated non-spouse beneficiary; provided, however, that if the Participant's spouse is not his sole beneficiary, the minimum amount distributed each year shall not be less than the quotient obtained by dividing (x) the balance credited to his Account as of the last Valuation Date of the preceding year. by (y) the applicable divisor, as determined under the minimum distribution incidental benefit requirement of Section 401(a)(9) of the Code. (b) For purposes of paragraph (a), life expectancies shall be calculated in the manner prescribed under Section 401(a)(9) of the Code as of the Participant's and beneficiary's birthdays in the calendar year preceding the required beginning date determined under ss. 9.2(a)(iv) and shall not be recalculated thereafter. (c) An eligible Participant who elects to receive installment distributions of his Accounts in the 688857.1 49 Investment Funds (other than the Stock Fund) shall receive the value of his Accounts in the Stock Fund in a single-sum distribution of stock (and the cash value of fractional shares) as soon as practicable following his Separation from Service. (d) A Participant who has begun to receive installment distributions may elect to receive the balance of his Account in a single-sum payment. (e) In lieu of installment distributions from the Plan pursuant to this subsection (a)(iii), the Administrator may distribute a nontransferable single premium annuity contract for a term certain providing for payments in accordance with this subsection (a)(iii). (iv) In any event, if upon a participant's Separation of Service, his vested balance credited to his Account exceeds $3,500 as of the date described in paragraph (ii) hereof and if such Participant does not consent in writing to an earlier benefit commencement date, the distribution of such Participant's Account balance shall be made after the last day of the Plan Year in which occurs the later of the Participant's Normal Retirement Date or the Participant's Separation from Service, but not later than the 60th day after such last day. Notwithstanding anything to the contrary in this Plan and to the extent required by Section 401(a) of the Code, a Participant's Account balances may not be distributed to him later than April 1 of the calendar year following the calendar year in which he attains age 70 1/2. (b) Upon Separation from Service prior to full vesting under ss. 11.2, a Participant shall forfeit his Company Matching Account, which forfeitures shall be disposed of in accordance with ss. 11.3, subject to the following rules: (i) If the Participant again becomes an 688857.1 50 Employee after he incurs five consecutive Break in Service Years, his Credited Service for the period after his Separation of Service shall not be taken into account for purposes of vesting in his Company Matching Account balances as of such Separation of Service. (ii) If the Participant again becomes an Employee before he incurs five consecutive Break in Service Years, his Credited Service for the period after his Separation of Service shall not be taken into account for purposes of vesting in his previously forfeited Company Matching Account balances, unless either (a) he does not incur even one Break in Service Year, or (b) he repays to the Plan an amount equal to the full amount of any distribution made to him from his Employee Regular and Employee Tax Saver Accounts under subsection (a) before the fifth anniversary of his reemployment date. Upon his reemployment prior to incurring a one Break in Service Year or upon such repayment, as the case may be, such forfeited values shall be restored to his forfeited Accounts by applying forfeitures pending reallocation and unallocated earnings and gains of the trust Funds in that order. (c) If a Participant was not vested in his Company Matching Account and incurs a Separation from Service followed by a number of consecutive Break in Service Years equal to or in excess of the greater of five or the number of years of Credited Service as of such Separation of Service, his Credited Service for the period prior to such Separation of Service shall not be taken into account for purposes of determining his vested status thereafter. 9.2 (a) Upon the death of a Participant, the value of his vested Account as of the last Valuation Date on which he was a Participant shall be distributed to his surviving spouse, if any, except to the extent, if any, to which the surviving spouse has consented under ss. 3.2(c) to the 688857.1 51 designation of one or more other beneficiaries, and in such event, or if the Participant had no surviving spouse, to the executor and/or administrator of the Participant's estate. (b) Distribution shall be made under subsection (a) either in one distribution of cash and shares of stock as described in ss. 9.1(a)(i) or, at the election of the designated beneficiary of a Participant who became a Participant before January 1, 1994, in a single payment of stock and installment payments over a period certain as provided in ss. 9.1(a)(iii). Such period shall not exceed (i) the end of the period certain elected by the Participant, if his death occurred after receiving the first installment payment under ss. 9.1(a) iii), or (ii) the life expectancy of the beneficiary as calculated in accordance with ss. 9.l(a}(iii)(b). Any distribution pursuant to this subsection (b) shall be made or commenced no later than the first anniversary of the Participant's death. 9.3 (a) If an amount payable under this Article IX cannot be ascertained or the person to whom it is payable has not been ascertained or located within the stated time limits, and if reasonable efforts to do so have been made, then distribution shall be made not later than 60 days after such amount is determined or such person is ascertained or located, or as prescribed in subsection (b). (b) If, within one year after a Participant's Separation from Service has occurred, the Administrator, in the exercise of due diligence, has failed to locate him (or if the Separation from Service is by reason of his death, has failed to locate the person entitled to his vested Account under ss. 9.2), his entire distributable interest in the Plan shall be forfeited and reallocated under ss. 11.3; provided, however, that if the Participant (or in the case of his death, the person entitled thereto under ss. 9.2) 688857.1 52 makes proper claim therefor, the amount so forfeited shall be restored to the Participant's Account, applying forfeitures and earnings and gains of the Trust Funds, in that order, as necessary. 9.4 Notwithstanding any contrary Plan provision, if the distributee of any eligible rollover distribution (within the meaning of Section 401(a)(31)(C) of the Code) (a) elects to have at least $500 of such distribution paid directly to an eligible retirement plan (within the meaning of Section 401(a)(31)(D) of the Code), and (b) specifies such plan on such form, at such time and subject to such permissible restrictions as the Administrator may prescribe, such distribution or portion thereof shall be made in the form of a direct rollover to such plan, in accordance with and subject to the conditions and limitations of Section 401(a)(31) and related provisions of the Code. 688857.1 53 ARTICLE X WITHDRAWAL DURING EMPLOYMENT 10.1 A Participant who is an Employee may make a withdrawal from the Plan, in an amount or amounts approved by the Administrator, from his Employee Regular Account, his vested Company Matching Account, his Rollover Account, and/or if he has attained age 59-1/2, his Employee Tax Saver Account, determined as of the valuation Date coincident with or next following the Administrator's receipt of the Participant's notice of withdrawal, subject to the following restrictions: (a) A Participant may make withdrawals from his Company Matching Account only after he has withdrawn all amounts from his Employee Regular Account, his Rollover Account, and if he has attained age 59-1/2. his Employee Tax Saver Account. (b) Withdrawals from a Participant's Employee Regular and Employee Tax Saver Accounts shall be deemed to be made first from amounts attributable to Supplemental Contributions. (c) A withdrawal shall be made from the Investment Funds in amounts attributable to his Account(s) in question, in such order of withdrawal as the Administrator may determine, subject to subsection (a) (d) The amount withdrawn will be paid (subject to tax withholding) in cash except for the value of his Account in the Stock Fund which will be paid to him in full shares of stock. (e) In the case of a withdrawal of any amount attributable to a Participant's Basic Contributions, except in the case of a withdrawal from the Participant's Employee Regular or Employee Tax Saver Account following 688857.1 54 his layoff from employment with his Company, there shall be a suspension of the Participant's Company Matching Contributions for a period of six months following the date of the withdrawal. 10.2 Subject to the conditions set forth in this ss. 10.2, a Participant who is an Employee may make a withdrawal from the Plan from his Employee Tax Saver Account in the event of Hardship. A Hardship withdrawal shall be made from the Participant's Employee Tax Saver Account in the Investment Funds, in such order of withdrawal as the Administrator may determine. The amount withdrawn will be paid (subject to income tax withholding) in cash, except for the value of the withdrawal from his Account in the Stock Fund which will be distributed to him in full shares of stock. A withdrawal under this ss. 10.2 shall not exceed the lesser of (1) the amount required to meet the immediate financial need created by the Hardship and not reasonably available from other resources of the Participant, or (2) the dollar amount of the Participant's Tax Saver contributions. The Administrator shall determine whether the amount is required to meet the Participant's immediate financial need on the basis of all relevant facts and circumstances. In making such determinations, the Administrator may require a Participant to provide such information as it may reasonably require and to represent to the Administrator, in the manner specified by it, that: (a) The withdrawal does not exceed the immediate and heavy financial need created by the Hardship; and (b) The immediate and heavy financial need created by the Hardship cannot be relieved: (i) Through reimbursement or compensation by insurance or otherwise; (ii) By reasonable liquidation of the Participant's assets, to the extent such liquidation would 688857.1 55 not itself cause an immediate and heavy financial need; (iii) By cessation of Employee Regular and Tax Saver Contributions; or (iv) By other distributions, withdrawals or loans (if nontaxable at the time of the loan) from plans maintained by the Company or any Affiliate or by borrowing from commercial sources on reasonable commercial terms. 10.3 A withdrawal under ss. 10.1 or 10.2 shall not reduce the Participant's interest in, or rights in respect of, the balance of his Account. 10.4 After a withdrawal under ss. 10.1 or 10.2, a Participant may, at intervals of not less than six months after the last previous such withdrawal, again make a withdrawal under ss. 10.1 or 10.2. 688857.1 56 ARTICLE XI VESTING AND FORFEITURES 11.1 A Participant's Employee Regular, Employee Tax Saver and Rollover Accounts shall at all times be fully vested and nonforfeitable. 11.2 The interest of a Participant in his Company Matching Account shall become fully vested and nonforfeitable upon the earliest to occur of: (a) his completion of five years of Credited Service, (b) his death, (c) his 65th birthday, (d) his total disability, (e) his release from employment (other than by discharge), (f) in the event of layoff, 30 days following his layoff date of record, or (g) the termination or discontinuance of the Plan under Article XIV if he is then an employee of a Company or an Affiliate. 11.3 Amounts attributable to Company Matching Contributions standing to the credit of a Participant's Account which are forfeited by the Participant under the provisions of ss. 9.1 shall be cancelled, and shall be applied first to the restoration of forfeitures under ss. 9.1(b), and then against the Company's next Company Matching Contributions to the Trust Funds pursuant to Article IV; provided, however, that no Company Matching Contributions shall be repaid to or otherwise recovered by any Company. 688857.1 57 ARTICLE XII ADMINISTRATION 12.1 The Administrator shall conduct the general administration of the Plan in accordance with the Plan and shall have all the necessary power and authority to carry out that function, including the following discretionary powers and authority: (a) To determine questions of eligibility of Participants and the entitlement to amounts of Participants, former Participants, beneficiaries and all other persons. (b) As required by law, to engage and designate a qualified public accountant meeting the requirements of Section 103(a)(3)(D) of ERISA, and other actuaries, accountants, attorneys, appraisers, brokers, consultants, administrators, physicians or other persons and (with the Companies and their officers, directors and employees) to rely upon the advice, opinions or valuations of any such persons and, except as required by law, be fully protected in acting or relying thereon in good faith. (c) To adopt any rules for the administration, interpretation and application of the Plan as are not inconsistent with the Plan and applicable law, and to amend or revoke any such rule, (d) To interpret, and to resolve any ambiguities in, the Plan and any rules adopted under subsection (c). (e) To conduct claim review procedures as provided in ss. 12.10. (f) To delegate any power or duty to any other person or persons including a Committee appointed pursuant to ss. 12.3. (g) To impose a reasonable charge to cover the 688857.1 58 cost of furnishing to Participants or beneficiaries, upon their written request, documents as required under Section 104(b)(4) of ERISA, but not for furnishing information, statements or documents as required by Section 104(b)(1), (2) or (3) or Section 104(c) or Section 105(a) or (c) of ERISA. (h) To determine in good faith the fair market value of any asset other than a security for which there is a generally recognized market. 12.2 The Plan shall not be operated so as to discriminate in favor of Participants who are officers or shareholders or who are Highly Compensated Employees. The Plan shall be uniformly and consistently interpreted and applied with regard to all Participants in similar circumstances. The Plan shall be administered, interpreted and applied fairly and equitably and in accordance with the specified purposes of the Plan. 12.3 Ampex may, but need not, appoint a committee consisting of three or more members appointed by and holding office during Ampex's pleasure, to function as specified under ss. 1.2. 12.4 Committee members may resign at any time by delivering written notice to Ampex. 12.5 Vacancies on the Committee shall be filled by Ampex at its pleasure. If at any time there should be no members of the Committee in office, Ampex shall again have its full responsibilities as Administrator. 12.6 The Committee shall act by a majority of its members in office; provided, however, that it may appoint any of its members, or a non-member, to act on behalf of the Committee on matters arising in the ordinary course of administration. No member of the Committee shall vote on any matter in which he is personally interested, except on matters applying to Participants generally. 12.7 Except as provided in ss. 12.10, all actions taken 688857.1 59 and all determinations made by the Committee in good faith shall be final and binding upon all Participants, the Companies, the Trustees, any investment manager and any person interested in the Plan or the Trust Funds, and shall be given the maximum possible deference allowed by law. 12.8 Copies of the Plan and any other documents and records which a Participant is entitled by law to inspect shall be open to inspection by him or his duly authorized representative at the principal office of Ampex at any reasonable business hour. 12.9 Committee members shall not receive compensation from the Trust Funds for serving on the Committee. The Companies shall pay or reimburse Committee members for all expenses reasonably incurred by them in, and shall indemnify and hold them and the Companies' officers and employees harmless from, all claims, liabilities and costs (including reasonable attorneys" fees) arising out of the good faith performance of their functions under the Plan, and may obtain and provide for them, at the Companies' expense, liability insurance against liabilities imposed on them by law. All expenses properly incurred by the Administrator and the Committee in the administration of the Plan, including legal expenses incurred in the preparation and amendment of documents, shall be paid from the Trust Funds, if and to the extent not paid by the Companies. 12.10 (a) A claim by a Participant, former Participant, beneficiary or any other person shall be presented in writing as soon as practicable after the occurrence of the events giving rise to the claim. The claim shall be presented to a claims officer who shall be appointed by the Administrator. (b) The claims officer shall, within a reasonable time, not exceeding 90 days after the claim is received, consider the claim and shall issue his 688857.1 60 determination thereon in writing. (c) If the claim is granted, the appropriate distribution or payment shall be made from the Trust Funds or by the Companies. (d) If the claim is wholly or partially denied, the claims officer shall, within a reasonable time, provide the claimant with written notice of the denial, setting forth, in a manner calculated to be understood by the claimant: (i) the specific reason or reason for the denial, (ii) specific references to pertinent Plan the denial is based, (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and (iv) an explanation of the Plan's claim review procedure. (e) The claims officer shall provide each claimant with a reasonable opportunity to appeal a denial of a claim by the claims officer for a full and fair review by the Administrator. The claimant or his duly authorized representative: (i) may request a review upon written application to the Administrator (which shall be filed with his Company), (ii) may review pertinent documents, and (iii) may submit issues and comments in writing. (f) The Administrator may establish such time limits within which a claimant may request review of a denied claim as are reasonable in relation to the nature of the benefit which is the subject of the claim and to other attendant circumstances but which, in no event, shall be 688857.1 61 less than 60 days after receipt by the claimant of written notice of denial of his claim. (g) The decision by the Administrator upon review of a claim shall be made not later than 60 days after receipt by the Company of the request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as practicable, but not later than 120 days after receipt of the request for review. (h) The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and specific references to the pertinent Plan provision on which the decision is based. (i) To the extent permitted by law, the decision of the Administrator (if no review is properly requested) or the decision of the Administrator on review, as the case may be, shall be final and binding on all parties, if warranted on the record and reasonably based on the law and the provisions of the Plan and Trust Agreement. 12.11 The Secretary of the Company is hereby designated as agent of the Plan for the service of legal process. 12.12 No person shall have any rights in or to the Trust Funds or other assets of the Plan, or under the Plan, except as, and only to the extent, expressly provided for by the Plan. The benefits provided under the Plan shall be only those provided by the assets of the Trust Funds, and no liability for payment of Plan benefits shall be imposed upon Ampex or the Company or any of their Employees, officers, directors or shareholders. To the maximum extent permissible under Sections 404(c) and 410 of ERISA, neither the Companies, the Board of Directors, the Trustees, the Administrator nor the Committee, if any, shall be subject to any fiduciary liability with respect to investment 688857.1 62 directions made under ss. 3.7 or Article V, or any other liability or duty under the Plan, except as expressly provided in the Plan, or for any action taken, omitted or supplied in good faith. 688857.1 63 ARTICLE XIII NONASSIGNABILITY 13.1 It is a condition of the Plan, to which all rights of each Participant and beneficiary shall be subject, that no right or interest of any Participant or beneficiary under the Plan or in the Trust Funds shall be assignable or transferable in whole or in part, either directly or indirectly, by operation of law, or otherwise, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy, or in any other manner, but excluding devolution by death or mental incompetency, unless otherwise required by the tax withholding provisions of the Code or any state's income tax laws, and no right or interest of any Participant or beneficiary under the Plan or in the Trust Funds shall be liable for or subject to any of his obligations or liabilities. The foregoing, however, shall not apply to prevent any payment pursuant to a qualified domestic relations order (within the meaning of Section 414(p) of the Code) (a "QDRO"). 