<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CHYRON CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEW YORK 3663 11-2117385
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
</TABLE>
--------------------------
5 HUB DRIVE
MELVILLE, NEW YORK 11747
(516) 845-2000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------------
MICHAEL WELLESLEY-WESLEY
CHIEF EXECUTIVE OFFICER
CHYRON CORPORATION
5 HUB DRIVE
MELVILLE, NEW YORK 11747
(516) 845-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
DANIEL I. DEWOLF, ESQ. HILDY SHANDELL, ESQ.
ROBERT S. MATLIN, ESQ. JULIE ROSS, ESQ.
CAMHY KARLINSKY & STEIN LLP SKADDEN, ARPS, SLATE,
1740 BROADWAY, SIXTEENTH FLOOR MEAGHER & FLOM LLP
NEW YORK, NEW YORK 10019-4315 919 THIRD AVENUE
(212) 977-6600 NEW YORK, NEW YORK 10022
(212) 735-3000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE (2) FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01................ 8,797,500 $10.50 $92,373,750 $27,993
</TABLE>
(1) Includes 1,147,500 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, as amended.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1996
7,650,000 SHARES
[LOGO]
COMMON STOCK
----------------
Of the 7,650,000 shares of Common Stock offered hereby, 5,250,000 shares are
being issued and sold by Chyron Corporation (the "Company") and 2,400,000 shares
are being sold by the Selling Shareholders. The Company will not receive any of
the proceeds from the sale of shares by the Selling Shareholders. See "Principal
and Selling Shareholders."
The Common Stock is traded on the New York Stock Exchange (the "NYSE") under
the symbol "CHY." On , 1996, the last reported sale price of the
Company's Common Stock on the NYSE was $ per share. See "Price Range of
Common Stock."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) SHAREHOLDERS
Per Share............... $ $ $ $
<S> <C> <C> <C> <C>
Total (3)............... $ $ $ $
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering payable by the Company estimated
at $625,000.
(3) The Selling Shareholders have granted the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to 1,147,500
additional shares of Common Stock for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Discount and Proceeds to Selling
Shareholders will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered severally by the Underwriters, when,
as and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of the certificates representing the
shares will be made against payment on or about , 1997 at the office
of Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial Center, New York,
New York 10281.
------------------------
OPPENHEIMER & CO., INC.
VOLPE, WELTY & COMPANY
SOUTHCOAST CAPITAL CORPORATION
The date of this Prospectus is , 1997.
<PAGE>
The following consists of 3 pages of pictures of certain of the Company's
products, descriptions of such products and demonstrations of graphics produced
by such products.
[ART WORK TO COME]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, OR THE CONTEXT OTHERWISE REQUIRES, ALL INFORMATION IN THIS
PROSPECTUS: (I) REFLECTS THE ONE-FOR-THREE REVERSE STOCK SPLIT (THE "REVERSE
STOCK SPLIT") WHICH IS EXPECTED TO BE CONSUMMATED PRIOR TO THE EFFECTIVE DATE OF
THIS OFFERING AND (II) ASSUMES NO EXERCISE OF THE OVER-ALLOTMENT OPTION. UNLESS
THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS TO THE "COMPANY"
INCLUDE CHYRON CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARIES, INCLUDING PRO-BEL
LIMITED, WHICH WAS ACQUIRED ON APRIL 12, 1996. INVESTORS SHOULD CAREFULLY
CONSIDER THE INFORMATION UNDER THE HEADING "RISK FACTORS."
The Company develops, manufactures, markets and supports a broad range of
equipment, software and systems that facilitate the production and enhance the
presentation of live and pre-recorded video, audio and other data. The Company's
products enable users to (i) create and manipulate text, logos and other graphic
images using special effects such as three dimensional ("3D") transforming,
compositing and painting; (ii) manage, monitor and distribute video, audio and
other data signals; and (iii) control edit processes and automate broadcast
equipment. The worldwide market for equipment, software and systems used in the
production and presentation of video and audio content encompasses major
television networks, cable television broadcasters, direct to home satellite
program distributors, production companies and post-production houses, as well
as organizations and individuals creating materials such as corporate and
specialized video and audio presentations. The Company believes that the
proliferation of users of high quality video and audio content is increasing the
demand for products used in the production and presentation of such content. The
Company's high performance graphics systems are used daily by many of the
world's leading broadcast stations to display news flashes, election results,
sports scores, stock market quotations, programming notes and weather
information. The Company's signal management systems interconnect video, audio
and data signals to and from equipment within a studio's control room or edit
suite, as well as to and from signal transmission sites. The Company's control
and automation systems are used to automate the steps used in the management,
editing and distribution of video and audio content.
