Chairman's Letter - July 6, 1998

Dear Ampex Shareholder,

As promised in my letter to you of last October, I am writing to give you an interim report on events at Ampex. This letter is being sent earlier in the year than anticipated because a number of significant things are happening.

As you know, we have stated our intention to acquire or make investments in new businesses as part of our strategy to generate sales growth. Initially, we are seeking to enlarge our presence in the digital image markets which, today, constitute the majority of our business. Our first acquisition, MicroNet Technology Incorporated, is now essentially complete. MicroNet's products are RAID arrays (Redundant Array of Independent Disk), almost all of which are sold for image applications either in digital pre-press or in digital video. In addition to acquiring disk array know-how and a valuable brand name, MicroNet can give us access to their customer base and Ampex can do the same for their products.

MicroNet has reported losses in recent years, which is why we were able to acquire it for a very modest price in relation to its sales. A lack of working capital, under its previous ownership, created significant problems for MicroNet, but, as a result of the improvements in Ampex's balance sheet, we are in a position to provide the capital that they need to be successful. Recently, MicroNet's financial performance has improved, its products are excellent, and the potential growth in its markets appears attractive. We expect that MicroNet and its impressive management team will make a material contribution to revenues in the second half of this year. We are optimistic that it will also contribute materially to profits within a reasonable period of time, and that it will turn out to be an excellent investment for our shareholders.

We are actively looking at a number of additional acquisitions and investments that may be finalized this year. Initially, our approach is to look for opportunities that bring strategic benefits to us even though they may face management or financial challenges. If Ampex's stock price rises or if acquisition prices in general come down, I would expect to see us considering more aggressive transactions.

In the Annual Report letter I wrote that many of the markets we are currently in either are not growing at present, as in the case of data acquisition, or are in transition as, for example, in the digital broadcast market. While the volume of sales is, at present, relatively low, the quality of our new orders is quite high.  For example, in the first half of this year, we received a major order from the British Air Force for data acquisition equipment to be used in a major anti-submarine warfare re-equipment program. Cable News Network purchased an on-line digital video archive, one of the first to be installed. Coach Leather and Netcom, a major Internet Service Provider, both ordered very large data backup systems. These significant new sales indicate that major customers recognize the superb quality and outstanding performance of Ampex products.  The sales cycle for large systems, such as ours, can be quite long, so we do not anticipate significant sales increases for the next few quarters. However, the level of proposal activity to customers is relatively good and we fully intend to capitalize on the investments we have made in our existing product lines. Nevertheless, we feel that, more dramatic increases in revenue, will require us to be successful in our acquisition strategy.

Growth in general and acquisitions in particular require capital so, in preparation for increased activity, we issued $30.0 million of Senior Notes in January of this year, and may issue more if the need and opportunity arise.  Recently, we announced a refinancing of our $70.0 million of outstanding Redeemable Preferred Stock which also marks a very important step in preparing for expansion. In exchange for all of the prior Preferred Stock, Ampex has issued 3 million new Class A common shares; a $20.0 million series of Preferred Stock which is redeemable through 2008, and which could be converted into 5 million new Class A common shares; and $43.7 million of new Redeemable Preferred Stock due in installments through 2008.  Dividends on both series of Preferred Stock are noncumulative. Further details of this transaction will be included in our quarterly report on Form 10-Q which will be available shortly.

The Ampex Preferred Stock, that has now been redeemed was, in effect, entitled to receive 100% of our future earnings, and the proceeds of issuing any Common or Preferred Stock until all $70.0 million had been redeemed.  In previous years, when growth through acquisition was not contemplated, this redemption requirement did not represent a significant issue. However, to dedicate all of our cash flow to the redemption of Preferred Stock and to preclude Ampex from financing itself appropriately would add financial risk in a period when we are seeking to grow faster. Our revised capital structure significantly reduces these risks. If fully converted, the new securities would dilute earnings per share by slightly less than 15%, which is more than justified by the improvements in liquidity and increased financial flexibility resulting from this transaction. It is worth noting that the rate of return to the institutions that hold the preferred stock will depend significantly on Ampex's common stock price rising above the $4.00 per share level at which the Convertible Preferred Stock is convertible. This would represent an increase of about 100% from our stock price at the time  of writing, and such a gain would, of course, greatly benefit current stockholders. These factors and a comparison of the net present value of the previous Preferred Stock with that of the new securities make us confident that this is a favorable transaction for Ampex.

Looking to the future, the initial stage of our acquisition plan is to create a group of businesses in the digital image field that provide services as well as equipment.  In particular, we are considering the acquisition of a web hosting company since, although it is not possible today to offer good quality video on the Internet, this could change as the availability of bandwidth increases. This is an area that could offer opportunities for companies like Ampex that have digital video know-how.

To summarize; while there are encouraging signs for the longer term, Ampex's current product lines are unlikely to do well for the next few quarters, and so we will be managing costs carefully. We hope to achieve our revenue growth chiefly from acquisitions, of which MicroNet is the first, and we are building our financial strength to take advantage of opportunities as they occur. We have also added senior management capability through the appointment of an experienced new vice president of sales and marketing who is expected to become our chief operating officer early in the New Year. Increased management depth will allow us to pay attention to acquisitions without detracting from our existing activities.

Buying or investing in other businesses entails risks that are different from those we face today, and the cost of financing them may reduce short-term earnings. It is not realistic to think that our growth plans can produce instant positive results, but our firm intention is to build the value of Ampex at a rate that will offer superior returns to shareholders. I will write to you again as new developments of major significance occur, and, in the meantime, I remain,

Yours sincerely,

Edward Bramson
Chairman

This Letter to Shareholders contains prediction, 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 l995 (collectively, "forward-looking statements").  Forward-looking statements relate to various aspects of the Company's operations and strategies including but not limited to:  its sales forecasts for future periods; the success of the Company's marketing, product development, acquisition, investment, and other strategies; redemption of the Company's outstanding Noncumulative Preferred Stock; possible future issuance of debt or equity securities; the Company's liquidity; new business development and industry trends.  Information on potential factors which could affect the Company's actual results of operations are included in its filings with the Securities and Exchange Commission, including but not limited to its Annual Report on Form 10-K for the fiscal year ended December 31, l997, its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, l998, and its Quarterly Report on Form 10-Q for the fiscal quarter ending June 30, l998, which is expected to be filed shortly.  In assessing forward-looking statements, readers are urged to consider carefully these cautionary statements.  Forward-looking statements speak only as of the date of this Letter to Shareholders, and the Company disclaims any obligation to update such statements.