13.2 (a) The Administrator shall establish written procedures for determining whether a domestic relations order purporting to dispose of all or a portion of a Participant's Account is a QDRO. No payment shall be made to any person designated in a domestic relations order (an "Alternate Payee") until the Administrator (or a court of competent jurisdiction reversing an initial adverse determination by the Administrator) determines that the order is a QDRO. Payment shall be made to each Alternate Payee as specified in the QDRO. (i) Payment may be made to an Alternate Payee, in accordance with a QDRO, at any time beginning as 688857.1 64 soon as practicable after the QDRO determination is made, without regard to whether payment, if made to a Participant at the time specified in the QDRO, would be permitted under the terms of the Plan. (ii) If the QDRO does not provide for immediate payment to an Alternate Payee, the Administrator shall establish a subaccount to record the interest of that Alternate Payee in the Participant's Account. The Alternate Payee shall have all the same rights to make such investment decisions with respect to his subaccount as the Participant has under ss. 3.7 and Article V. Pending distribution of his subaccount, an Alternate Payee shall not be permitted to make withdrawals (except in accordance with the QDRO pursuant to this ss. 13.2) or borrow funds from the subaccount. Payment to the Alternate Payee shall not be deferred beyond the date distribution to the Participant (or his beneficiary) is made. (b) With respect to any distributions to or withdrawals by a Participant under Articles IX or X, if the Administrator receives notice before the distribution or withdrawal is made that a QDRO is being sought with respect to the Participant's Account, the Administrator (in its discretion) may delay the distribution or withdrawal for a reasonable time pending the issuance of the QDRO. 688857.1 65 ARTICLE XIV AMENDMENT. TERMINATION. MERGER OR CONSOLIDATION 14.1 The Board of Directors shall have the right at any time, and from time to time, to amend, in whole or in part, any or all of the provisions of this Plan. However, no such amendment shall: (a) authorize or permit any part of the Trust Funds (other than such part as is required to pay taxes and administrative expenses) to be used for or diverted to purposes other than for the exclusive benefit of the Participants or their beneficiaries or estates; (b) cause any reduction in Participant's Account, divest any portion of an Account that is then vested under the Plan, or except as may be permitted under Section 411(d)(6) of the Code, eliminate any optional form of benefit with respect to benefits accrued prior to adoption of the amendment; or (c) cause or permit any portion of the Trust Funds to revert to or become the property of any Company. 14.2 Ampex shall have the right at any time to terminate this Plan, and each Company shall have the right to discontinue its Contributions under the Plan. Upon complete or partial termination of the Plan or complete and permanent discontinuance of a Company's Contributions, the rights and interests of each of such Company's Participants in the Participants' Accounts (including their rights and interests in Company Matching Accounts) while employed by such Company shall become fully vested and shall not thereafter be subject to forfeiture. Discharge or layoff of Employees of a Company without such a declaration shall not result in a termination or partial termination of the Plan, except to the extent required by law. Upon termination of 688857.1 66 the Plan or the complete and permanent discontinuance of a Company's Contributions, the Administrator shall direct the Trustee to distribute all assets attributable to such Company's Participants, remaining in the Trust Fund after payment of any expenses properly chargeable against such portions of the Trust Funds, to such Company's Participants in accordance with the values credited to their Accounts as of the date of such termination; provided, however, that the balances credited to each such Company's Participants' Accounts may be distributed prior to Severance from Service only to the limited extent permitted by Section 401(k)(2)(B) of the Code. The Administrator's determination shall be conclusive upon all persons. 14.3 (a) In the event of the consolidation or merger of a Company with or into any other corporation, or the sale by a Company of its assets, the resulting successor may continue the Plan by resolution of its board of directors and by executing any required supplemental agreements to the Trust Agreements. If, within 90 days from the effective date of such consolidation, a merger or sale of assets, the new corporation does not adopt the Plan, the Plan shall be terminated with respect to such Company in accordance with ss. 14.2. (b) There shall be no merger or consolidation with, or transfer of the assets or liabilities of the Plan to any other plan unless the account balance of each Participant immediately after the merger, consolidation or transfer equals the total of the Participant's account balances immediately before the merger, consolidation or transfer. 688857.1 67 ARTICLE XV GENERAL PROVISIONS 15.1 Any Affiliate may, with the approval of the Board of Directors, adopt the Plan as a whole corporation or as to any one or more divisions or classifications of Employees, as permitted by law and by resolution of its own board of directors. Any such Affiliate shall give written notice of such adoption to the Administrator and to the Trustees by its duly authorized officers. 15.2 Notwithstanding any contrary Plan provision, at no time shall any assets of the Plan be used for, or diverted to, purposes other than for the exclusive benefit of Participants, beneficiaries and other persons receiving or entitled to receive benefits or payments under the Plan. Except to the limited extent permitted by ss.ss. 4.7(c) and 15.3, no assets of the Plan shall ever revert to or become the property of the Company. 15.3 Any obligation of the Company to contribute Tax Saver and/or Company Matching Contributions under the Plan is hereby conditioned upon the continued qualification of the Plan under Section 401(a) of the Code and the exempt status of the Trust Funds under Section 501(a) of the Code and upon the deductibility of such Tax Saver and/or Company Matching Contributions under Section 404 (a) of the Code. That portion of any Tax Saver or Company Matching Contribution which is made by reason of a good faith mistake of fact, or by reason of a good faith mistake in determining the deductibility of such portion, shall be returned to the Company as promptly as practicable, but not later than one year after the contribution was made or the deduction was disallowed (as the case may be) The amount returned pursuant to the preceding sentence shall be an 688857.1 68 amount equal to the excess of the amount actually contributed over the amount that would have been contributed if the mistake had not been made; provided, however, that gains attributable to the returnable portion shall be retained in the Trust Funds; and provided, further, that the returnable portion shall be reduced (a) by any losses attributable thereto, and (b) to avoid a reduction in the balance of any Participant's Account below the balance that would have resulted if the mistake had not been made. 15.4 Neither the establishment or maintenance of the Plan, the making of any contributions, nor any action of the Company, the Trustees, the Administrator or the Committee, if any, shall be held or construed to confer upon any individual any right to be continued as an Employee nor, upon dismissal, any right or interest in the Trust Funds or any other assets of the Plan, except to the extent provided in the Plan. The Company expressly reserves the right to discharge any Employee at any time. 15.5 The provisions of the Plan shall be construed, administered and enforced in accordance with ERISA and, to the extent applicable, the laws of the State of California. 15.6 If any provision of the Plan is held invalid or unenforceable, its invalidity or unenforceability shall not affect any other provisions of the Plan, and the Plan shall be construed and enforced as if such provision had not been included. 688857.1 69 ARTICLE XVI TOP HEAVY PROVISIONS 16.1 (a) Solely in the event that this Plan ever becomes Top Heavy (as defined in this subsection (a)), the provisions of this Article XVI shall apply. The Plan shall be Top Heavy if, as of any Determination Date, the aggregate of the Accounts (under this Plan and such other plans as the Companies elect to take into account under Section 416(g)(2)(A)(ii) of the Code) of Key Employees exceeds 60% of the aggregate of the Accounts of all Key Employees and Non-Key Employees. In making this calculation as of a Determination Date: (i) each Account balance as of the most recent valuation date occurring within the Plan Year which includes the Determination Date shall be determined; (ii) an adjustment for contributions due as of the shall be determined; (iii) the Account balance of any Employee or former employee shall be increased by the aggregate distributions made during the five-year period ending on the Determination Date with respect to the Employee or former Employee; (iv) the Account balance of: (a) any Non-Key Employee who was a Key Employee for any prior Plan Year, and (b) any former Employee who completed no Hours of Service during the five-year period ending on the Determination Date, shall be ignored; and (v) if there have been any rollovers to or from any Account, the balance of the Account shall be adjusted, as required by Section 416(g) (4)(A) of the Code. Notwithstanding the foregoing, this Plan shall be Top 688857.1 70 Heavy if, as of any Determination Date, it is required by Section 416(g) of the Code to be included in an Aggregation Group which is determined to a Top Heavy Group. (b) For purposes of this Article XVI, the following definitions shall be used: (i) "Aggregation Group" shall mean: (a) each plan of a Company or Affiliate in which a Key Employee is a Participant at any time during the five-year period ending on the Determination Date, and (b) each other plan of a Company or Affiliate which enables any plan described in paragraph Ca) to meet the requirements of Sections 401(a)(4) or 410(b) of the Code. (ii) "Determination Date" shall mean, with respect to any Plan Year, the last day of the preceding Plan Year. (iii) "Key Employee" shall be determined in accordance with the definition in Section 416(i) of the Code, the provisions of which are hereby incorporated by reference; and an individual's Statutory Compensation shall be used to determine his status as "Key Employee". (iv) "Non-Key Employee" shall mean any Employee who is not a Key Employee. (v) "Top Heavy Group" shall mean any Aggregation Group if, as of the Determination Date, the sum of: (a) the present value of the cumulative accrued benefits for all Key Employees under all defined benefit plans in such Aggregation Group, and (b) the aggregate of the accounts of all Key Employees under all defined contribution plans in such Aggregation Group exceeds 60% of a similar sum determined for all Key Employees and Non-Key Employees. 16.2 (a) For any Plan Year in which the Plan is Top 688857.1 71 Heavy, the total allocations to the Company Matching Account and Employee Tax Saver Account of any Employee who is a Non-Key Employee at the end of such Plan Year shall not be less than that determined under subsection (b). (b) An allocation determined under this subsection (b) shall be a percentage of the Statutory Compensation of the Non-Key Employee which is not less than the lesser of: (i) 3%, or (ii) that percentage reflecting the ratio of: (a) the allocations under ss.ss. 4.1(b), 4.2(b) and 4.3, to (b) Basic Compensation for the Key Employee with respect to whom such ratio is highest for the Plan Year. (c) Notwithstanding the provisions of Subsection (b), if the Plan is a Top Heavy Plan in a Plan Year and if a Participant who is a Non-Key Employee is also covered in such Plan year under a defined benefit plan of a Company or an Affiliate, a greater contribution shall be made to the extent necessary to satisfy the rules of Sections 415 and 416 of the Code, by either (i) using a comparability analysis showing that the Plan is providing benefits equal to the minimum benefits that must be provided under a defined benefit plan that is a Top Heavy Plan or (ii) offsetting benefits under the defined benefit plan by the benefits provided under the Plan. The minimum allocation is determined without regard to any Social Security contribution, and shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the year because of (i) the Participant's failure to complete any hours of service requirement, or (ii) the Participant's failure to make 688857.1 72 mandatory employee contributions to the Plan, or (iii) the Participant's receipt of compensation less than a stated amount. Such minimum allocations shall be made in accordance with Code Section 416. 16.3 (a) For any Plan Year in which the Plan is Top Heavy, the vested percentage of the Company Matching Account of each Participant who completes an Hour of Service in the Plan Year shall be the percentage of the Account shown on the following Table: Years of Vested Credited Service Percentage Less than 3 0% 3 or more 100% (b) The vested percentage of a Participant's Company Matching Contribution Account shall be not less than the vested percentage determined as of the last day of the last Plan Year in which the Plan was Top Heavy. (c) Each Participant who has had his vested percentage computed under subsection (a) and who has completed at least three years of Credited Service shall be permitted to elect to have his vested percentage computed in accordance with subsection (a) for any Plan Year in which the Plan is no longer Top Heavy. 688857.1 73 16.4 For any Plan Year in which the Plan is Top Heavy, the denominator of both the defined benefit plan fraction and the defined contribution plan fraction set forth in ss. 4.7(a)(iii)(a) and (k), respectively, shall be adjusted by substituting 1.0 for 1.25, but only to the extent required by Section 416(h) of the Code. EXECUTION IN WITNESS WHEREOF, Ampex Corporation, by its duly authorized officer, has executed this restated Plan on the date indicated below. AMPEX CORPORATION Dated: _____________ By________________________ Title: 688857.1 74 EX-10.4 3 AMPEX CORPORATION EMPLOYEE'S RETIREMENT PLAN EXHIBIT 10.4 AMPEX CORPORATION EMPLOYEES' RETIREMENT PLAN (as amended and restated as of January 1, 1997) WHEREAS, Ampex Corporation (the "Company") previously established the Ampex Corporation Employees Retirement Plan (the "Plan") effective as of May 27, 1987; and WHEREAS, on July 24, 1992 Ampex Systems Corporation succeeded to the business and employees of the Company and assumed sponsorship of the Plan, and on April 22, 1994 Ampex Corporation succeeded to the business and employees of Ampex Systems Corporation and has assumed sponsorship of the Plan; and WHEREAS, the Plan was most recently amended and restated effective as of January 1, 1990 and was amended four times thereafter; and WHEREAS, pursuant to the first of such amendments, as of February 1, 1994 accrued benefits under the Plan ceased to accrue for all participants therein; and WHEREAS, it is desired to amend and completely restate the Plan once again to incorporate the relevant provisions of the last four Plan amendments into one restated Plan document, to delete Plan provisions that are no longer relevant, and to make certain clarifying changes to the Plan, as such Plan was in effect on December 31, 1996; and WHEREAS, it is intended that the Plan continue to be administered as a qualified plan pursuant to Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") and as an employee pension plan which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended; NOW, THEREFORE, in consideration of the premises, the Plan is hereby amended and restated as follows: 688864.1 ARTICLE I DEFINITIONS The following words and phrases as used herein shall, when capitalized, have the following meaning unless a different meaning is required by the context: 1.1 "ACCRUED BENEFIT," as of any specified date, means the greater of (a) the Retirement Pension, commencing on his Normal Retirement Date, earned by a Participant as of such specified date or January 31, 1994, if earlier, which shall be equal to the Retirement Pension, computed in accordance with Section 3.1, to which he would be entitled based on his Credited Service, Average Final Compensation, Average Final Compensation With Respect to Base Compensation and Social Security Covered Compensation as of such specified date; or (b) if the Plan is a Top Heavy Plan in any Plan Year and solely with respect to a Participant who is not a key employee as defined in Section 416 of the Code (whether or not he is employed on the last day of the Plan Year) and to the extent he is not receiving sufficient minimum benefits, as required by Code Section 416 and the regulations thereunder, from any other plan in which an Employer or Affiliate is participating, an annual amount for the life of the Participant (or if payment is made in another form, the Actuarial Equivalent thereof) equal to the product of (1) the lesser of (A) 20% (or 30% if it is desired that the denominator in both the "Defined Benefit Plan Fraction" and "Defined Contribution Plan Fraction," as defined in Section 415 of the Code which is hereby incorporated by reference, should contain a factor of 1.25 instead of 1.0) or (B) 2% (or 3% if it is desired that the denominator of both the "Defined Benefit Plan Fraction" or "Defined Contribution Plan Fraction," as defined in Section 415 of the Code which is hereby incorporated by reference, should contain a factor of 1.25 instead of 1.0) multiplied by the number of his Years of Service coincident with or beginning in Plan Years that begin on or after January 1, 1984 and in which the Plan is a Top Heavy Plan, multiplied by (2) his greatest average annual Compensation (as defined in Section 10.1(e)) out of all such averages, which are calculated in each of his 5 consecutive Years of Service (A) coincident with or ending in Plan Years that begin on or after -2- 688864.1 January 1, 1984 and (B) beginning on or before the close of the last Plan Year in which the Plan is a Top-Heavy Plan. (c) Notwithstanding anything to the contrary herein, (1) each individual who is a Participant in this Plan shall be entitled to an Accrued Benefit under this Plan to the extent vested therein that is not less than the Actuarial Equivalent of his vested accrued benefit as of December 31, 1995, if any, as calculated under the provisions of the Plan in effect on December 31, 1995; and (2) no person shall accrue benefits under this Plan in respect of service completed on or after, or compensation earned on or after, February 1, 1994, except as otherwise may be required by law. (d) Unless otherwise provided under the Plan, each Section 401(a)(17) Employee's accrued benefit under this Plan will be the greater of the accrued benefit determined for the Employee under (1) or (2) below: (1) the Employee's accrued benefit determined with respect to the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the Employee's total period of service taken into account under the Plan for the purposes of benefit accruals; or (2) the sum of: (A) the Employee's accrued benefit as of the last day of the last Plan Year beginning before January 1, 1994, frozen in accordance with Section 1.401(a)(4)-13 of the Internal Revenue regulations, and (B) the Employee's accrued benefit determined under the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the Employee's period of service credited to the Employee for Plan Years beginning on or after January 1, 1994, for purposes of benefit accruals. For purposes of this subsection (d), a "Section 401(a)(17) Employee" means an Employee whose current accrued benefit as of a date on or after the first day of the first Plan Year beginning on or after January 1, 1994, is based on compensation for a year beginning prior to the first day of the first Plan Year beginning on or after January 1, 1994, that exceeded $150,000. 1.2 "ACTUARIAL EQUIVALENT" means, except as otherwise provided in Sections 3.3 and 5.2 of this Plan and other sections referring to such Sections 3.3 and 5.2, a benefit of equivalent value based on (a) an assumed seven and one-half percent (7-1/2%) -3- 688864.1 interest rate compounded annually and (b) annuity rates determined by the 1984 Unisex Pension Mortality Table. 1.3 "AFFILIATE" means (a) any corporation or unincorporated business in control of, controlled by, or under common control with, an Employer within the meaning of Sec tions 414(b) and (c) of the Code, or (b) a member in an affiliated service group (as defined in Section 414(m) of the Code) of which an Employer is a member, or (c) any other entity required to be aggregated with an Employer pursuant to regulations under Section 414 of the Code; provided, however, that, for purposes of the limitations upon benefits contained in Article X, "Affiliate" status shall be determined in accordance with Section 415(h) of the Code. A corporation or unincorporated business shall not be deemed an Affiliate for any purpose under the Plan with respect to any period before it became an Affiliate. 1.4 "AVERAGE ANNUALIZED COMPENSATION", for any period of months prior to February 1, 1994, means the product of (a) the quotient determined by dividing (1) the sum of the Monthly Compensation for each month in the period by (2) the sum of the months, multiplied by (b) twelve (12). 1.5 "AVERAGE FINAL COMPENSATION" means a Participant's Average Annualized Compensation during the 60 consecutive month period out of his last 120 consecutive months of employment rendered prior to February 1, 1994 or his Severance from Service, if earlier, for which his Average Annualized Compensation was greatest (or during all months prior to February 1, 1994 in which he earned Compensation, if fewer than 60 months). 1.6 "AVERAGE FINAL COMPENSATION WITH RESPECT TO BASE COMPENSATION" means Average Final Compensation determined by substituting "Base Compensation" for "Compensation" whenever the latter term is used in the definition of "Monthly Compensation". 1.7 "BASE COMPENSATION" means Compensation excluding overtime, bonuses, commissions and all special pay. 1.8 "BENEFICIARY" means such person or persons as may be designated by Participants or as may otherwise be entitled, upon their death, to receive any benefits or payments under the terms of this Plan. 1.9 "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of the Company. 1.10 "BREAK IN SERVICE" means a period of at least twelve (12) consecutive months, beginning on the date of an Employee's Severance from Service (as defined in Paragraph 1.40), during which he neither performs services for nor receives severance pay from any Employer or Affiliate. -4- 688864.1 1.11 "CODE" means the Internal Revenue Code of 1986, as amended from time to time. 1.12 "COMMITTEE" means the group of individuals appointed by the Board to administer the Plan as provided in Article XIV. 1.13 "COMPANY" means (a) until July 24, 1992, Ampex Corporation, originally a California corporation, and then a Delaware corporation, which recently changed its name to Xepma I Inc., (b) from July 24, 1992 until April 22, 1994, Ampex Systems Corporation, a Delaware corporation, which succeeded to the business of Xepma I Inc., and (c) on and after April 22, 1994, Ampex Corporation, a Delaware Corporation (the successor in interest to Ampex Systems Corporation). 