Ampex gives more news. And not the good kind…
Ampex (ticker:AMPX) announced its third quarter earnings on Wednesday. But the numbers weren’t as interesting as this scary little word that appeared below them: Bankruptcy!
We’ve been following the travails of Ampex over the past few months. Once one of the Valley’s leading innovators, the company has been mostly focused in recent years on how to use its vast patent portfolio to extract royalty payments from other company.
Ampex had reached a tentative agreement with a company that manages its pension fund to restructure some payments. The hitch: Ampex needed to raise $15 million from other investors as a condition of the deal.
According to the company’s press release, filed as an 8-K on Thursday, Ampex doesn’t think it will be able to raise that $15 million by the deadline of Nov. 15. That could kill the deal. And if that happens, the company warns:
“There can be no assurance that we will be able to successfully restructure our indebtedness. If we are unable to restructure our indebtedness or unable to otherwise service our indebtedness, we might be forced to reorganize under federal bankruptcy laws, which could negatively affect our revenues and the price of our Common Stock.”
We’ll see if this turns out to be a near-death experience. But it seems a big patent auction could be looming.
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There have been some developments since this last report, and Ampex stock as increased nearly 300% in 40 days from its low as of December 11, 2007.
ValueVest High Concentration Master Fund, Ltd., the largest institutional holder of stock filed SEC form 13D -amendment No. 9, on behalf of Ampex Corporation.
Excerpts from the 9th amendment letters exchanged between ValueVest and Ampex’s Board of Directors (represented by Mr. Gordon Strickland, Pres./CEO) include the following:
—”Given the current liquidity issues facing Ampex, the fiduciary duties of Ampex’s directors and officers to ValueVest and Ampex’s other shareholders require them to explore all reasonable ways in which Ampex could monetize its primary assets (e.g., securitizing
license revenues, sale of all or part of the ADS business, etc.) This process needs to be completed before the directors and officers could even consider any restructuring transaction with Hillside that would dilute Ampex’s existing shareholders. Based on preliminary discussions with Don Davis, we understand it may be possible to raise enough capital through a securitization of existing licensing revenues to permit Ampex to fulfill its obligations to Hillside and give Ampex enough time to pursue further monetizations of its IP portfolio and the sale of the ADS business.”
On November 28, 2007, Mr. Strickland responded, confirming that the Ampex Board understood its fiduciary obligations and was continuing to seek advice on the matter from outside counsel.
Amendment No. 9 continued, stating the following:
—”While we continue to support a reasonable restructuring that would afford the Company sufficient time to generate additional value by improving its operations and increasing the commercial utilization of its intellectual property assets, for the reasons described below we believe that any restructuring which would dilute the equity interest of the company’s shareholders would be a breach of your
fiduciary duties to us and your other shareholders.”
The letter continued:
—”We agree with, and support, the Company’s publicly stated positions that:
—Hillside does not currently have any right to accelerate the repayment of the Hillside debt by the Company, and
—The Company will vigorously fight any attempt by Hillside to cause any such acceleration.
—We understand from our discussions with the Company’s management that:
—The total outstanding principal amount of the Hillside debt is about $45.0 million, once the current standstill with Hillside ends, the total
principal and interest that will be due and payable by the Company to Hillside will be about $3.0 million, the total principal and interest that will be due and payable by the Company on the Hillside debt will be about $6.8 million in 2008, and the total principal and interest that will be due and payable by the Company on the Hillside debt will be about $4.4 million in 2009.”
“We have been told:
—by the Company’s chief executive officer that the Company should be able to sell its data systems business for between $30 to $40
million, and
—by consultants that the Company could raise up to $40 million by securitizing its already existing licenses of its intellectual property.”
“So, the Company will owe Hillside a total of about $14.2 million over the next two years and has the current ability to raise $70 to $80 million in commercially sensible transactions that could be consummated in no more than a few months. This arithmetic completely ignores the substantial value that we continue to believe the Company can and should generate through additional licenses and other monetizations of its intellectual property assets.”
The amendment went on to detail ValueVest’s belief that Ampex:
—”has ample resources through which it can raise sufficient funds to repay the Hillside debt and meet its other obligations as and when
they become due without compromising its as yet untapped potential to generate shareholder value by monetizing its intellectual property assets beyond its existing licenses.”
The amendment ended with ValueVest stating:
—”it would be a breach of your fiduciary duties to permit the Company to pursue any restructuring of the Hillside debt that would dilute the equity interest of the Company’s shareholders, especially in light of the artificially low current stock price caused by Hillside’s unfounded allegation that it has the right to accelerate its debt.
—”We intend to use all available legal avenues and remedies to prevent any dilutive restructuring of the Hillside debt and are confident that we will have the support of your other shareholders in that endeavor. In the meantime, we remain ready, willing and able to
continue to assist the Company in increasing the commercial utilization of its intellectual property portfolio for the benefit of all of the Company’s shareholders.”