Ampex makes pre-packaged Chapter 11 filing

By Caroline Salls

Pittsburgh, March 31 - Ampex Corp. made a pre-packaged Chapter 11 bankruptcy filing Sunday in the U.S. Bankruptcy Court for the Southern District of New York after securing the support of a majority of its secured creditors and its largest unsecured creditor, according to a company news release.

Ampex said it expects to emerge from bankruptcy no later than fall 2008.

Upon emergence from Chapter 11, Hillside Capital Inc., the company's largest secured and unsecured creditor, will provide new financing to be used for working capital purposes, to repay long-term obligations, including some senior secured notes, and to fund future pension obligations.

"In recent years, Ampex has been constrained by its highly leveraged capital structure and by the continuing burden of its significant legacy pension liabilities," president and chief executive officer D. Gordon Strickland said in the release.

"Quite simply, we have too much debt. We intend to use the Chapter 11 process to reduce these obligations significantly and to develop and implement a new capital structure that will allow us to invest in our business.

"Fortunately, the fundamentals of our business remain strong and provide an excellent foundation for the future."

Ampex said its pre-packaged plan of reorganization is the result of months of negotiations with Hillside and holders of a majority of the face amount of the company's senior secured notes on a refinancing of some of the notes issued over the past several years in connection with pension contributions made by Hillside for the benefit of Ampex's defined benefit plans.

Pension funding plans

According to the release, the plan will allow the company to maximize recovery to all stakeholders and to enhance its financial viability by de-levering its capital structure, providing additional liquidity and arranging a long-term financing solution for future pension contributions that does not over-leverage Ampex in future years.

According to an 8-K filed with the Securities and Exchange Commission, upon Ampex's emergence from Chapter 11, Hillside will continue to fund future pension obligations if the company does not have enough liquidity to make the payments. Ampex said these advances will be in the form of new loans from Hillside.

After the total amount of the company's post-emergence debt owed to Hillside equals $25 million, Ampex said Hillside will receive shares of a new series of 16% preferred stock in reorganized Ampex for any subsequent advances that it makes to the reorganized company.

Under the plan, trade creditors will continue to receive cash payments as their claims become due, the release said.

Because the company's debt exceeds the amount of its assets, Ampex said its existing common stock currently has no value, and therefore will be cancelled on the plan effective date.

Although holders of existing common stock will not receive new equity under the plan, the company said equity holders that do not object to the plan may be eligible to receive some consideration.

Also under the plan, holders of $6.9 million of the company's 12% senior notes will receive $3.45 million in cash and $3.45 million of new secured notes of reorganized Ampex, payable over a one-year period after the company's emergence from Chapter 11, in exchange for the cancellation of their outstanding notes, which were originally scheduled to mature on Aug. 15.

The company said in the 8-K that additional financing to be provided by Hillside will include a $1 million short-term secured loan and a $4 million senior secured five-year term loan, with both loans to bear interest at 10%.

In exchange for cancellation of Hillside's secured notes, reorganized Ampex will obtain a new $10.5 million credit facility, which will also bear interest at 10%.

Meanwhile, Hillside will receive equity in reorganized Ampex Corp. in exchange for cancellation of its unsecured debt.

Ampex said the new equity to be issued under the plan will not be traded on any public exchange.

The company has entered into a plan support agreement with Hillside Capital, Credit Suisse Asset Management LLC and GMAM Investment Funds Trust II, according to the 8-K.

Plan creditor treatment

According to the disclosure statement, treatment of creditors under the pre-packaged plan will include:

• Holders of senior secured note claims will receive their share of the senior secured note claim distribution, including cash and new notes;

• Holders of other secured claims will recover 100% in cash;

• Holders of $11 million in Hillside secured claims will receive $10.5 million in tranche A loan obligations to be incurred by reorganized Ampex;

• Holders of other unsecured claims will receive their share of the unsecured claim distribution; provided that distributions on behalf of the Hillside unsecured deficiency claim will be made on the plan effective date and holders of other unsecured claims cannot receive their share of the distribution until they sign the new stockholders agreement;

• Holders of trade unsecured claims will recover 100% in cash;

• Holders of existing common stock are not scheduled to receive any distribution under the plan; provided, however, that if they agree not to object to confirmation of the plan, these creditors will receive the right to receive a distribution; and

• Holders of existing securities law claims and other existing interests will receive no distribution under the plan.

Debt details

According to court documents, Ampex had $26.47 million in assets and $133.6 million in debt as of Dec. 31.

The company's largest unsecured creditors include Hillside Capital Inc., New York, with a $41.7 million loan claim; Seaboard Group II, Taylor, Pa., with a $1.35 million contingent liability claim; and Arthur H. Hausman, Atherton, Calif., with a $1.19 million trade debt claim.

In addition to the bankruptcy filing, Ampex said it expects to request a 15-day extension from the Securities and Exchange Commission to file its 2007 10-K annual report.

Ampex is a Redwood City, Calif., technology licensing company. Its Chapter 11 case number is 08-11094.

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