1.14 (a) "COMPENSATION" with respect to an Employee, for any Plan Year, means the sum of only the following amounts paid or payable to an Employee by his Employer in respect of such Plan Year: (1) base salary, (2) bonuses paid prior to January 1, 1988 (in accordance with Ampex Corporation Retirement Plan in effect on such date), (3) overtime, (4) shift differentials, (5) commissions, (6) accrued vacation pay paid upon a Termination of Employment, (7) salary-reduction (before-tax) contributions to the Employer's qualified salary reduction pension plan under Section 401(k) of the Code, and (8) salary-reduction (before-tax) contributions to the Employer's salary-reduction welfare plan that is operated in accordance with Section 125 of the Code. (b) "Compensation" shall not include any payment or expense paid or payable to or for Employees (1) pursuant to any welfare plan or any pension, profit-sharing or other deferred compensation plan, other than salary-reduction contributions; or (2) as automobile allowances, or reimbursement for services not in the United States, or separation payments or other special allowances of a similar nature. (c) "Compensation" for a Period of Service rendered prior to February 1, 1994 for which no service was provided shall be equal to the product of (1) the daily rate of Base Compensation in effect immediately prior to such Period of Service, multiplied by (2) the number of days in such Period of Service. (d) Notwithstanding the foregoing, (1) except as provided in Paragraph (2) below, "Compensation" for any such Plan Year ending before January 1, 1989 in which the Plan is a Top Heavy Plan, and for any Plan Year ending after December 31, 1988, shall be limited to the first $200,000 adjusted for increases as permitted under the Code and the regulations thereunder; and (2) in addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the -5- 688864.1 Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The "OBRA '93 annual compensation limit" is $150,000, as adjusted by the Commissioner of Internal Revenue for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (a determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision. If compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. In determining the Compensation of an Employee, the family aggregation rules of Code Section 414(q)(6) shall apply, except that in applying such rules, the term "family" shall include only the spouse of the Employee and any lineal descendants of the Employee who have not attained age 19 before the close of the year. (e) Notwithstanding the foregoing, "Compensation" shall not include any amount paid or payable to an Employee on and after February 1, 1994. 1.15 "CREDITED SERVICE," with respect to an Employee, means the Employee's Period of Service, excluding service as an Excluded Employee, except that service with an Employer or an Affiliate for which an Employee is entitled to benefits under another Defined Benefit Plan (as defined in Section 10.1(c)) shall be included in the Employee's Credited Service under this Plan. Any service prior to June 1, 1990 that was treated as "Benefit Service" under the provisions of this Plan prior to its amendment and complete restatement hereby shall be included in the Employee's Credited Service. Notwithstanding the foregoing, "Credited Service" shall not include any Period of Service rendered on and after February 1, 1994. -6- 688864.1 1.16 "DEFERRED RETIREMENT" means an Employee's continued employment after his Normal Retirement Date. 1.17 "DEFERRED RETIREMENT DATE" means the first day of the month coincident with or next following the date upon which an Employee's Termination of Employment occurs, if such Termination of Employment occurs after his Normal Retirement Date. 1.18 "DISABILITY" means the mental or physical incapacity of a Participant which as determined by the Committee renders a Participant totally and permanently incapable of performing assigned duties with an Employer or Affiliate. The Committee's determination shall be made under uniformly applied standards adopted by the Committee, which standards may include adopting the definition of "disability" under the Social Security Act, or as applied to the Company's long-term disability programs, if any, or such other definition as may be adopted from time to time by the Committee. 1.19 "EFFECTIVE DATE" of this Plan means May 27, 1987. The Effective Date of this amendment and restatement is January 1, 1997. 1.20 "EMPLOYEE" means an individual who is employed by an Employer or an Affiliate as a common law employee, or who is a "leased employee" with respect to an Employer or Affiliate within the meaning of Section 414(m) of the Code, including any Credit Union Participant employed by the Credit Union, as defined in Section 5.7. 1.21 "EMPLOYER" means the Company and any other Affiliate which, with the consent of the Board of Directors, has adopted the Plan as a participant herein and any successor to any such Employer. 1.22 "EMPLOYMENT COMMENCEMENT DATE" means (a) the date on which an Employee first performs an Hour of Service; or (b) in the case of an Employee who has incurred a Break in Service following a Termination of Employment, the date on which he first completes an Hour of Service after such Termination of Employment. 1.23 "ERISA" means Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.24 "EXCLUDED EMPLOYEE" means an individual in the employ of an Employer or an Affiliate who - (1) is employed by an Affiliate that is not an Employer; or -7- 688864.1 (2) is included in a unit of employees covered by a collective bargaining agreement between employee representatives and one or more Employers or Affiliates, if under such agreement such employees are not required to be covered by the Plan, and if retirement benefits were the subject of good faith bargaining between such employee representatives and such Employers or Affiliates; or (3) (A) is neither a resident nor a citizen of the United States of America, and (B) receives from Employers or Affiliates no earned income, within the meaning of Section 911(b) of the Code, that constitutes income from sources within the United States, within the meaning of Section 861(a)(3) of the Code; or (4) is a "leased employee" within the meaning of Section 414(m) of the Code. 1.25 (a) "HOUR OF SERVICE" means - (1) each hour for which an Employee is paid or entitled to payment, by an Employer or Affiliate for the performance of duties for such Employer or Affiliate, credited for the Plan Year or other computation period in which such duties were performed; or (2) each hour of a period during which no duties are performed due to vacation, holiday, illness, incapacity, layoff, jury duty, military duty or leave of absence, determined in accordance with the following rules: (A) (i) If the Employee is directly or indirectly paid, or entitled to payment by an Employer or Affiliate on account of such period of absence, the Employee shall be credited with Hours of Service in accordance with Sub section (b), up to a maximum of five hundred one (501) Hours of Service in each such period of absence; (ii) If the Employee is absent from work by reason of the Employee's pregnancy, the birth of the Employee's child, or the placement of a child with the Employee in connection with the adoption of such child by such individual or for purposes of caring for such child for a period beginning immediately following such birth or placement, the Employee shall be credited with eight (8) Hours of Service per day of such absence up to a maximum of five hundred one (501) Hours of Service in each such period of absence. (iii) If the Employee is not paid or entitled to payment by an Employer or Affiliate on account of such period of absence, other than absence for maternity or paternity reasons as described in Subparagraph (a), he shall be credited with no Hours of Service in respect of such period of absence. -8- 688864.1 (B) if the Employee is not paid, or entitled to payment, by an Employer or Affiliate on account of such period of absence, he shall be credited with no Hours of Service in respect of such period of absence; (3) each hour during an Employee's period of service in the Armed Forces of the United States, credited on the basis of forty (40) Hours of Service for each week, or eight (8) Hours of Service for each weekday, of such service, if the Employee retains reemployment rights under the Military Selective Service Act and is reemployed by an Employer or Affiliate within the period provided by such Act; or (4) each hour for which an Employee has been awarded, or is otherwise entitled to, back pay from an Employer or Affiliate, irrespective of mitigation of damages, if he is not entitled to credit for such hour under any other Paragraph of this Subsection (a). (b) The number of an Employee's Hours of Service and the Plan Year or other computation period to which they are to be credited shall be determined in accordance with Sec tion 2530.200b-2 of the Rules and Regulations for Minimum Standards for Employee Pension Benefit Plans, which section is hereby incorporated by reference into this Plan. (c) In the case of an Employee whose compensation is not determined on the basis of certain amounts for each hour worked, such Employee's Hours of Service shall not be determined from employment records, and such Employee may, in accordance with uniform and nondiscriminatory rules adopted by the Trustees, be credited with forty (40) Hours of Service for each week in which he would be credited with any Hours of Service under the provisions of Subsection (a) or (b). 1.26 "MINOR CHILDREN" means a Participant's natural or legally adopted children who are under the age of 21. 1.27 "MONTHLY COMPENSATION" for any month in a calendar year means the quotient determined by dividing the Compensation for the calendar year by twelve (12), or by the number of months actually paid, if less. 1.28 "NORMAL RETIREMENT AGE" means the Participant's sixty-fifth (65th) birthday. 1.29 "NORMAL RETIREMENT DATE" means the first day of the month coincident with or next following the Normal Retirement Age of a Participant or Retired Participant. 1.30 "OPTION" means any of the optional methods of payment of a Retirement Pension which a Participant or Retired Participant may elect in accordance with Article VI. -9- 688864.1 1.31 "PARTICIPANT" means an individual who has become a Participant in the Plan pursuant to Article II and whose participation has not terminated pursuant to such Article. 1.32 "PLAN" means the Ampex Corporation Employees' Retirement Plan, as set forth herein and as from time to time amended. 1.33 "PERIOD OF SERVICE" means the aggregate of each and every month in which an Employee is employed for at least 16 days, in each of which he is credited with at least one (1) Hour of Service, beginning on an Employee's Employment Commencement Date and ending on the date of his Severance from Service next following such Employment Commencement Date. For the purpose of determining the length of an Employee's Period of Service, all non-successive Periods of Service (except those which may be disregarded as provided under Section 5.6) shall be aggregated. The length of an Employee's Period of Service shall be equal to the number of years (i.e., 12 month periods) in such Period of Service, counting from the Employment Commencement Date on which it began, plus a fractional year consisting of (a) the number of months not included in any year, divided by (b) twelve (12). 1.34 "PLAN YEAR" means the period which began on the Effective Date and ended December 31, 1987, and each calendar year thereafter. 1.35 (a) "QUALIFIED JOINT AND SURVIVOR ANNUITY" means an annuity for the life of a Participant, with a survivor annuity for the life of his Spouse which is equal to 50% of the amount of the annuity payable during the joint lives of such Participant and his Spouse. (b) The benefit payable in the form of a Qualified Joint and Survivor Annuity shall be the normal form of a Participant's Retirement Pension if such Participant has a Spouse and shall be the Actuarial Equivalent of the Retirement Pension in the normal form of a non-assignable life annuity for the life of the Participant who has no Spouse. 1.36 "RETIRED PARTICIPANT" means any Participant or former Participant who is entitled to benefits pursuant to Arti cle III, V or VI. 1.37 "RETIREMENT" means any Termination of Employment, other than by reason of death, on or after a Participant's Normal Retirement Date. 1.38 (a) "RETIREMENT PENSION" means the annual pension to which a Participant or Beneficiary shall become entitled pursuant to Article III, V, VI or VII. Except as otherwise provided in this Plan, such Retirement Pension shall be in the normal form of a non-assignable annuity for the Participant's life, payable in monthly installments, each of -10- 688864.1 which shall be equal to one-twelfth (1/12th) of the Retirement Pension. (b) Nothing herein shall affect or lessen the right of any Participant or Beneficiary to receive a Qualified Joint and Survivor Annuity under the provisions of Section 3.4 or a death benefit under Article IV, or to elect any optional form of payment under the provisions of Article VII. 1.39 (a) "RETIREMENT PENSION STARTING DATE" means the scheduled payment date of (1) a Retirement Pension in the form of lump sum distribution or (2) the first installment of a Retirement Pension payable in the form of an annuity. Except as otherwise provided in this Plan, payment of a Retirement Pension shall be made or shall commence to be made, as the case may be, on his Normal Retirement Date or Deferred Retirement Date, as the case may be, and the last payment of a Retirement Pension shall be made depending on the form in which the Retirement Pension is payable. (b) A Participant's Retirement Pension Starting Date shall ordinarily not be later than the sixtieth (60th) day after the last day of the Plan Year in which occurs the later of his Normal Retirement Age or the date of his Termination of Employment; however, a Participant may postpone his Retirement Pension Starting Date beyond the latest date specified hereinabove, by filing a written statement with the Trustees, stating the date on which payment of the benefit to which he is entitled shall commence. (c) Notwithstanding anything to the contrary in the preceding Subsections, a Participant's Retirement Pension may not commence to be distributed to him after April 1 of the calendar year following the end of the calendar year in which he attains age 70-1/2, except as otherwise permitted under Section 401 of the Code or any federal law or regulation then in effect. 1.40 "SEVERANCE FROM SERVICE" of an Employee means the earlier of: (a) an Employee's Termination of Employment (but for purposes of eligibility to participate and vesting credit, only if within 12 months thereafter he does not complete an Hour of Service); or (b) the first anniversary of the date on which an Employee began his absence from service (with or without pay) with all Employers and Affiliates for any reason other than his Termination of Employment, if he does not return from such absence upon or prior to such first anniversary; provided, however, that absence from work by reason of the Employee's pregnancy, the birth of the Employee's child, or the placement of a child with the Employee in connection with the adoption of such child by the Employee or for purposes of caring for such child for a period beginning -11- 688864.1 immediately following such birth or placement shall not be deemed absence from service for purposes of eligibility and vesting until the second anniversary of such absence but shall be deemed absence from service for purposes of computing credited service from the first anniversary of such absence. 1.41 "SOCIAL SECURITY COVERED COMPENSATION" means for any Participant the average of the taxable wage bases in effect under Section 230 of the Social Security Act for each year in the thirty-five (35) year period ending with the year in which the Participant attains his Social Security Retirement Age. In determining a Participant's's Social Security Covered Compensation for any Plan Year commencing on or prior to January 1, 1994, the taxable wage base for the current Plan Year and any subsequent Plan Year shall be assumed to be the same as the taxable wage base in effect as of the beginning of the Plan Year for which the determination is made. In determining a Participant's Social Security Covered Compensation for any Plan Year commencing after January 1, 1994, the taxable wage base for the current Plan Year and any subsequent Plan Year shall be assumed to be the same as the taxable wage base in effect as of January 1, 1994. For purposes of this Section, "Social Security Retirement Age" means age 65 with respect to a Participant who was born before January 1, 1938; age 66 with respect to a Participant who was born after December 31, 1937 and before January 1, 1955; and age 67 with respect to a Participant who was born after December 31, 1954. 1.42 "SPOUSE" means a Participant's lawfully married spouse on the date of his death or his Retirement Pension Starting Date, whichever date is earlier, if such spouse is married to the Participant for an entire year ending on such earlier date; provided, however, that (a) if a spouse marries a Participant at any time within 1 year ending on the Participant's Retirement Pension Starting Date and is so married for a full year ending on the subsequent date of the Participant's death, or (b) if the Participant's death occurs after his 55th birthday and while the Participant is an Employee, such spouse of the Participant on the date of his death shall be deemed the "Spouse" for purposes of this Plan. 1.43 "TERMINATION OF EMPLOYMENT" means termination of employment with an Employer or an Affiliate for any reason; provided, however, that no Termination of Employment shall be deemed to occur (a) upon an Employee's transfer from the employ of one Employer or Affiliate to another Employer or Affiliate or (b) upon a change from an Employee who is not an Excluded Employee to an Employee who is an Excluded Employee, or vice-versa. 1.44 (a) "TOP HEAVY PLAN" means with respect to any plan year beginning on or after January 1, 1984 (1) any Defined Benefit Plan, described in Section 10.1(c), the present value of whose cumulative accrued benefits (determined as of the -12- 688864.1 "determination date") for "key employees" exceeds 60% of the present value of the cumulative accrued benefits under the Plan for all participating employees, and (2) any Defined Contribution Plan, described in Section 10.1(e), the value of whose aggregate accounts (determined as of the "determination date") for "key employees" exceeds 60% of the value of the aggregate of the accounts for all participating employees. (b) For purposes of this Section 1.44 - (1) a "key employee" is determined in accordance with the definition in Section 416(i) of the Code, the provisions of which are hereby incorporated by reference, and an individual's Compensation (as defined in Section 10.1(e)) shall be used to determine his status as a "key employee". A "non-key employee" is any employee who is not a "key employee; (2) the actuarial assumptions used to determine the present value of benefits shall be those described in Sec tion 1.2; provided, however, no assumptions as to future withdrawal, future salary increases, pre-retirement death benefits or disability benefits will be taken into account; (3) the top-heavy test described in the first para graph of this Section shall be computed in accordance with Sec tion 416(g) of the Code; (4) all Defined Benefit Plans and Defined Contribution Plans that as a group continue to satisfy the discrimination tests of Code Sections 401(a)(4) and 410 shall be aggregated to determine top-heaviness. However, if by so aggregating, any one such plan remains a Top Heavy Plan, only those plans either that enable such Top Heavy Plan to satisfy the discrimination tests of Section 401(a)(4) or 410(b) of the Code or in which a key employee is a participant will be aggregated and treated as Top Heavy Plans; (5) the "determination date" shall be the valuation date for determining accrued benefits and/or account balances and shall be the last day of the preceding plan year or, in the case of the first plan year, the last day of such plan year. If 2 or more plans are aggregated, they are so aggregated by adding the results of each plan as of the determination dates that fall within the same calendar year and shall be the valuation date for determining accrued benefits and/or account balances; (6) if any individual has not performed services for the Employer maintaining the Plan at any time during the five-year period ending on the determination date, any accrued benefit for such individual (and the account of such individual) shall not be taken into account; (7) the accrued benefits and accounts of an individual shall include aggregate distributions to such individual during the five-year period ending on the determination date, from -13- 688864.1 Defined Benefit Plans and Defined Contribution Plans, including terminated plans that would have been required to be aggregated if such plans had not been terminated; and (8) the provisions of Code Section 416 on how the top-heavy ratio is computed are hereby incorporated by reference. 1.45 "TRUST" or "TRUST FUND" means the Ampex Retirement Master Trust pursuant to an agreement between Ampex Corporation and State Street Bank and Trust Co., as Trustee, and any other trust forming part of this Plan that is established pursuant to a trust agreement with the Trustee to hold assets of the Plan. Such trust may be a "master trust" serving as the trust vehicle for other plans that are qualified under Section 501(a) of the Code and for tax-exempt individual retirement accounts under Section 408 of the Code, where the assets of each participating plan or individual retirement accounts are separately accounted for. 1.46 "TRUSTEE" or "TRUSTEES" means the State Street Bank and Trust Co. and any additional or successor trustees of the Trust Fund, with whom the Company has entered into a trust agreement. 1.47 "VESTING SERVICE" means, with respect to an Employee, his Period of Service, including (a) the period following his Termination of Employment if within 12 months thereafter he completes at least one Hour of Service and (b) the first 12 months of absence from service for any reason other than a Termination of Employment and (c) the first two years of absence of service in the case of an absence described in Section 1.25(a)(2)(A)(ii). 1.48 "YEAR OF SERVICE," with respect to an Employee, means: (a) with respect to Article II, the twelve (12) month period beginning on his Employment Commencement Date during which an Employee has completed at least one thousand (1,000) Hours of Service, and (b) with respect to Article II and all other Articles of this Plan, each Plan Year during which he completes at least one thousand (1,000) Hours of Service. -14- 688864.1 ARTICLE II ELIGIBILITY FOR PARTICIPATION 2.1 Each Employee on January 1, 1997 who was a Participant on December 31, 1996 in the Plan shall continue as a Participant under this amended and restated Plan. 2.2 Each Employee who is not a Participant pursuant to Section 2.1 shall not become a Participant, and participation under this Plan shall thereinafter be frozen except as provided in Section 2.5. 