Item 1.01. Entry Into a Material Definitive Agreement; Item 1.03. Bankruptcy or Receivership.
On October 3, 2008, Ampex Corporation (“Ampex” or the “Company”) announced that its First Modified Third Amended Joint Plan of Reorganization dated July 31, 2008 (the “Plan”) became effective under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”).
Amended Senior Note Indenture
Pursuant to the Plan, the Company exchanged approximately $6.8 million of secured prepetition obligations relating to the 12% Senior Notes due 2008 (the “Old Notes”), together with approximately $0.5 million of interest and fees due thereon, for an aggregate distribution of approximately $3.7 million of cash and approximately $3.7 million of amended 12% Senior Secured Notes due 2009 (the “New Notes”). The New Notes were issued pursuant to an Amended and Restated Indenture dated as of October 3, 2008, between Reorganized Ampex and U.S. Bank National Association, as trustee (the “Amended Indenture”). The Amended Indenture supersedes the indenture governing the Old Notes. The New Notes provide for the payment of principal and interest out of Available Cash Flow (as defined in the Amended Indenture) of Reorganized Ampex, which includes all aggregate cash and cash equivalents received by Reorganized Ampex. The New Notes are secured by assets of the Reorganized Debtors, including certain trademark, patent and copyright collateral. The Amended Indenture contains certain covenants, breach of which could result in acceleration of all principal and interest due under the Amended Indenture and New Notes.
Amended and Restated Hillside-Ampex/Sherborne Agreement
Prior to the Effective Date, Ampex had outstanding debt of approximately $67.2 million, which included approximately $59.9 million of principal and interest due to Hillside under certain promissory notes (the “Hillside Notes”) issued under a funding agreement (the “Hillside Agreement”) entered into in connection with a settlement agreement (the “PBGC Agreement”) between the Company, Hillside and the Pension Benefit Guaranty Corporation (“PBGC”). Under these agreements, Hillside is jointly and severally obligated to provide back-up pension funding to the extent Ampex is unable to make pension contributions under the Ampex pension plan and the Media pension plan.
Pursuant to the Plan, the Reorganized Debtors, Hillside, the Sherborne Group, and certain other parties entered into the Amended and Restated Hillside-Ampex/Sherborne Agreement dated as of October 3, 2008 (the “Amended Hillside Agreement”), which supersedes the Hillside Agreement. Under the Amended Hillside Agreement, Ampex is required to issue a Hillside Note to Hillside in the amount of any contributions Hillside makes to the Ampex or Media pension plans, up to the $25 million limit described below with respect to the Credit
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Agreement and the New Preferred Stock (as such terms are defined below). The Hillside Notes will be secured by Hillside’s second lien on certain assets of the Reorganized Debtors. The Amended Hillside Agreement contains certain restrictive covenants which, among other things, restrict the Company’s ability to declare dividends, sell all or substantially all of its assets or commence liquidation, or engage in specified transactions with certain related parties, breach of which could result in acceleration of the Company’s potential termination liabilities.
Credit Agreement
Under the Plan, the Reorganized Debtors also entered into a credit agreement dated as of October 3, 2008 with Hillside, as lender (the “Credit Agreement”). Under the Credit Agreement, Reorganized Ampex may borrow up to $25 million from Hillside, subject to the conditions set forth therein. The Credit Agreement generally consists of three components: (1) $10.5 million of indebtedness, the proceeds of which were used to satisfy approximately $11.0 million of secured prepetition debt to Hillside; (2) up to $5.0 million of new borrowings, which will be used for general working capital purposes and to fund the $3.7 million cash distribution to holders of the Old Notes; and (3) borrowings to satisfy any future obligations incurred by Reorganized Ampex in connection with Hillside’s payment, pursuant to the Amended Hillside Agreement, of required contributions or termination liability under the Company’s pension plans.
The borrowings outstanding under the Credit Agreement may not exceed the aggregate amount of $25 million. To the extent that Hillside makes required pension contributions that would cause amounts outstanding under the Credit Agreement to exceed $25 million, Reorganized Ampex will issue New Preferred Stock to Hillside in the amount of each such contribution. The loans under the Credit Agreement will bear interest at 10% per annum. The balance of amounts outstanding under the Credit Agreement will be repayable, under various terms of the Credit Agreement, in annual installments ranging from $2.9 million to $5.0 million beginning in March 2010. The Credit Agreement sets forth certain events of default, the occurrence of which could cause principal and interest to become immediately due and payable.
As discussed below, Hillside owned over 96% of the outstanding stock of Reorganized Ampex as of the Effective Date, and has certain additional rights under the stockholders’ agreement described below.
Stockholders’ Agreement
Pursuant to the Plan, Reorganized Ampex entered into a Stockholders’ Agreement dated as of October 3, 2008 (the “Stockholders’ Agreement”) with each holder of New Common Stock (as defined in Item 5.03 below). Under the Stockholders’ Agreement, among other things, the stockholders have agreed to vote their shares of New Common Stock to elect three of Hillside’s nominees to the Board of Directors of Reorganized Ampex. Hillside’s initial nominees are Raymond F. Weldon, Donald L. Hawkes III and the Company’s current Chairman and CEO, D. Gordon Strickland. In the event that Reorganized Ampex issues any shares of its New Preferred Stock, the Stockholders’ Agreement provides that the size of the Board will be increased and will include nominees of the preferred stockholders and certain holders of New Common Stock designated by Hillside. The Stockholders’ Agreement also restricts transfers of New Common Stock, and provides certain tag-along and drag-along rights to Hillside in the event of certain proposed sales of Reorganized Ampex or a majority of the New Common Stock.
CPR Agreement
Under the Plan, all of the Company’s outstanding shares of Class A Common Stock, par value $0.01 per share (the “Old Common Stock”), were cancelled as of the Effective Date. Holders of Old Common Stock did not receive any distributions on account of their interests. However, as a result of the compromises and settlements set forth in the Plan, holders of Old Common Stock who did not object to the Plan were eligible to receive certain contingent payment rights (the “Rights” or “CPRs”), which provide for the pro rata distribution of a portion of the net cash proceeds from certain licensing and other monetization initiatives related to the Debtors’ intellectual property in excess of specified amounts. The Confirmation Order provides that the Rights do not constitute securities, will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), and will have limited rights of transferability.
The Rights are governed by the CPR Agreement dated as of October 3, 2008 (the “CPR Agreement”), between Reorganized Ampex and its wholly-owned subsidiary, Ampex International Sales Corporation, as CPR Administrator. Under the CPR Agreement, once net cash proceeds totaling approximately $83.8 million have been received by the Reorganized Debtors, holders of Rights will be entitled to receive their pro rata share of 50% of all subsequent net proceeds related to the Debtors’ intellectual property, net of expenses of administering the Rights. There can be no assurance that the Reorganized Debtors will be able to generate any future licensing revenue or other proceeds from other monetization initiatives or, if they do, whether they will attain sufficient levels required to provide for distributions to holders of Rights. |