2.3 If the Committee so requests, an Employee who has qualified for participation in the Plan shall file with the Committee a statement, in such forms as the Committee may prescribe, setting forth his age and giving such proof thereof and other information as the Committee may reasonably require. 2.4 A Participant shall cease to be a Participant (a) for purposes of accruing additional Vesting Service and Credited Service, as of the date of his Severance from Service (except that no Credited Service shall be included for service with an Employer or an Affiliate on or after February 1, 1994), and (b) for all other purposes, as of the date he is no longer entitled to receive a benefit under the Plan. 2.5 A former Participant who has incurred a Severance from Service shall again become a Participant (a) as of his latest Employment Commencement Date, on which begins a 12-month period in which he completes one thousand (1,000) Hours of Service, or (b) if he does not become a Participant as of such date, as of the first day of the first Plan Year in which he completes one (1) Year of Service. 2.6 (a) An Excluded Employee may not become a Participant while he remains an Excluded Employee. (b) An Employee who is an Excluded Employee on the date on which he would otherwise qualify for participation in the Plan under Sections 2.2 and 2.5 shall become a Participant on the first day thereafter on which he is no longer an Excluded Employee; provided, however, that no Excluded Employee shall become a Participant on and after February 1, 1995. 2.7 A Participant who becomes and remains an Excluded Employee shall be entitled to benefits under Article III, IV, V or VII of the Plan upon his Retirement or Termination of Employment under the terms of the Plan in effect on the date he became an Excluded Employee. -15- 688864.1 ARTICLE III RETIREMENT 3.1 (a) A Participant shall have a fully (100%) vested and nonforfeitable interest in his Accrued Benefit on the attainment of his Normal Retirement Age while employed with an Employer or an Affiliate. (b) Upon his Retirement on his Normal Retirement Date, he shall be entitled to receive an annual Retirement Pension, commencing on his Normal Retirement Date, which shall be equal to the greatest of the amounts calculated under Paragraphs (1) through (5) hereinbelow, reduced if applicable by the amounts determined in Subsection (c): (1) an amount equal to the product of (A) his number of years of Credited Service, multiplied by (B) the sum of: (i) 1.1% of his Average Final Compensation not in excess of his Social Security Covered Compensation, plus (ii) 1.4% of his Average Final Compensation in excess of his Social Security Covered Compensation; and (2) an amount equal to the product of (A) his number of years of Credited Service, multiplied by (B) 1.25% of his Average Final Compensation With Respect To Base Compensation; and (3) an amount equal to the sum of (A) the amount determined in Paragraph (1), computed by calculating Average Final Compensation without taking into account any bonuses, plus (B) an amount equal to the product of (i) his number of years of Credited Service until December 31, 1987, multiplied by (ii) 1.5% of the quotient determined by dividing the sum of the bonuses he received by his Employer in respect of the five calendar years 1983 through 1987, by five (5); and -16- 688864.1 (4) if he is a non-key employee as defined in Section 1.44(b), the amount calculated in Subsection 1.1(b); and (5) if he was a Participant in the Plan on December 31, 1989, the amount determined in Subsection 1.1(c); and (c) The amount of a Participant's Retirement Pension described in Subsection (b) shall be reduced by (1) if he participated in the Ampex Corporation Employees' Profit Sharing Plan and Retirement Trust, as of April 30, 1974, the quotient determined by dividing (A) the fair market value of his account balance in such Trust as of April 30, 1974, increased with interest at the rate of 6% per year compounded annually from May 1, 1974 until December 31, 1983, by (B) an annuity factor equal to 10.8378; and (2) the benefit which he has accrued (converted, if necessary, to an Actuarial Equivalent annual benefit as deter mined by the Plan's actuary) under any other Defined Benefit Plan (as defined in Section 10.1(c)) to which an Employer or Affiliate contributed on his behalf, to the extent such benefit relates or is based on service ("Affiliated Service") which is included in Credited Service under this Plan; provided, however, that the amount of the reduction described in this Paragraph (2) shall not reduce his Retirement Pension below the amount of the Retirement Pension to which he would have been entitled if Affiliated Service were not included in Credited Service. (d) Notwithstanding anything in this Section to the contrary, a Participant's Retirement Pension under this Section shall in no event be less than the greatest benefit to which he would be entitled under Section 5.2(b) if his Termination of Employment occurred at any time on or after his fifty-fifth (55th) birthday and before his Normal Retirement Date. 3.2 (a) Upon Retirement after his Normal Retirement Date, a Participant shall receive a Retirement Pension, commencing on his Deferred Retirement Date, which shall be equal to the Retirement Pension computed under Section 3.1(b) by substituting Deferred Retirement Date for Normal Retirement Date wherever the latter term appears or is referenced therein. (b) Notwithstanding any provision of Subsection (a), if a Participant remains an Employee on the latest Retirement Pension Starting Date permitted pursuant to Section 1.39(c), the amount payable as a Retirement Pension during the period beginning on his Retirement Pension Starting Date and ending on his Deferred Retirement Date and the amount payable on and after his Deferred Retirement Date shall be determined, in accordance with Section 401(a)(9) of the Code and the regulations thereunder, under the following rule: Each Retirement Pension payment in a Plan Year shall first be based on compensation and service accrued as of the last day of the preceding Plan Year as -17- 688864.1 if the Participant had incurred a Termination of Employment as of such day, and then shall be reduced by the Actuarial Equivalent of the Retirement Pension payments paid to such Participant in preceding Plan Years. (c) Not later than the last day of the month in which his Normal Retirement Age occurs, the Committee shall (1) notify each Participant who continues as an Employee beyond his Normal Retirement Age that no benefits are payable in a month during which he is an Employee for 8 or more days, (2) inform him of the procedure adopted by the Committee for affording a review of his deferral of benefits, (3) provide him such other information as required by Department of Labor Regulations Section 2530.203-3 and (4) make such payments at such times as are required under the Regulations. In accordance with such Regulations, the Committee shall also adopt procedures and provide information to Employees regarding employee requests as to whether their continued employment will cause a suspension of their Retirement Pension Starting Date. 3.3 (a) Notwithstanding any other provision of this Plan, if a Participant is entitled to a Retirement Pension, the single sum Actuarial Equivalent of which does not exceed $3,500, such Participant shall be paid a lump sum distribution in an amount equal to the single sum Actuarial Equivalent of his Retirement Pension, regardless of the form in which he would otherwise be entitled to receive his benefits. No lump sum Actuarial Equivalent Retirement Pension that is in excess of $3,500 or that is payable after the Retirement Pension Starting Date may be payable without the consent of the Participant and his Spouse in the manner described in Section 3.4. (b) Solely for purposes of this Section, Section 4.2, Section 5.3, and any other provision in this Plan where lump sum amounts are to be calculated, to the extent required under Sec tion 401(a) of the Code, the Actuarial Equivalent shall be calculated by using an interest rate no greater than the (1) Applicable Interest Rate, as defined below, if the lump sum Actuarial Equivalent present value of such Retirement Pension (using such rate) is not in excess of $25,000 or (2) 120% of the Applicable Interest Rate if the lump sum Actuarial Equivalent present value of such Retirement Pension, exceeds $25,000 (as determined in Paragraph (1)). In no event shall the present value determined in Paragraph (2) be less than $25,000. (c) For purposes of this Section 3.3, the "Applicable Interest Rate" shall mean the interest rate or rates which would be used, as of the beginning of the Plan Year in which the distribution commences, by the Pension Benefit Guaranty Corporation for purposes of determining the present value of that Participant's benefits under the Plan if the Plan had terminated on the date distribution commences with insufficient assets to provide benefits guaranteed by the Pension Benefit Guaranty Corporation on that date. -18- 688864.1 3.4 (a) Notwithstanding any other provision, except as provided herein or in Section 3.3, the Retirement Pension of a Participant or a Retired Participant who has a Spouse on his Retirement Pension Starting Date and who is alive on such date shall be paid in the form of a Qualified Joint and Survivor Annuity. (b) A married Participant or former Participant shall have the right to elect, during the election period specified in Subsection (c), to receive his Retirement Pension not in the form of a Qualified Joint and Survivor Annuity, but only if his Spouse consents in writing to such election which writing (1) designates a Beneficiary or a form of benefits which may not be changed without the consent of the Spouse (unless the Spouse expressly permits new designations by the Participant without the need for further consent by the Spouse), (2) is notarized or witnessed by a member of the Committee and (3) acknowledges the effect of such consent. Any such election may be revoked at any time by the Participant alone during the election period. Any number of elections or revocations may be made during the election period. (c) The election period shall begin on the date which is 90 days prior to his Retirement Pension Starting Date and shall end on his Retirement Pension Starting Date. (d) Prior to the election period described in Sub section (c), the Committee shall deliver or mail to such Participant a general description of the terms and conditions of the Qualified Joint and Survivor Annuity, the circumstances under which it will be provided to a Participant who has not elected another form of benefit, the availability and effect of the election not to receive benefits in Qualified Joint and Survivor Annuity form, and the rights of the Participant's Spouse, and the Participant's rights of revocation. (e) A married Participant who with his Spouse's consent elects not to receive his Retirement Pension in the form of a Qualified Joint and Survivor Annuity shall receive his Retirement Pension in the form specified by the Option which he has elected pursuant to Article VI or, if no such Option has been elected or is available, in the form of an annuity for his life only. -19- 688864.1 ARTICLE IV DEATH BENEFITS 4.1 No death benefit shall be paid in respect of a Participant who dies prior to his Retirement Pension Starting Date unless he has a Spouse or Minor Children. 4.2 (a) If a Participant (1) is vested in his Accrued Benefit pursuant to Section 3.1, 5.1, 12.3 or 12.4, and (2) dies either while an Employee or prior to his Retirement Pension Starting Date, his Spouse shall be entitled to receive a death benefit described in Subsection (b), or Section 4.5 if applicable, commencing on the Spouse's Retirement Pension Starting Date described in Section 4.3. (b) The death benefit to which a Spouse of a Participant is entitled under Subsection (a) shall be payable in form of an annuity during her life and shall be equal to 50% of the annuity to which the Participant would have been entitled if (1) in the case the Participant died while an Employee, such Participant had not died but instead had then retired, (2) the Participant had remained alive until, and his benefits had been payable on, the Spouse's Retirement Pension Starting Date described in Section 4.3 and (3) his benefits had been payable in the form of an annuity on his life only, in the amount determined under Sections 3.1, 3.2, 5.2(b)(1), or 5.2(b)(2), whichever Section is applicable. 4.3 The Spouse's Retirement Pension Starting Date described in Section 4.2 shall be the earlier of (a) the first day of the first month following the later of the Participant's 65th birthday or date of death, or (b) the first day of any month, following the later of the Participant's fifty-fifth (55th) birthday or date of death, if elected by the Spouse in writing at least 30 days (or such fewer number of days as the Committee in its sole discretion shall determine) prior to such first day. 4.4 (a) If a Participant (1) is vested in his Accrued Benefit pursuant to Section 3.1, 5.1, 12.3 or 12.4, (2) dies on or after his fifty-fifth (55th) birthday and either while an Employee or prior to his Retirement Pension Starting Date, and (3) either (A) on the date of his death there are Minor Children but no Spouse or (B) on the date of the Spouse's death occurring after the Participant's death, whether or not the Spouse commenced receiving death benefits described in Section 4.2, there are Minor Children, each of such Minor Children shall be entitled to receive a death benefit described in Subsection (b), or Section 4.5 if applicable, commencing on their Retirement Pension Starting Date described in Subsection (c). -20- 688864.1 (b) The death benefit to which each of the Minor Children is entitled under Section (a) shall be payable in the form of an annuity until such individual reaches age 21 or dies, if earlier, and shall be equal to the quotient determined by dividing (1) the benefit which the Participant's Spouse would have been entitled to receive if she had been alive under Section 4.2, by (2) the number of Minor Children on their Retirement Pension Starting Date. (c) The Retirement Pension Starting Date of the Minor Children described in Subsection (a) shall be the first day of the first month following the later of the Participant's death or Spouse's death. (d) If the Participant designated, in a writing delivered to the Committee, a trust to receive the benefit hereunder of any of the Minor Children, payment of the death benefit payable hereunder for such individual shall be made to the trust. 4.5 Notwithstanding the preceding Sections 4.2 and 4.4, if the lump sum Actuarial Equivalent of the entire death benefit, as of the beneficiary's Retirement Pension Starting Date, does not exceed $3,500, the Spouse or Minor Children, as the case may be, shall be paid on such Retirement Pension Starting Date a lump sum distribution equal to the lump sum Actuarial Equivalent amount of the benefit described in Section 4.2 or 4.4, as the case may be. The lump sum Actuarial Equivalent amount shall be calculated in accordance with Section 3.3. 4.6 Subject to the provisions of Section 4.1, a death benefit shall also be payable under this Plan on account of the death of a Participant or Retired Participant pursuant to Section 3.4, or Section 5.3 or an Option validly elected pursuant to Article VII. -21- 688864.1 ARTICLE V TERMINATION OF EMPLOYMENT PRIOR TO RETIREMENT 5.1 (a) A Participant who incurs a Termination of Employment, other than by reason of death, Disability or Retirement, shall be vested in his Accrued Benefit to the extent provided in Subsection (b) and shall be entitled to a Retirement Pension, commencing on the date specified in Section 5.2(a), equal to the amount determined in Section 5.2(b). (b) (1) Except as provided in Paragraph (2), a Participant shall have a 100% vested interest in his Accrued Benefit at the end of 5 years of Vesting Service, and a 0% vested interest in his Accrued Benefit prior to completion of 5 years of Vesting Service. (2) For any Plan Year in which the Plan is a Top Heavy Plan, a Participant shall have a vested interest in his Accrued Benefit that is not less than 20% for each year of Vesting Service that he completes after his first year of Vesting Service, up to 100% after his completion of 6 years of Vesting Service; provided, however, that subject to Section 11.3, a Participant's vested interest shall not increase in accordance with this Subsection (b)(2) during a Plan Year in which the Plan is not a Top Heavy Plan, and any increase in his vested interest during each such Plan Year shall be determined only pursuant to Subsection (b)(1). 5.2 (a) The Retirement Pension payable to a vested Participant who incurs a Termination of Employment, other than by reason of death, Disability or Retirement, shall commence on his Normal Retirement Date. However, a Participant may elect, upon thirty (30) days' prior written notice to the Committee, to commence receiving his Retirement Pension on the first day of a month during the period commencing with the month following his fifty-fifth (55th) birthday and ending on his Normal Retirement Date. (b) The Retirement Pension payable to a vested Participant who incurs a Termination of Employment, other than by reason of death, Disability or Retirement, shall be equal to (1) if the Participant's Termination of Employment occurs on or after his fifty-fifth (55th) birthday, his vested Accrued Benefit as of the date of his Termination of Employment, reduced by 1/3 of 1% of such Accrued Benefit for each month, if any, by which his Retirement Pension Starting Date precedes his 60th birthday; and (2) if the Participant's Termination of Employment occurs before his fifty-fifth (55th) birthday, the product of (A) his vested Accrued Benefit as of the date of his Termination of Employment multiplied by (B) the factor determined by interpolating between the factor set forth on Appendix A -22- 688864.1 opposite the age on his birthday coincident with or immediately preceding his Retirement Pension Starting Date described in Sec tion 5.2(a) and the factor set forth on Appendix A opposite the age on his birthday immediately following such Retirement Pension Starting Date. 5.3 Except as provided in Section 3.3, the Retirement Pension payable to a vested Participant who incurs a Termination of Employment, other than by reason of death, and who is married to a Spouse, shall be payable in the form of a Qualified Joint and Survivor Annuity, unless an election is made in accordance with Section 3.4(b), pursuant to the rules of Subsection (b) through (d) therein. 5.4 If a former Participant is reemployed by an Employer or an Affiliate, (a) if he was receiving a Retirement Pension, payment of this Retirement Pension shall cease (to the extent consistent with Section 3.2(c)); (b) (1) any Credited Service with respect to which he has received any benefits under this Plan in the form of an annuity shall be taken into account for purposes of determining his benefit under the benefit accrual provisions of Sections 3.1 and 5.1, but the amount of his Retirement Pension, when payable, shall be reduced by the Actuarial Equivalent of such benefits, and (2) any Credited Service with respect to which he has received a lump sum benefit under this Plan in an amount equal to his entire Accrued Benefit shall not be taken into account for purposes of determining his benefit under the benefit accrual provisions of Section 3.1 and 5.1; and (c) subject to the provisions of Sections 5.5 and 5.6, any Vesting Service with respect to which he has or has not received any benefits under this Plan shall be taken into account for purposes of applying the vesting provisions of Section 5.1. 5.5 If a former Participant again becomes a Participant after having incurred a Break in Service, Vesting Service which he had completed prior to such Break in Service shall be disregarded for the purpose of computing the vested portion of his Accrued Benefit under Section 5.1 until he shall have completed one year of Vesting Service after such Break in Service. 5.6 If a former Participant - (a) has incurred at least 5 consecutive one (1) year Breaks in Service which equal or exceed the number of his years of Vesting Service before such Breaks in Service, -23- 688864.1 (b) had no vested interest in his Accrued Benefit at the time of such Breaks in Service, and (c) again becomes a Participant, any period of service prior to such Breaks in Service shall be disregarded for all purposes under this Plan. 5.7 (a) Subject to the remaining paragraphs of this Section 5.7, but notwithstanding any other provision in the Plan, for any Participant in the Plan who was an Employee of the Company on June 30, 1995, and who became an employee of the ACU Federal Credit Union (formerly the Ampex Employees Federal Credit Union and referred to herein as the "Credit Union") on July 1, 1995 (a "Credit Union Participant"), any period of continuous employment with the Credit Union rendered beginning on July 1, 1995 shall be recognized as a Period of Service pursuant to Section 1.33 of the Plan. A Credit Union Participant who is an employee of the Credit Union shall be considered an Employee for all purposes under the Plan and shall not be deemed to have incurred a Termination of Employment or Severance from Service under the Plan until the Participant first incurs a termination of employment with the Credit Union on or after July 1, 1995. If a Credit Union Participant ceases to be employed by the Credit Union and subsequently becomes an employee of the Company, the provisions of Sections 5.4, 5.5, and 5.6 shall apply. A Credit Union Participant who incurs a Disability prior to his Normal Retirement Date while employed with the Credit Union shall be eligible for benefits as set forth in Article VI of the Plan. (b) The Retirement Pension payable to a Credit Union Participant or a Beneficiary of a Credit Union shall be determined in accordance with Article III, IV, V, VI, or VII of the Plan, as applicable. -24- 688864.1 ARTICLE VI DISABILITY 6.1 (a) A Participant who is vested in his Accrued Benefit pursuant to Section 5.1 and who has incurred a Disability prior to his Normal Retirement Age while employed with an Employer shall be entitled to a Retirement Pension described in Subsection (b). (b) (1) Except as provided in Paragraph (2), the Retirement Pension referred to in Subsection (a) shall commence to be payable on the Participant's Normal Retirement Date or, if the Participant consents and is receiving benefits under the Employer's long-term disability plan, on any date after his Normal Retirement Date but not later than the first day of the first month coincident with or next following the date on which his long-term disability plan benefits cease, and shall be equal to the greater of (A) the Participant's Accrued Benefit as of the date of his Termination of Employment due to his Disability, calculated under Section 1.1, or (B) the Retirement Pension computed in accordance with Section 3.1 to which he would have been entitled if - (I) he were to continue as an Employee until his Retirement Pension Starting Date; (II) he were to be credited with Credited Service for such period of continued employment rendered prior to February 1, 1994; and (III) his Compensation and Base Compensation during such period of continued employment rendered prior to February 1, 1994 were at the same annual rate as in effect on the date he incurred a Termination of Employment due to the Disability. (2) Notwithstanding the provisions of Paragraph (1), if a Participant who is entitled to the benefit described in this Subsection (b) has completed prior to his Disability ten (10) years of Vesting Service, such Participant may elect, upon thirty (30) days' prior written notice to the Committee, to commence receiving his Retirement Pension on the first day of any month, if he is then alive, during the period commencing with the month following his Termination of Employment due to the Disability and ending prior to his Normal Retirement Date. Upon such election, the Retirement Pension shall be equal to the Retirement Pension described in Paragraph (1), reduced by 1/3 of 1% of such Accrued Benefit for each month, if any (but not for more than 60 months), by which his Retirement Pension Starting Date precedes his sixtieth (60th) birthday, and by a monthly -25- 688864.1 Actuarial Equivalent factor for each month, if any, by which his Retirement Pension Starting Date precedes his fifty-fifth (55th) birthday; provided, however, that in no event shall the Retirement Pension described in this Paragraph (2) be less than (a) 50% of the amount calculated under Section 3.1(b)(2), reduced if applicable by (b) the amounts described in Section 3.1(c). 6.2 A Participant shall receive a Retirement Pension described in Section 6.1 only if his Disability continues until the Retirement Pension Starting Date of such Retirement Pension and he is alive on such Retirement Pension Starting Date, and only for so long as he is under a Disability. 6.3 If a Participant who has incurred a Disability subsequently does not become entitled to receive or to continue to receive the Retirement Pension described in Section 6.1, he shall be entitled to receive or to continue to receive, as the case may be, the benefits described in Article III, IV or V based on his Accrued Benefit as of the date of his Termination of Employment, determined without regard to the additional benefits provided under this Article, reduced by the Actuarial Equivalent of any benefits he received under this Article. 6.4 Payment of a Retirement Pension described in this Article to a Participant who has incurred a Disability shall be made in the same form as any other Retirement Pension under Article III or V of the Plan, and shall be subject to the provisions of Sections 3.3 and 5.3. -26- 688864.1 ARTICLE VII OPTIONAL METHODS OF PAYMENT 7.1 (a)(1) Except as provided in Section 3.3, a Participant or Retired Participant may elect any of the Options provided herein, which Option shall be the Actuarial Equivalent (determined as of his Retirement Pension Starting Date) of the Retirement Pension otherwise payable to him in accordance with Article III, V or VI, whichever is applicable; provided, however, that no Option may be elected which would permit his Beneficiary to receive a benefit which is projected to equal fifty percent (50%) or more of the Actuarial Equivalent (determined as of the Participant's Retirement Pension Starting Date) of the combined benefits payable to such Beneficiary and such Participant or Retired Participant, unless it is payable over the joint and last survivor life expectancy of the Participant and his Spouse or over the joint lives of the Participant and his Spouse. (2) An election of an Option may be made only within 90 days prior to the Retirement Pension Starting Date of the Participant or Retired Participant, and only if he and his Spouse elect, in accordance with Section 3.4 or 5.3, whichever is applicable, not to receive benefits in the form of a Qualified Joint and Survivor Annuity. (3) An election of an Option under this Article is effective only if the Retired Participant is alive on his Retirement Pension Starting Date. If an individual after incurring a Termination of Employment was receiving a Retirement Pension under an Option and subsequently becomes again an Employee and as a result ceases receiving a Retirement Pension, his prior election of an Option shall be void, and the rules of this Article VII shall start anew. (b)(1) The Following Options may be Elected by a Par ticipant: Option 1 - Life Annuity: A Participant or Retired Participant may elect to receive his Retirement Pension in the form of an annuity for his own life only. Option 2 - Joint and Survivor Annuity: (1) A Participant or Retired Participant may elect to receive the Actuarial Equivalent of the normal form of his Retirement Pension payable to himself in equal monthly installments for his lifetime and thereafter payable to his Beneficiary, if such Beneficiary survives him, in equal monthly installments for his lifetime, at a rate of fifty percent (50%) or seventy-five percent (75%) or one hundred percent (100%), as -27- 688864.1 the Participant or Retired Participant may designate, of the Retirement Pension payable during their joint lifetimes. (2) If his Beneficiary dies before the Retirement Pension Starting Date of the Participant or Retired Participant, any election of this Option 2 shall be null and void. (3) If his Beneficiary dies after the Retired Participant's Retirement Pension Starting Date, the election of this Option 2 shall be effective, and the Retired Participant shall receive or continue to receive the same actuarially adjusted Retirement Pension as if such Beneficiary had not predeceased him. (c) A Participant or Retired Participant may elect to revoke or change the Option then in effect at any time within 90 days prior to his Retirement Pension Starting Date. 7.2 (a) Unless his Spouse is required to be the Beneficiary under the provisions of this Plan and has not consented as described in Section 3.4, a Participant may designate a Beneficiary and a successor Beneficiary. A Participant or Retired Participant may change such designation from time to time by filing a new designation with the Committee. No change of Beneficiary shall require the consent of any previously designated Beneficiary, other than his Spouse, if required by law, and no Beneficiary shall have any rights under this Plan except as specifically provided by its terms. (b) If a Retired Participant dies after any installment of his Retirement Pension has become due but has not yet been paid to him, the balance of such installment shall be paid to his Beneficiary. (c) If benefits have commenced to be distributed to a Participant before his death, the Retirement Pension necessary to be paid to the Beneficiary shall be distributed as rapidly as under the method in effect on the date of the Participant's death. 7.3 The Committee is authorized and empowered from time to time to adopt and fairly to administer, in its sole discretion, regulations relating to the exercise or operation of any Option; provided, however, that no such regulation shall be inconsistent with the provisions of Section 7.1 or 7.2. Without limiting the generality of the foregoing, such regulations may prescribe - - (a) such terms and conditions as the Committee shall deem appropriate in respect of the exercise of any Option; (b) the form of application; -28- 688864.1 (c) any information or proof thereof to be furnished by a Participant, a Retired Participant or a Beneficiary in connection with any Option; and (d) any other requirement or condition relating to any Option. 7.4 The Committee may, in its sole discretion, at any time or from time to time, provide the benefits to which any Retired Participant or his Beneficiary is entitled under this Plan by purchase of any form of non-assignable annuity contract. Upon the purchase of any such contract, the rights of the Retired Participant and his Beneficiary to receive any payments pursuant to this Plan shall be exclusively limited to such rights as may accrue under such contract, and neither such Retired Participant nor his Beneficiary shall have any further claim against his Employer, the Committee or any other persons. 7.5 If at any time any Retired Participant or his Beneficiary is, in the judgment of the Committee, legally, physically or mentally incapable of personally receiving and receipting for payment due hereunder, payment may, in the discretion of the Committee, be made to the guardian or legal representatives of such Retired Participant or Beneficiary or, if none exists, to any other person or institution which, in the judgment of the Committee, is then maintaining, or then has custody of, such Retired Participant or Beneficiary. 7.6 Notwithstanding any provisions of this Plan to the contrary, (a) all distributions required under this Article shall be determined and made in accordance with the Proposed Regulations under Section 401(a)(9), including the minimum distribution incidental benefit requirement of section 1.401(a)(9)-2 of the Proposed Regulations. A Participant may request in accordance with such Regulations to recalculate annually or not to recalculate annually his life expectancy and/or that of his Spouse (if his Spouse is the Beneficiary); and (b) A Retirement Pension shall not be paid to a Participant who is among the top 25 highest paid Highly Compensated Employees (as defined in Section 414(q) of the Code), in a form the annual payment of which is greater than the payment that would be made if the Retirement Pension were payable as a single life annuity on the Participant's life, unless (1) after taking into account the full payment of the Participant's entire Retirement Pension, the fair market value of the assets of the Plan is at least equal to 110% of the value of the Plan's current liabilities as defined in Section 412(l)(7) of the Code, or (2) the lump sum Actuarial Equivalent Value of such Retirement Pension is less than 1% of the value of such current liabilities. 7.7 (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election -29- 688864.1 under this Plan, effective January 1, 1993, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution (to the extent such a distribution is permitted under the Plan) paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. (b) For purposes of this Section, (1) An "Eligible Rollover Distribution" means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (i) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated beneficiary, or for a specified period of ten years or more; (ii) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and (iii) the portion of any distribution that is not includible in gross income. (2) An "Eligible Retirement Plan" is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (3) A "Distributee" includes an employee or former employee. In addition, the employee's or former employee's surviving spouse and the employee's or former employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. (4) A "Direct Rollover" is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. -30- 688864.1 ARTICLE VIII CONTRIBUTIONS AND PLAN TRANSFERS 8.1 This Plan contemplates that each Employer shall, from time to time, contribute such amounts as may, in accordance with Section 412 of the Code and sound actuarial principles (as recommended by an actuary enrolled pursuant to Section 3042 of ERISA), be deemed necessary by such Employer to provide the benefits contemplated hereunder. 8.2 All contributions made by any Employer shall be paid directly to the Trustees for deposit in the Trust Fund. 8.3 Any forfeiture arising under the provisions of this Plan shall be applied to reduce contributions which would otherwise be required to be made by the Employers pursuant to Section 7.1. 8.4 No contributions may be made by any Participant. -31- 688864.1 ARTICLE IX NON-ALIENABILITY 9.1 Except as may be provided in Code Section 401(a)(13) or any ruling or regulation as may from time to time be in force, no benefit under this Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, charge, encumbrance, garnishment, levy or attachment, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, charge, encumber, garnish, levy upon or attach the same shall be void; nor shall any such benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefit. 9.2 If any Participant or Beneficiary under this Plan becomes bankrupt, or attempts to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any benefit under this Plan, such benefit shall, in the discretion of the Committee, cease and terminate, and in that event the Committee may hold or apply the same or any part thereof for the benefit of such Participant, his Beneficiary, his Spouse or children or other dependents, or any of them, in such manner and in such proportion as the Committee may deem proper. -32- 688864.1 ARTICLE X LIMITATIONS ON BENEFITS 10.1 For purposes of this Article, (a) Annual Additions shall be defined as in Code Section 415(c); (b) Defined Benefit Plan and Defined Contributions Plan shall be defined as in Code Sections 414(i) and 414(j) which are hereby incorporated by reference; (c) Annual Benefit shall be defined as in Code Section 415; (d) Limitation Year means the Plan Year; (e) Compensation means an individual's wages, salaries, fees and other amounts received, whether or not paid in cash, from an Employer or an Affiliate for personal services rendered that are includible in gross income, to the extent required by applicable law to be included in compensation for purposes of the limitations of Code Section 415; and (f) the limitations of Code Section 415 are hereby incorporated by reference. 10.2 A Participant's Annual Benefit under this Plan and all other Defined Benefit Plans maintained by the Employers and Affiliates for any Participant for a Plan Year shall not exceed the limitations described in Code Section 415(b). 10.3 (a) If a Participant of this Plan is also a participant in one or more Defined Contribution Plans maintained by Employers and Affiliates, and his benefits from the Defined Contribution Plans and the Defined Benefit Plans of all such employers exceed the limitations as defined in Code Section 415(e), his benefit shall first be reduced pro rata among the Defined Contribution Plans, in which he participates to the extent necessary to comply with such limitations. If further reductions are necessary, benefits shall be reduced pro rata among the Defined Benefit Plans in which the Participant participates to the extent necessary to comply with such limitations. (b) In any year in which the Plan is a Top Heavy Plan, paragraphs (2)(B) and (3)(B) of Section 415 of the Code shall be applied by substituting "1.0" for "1.25" wherever it appears therein if the Plan were still a Top Heavy Plan after substituting "90%" for "60%" in Section 1.44 or if the benefits described in Section 1.1(b) are not increased in accordance with the parenthetical provisions of paragraph 1.1(b)(1). -33- 688864.1 10.4 If, on the Participant's Retirement Pension Starting Date, his Accrued Benefit, computed without regard to the limitations set forth in this Article X, exceeds the maximum annual benefit which he may receive under the provisions hereof, his Retirement Pension shall be adjusted on the first day of each subsequent Plan Year to take into account any increase, since his date of Retirement, in the maximum permissible Retirement Pension; provided, however, that the Retirement Pension payable to him or to his Beneficiary shall not exceed his Accrued Benefit as of his Retirement Pension Starting Date. 10.5 The limitations imposed by this Article X shall be administered in accordance with the final regulations and rulings issued by the Secretary of the Treasury under Sec tions 415 and 416 of the Code. -34- 688864.1 ARTICLE XI AMENDMENT OF THE PLAN 11.1 The Company shall have the right, at any time and from time to time, to amend in whole or in part any of the provisions of this Plan, and any such amendment shall be binding upon the Participants and their Beneficiaries, the Trustees, the Committee, any Employer who has joined in the Plan, and all parties in interest. Any such amendment shall become effective as of the date specified therein. 11.2 Notwithstanding anything to the contrary contained in Section 11.1, no amendment may be made which shall (a) retroactively deprive a Participant of any benefit accrued during any Plan Year before the Plan Year with respect to which such amendment was executed, (b) eliminate or reduce an early retirement benefit or subsidy or (c) eliminate an optional form of benefit, unless such amendment is necessary to permit the Plan to qualify under Section 401(a) of the Code. 11.3 If at any time the vesting schedule set forth in Section 5.1 is amended in such a manner as to decrease, as of any future date, the vested interest in his Accrued Benefit which any Participant would have as of such date, each such Participant who has completed at least three (3) Years of Service as of the effective date of such amendment shall have the right to elect to have his Accrued Benefit continued to vest in accordance with the vesting schedule in effect immediately prior to such amendment. -35- 688864.1 ARTICLE XII TERMINATION OF THE PLAN 12.1 The Company may determine that it shall terminate the Plan in its entirety or withdraw from the Plan and terminate the same with respect to itself. The Company may at any time determine that any other Employer shall withdraw from the Plan, and any Employer may determine that it shall so withdraw, and, upon any such determination, the Plan shall be terminated with respect to such Employer. 12.2 Any termination or partial termination shall be effective as of the date specified in the resolution providing therefor, if any, and shall be binding upon the Employer, the Trustees, all Participants and Beneficiaries and all other parties in interest. 12.3 Upon termination of the Plan in its entirety, each Participant shall have a fully (100%) vested and nonforfeitable interest in his Accrued Benefit, determined as of the date of such termination. A Participant's Accrued Benefit shall be payable only from the Trust Fund except to the extent otherwise provided in Title IV of ERISA. 12.4 In the event of a partial termination of the Plan, within the meaning of Section 411(d)(3)(A) of the Code, each affected Participant shall have a fully (100%) vested and non-forfeitable interest in his Accrued Benefit, determined as of the date of such partial termination insofar as required by applicable regulations of the Internal Revenue Service. 12.5 (a) Upon termination of the Plan in its entirety or upon a partial termination of the Plan and receipt of approvals from the appropriate federal agencies, the assets comprising the Trust Fund shall be allocated in accordance with the statutory priorities set forth in Section 4044(a) of ERISA and regulations promulgated hereunder. (b) Subject to the limitations imposed by Sec tion 4044(d)(2) of ERISA, any funds remaining after satisfaction of all liabilities to Plan Participants and Beneficiaries, shall be returned to the Employers. 12.6 Notwithstanding anything to the contrary in this Plan, in the event of the termination of this Plan, any benefit under this Plan of any Participant who is among the 25 highest paid Highly Compensated Employees, as defined in Section 414(q) of the Code, may not exceed the benefit that is non-discriminatory under Section 401(a)(4) of the Code and the regulations promulgated thereunder. 12.7 If the Plan shall merge or consolidate with, or transfer any of its assets or liabilities to, any other "pension plan", as defined in Section 3(2) of ERISA, each Participant -36- 688864.1 shall be entitled to receive a benefit immediately after such merger, consolidation or transfer (assuming that the Plan had then terminated) which is equal to or greater than the benefit which he would have been entitled to receive immediately before such merger, consolidation or transfer (assuming that the Plan had then terminated). -37- 688864.1 ARTICLE XIII THE TRUST FUND 13.1 The Company has entered into a trust agreement with the Trustee for the establishment and maintenance of the Trust. The trust agreement shall be deemed to form a part of the Plan, and all rights which may accrue to any person under the Plan shall be subject to the terms of the trust agreement. 13.2 The Trustee shall manage and control the Trust Fund in accordance with the terms of the trust agreement. The Trustee shall pay benefits to Participants only upon the specific instruction of the Committee. 13.3 The Trust fund shall be used as directed by the Committee to provide the benefits and pay the expenses of this Plan and of the Trustee, and no part of the corpus or income shall be used for or diverted to purposes other than for the exclusive benefit of Participants and their Beneficiaries under this Plan and the payment of expenses of the Plan and Trust. 13.4 All administrative and other expenses of the Plan and Trust shall be paid out of the Trust fund unless paid by the Company. -38- 688864.1 ARTICLE XIV ADMINISTRATION 14.1 The Plan shall be administered and the management of the assets thereof shall be vested in the Committee which shall consist of one (1) or more individuals appointed by the Board. The members of the Committee shall hold office until their successors have been duly appointed or until death, resignation or removal. 14.2 The Board or Committee may authorize one or more of its members to execute any document or documents on its behalf, in which event it shall notify the Trustees in writing of such action and the name or names of those so designated. The Trustees, thereafter, shall accept and rely conclusively upon any direction or document executed by such member or members as representing action by the Board or the Committee until such time as the Board or the Committee shall file with the Trustees a written revocation of such designation. 14.3 The Committee may appoint such independent accountants, enrolled actuaries, legal counsel, investment advisors, and other agents or specialists as it deems necessary or desirable in connection with the performance of their duties hereunder. The Committee shall be entitled to rely conclusively upon, and shall be fully protected in any action taken by it in good faith in relying upon, any opinions or reports which shall be furnished to it by any such independent accountants, enrolled actuary, legal counsel, investment advisor or other specialist. 14.4 The Committee members shall serve without compensation for services as such. All expenses of the Committee shall be paid by the Company. Such expenses shall include any expenses incidental to the operation of the Committee, including, but not limited to, fees of independent accountants, enrolled actuaries, legal counsel, investment advisors and other agents or specialists and similar costs. 14.5 The Committee members shall discharge their duties with respect to the Plan solely in the interests of the Participants and their Beneficiaries and (a) for the exclusive purpose of providing benefits to Participants and their Beneficiaries and defraying reasonable expenses of administering the Plan; (b) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man, acting in like capacity and familiar with such matters, would use in the conduct of an enterprise of a like character and with like aims; -39- 688864.1 (c) by diversifying the investments of the Trust Fund so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and (d) in accordance with the documents and instruments governing the Plan insofar as such documents and instruments are consistent with the provisions of ERISA. 14.6 The Company shall indemnify and hold harmless each of the Committee members against any and all claims, loss, damages, expense (including legal fees and other expenses of litigation) and liability arising from any action or failure to act, except when the same is judicially determined to be due to the gross negligence or willful misconduct of such members. 14.7 (a) The Company is hereby designated as the "administrator" of the Plan within the meaning of Sec tion 3(16)(A) of ERISA. The Committee members are hereby designated as "named fiduciaries" within the meaning of Sec tion 402(a)(2) of ERISA, and shall, unless otherwise provided pursuant to Subsection (b), jointly administer the Plan and manage its assets as agents of the Company in accordance with its terms and shall have all powers necessary to carry out the provisions of the Plan. In carrying out its duties with respect to the general administration of the Plan, the Committee shall have, in addition to any other lawful powers and not by way of limitation, the following powers which together with any other lawful powers it may exercise in its sole discretion: (1) to determine all questions relating to eligibility to participate in the Plan; (2) to compute the amount and kind of benefits payable to the Participants and their Beneficiaries; (3) to authorize disbursements from the Trust in accordance wit the provisions of the Plan; (4) to maintain all records necessary for the administration of the Plan; and (5) to interpret the provisions of the Plan and to make and publish such rules and regulations as are not inconsistent with the terms hereof. (b) (1) The Committee members may establish procedures for (A) the allocation of fiduciary responsibilities (other than "trustee responsibilities" as defined in Sec tion 405(c)(3) of ERISA) under the Plan among themselves, and (B) the designation of persons other than named fiduciaries to carry out fiduciary responsibilities (other than trustee responsibilities) under the Plan. (2) If any fiduciary responsibility is allocated or if any person is designated to carry out any -40- 688864.1 responsibility pursuant to Paragraph (1), no named fiduciary shall be liable for any act or omission of such person in carrying out such responsibility, except as provided in Sec tion 405(c)(2) of ERISA. 14.8 The Company shall establish a funding policy and method consistent with the objectives of the Plan and the requirement of Title I of ERISA. The Company shall meet at least annually to review such funding policy and method. In establishing and reviewing such funding policy and method, the Company shall endeavor to determine the Plan's short-term and long-term financial needs, taking into account the need for liquidity to pay benefits and the need for investment growth. 14.9 Any Committee member may be removed by the Company at any time upon thirty (30) days' notice in writing to the members, which notice may be waived by the members. A member may resign at any time upon thirty (30) days' notice in writing to the Company, which notice may be waived by the Company. Upon such removal or resignation of a member, or upon the death or disability or a member, the Company may appoint, or, in the event there is no acting member, shall appoint a successor member who shall have the same powers and duties as those conferred upon the Committee members hereunder. The Company may at any time appoint one or more additional members who shall have the same powers and duties as those conferred upon the Committee members hereunder. 14.10 In any case in which any person is required or permitted to make an election under this Plan, such election shall be made in writing and filed with the Committee on the form provided by them or made in such other manner as the Committee may direct. -41- 688864.1 ARTICLE XV CLAIMS PROCEDURE 15.1 (a) In the event of a dispute between the Committee and a Participant or Beneficiary over the amount of benefits payable under the Plan, the Participant or Beneficiary may file a claim for benefits by notifying the Committee of such claim. Such notification may be in any form adequate to give reasonable notice to the Committee, shall set forth the basis of such claim and shall authorize the Committee to conduct such examinations as may be necessary to determine the validity of the claim and to take such steps as may be necessary to facilitate the payment of any benefits to which the claimant may be entitled under the Plan. (b) The Committee shall decide whether to grant a claim within ninety (90) days of the date on which the claim is filed, unless special circumstances require a longer period for adjudication and the claimant is notified in writing of the reasons for an extension of time within such ninety (90) day period; provided, however, that no extensions shall be permitted beyond ninety (90) days after the date on which the claimant received notice of the extension of time from the Committee. If the Committee fails to notify the claimant of their decision to grant or deny the claim, such claim shall be deemed to have been denied by the Committee and the review procedure described in Subsection (c) shall become available to the claimant. (c) (1) Whenever a claim for benefits is denied, written notice, prepared in a manner calculated to be understood by the claimant, shall be provided to the claimant, setting forth the specific reasons for the denial and explaining the procedure for review of the decision made by the Committee. If the denial is based upon submission of information insufficient to support a decision, the Committee shall specify the information which is necessary to perfect the claim and its reasons for requiring such additional information. (2) Any claimant whose claim is denied, may, within sixty (60) days after the receipt of written notice of such denial, request in writing a review by the Board, or by a committee appointed by the Board, the members of which shall be "named fiduciaries," within the meaning of Section 402(a) of ERISA (the "Review Board") for the purpose of adjudicating such appeals. Such claimant or the claimant's representative may examine any Plan documents relevant to the claim and may submit issues and comments in writing. The Review Board shall adjudicate the claimant's appeal within sixty (60) days after its receipt of the claimant's written request for review, unless special circumstances require a longer period for adjudication and the claimant is notified in writing of the reasons for an extension of time within such sixty (60) day period; provided, however, that such adjudication shall be made no later than one -42- 688864.1 hundred twenty (120) days after the Review Board's receipt by them of the claimant's written request for review. (3) If the Review Board fails to notify the claimant of its decision with respect to the claimant's request for review within the time specified by this Subsection (c), such claim shall be deemed to have been denied on review. (d) If the claim is denied by the Review Board, such decision shall be in writing, shall state specifically the reasons for the decision, shall be written in a manner calculated to be understood by the claimant and shall make specific reference to the pertinent Plan provisions upon which it is based. (e) The procedure set forth in this Section 15.1 shall be revised as necessary to conform to regulations promulgated by the United States Department of Labor or any successor authority regulating claims procedures for employee benefit plans. -43- 688864.1 ARTICLE XVI MISCELLANEOUS 16.1 The adoption and maintenance of the Plan shall not be deemed to constitute a contract between any Employer and any Employee or to be a consideration for the employment of any person. Nothing herein contained shall be deemed to give any Employee the right to be retained in the employ of any Employer or to derogate from the right of any Employer to discharge any Employee at any time without regard to the effect of such discharge upon the rights of such Employee as a Participant in the Plan. 16.2 No liability shall attach to any Employer for payment of any benefits or claims hereunder, and all Participants and Beneficiaries, and all persons claiming under or through them, shall have recourse only to the Trust Fund for payment of any benefit or claim hereunder. 16.3 If any provision in this Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, which shall be construed and enforced as if such illegal or invalid provision had never been included herein. All ambiguities in this Plan shall by resolved by the Committee in their sole discretion to the extent such resolution is consistent with the qualified status of the Plan under Section 401(a) of the Code. 16.4 This Plan shall be governed, construed, administered and regulated in all respects under the laws of the State of California except insofar as they shall have been superseded by the provisions of ERISA. 16.5 Wherever any words are used herein in the singular form, they shall be construed as though they were also used in the plural form in all cases where they would so apply, and vice versa. 16.6 (a) This Plan is established subject to the condition precedent that it shall be approved by the Internal Revenue Service as qualified under Section 401(a) of the Code as an employees' trust exempt from taxation under Section 501(a) of the Code. If the Internal Revenue Service initially determines that the Plan does not qualify under Section 401(a) of the Code, all contributions made to the Plan prior to such determination shall revert to the appropriate Employer within one year after the date of denial of qualification, but only if the application for the determination was made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan was adopted or such later date as the Secretary of the Treasury shall prescribe. (b) If any contribution is made to this Plan by an Employer by a mistake of fact, such contribution shall be -44- 688864.1 returned to such Employer within one year following the date that such contribution is made. (c) Each contribution made to this Plan is conditioned upon its deductibility under Section 404 of the Code. Each contribution shall, to the extent disallowed as a deduction, be returned to such Employer within one year following the date of disallowance. (d) This Plan is established for the exclusive benefit of the Participants herein and their beneficiaries. Except as otherwise provided in Section 12.5 and in Subsections (a), (b) and (c) of this Section 16.6, it shall be impossible for any assets of the Trust to revert at any time to any Employer. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals this ____ day of _________, 1997. AMPEX CORPORATION By: ------------------------- ATTEST: - ----------------------- -45- APPENDIX A Pre-Early Retirement Factors for Section 5.2(b)(2). Age Factor 65 1.0000 64 .8893 63 .7931 62 .7091 61 .6355 60 .5709 59 .5140 58 .4636 57 .4190 56 .3794 55 .3441 TABLE OF CONTENTS ARTICLE PAGE I DEFINITIONS..................................................... 2 II ELIGIBILITY FOR PARTICIPATION................................... 15 III RETIREMENT...................................................... 16 IV DEATH BENEFITS.................................................. 20 V TERMINATION OF EMPLOYMENT PRIOR TO RETIREMENT................... 22 VI DISABILITY...................................................... 25 VII OPTIONAL METHODS OF PAYMENT..................................... 27 VIII CONTRIBUTIONS AND PLAN TRANSFERS................................ 31 IX NON-ALIENABILITY................................................ 32 X LIMITATIONS ON BENEFITS......................................... 33 XI AMENDMENT OF THE PLAN........................................... 35 XII TERMINATION OF THE PLAN......................................... 36 XIII THE TRUST FUND.................................................. 38 XIV ADMINISTRATION.................................................. 39 XV CLAIMS PROCEDURE................................................ 42 XVI MISCELLANEOUS................................................... 44 Appendix A -i- EX-10.20 4 STOCK PURCHASE AGREEMENT EXHIBIT 10.20 STOCK PURCHASE AGREEMENT AGREEMENT, dated as of October 29, 1997, between Ampex Corporation, a Delaware corporation (the "Corporation") and Edward J. Bramson, Chairman and Chief Executive of the Corporation (the "Executive"). Preliminary Statement. A. The Board of Directors of the Corporation has authorized the Corporation to sell to the Executive up to 150,000 shares of the Class A Common Stock, par value $0.01 ("Common Stock") of the Corporation, as an inducement to the Executive to remain as an officer and director of the Corporation, all on the terms set forth in this Agreement; and B. The Corporation and the Executive are entering into this Agreement in order to evidence the terms of sale to the Executive, and set forth the terms and conditions thereof. 1. Agreement of Sale. The Corporation hereby agrees to sell to the Executive up to 150,000 shares (the "Shares") of Common Stock, at a price of $3.125 per share, upon and subject to the terms and conditions set forth hereinbelow. 2. Purchase Procedure and Payment. a. Purchase Procedure. (i) Subject to the conditions set forth in this Agreement, (1) the Executive may purchase the Shares at any time prior to October 31, 1997 by the delivery of written notice (the "Purchase Notice") to the Corporation, and (2) the Purchase Notice shall specify the number of Shares to be purchased and shall contain the following representations and warranties of the Executive: (u) the Executive is acquiring the Shares for his own account and not with a view to, or present intention of, distribution thereof in violation of the Securities Act of 1933, as amended, and the rules and regulations promulgated from time to time thereunder (the "1933 Act") or any applicable state securities laws and will not sell or otherwise transfer the Shares unless registered or exempt from registration under the 1933 Act and such state laws, (v) the Executive is able to bear the economic risks of his investment in the Shares for an indefinite period of time, (w) the Executive is familiar with the business, financial or other condition, assets, liabilities, properties, operations, management and prospects of the Corporation, (x) the Executive has had full access to such information C/M 11115.0000 253953.6 concerning the Corporation as he has requested and is satisfied that there is no material information concerning the Corporation of which he is unaware, (y) the Executive has knowledge, skill and experience in business, financial and investment matters so as to enable the Executive to understand and evaluate the merits and risks of an investment in the Shares and form an investment decision with respect thereto and (z) acknowledges that a portion of the Shares is subject to repurchase by the Corporation under certain circumstances as provided below. (ii) Upon receipt of the Purchase Notice and of the payment therefor specified below, the Corporation shall deliver to the Executive a certificate or certificates representing the Shares being purchased, at the Corporation's sole cost and expense. Unless registered under the 1933 Act, such certificate or certificates representing the Shares sold to the Executive pursuant to this Agreement shall bear the following legend: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ACCORDINGLY MAY NOT BE OFFERED, SOLD OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT." b. Payment. The Executive shall pay for the Shares purchased pursuant to this Agreement by delivery of (i) cash, or a check in good funds payable to the Corporation, in an amount equal to twenty percent (20%) of the purchase price ($93,750), and (ii) a promissory note (the "Note") of the Executive for the balance, and a related pledge agreement (the "Pledge Agreement"), in form and substance reasonably satisfactory to counsel to the Corporation. The Note shall bear interest, payable annually on each October 15 during the term thereof and at maturity, at the Applicable Federal Rate (as defined in the Internal Revenue Code); shall be due and payable in a single installment on the fifth anniversary date thereof; shall be secured by a pledge of all the Shares under the Pledge Agreement; and shall otherwise conform to the terms specified in the resolutions of the Board of Directors of the Corporation which authorized the sale. 3. Assignment and Release. The Executive may assign and contribute the Shares purchased by him to a corporation or other entity owned and controlled solely by him ("Nominee"), subject to the Pledge Agreement. The Nominee shall execute and deliver a promissory note in substantially the form of the Note executed by the Executive, and shall assume in writing all the Executive's obligations under the Pledge Agreement, all in form and substance satisfactory to counsel to the Corporation. Upon receipt of such Note and assumption agreement, duly executed by the Nominee, the Executive shall be released from all personal obligations under the Note and Pledge Agreement except for any claims which have accrued to the date of assignment. C/M 11115.0000 253953.6 2 4. Registration Rights. The Corporation hereby grants to the Executive or his Nominee (as the case may be) the right to cause the Corporation to register the Shares purchased hereunder for sale under the 1993 Act, on terms comparable to those contained in the Registration Rights Agreement, dated as of February 10, 1995, between the Corporation and Sherborne Investment Corporation, as currently in effect. 5. Repurchase Rights. The Corporation shall have the right to repurchase from the Executive or his Nominee (as the case may be) up to 75,000 Shares purchased by the Executive pursuant to this Agreement, at $3.125 per share, if the Executive shall voluntarily resign as both an officer and a director of the Corporation or shall be terminated for Cause (as defined below), prior to the first anniversary of the date of this Agreement, or to repurchase up to 37,500 such shares, at $3.125 per share, if the Executive shall so resign or shall be terminated for Cause on or after the first anniversary of the date of this Agreement and before the second anniversary of the date of this Agreement, in either case by delivery to the Executive of written notice of repurchase within 30 days after the effective date of his resignation or termination. In the event of any such repurchase, the Corporation shall refund to the Executive (or his Nominee, as the case may be) the amount of cash paid for such Shares (including any principal or interest payments on the Note) and return the Note to the obligor against receipt by the Corporation of the certificate representing the Shares so repurchased (or an equivalent number of other shares of Class A Common Stock owned by the Executive or the Nominee) and a new Note in the appropriate principal amount. The Executive shall take all actions reasonably required in order to cause his Nominee to comply with the terms of this paragraph 5. The term "Cause" shall mean conviction of a felony involving acts injurious to the Corporation. 6. Miscellaneous. a. This Agreement may not be modified or amended unless evidenced in writing and signed by the Corporation and the Executive. b. All notices under this Agreement shall be mailed (registered or certified) or delivered by hand or facsimile transmission addressed, if to the Corporation, to it at 500 Broadway, Redwood City, California 94063, attention, General Counsel, and, if to the Executive, to him at his office at 590 Madison Avenue, New York, New York 10022, or at such other address as may be designated in writing by either of them to the other. c. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. d. This Agreement shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties, subject to the limitations set forth in paragraph 3. C/M 11115.0000 253953.6 3 IN WITNESS WHEREOF the parties have executed this Agreement on the date first set forth above. AMPEX CORPORATION By: /s/Craig L. McKibben ------------------------ Name: Craig L. McKibben Title: Vice President By: /s/Edward J. Bramson ------------------------ Name:Edward J. Bramson C/M 11115.0000 253953.6 4 PROMISSORY NOTE $375,000 October 29, 1997 FOR VALUE RECEIVED, THE UNDERSIGNED, EDWARD J. BRAMSON (the "Borrower"), HEREBY PROMISES TO PAY to the order of AMPEX CORPORATION, a Delaware corporation ("Payee"), on October 15, 2002, the principal sum of Three Hundred Seventy Five Thousand Dollars ($375,000), together with interest on the principal amount hereof from time to time outstanding at the rate of 6.34% per annum. Accrued interest on this Note shall be payable on each October 15 and on the date of each payment of the principal hereof until this Note is paid in full. The Borrower shall have the right, at any time, to prepay all or any part of the outstanding principal amount without premium or penalty. The occurrence of any one of the following shall constitute an Event of Default hereunder: (e) The Borrower shall default in the payment of the principal of or accrued interest on this Note when due and such default shall continue for a period of three (3) days after notice from the holder of this Note; (f) The Borrower shall default in the performance of any other term of this Note and such default shall continue for 30 days after notice from the holder of this Note; or (g) The Borrower shall (i) be adjudicated a bankrupt or insolvent; or file a voluntary petition in bankruptcy; or (ii) any involuntary petition in bankruptcy shall be filed against the Borrower which shall not have been discharged within 60 days. Upon the occurrence of an Event of Default, and at any time thereafter while such Event of Default is continuing: (a) the holder of this Note may by written notice to the Borrower declare all or any part of the unpaid balance of this Note immediately due and payable, whereupon such unpaid balance or part thereof shall become so due and payable without presentation, protest or further demand or notice of any kind, all of which are hereby expressly waived, and the holder of this Note may proceed to enforce payment of such balance or part thereof in such manner as it may elect; and (b) the holder of this Note may proceed to protect and enforce its rights by suit in equity, action at law and/or other appropriate means and may exercise any and all rights afforded a secured creditor under the Uniform Commercial Code, including without limitation, enforcement of rights under the Pledge Agreement referred to below. The Borrower hereby agrees to pay on demand reasonable costs and expenses, including without limitation reasonable attorneys' fees, incurred or paid by the holder of this Note in enforcing this Note upon the occurrence of an Event of Default. C/M 11115.0000 253953.6 5 The Borrower hereby waives presentment, demand, notice, protest and other demands and notices in connection with the delivery, acceptance or enforcement of this Note. No delay or omission on the part of the holder of this Note in exercising any right hereunder shall operate as a waiver of such right or of any other right under this Note, and a waiver, delay or omission on any one occasion shall not be construed as a bar to or waiver of any such right on any future occasion. This Note is subject to the terms and conditions set forth in a Stock Purchase Agreement, dated October 29, 1997, between the Borrower and the Payee, including without limitation provisions with respect to the assignment and assumption of this Note, and is secured by a pledge with the Payee of certain Collateral under the terms of a Pledge Agreement, of even date, between the Borrower and the Payee. All notices hereunder shall be deemed to have been given when delivered in person or, if mailed, when actually received by the party to whom addressed. Such actual receipt shall be presumed if such notice shall be mailed by registered or certified mail, addressed to any party at its address set forth below or at any other address notified in writing to the other parties hereto, and if the sender shall have received back a return receipt. To the Borrower: 590 Madison Avenue, 21st Floor New York, NY 10022 To the Payee: 500 Broadway Redwood City, CA 94063 Attention: Chief Financial Officer This Note shall be governed by the laws of the State of New York. IN WITNESS WHEREOF, the undersigned has executed and delivered this Note as of the date first above written. ----------------------------- Edward J. Bramson C/M 11115.0000 253953.6 6 PLEDGE AGREEMENT, dated as of October 29, 1997, between EDWARD J. BRAMSON, as Pledgor, and AMPEX CORPORATION, a Delaware corporation, as Pledgee. The Pledgor is entering into this Pledge Agreement in order to secure repayment of Pledgor's Promissory Note dated the date hereof (the "Note") to the Pledgee in a principal amount of $375,000, representing indebtedness incurred by Pledgor in connection with its purchase of 150,000 shares of the Class A Common Stock, par value $0.01 per share ("Common Stock") of the Pledgee, pursuant to a Stock Purchase Agreement, dated of even date herewith (the "Purchase Agreement"), between the Pledgor, and the Pledgee. 1. Pledge. As collateral security for the due and punctual payment of the Note, the Pledgor hereby pledges to the Pledgee 150,000 shares of Common Stock more fully identified in Schedule A hereto (the "Pledged Stock"), together with the proceeds thereof and, except as set forth in paragraph 2 below, all cash, securities or other property distributed in respect of or in exchange for the Pledged Stock (collectively, the "Collateral"). Upon delivery to the Pledgee, the Pledged Stock shall be accompanied by executed stock powers in blank or other instruments of transfer satisfactory to Pledgee. Upon the occurrence of an Event of Default, the Pledgee shall have the right to have the Pledged Stock registered in the name of the Pledgee. 2. Voting Rights; Dividends. Unless and until an Event of Default under the Note shall have occurred and be continuing, the Pledgor shall have all voting and consensual rights with respect to the Pledged Stock for any purpose not inconsistent with the terms of this Pledge Agreement; and the Pledgor shall be entitled to receive any cash dividends on the Pledged Stock, but any stock dividends and other distributions of securities or property on or in exchange for the Pledged Stock shall become part of the Collateral hereunder. Upon the occurrence and during the continuance of an Event of Default under the Notes, all such rights shall vest solely in the Pledgee. 3. Remedies upon Default. If an Event of Default under the Note shall have occurred and be continuing, the Pledgee may exercise all rights of a secured creditor under the Uniform Commercial Code, including without limitation the right to sell, at public or private sale, the Collateral. The Pledgee shall give the Pledgor thirty (30) business days notice of any intention to make a sale of the Collateral. The proceeds of sale shall be applied first to the payment of all reasonable costs and expenses incurred by the Pledgee in collecting the Note and enforcing its rights under this Pledge Agreement, second, to the repayment of the Note, and third, any balance shall be paid over to the Pledgor. 4. No Waiver. No failure on the part of the Pledgee to exercise any right or remedy hereunder shall operate as a waiver thereof, and all remedies hereunder are cumulative. 5. Termination; Release. This Agreement shall terminate when the Note has been fully paid, at which time the Pledgee shall reassign and deliver to the Pledgor such of the Collateral as has not been sold by the Pledgee pursuant to the terms hereof, such reassignment to be without representation or recourse except that the Pledgee shall warrant that it has made no prior sale, assignment, pledge or encumbrance of the Collateral. Upon repayment of any portion of the principal of the Note (in an amount not less than $1,000), the Pledgee shall release, reassign and deliver to the Pledgor a number of shares of the Pledged Stock equal to the amount so repaid divided by 2.5 (the product of $375,000 divided by 150,000 shares). C/M 11115.0000 253953.6 7 6. Further Assurances. The Pledgor agrees to do such further acts and things, and to execute and deliver such additional conveyances, assignments and instruments as the Pledgee may reasonably request in connection with the pledge of Collateral or in order to better assure and confirm the Pledgee's rights and remedies hereunder. 7. Binding Agreement; Assignment. This Pledge Agreement shall be binding upon and inure to the benefit of the parties hereto and to all holders of the Note and their successors and assigns, except that Pledgor shall not be permitted to further pledge or encumber the Collateral. Any transferee of any of the shares of Pledged Stock shall take subject to all Pledgor's obligations under this Pledge Agreement until such shares have been released or this Pledge Agreement terminated as provided in paragraph 5 above. 8. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York. [END OF TEXT] C/M 11115.0000 253953.6 8 IN WITNESS WHEREOF the parties have executed this Pledge Agreement as of the day first above written. /s/Edward J. Bramson -------------------- Edward J. Bramson AMPEX CORPORATION By: /s/Craig L. McKibben ------------------------ Name: Craig L. McKibben Title: Vice President C/M 11115.0000 253953.6 9 SCHEDULE A Description of Pledged Stock 150,000 shares of Class A Common Stock, par value $0.01 per share, of Ampex Corporation registered in the name of Edward J. Bramson (Certificate No. A 6130). C/M 11115.0000 253953.6 10 EX-10.21 5 STOCK PURCHASE AGREEMENT EXHIBIT 10.21 STOCK PURCHASE AGREEMENT AGREEMENT, dated as of November 7, 1997, between Ampex Corporation, a Delaware corporation (the "Corporation") and Edward J. Bramson, Chairman and Chief Executive of the Corporation (the "Executive"). Preliminary Statement. A. On November 6, 1997, the Board of Directors of the Corporation authorized the Corporation to sell to the Executive up to 175,000 shares of the Class A Common Stock, par value $0.01 ("Common Stock") of the Corporation, as an inducement to the Executive to remain as an officer and director of the Corporation, all on the terms set forth in this Agreement; and B. The Corporation and the Executive are entering into this Agreement in order to evidence the terms of sale to the Executive, and set forth the terms and conditions thereof. 1. Agreement of Sale. The Corporation hereby agrees to sell to the Executive up to 175,000 shares (the "Shares") of Common Stock, at a price of $3.3125 per share, upon and subject to the terms and conditions set forth hereinbelow. 2. Purchase Procedure and Payment. a. Purchase Procedure. (i) Subject to the conditions set forth in this Agreement, (1) the Executive may purchase the Shares at any time prior to November 30, 1997 by the delivery of written notice (the "Purchase Notice") to the Corporation, and (2) the Purchase Notice shall specify the number of Shares to be purchased and shall contain the following representations and warranties of the Executive: (u) the Executive is acquiring the Shares for his own account and not with a view to, or present intention of, distribution thereof in violation of the Securities Act of 1933, as amended, and the rules and regulations promulgated from time to time thereunder (the "1933 Act") or any applicable state securities laws and will not sell or otherwise transfer the Shares unless registered or exempt from registration under the 1933 Act and such state laws, (v) the Executive is able to bear the economic risks of his investment in the Shares for an indefinite period of time, (w) the Executive is familiar with the business, financial or other condition, assets, liabilities, properties, operations, management and prospects 651770.1 of the Corporation, (x) the Executive has had full access to such information concerning the Corporation as he has requested and is satisfied that there is no material information concerning the Corporation of which he is unaware, (y) the Executive has knowledge, skill and experience in business, financial and investment matters so as to enable the Executive to understand and evaluate the merits and risks of an investment in the Shares and form an investment decision with respect thereto and (z) acknowledges that a portion of the Shares is subject to repurchase by the Corporation under certain circumstances as provided below. (ii) Upon receipt of the Purchase Notice and of the payment therefor specified below, the Corporation shall deliver to the Executive a certificate or certificates representing the Shares being purchased, at the Corporation's sole cost and expense. Unless registered under the 1933 Act, such certificate or certificates representing the Shares sold to the Executive pursuant to this Agreement shall bear the following legend: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ACCORDINGLY MAY NOT BE OFFERED, SOLD OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT." b. Payment. The Executive shall pay for the Shares purchased pursuant to this Agreement by delivery of (i) cash, or a check in good funds payable to the Corporation, in an amount equal to twenty percent (20%) of the purchase price ($115,938), and (ii) a promissory note (the "Note") of the Executive for the balance, and a related pledge agreement (the "Pledge Agreement"), in form and substance reasonably satisfactory to counsel to the Corporation. The Note shall bear interest, payable annually on each October 15 during the term thereof and at maturity, at the Applicable Federal Rate (as defined in the Internal Revenue Code); shall be due and payable in a single installment on the fifth anniversary date thereof; shall be secured by a pledge of all the Shares under the Pledge Agreement; and shall otherwise conform to the terms specified in the resolutions of the Board of Directors of the Corporation which authorized the sale. 3. Assignment and Release. The Executive may assign and contribute the Shares purchased by him to a corporation or other entity owned and controlled solely by him ("Nominee"), subject to the Pledge Agreement. The Nominee shall execute and deliver a promissory note in substantially the form of the Note executed by the Executive, and shall assume in writing all the Executive's obligations under the Pledge Agreement, all in form and substance satisfactory to counsel to the Corporation. Upon receipt of such Note and assumption agreement, duly executed by the Nominee, the Executive shall be released from all personal obligations under the Note and Pledge Agreement except for any claims which have accrued to the date of assignment. 651770.1 2 4. Registration Rights. The Corporation hereby grants to the Executive or his Nominee (as the case may be) the right to cause the Corporation to register the Shares purchased hereunder for sale under the 1993 Act, on terms comparable to those contained in the Registration Rights Agreement, dated as of February 10, 1995, between the Corporation and Sherborne Investment Corporation, as currently in effect. 5. Repurchase Rights. The Corporation shall have the right to repurchase from the Executive or his Nominee (as the case may be) up to 87,500 Shares purchased by the Executive pursuant to this Agreement, at $3.3125 per share, if the Executive shall voluntarily resign as both an officer and a director of the Corporation or shall be terminated for Cause (as defined below), prior to the first anniversary of the date of this Agreement, or to repurchase up to 43,750 such shares, at $3.3125 per share, if the Executive shall so resign or shall be terminated for Cause on or after the first anniversary of the date of this Agreement and before the second anniversary of the date of this Agreement, in either case by delivery to the Executive of written notice of repurchase within 30 days after the effective date of his resignation or termination. In the event of any such repurchase, the Corporation shall refund to the Executive (or his Nominee, as the case may be) the amount of cash paid for such Shares (including any principal or interest payments on the Note) and return the Note to the obligor against receipt by the Corporation of the certificate representing the Shares so repurchased (or an equivalent number of other shares of Class A Common Stock owned by the Executive or the Nominee) and a new Note in the appropriate principal amount. The Executive shall take all actions reasonably required in order to cause his Nominee to comply with the terms of this paragraph 5. The term "Cause" shall mean conviction of a felony involving acts injurious to the Corporation. 6. Miscellaneous. a. This Agreement may not be modified or amended unless evidenced in writing and signed by the Corporation and the Executive. b. All notices under this Agreement shall be mailed (registered or certified) or delivered by hand or facsimile transmission addressed, if to the Corporation, to it at 500 Broadway, Redwood City, California 94063, attention, General Counsel, and, if to the Executive, to him at his office at 590 Madison Avenue, New York, New York 10022, or at such other address as may be designated in writing by either of them to the other. c. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. d. This Agreement shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties, subject to the limitations set forth in paragraph 3. 651770.1 3 IN WITNESS WHEREOF the parties have executed this Agreement on the date first set forth above. AMPEX CORPORATION By: /s/Craig L. McKibben ------------------------ Name: Craig L. McKibben Title: Vice President /s/Edward J. Bramson ------------------------ Edward J. Bramson 651770.1 4 PROMISSORY NOTE $463,750 November 7, 1997 FOR VALUE RECEIVED, THE UNDERSIGNED, EDWARD J. BRAMSON (the "Borrower"), HEREBY PROMISES TO PAY to the order of AMPEX CORPORATION, a Delaware corporation ("Payee"), on October 15, 2002, the principal sum of Four Hundred Sixty Three Thousand Seven Hundred Fifty Dollars ($463,750), together with interest on the principal amount hereof from time to time outstanding at the rate of 6.34% per annum. Accrued interest on this Note shall be payable on each October 15 and on the date of each payment of the principal hereof until this Note is paid in full. The Borrower shall have the right, at any time, to prepay all or any part of the outstanding principal amount without premium or penalty. The occurrence of any one of the following shall constitute an Event of Default hereunder: (e) The Borrower shall default in the payment of the principal of or accrued interest on this Note when due and such default shall continue for a period of three (3) days after notice from the holder of this Note; (f) The Borrower shall default in the performance of any other term of this Note and such default shall continue for 30 days after notice from the holder of this Note; or (g) The Borrower shall (i) be adjudicated a bankrupt or insolvent; or file a voluntary petition in bankruptcy; or (ii) any involuntary petition in bankruptcy shall be filed against the Borrower which shall not have been discharged within 60 days. Upon the occurrence of an Event of Default, and at any time thereafter while such Event of Default is continuing: (a) the holder of this Note may by written notice to the Borrower declare all or any part of the unpaid balance of this Note immediately due and payable, whereupon such unpaid balance or part thereof shall become so due and payable without presentation, protest or further demand or notice of any kind, all of which are hereby expressly waived, and the holder of this Note may proceed to enforce payment of such balance or part thereof in such manner as it may elect; and (b) the holder of this Note may proceed to protect and enforce its rights by suit in equity, action at law and/or other appropriate means and may exercise any and all rights afforded a secured creditor under the Uniform Commercial Code, including without limitation, enforcement of rights under the Pledge Agreement referred to below. The Borrower hereby agrees to pay on demand reasonable costs and expenses, including without limitation reasonable attorneys' fees, incurred or paid by the holder of this Note in enforcing this Note upon the occurrence of an Event of Default. 651770.1 5 The Borrower hereby waives presentment, demand, notice, protest and other demands and notices in connection with the delivery, acceptance or enforcement of this Note. No delay or omission on the part of the holder of this Note in exercising any right hereunder shall operate as a waiver of such right or of any other right under this Note, and a waiver, delay or omission on any one occasion shall not be construed as a bar to or waiver of any such right on any future occasion. This Note is subject to the terms and conditions set forth in a Stock Purchase Agreement, dated as of November 6, 1997, between the Borrower and the Payee, including without limitation provisions with respect to the assignment and assumption of this Note, and is secured by a pledge with the Payee of certain Collateral under the terms of a Pledge Agreement, of even date, between the Borrower and the Payee. All notices hereunder shall be deemed to have been given when delivered in person or, if mailed, when actually received by the party to whom addressed. Such actual receipt shall be presumed if such notice shall be mailed by registered or certified mail, addressed to any party at its address set forth below or at any other address notified in writing to the other parties hereto, and if the sender shall have received back a return receipt. To the Borrower: 590 Madison Avenue, 21st Floor New York, NY 10022 To the Payee: 500 Broadway Redwood City, CA 94063 Attention: Chief Financial Officer This Note shall be governed by the laws of the State of New York. IN WITNESS WHEREOF, the undersigned has executed and delivered this Note as of the date first above written. /s/Edward J. Bramson -------------------- Edward J. Bramson 651770.1 6 PLEDGE AGREEMENT, dated as of November 7, 1997, between EDWARD J. BRAMSON, as Pledgor, and AMPEX CORPORATION, a Delaware corporation, as Pledgee. The Pledgor is entering into this Pledge Agreement in order to secure repayment of Pledgor's Promissory Note dated the date hereof (the "Note") to the Pledgee in a principal amount of $463,750, representing indebtedness incurred by Pledgor in connection with its purchase of 175,000 shares of the Class A Common Stock, par value $0.01 per share ("Common Stock") of the Pledgee, pursuant to a Stock Purchase Agreement, dated of even date herewith (the "Purchase Agreement"), between the Pledgor, and the Pledgee. 1. Pledge. As collateral security for the due and punctual payment of the Note, the Pledgor hereby pledges to the Pledgee 175,000 shares of Common Stock more fully identified in Schedule A hereto (the "Pledged Stock"), together with the proceeds thereof and, except as set forth in paragraph 2 below, all cash, securities or other property distributed in respect of or in exchange for the Pledged Stock (collectively, the "Collateral"). Upon delivery to the Pledgee, the Pledged Stock shall be accompanied by executed stock powers in blank or other instruments of transfer satisfactory to Pledgee. Upon the occurrence of an Event of Default, the Pledgee shall have the right to have the Pledged Stock registered in the name of the Pledgee. 2. Voting Rights; Dividends. Unless and until an Event of Default under the Note shall have occurred and be continuing, the Pledgor shall have all voting and consensual rights with respect to the Pledged Stock for any purpose not inconsistent with the terms of this Pledge Agreement; and the Pledgor shall be entitled to receive any cash dividends on the Pledged Stock, but any stock dividends and other distributions of securities or property on or in exchange for the Pledged Stock shall become part of the Collateral hereunder. Upon the occurrence and during the continuance of an Event of Default under the Notes, all such rights shall vest solely in the Pledgee. 3. Remedies upon Default. If an Event of Default under the Note shall have occurred and be continuing, the Pledgee may exercise all rights of a secured creditor under the Uniform Commercial Code, including without limitation the right to sell, at public or private sale, the Collateral. The Pledgee shall give the Pledgor thirty (30) business days notice of any intention to make a sale of the Collateral. The proceeds of sale shall be applied first to the payment of all reasonable costs and expenses incurred by the Pledgee in collecting the Note and enforcing its rights under this Pledge Agreement, second, to the repayment of the Note, and third, any balance shall be paid over to the Pledgor. 4. No Waiver. No failure on the part of the Pledgee to exercise any right or remedy hereunder shall operate as a waiver thereof, and all remedies hereunder are cumulative. 5. Termination; Release. This Agreement shall terminate when the Note has been fully paid, at which time the Pledgee shall reassign and deliver to the Pledgor such of the Collateral as has not been sold by the Pledgee pursuant to the terms hereof, such reassignment to be without representation or recourse except that the Pledgee shall warrant that it has made no prior sale, assignment, pledge or encumbrance of the Collateral. Upon repayment of any portion of the principal of the Note (in an amount not less than $1,000), the Pledgee shall release, reassign and deliver to the Pledgor a number of shares of the Pledged Stock equal to the amount so repaid divided by 2.65 (the product of $463,750 divided by 175,000 shares). 651770.1 7 6. Further Assurances. The Pledgor agrees to do such further acts and things, and to execute and deliver such additional conveyances, assignments and instruments as the Pledgee may reasonably request in connection with the pledge of Collateral or in order to better assure and confirm the Pledgee's rights and remedies hereunder. 7. Binding Agreement; Assignment. This Pledge Agreement shall be binding upon and inure to the benefit of the parties hereto and to all holders of the Note and their successors and assigns, except that Pledgor shall not be permitted to further pledge or encumber the Collateral. Any transferee of any of the shares of Pledged Stock shall take subject to all Pledgor's obligations under this Pledge Agreement until such shares have been released or this Pledge Agreement terminated as provided in paragraph 5 above. 8. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York. [END OF TEXT] 651770.1 8 IN WITNESS WHEREOF the parties have executed this Pledge Agreement as of the day first above written. /s/Edward J. Bramson -------------------- Edward J. Bramson AMPEX CORPORATION By: /s/Craig L. McKibben ------------------------ Name: Craig L. McKibben Title: Vice President 651770.1 9 SCHEDULE A Description of Pledged Stock 150,000 shares of Class A Common Stock, par value $0.01 per share, of Ampex Corporation registered in the name of Edward J. Bramson (Certificate No. A 6131). 651770.1 10 EX-10.22 6 STOCK PURCHASE AGREEMENT EXHIBIT 10.22 STOCK PURCHASE AGREEMENT AGREEMENT, dated as of February 18, 1998, between Ampex Corporation, a Delaware corporation (the "Corporation") and Edward J. Bramson, Chairman and Chief Executive of the Corporation (the "Executive"). Preliminary Statement. A. On February 17, 1998, the Board of Directors of the Corporation authorized the Corporation to sell to the Executive up to 75,000 shares of the Class A Common Stock, par value $0.01 ("Common Stock") of the Corporation, as an inducement to the Executive to remain as an officer and director of the Corporation, all on the terms set forth in this Agreement; and B. The Corporation and the Executive are entering into this Agreement in order to evidence the terms of sale to the Executive, and set forth the terms and conditions thereof. 1. Agreement of Sale. The Corporation hereby agrees to sell to the Executive up to 75,000 shares (the "Shares") of Common Stock, at a price of $2.9375 per share, upon and subject to the terms and conditions set forth hereinbelow. 2. Purchase Procedure and Payment. a. Purchase Procedure. (i) Subject to the conditions set forth in this Agreement, (1) the Executive may purchase the Shares at any time prior to February 28, 1998 by the delivery of written notice (the "Purchase Notice") to the Corporation, and (2) the Purchase Notice shall specify the number of Shares to be purchased and shall contain the following representations and warranties of the Executive: (u) the Executive is acquiring the Shares for his own account and not with a view to, or present intention of, distribution thereof in violation of the Securities Act of 1933, as amended, and the rules and regulations promulgated from time to time thereunder (the "1933 Act") or any applicable state securities laws and will not sell or otherwise transfer the Shares unless registered or exempt from registration under the 1933 Act and such state laws, (v) the Executive is able to bear the economic risks of his investment in the Shares for an indefinite period of time, (w) the Executive is familiar with the business, financial or other condition, assets, liabilities, properties, operations, management and prospects of the Corporation, (x) the Executive has had full access to such information concerning 686063.1 the Corporation as he has requested and is satisfied that there is no material information concerning the Corporation of which he is unaware, (y) the Executive has knowledge, skill and experience in business, financial and investment matters so as to enable the Executive to understand and evaluate the merits and risks of an investment in the Shares and form an investment decision with respect thereto and (z) acknowledges that a portion of the Shares is subject to repurchase by the Corporation under certain circumstances as provided below. (ii) Upon receipt of the Purchase Notice and of the payment therefor specified below, the Corporation shall deliver to the Executive a certificate or certificates representing the Shares being purchased, at the Corporation's sole cost and expense. Unless registered under the 1933 Act, such certificate or certificates representing the Shares sold to the Executive pursuant to this Agreement shall bear the following legend: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ACCORDINGLY MAY NOT BE OFFERED, SOLD OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT." b. Payment. The Executive shall pay for the Shares purchased pursuant to this Agreement by delivery of (i) cash, or a check in good funds payable to the Corporation, in an amount equal to twenty percent (20%) of the purchase price ($44,062), and (ii) a promissory note (the "Note") of the Executive for the balance, and a related pledge agreement (the "Pledge Agreement"), in form and substance reasonably satisfactory to counsel to the Corporation. The Note shall bear interest, payable annually on each February 15 during the term thereof and at maturity, at the Applicable Federal Rate (as defined in the Internal Revenue Code); shall be due and payable in a single installment on the fifth anniversary date thereof; shall be secured by a pledge of all the Shares under the Pledge Agreement; and shall otherwise conform to the terms specified in the resolutions of the Board of Directors of the Corporation which authorized the sale. 3. Assignment and Release. The Executive may assign and contribute the Shares purchased by him to a corporation or other entity owned and controlled solely by him ("Nominee"), subject to the Pledge Agreement. The Nominee shall execute and deliver a promissory note in substantially the form of the Note executed by the Executive, and shall assume in writing all the Executive's obligations under the Pledge Agreement, all in form and substance satisfactory to counsel to the Corporation. Upon receipt of such Note and assumption agreement, duly executed by the Nominee, the Executive shall be released from all personal obligations under the Note and Pledge Agreement except for any claims which have accrued to the date of assignment. 686063.1 2 4. Registration Rights. The Corporation hereby grants to the Executive or his Nominee (as the case may be) the right to cause the Corporation to register the Shares purchased hereunder for sale under the 1993 Act, on terms comparable to those contained in the Registration Rights Agreement, dated as of February 10, 1995, between the Corporation and Sherborne Investment Corporation, as currently in effect. 5. Repurchase Rights. The Corporation shall have the right to repurchase from the Executive or his Nominee (as the case may be) up to 37,500 Shares purchased by the Executive pursuant to this Agreement, at $2.9375 per share, if the Executive shall voluntarily resign as both an officer and a director of the Corporation or shall be terminated for Cause (as defined below), prior to the first anniversary of the date of this Agreement, or to repurchase up to 18,750 such shares, at $2.9375 per share, if the Executive shall so resign or shall be terminated for Cause on or after the first anniversary of the date of this Agreement and before the second anniversary of the date of this Agreement, in either case by delivery to the Executive of written notice of repurchase within 30 days after the effective date of his resignation or termination. In the event of any such repurchase, the Corporation shall refund to the Executive (or his Nominee, as the case may be) the amount of cash paid for such Shares (including any principal or interest payments on the Note) and return the Note to the obligor against receipt by the Corporation of the certificate representing the Shares so repurchased (or an equivalent number of other shares of Class A Common Stock owned by the Executive or the Nominee) and a new Note in the appropriate principal amount. The Executive shall take all actions reasonably required in order to cause his Nominee to comply with the terms of this paragraph 5. The term "Cause" shall mean conviction of a felony involving acts injurious to the Corporation. 6. Miscellaneous. a. This Agreement may not be modified or amended unless evidenced in writing and signed by the Corporation and the Executive. b. All notices under this Agreement shall be mailed (registered or certified) or delivered by hand or facsimile transmission addressed, if to the Corporation, to it at 500 Broadway, Redwood City, California 94063, attention, General Counsel, and, if to the Executive, to him at his office at 590 Madison Avenue, New York, New York 10022, or at such other address as may be designated in writing by either of them to the other. c. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. d. This Agreement shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties, subject to the limitations set forth in paragraph 3. 686063.1 3 IN WITNESS WHEREOF the parties have executed this Agreement on the date first set forth above. AMPEX CORPORATION By: /s/Craig L. McKibben ------------------------ Name: Craig L. McKibben Title: Vice President /s/Edward L. Bramson ------------------------ Edward J. Bramson 686063.1 4 PLEDGE AGREEMENT, dated as of February 18, 1998, between EDWARD J. BRAMSON, as Pledgor, and AMPEX CORPORATION, a Delaware corporation, as Pledgee. The Pledgor is entering into this Pledge Agreement in order to secure repayment of Pledgor's Promissory Note dated the date hereof (the "Note") to the Pledgee in a principal amount of $176,250, representing indebtedness incurred by Pledgor in connection with its purchase of 75,000 shares of the Class A Common Stock, par value $0.01 per share ("Common Stock") of the Pledgee, pursuant to a Stock Purchase Agreement, dated of even date herewith (the "Purchase Agreement"), between the Pledgor, and the Pledgee. 7. Pledge. As collateral security for the due and punctual payment of the Note, the Pledgor hereby pledges to the Pledgee 75,000 shares of Common Stock more fully identified in Schedule A hereto (the "Pledged Stock"), together with the proceeds thereof and, except as set forth in paragraph 2 below, all cash, securities or other property distributed in respect of or in exchange for the Pledged Stock (collectively, the "Collateral"). Upon delivery to the Pledgee, the Pledged Stock shall be accompanied by executed stock powers in blank or other instruments of transfer satisfactory to Pledgee. Upon the occurrence of an Event of Default, the Pledgee shall have the right to have the Pledged Stock registered in the name of the Pledgee. 8. Voting Rights; Dividends. Unless and until an Event of Default under the Note shall have occurred and be continuing, the Pledgor shall have all voting and consensual rights with respect to the Pledged Stock for any purpose not inconsistent with the terms of this Pledge Agreement; and the Pledgor shall be entitled to receive any cash dividends on the Pledged Stock, but any stock dividends and other distributions of securities or property on or in exchange for the Pledged Stock shall become part of the Collateral hereunder. Upon the occurrence and during the continuance of an Event of Default under the Notes, all such rights shall vest solely in the Pledgee. 9. Remedies upon Default. If an Event of Default under the Note shall have occurred and be continuing, the Pledgee may exercise all rights of a secured creditor under the Uniform Commercial Code, including without limitation the right to sell, at public or private sale, the Collateral. The Pledgee shall give the Pledgor thirty (30) business days notice of any intention to make a sale of the Collateral. The proceeds of sale shall be applied first to the payment of all reasonable costs and expenses incurred by the Pledgee in collecting the Note and enforcing its rights under this Pledge Agreement, second, to the repayment of the Note, and third, any balance shall be paid over to the Pledgor. 10. No Waiver. No failure on the part of the Pledgee to exercise any right or remedy hereunder shall operate as a waiver thereof, and all remedies hereunder are cumulative. 11. Termination; Release. This Agreement shall terminate when the Note has been fully paid, at which time the Pledgee shall reassign and deliver to the Pledgor such of the Collateral as has not been sold by the Pledgee pursuant to the terms hereof, such reassignment to be without representation or recourse except that the Pledgee shall warrant that it has made no prior sale, assignment, pledge or encumbrance of the Collateral. Upon repayment of any portion of the principal of the Note (in an amount not less than $1,000), the Pledgee shall release, reassign and deliver to the Pledgor a number of shares of the Pledged Stock equal to the amount so repaid divided by 2.35 (the product of $176,250 divided by 75,000 shares). 686063.1 12. Further Assurances. The Pledgor agrees to do such further acts and things, and to execute and deliver such additional conveyances, assignments and instruments as the Pledgee may reasonably request in connection with the pledge of Collateral or in order to better assure and confirm the Pledgee's rights and remedies hereunder. 13. Binding Agreement; Assignment. This Pledge Agreement shall be binding upon and inure to the benefit of the parties hereto and to all holders of the Note and their successors and assigns, except that Pledgor shall not be permitted to further pledge or encumber the Collateral. Any transferee of any of the shares of Pledged Stock shall take subject to all Pledgor's obligations under this Pledge Agreement until such shares have been released or this Pledge Agreement terminated as provided in paragraph 5 above. 14. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York. IN WITNESS WHEREOF the parties have executed this Pledge Agreement as of the day first above written. /s/Edward J. Bramson -------------------- Edward J. Bramson AMPEX CORPORATION By: /s/Craig L. McKibben ------------------------ Name: Craig L. McKibben Title: Vice President 686063.1 2 SCHEDULE A Description of Pledged Stock 75,000 shares of Class A Common Stock, par value $0.01 per share, of Ampex Corporation registered in the name of Edward J. Bramson (Certificate No. A ). 686063.1 3 PROMISSORY NOTE $176,250 February 18, 1998 FOR VALUE RECEIVED, THE UNDERSIGNED, EDWARD J. BRAMSON (the "Borrower"), HEREBY PROMISES TO PAY to the order of AMPEX CORPORATION, a Delaware corporation ("Payee"), on February 15, 2003, the principal sum of One Hundred Seventy Six Thousand Two Hundred Fifty Dollars ($176,250), together with interest on the principal amount hereof from time to time outstanding at the rate of 5.69% per annum. Accrued interest on this Note shall be payable on each February 15 and on the date of each payment of the principal hereof until this Note is paid in full. The Borrower shall have the right, at any time, to prepay all or any part of the outstanding principal amount without premium or penalty. The occurrence of any one of the following shall constitute an Event of Default hereunder: (a) The Borrower shall default in the payment of the principal of or accrued interest on this Note when due and such default shall continue for a period of three (3) days after notice from the holder of this Note; (b) The Borrower shall default in the performance of any other term of this Note and such default shall continue for 30 days after notice from the holder of this Note; or (c) The Borrower shall (i) be adjudicated a bankrupt or insolvent; or file a voluntary petition in bankruptcy; or (ii) any involuntary petition in bankruptcy shall be filed against the Borrower which shall not have been discharged within 60 days. Upon the occurrence of an Event of Default, and at any time thereafter while such Event of Default is continuing: (a) the holder of this Note may by written notice to the Borrower declare all or any part of the unpaid balance of this Note immediately due and payable, whereupon such unpaid balance or part thereof shall become so due and payable without presentation, protest or further demand or notice of any kind, all of which are hereby expressly waived, and the holder of this Note may proceed to enforce payment of such balance or part thereof in such manner as it may elect; and (b) the holder of this Note may proceed to protect and enforce its rights by suit in equity, action at law and/or other appropriate means and may exercise any and all rights afforded a secured creditor under the Uniform Commercial Code, including without limitation, enforcement of rights under the Pledge Agreement referred to below. The Borrower hereby agrees to pay on demand reasonable costs and expenses, including without limitation reasonable attorneys' fees, incurred or paid by the holder of this Note in enforcing this Note upon the occurrence of an Event of Default. 686063.1 The Borrower hereby waives presentment, demand, notice, protest and other demands and notices in connection with the delivery, acceptance or enforcement of this Note. No delay or omission on the part of the holder of this Note in exercising any right hereunder shall operate as a waiver of such right or of any other right under this Note, and a waiver, delay or omission on any one occasion shall not be construed as a bar to or waiver of any such right on any future occasion. This Note is subject to the terms and conditions set forth in a Stock Purchase Agreement, dated as of February 18, 1998, between the Borrower and the Payee, including without limitation provisions with respect to the assignment and assumption of this Note, and is secured by a pledge with the Payee of certain Collateral under the terms of a Pledge Agreement, of even date, between the Borrower and the Payee. All notices hereunder shall be deemed to have been given when delivered in person or, if mailed, when actually received by the party to whom addressed. Such actual receipt shall be presumed if such notice shall be mailed by registered or certified mail, addressed to any party at its address set forth below or at any other address notified in writing to the other parties hereto, and if the sender shall have received back a return receipt. To the Borrower: 590 Madison Avenue, 21st Floor New York, NY 10022 To the Payee: 500 Broadway Redwood City, CA 94063 Attention: Chief Financial Officer This Note shall be governed by the laws of the State of New York. IN WITNESS WHEREOF, the undersigned has executed and delivered this Note as of the date first above written. /s/Edward J. Bramson -------------------- Edward J. Bramson 686063.1 2 EX-21.1 7 LIST OF SUBSIDIARIES Exhibit 21.1 AMPEX CORPORATION LIST OF SUBSIDIARIES Jurisdiction of Name Incorporation Ampex Data Systems Corporation ........................Delaware Ampex Finance Corporation .............................Delaware Ampex Holdings Corporation (1).........................Delaware Ampex International Sales Corporation .................California Ampex Canada Inc. .....................................Canada Ampex Cintas Magneticas, S.A. .........................Mexico Ampex de Colombia, S.A. ...............................Colombia Ampex de Mexico, S.A. de C.V (2). .....................Mexico Ampex do Brasil Electronica Ltd. ......................Brazil Ampex Europa GmbH .....................................Germany Ampex Great Britain Limited ...........................United Kingdom Ampex International S.A. ..............................Switzerland Ampex Italiana SRL (2) ................................Italy Ampex Japan Ltd........................................Japan Ampex S.A. (2) ........................................Belgium Ampex S.A.R.L. ........................................France Electronica Ampex S.A.C.I. (2) ........................Argentina (1) Incorporated on January 20, 1998. (2) Dissolution pending. 679833.5 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We 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) and (iv) the registration statement of Ampex Corporation on Form S-3 (File No. 333-5115), of our reports dated February 20, 1998 on our audits of the consolidated financial statements and financial statement schedules of Ampex Corporation as of December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and 1995, which reports are included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. - ---------------------------- COOPERS & LYBRAND L.L.P. San Francisco, California March ___, 1998 679833.5 EX-27 8 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 24,076 17,685 14,730 (1,484) 16,380 72,734 39,469 30,577 81,671 28,127 0 69,970 0 459 (90,474) 81,671 80,311 80,311 41,140 81,056 (14,150) 0 86 16,310 1,507 14,803 0 0 0 14,803 0.32 0.32 INCLUDES S&A AND RD&E OF 24,452 AND15,464 RESPECTIVELY INCLUDES ROYALTY INCOME OF 12,550 AND RESTRUCTURING CREDITS OF 1,659
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