The creation and delivery of video and audio content has three distinct
stages: production, post-production and distribution. Production involves
shooting video or film, recording sound and creating computer-generated graphics
and other elements for special visual effects. During post-production, video and
audio signals are processed and edited using sophisticated equipment to combine
disparate elements, such as titles, graphics, still and moving images and
computer-generated special effects through techniques such as scene sequencing,
compositing, layering and touch-up. Important attributes of the equipment used
in these processes include real time performance, high signal quality, high
reliability and feature and function upgradeability. Distribution is the
delivery of the finished content. The outlets available for distribution of
video and audio content are proliferating as new cable, satellite and direct
view alternatives supplement traditional broadcast delivery systems. Additional
outlets include video tapes, video discs, CD-ROMs and film. Recently, a
fundamental technological change has been occurring as production, post-
production and distribution facilities, which have historically used an analog
signal format, have been gradually converting, when appropriate, to a digital
signal format. Converting to digital also partially prepares a facility for the
introduction of new digital standards, including Advanced Television ("ATV") and
High Definition Television ("HDTV") which require a digital signal.
The Company believes it is a leading supplier worldwide of character
generators and graphics systems for the high-end graphics market. The Company's
objective is to be the leading provider worldwide of production, post-production
and distribution solutions for video, audio and other data. The Company's
strategy includes the following key elements: (i) maintain and enhance its
leadership position in current markets; (ii) provide upgrades to existing
equipment; (iii) cross sell products to its existing customers; (iv) address
low-end and emerging markets; (v) expand its global presence; (vi) pursue
strategic acquisitions and alliances; and (vii) utilize open platforms. With the
April 1996 acquisition of Pro-Bel Limited, a United Kingdom corporation
("Pro-Bel"), the Company's systems became more comprehensive as signal switching
and routing components were added to its product roster. In addition, in
February 1996, the Company formed a strategic alliance with RT-Set Real Time
Synthesized Entertainment Technology Ltd., an Israeli corporation ("RT-SET"),
which develops virtual reality studio systems for broadcast customers.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 5,250,000 shares
Common Stock offered by the Selling
Shareholders............................... 2,400,000 shares
Common Stock to be outstanding after the
offering................................... 37,632,413 shares
Use of proceeds.............................. Repayment of indebtedness and general
corporate purposes, including possible
acquisitions and strategic alliances and
increased marketing. See "Use of Proceeds."
NYSE Symbol.................................. CHY
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1995 1996(1)
--------- --------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. $ 29,715 $ 37,391 $ 42,762 $ 53,971 $ 38,596 $ 56,889
Gross profit.......................................... 17,203 20,575 23,850 31,225 21,676 30,002
Management fee........................................ 891 800 1,139 2,911 695 --
West Coast restructuring charge (recapture)(2)........ -- -- 12,716 (1,339) (552) --
Operating income (loss)............................... 2,048 2,750 (8,469) 8,482 5,820 9,900
Net income (loss)..................................... $ 1,005 $ 1,276 $ (8,994) $ 7,476 $ 3,894 $ 5,623
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net income (loss) per common share(3)................. $ 0.04 $ 0.05 $ (0.31) $ 0.25 $ 0.13 $ 0.18
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Weighted average number of common and common
equivalent shares outstanding(3).................... 23,514 25,295 28,962 30,382 30,199 32,186
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(4)
----------- --------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 3,078
Working capital........................................................................ 33,323
Total assets........................................................................... 81,851
Long-term obligations.................................................................. 15,125
Total shareholders' equity............................................................. 45,394
</TABLE>
- ------------------------
(1) Includes the operations of Pro-Bel since its acquisition by the Company on
April 12, 1996. The acquisition was accounted for as a purchase. See Note 2
to the Consolidated Financial Statements.
(2) Relates to the West Coast restructuring plan whereby the Company eliminated
unprofitable product lines. See Note 18 to the Consolidated Financial
Statements.
(3) Adjusted to reflect the Reverse Stock Split which has been approved by the
Board of Directors and is subject to the approval of the shareholders.
(4) Adjusted to give effect to the issuance and sale of 5,250,000 shares of
Common Stock offered hereby by the Company at an estimated public offering
price of $ per share, less underwriting discount and the estimated
offering expenses to be paid by the Company, and the application of the net
proceeds to the Company.
The names Chyron, Scribe, Chyron Scribe, Chyron Scribe Junior, Chyron
SuperScribe, iNFiNiT!, MAX!>, MAXINE!, CODI, I(2), Intelligent Interface,
Intelligent Interface (I(2)), CMX, CMX AEGIS, CMX OMNI, Aurora, Liberty, PROCION
and PROCION INNOVATIVE CONTROL SOLUTIONS are registered trademarks of the
Company. This Prospectus also includes trademarks and trade names of other
companies.
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY IS SPECULATIVE IN NATURE
AND INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED
CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE
SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE
MATERIAL SET FORTH UNDER "PROSPECTUS SUMMARY--THE COMPANY," "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," "BUSINESS--INDUSTRY BACKGROUND" AND "BUSINESS--STRATEGY" AS WELL AS
THE PROSPECTUS GENERALLY. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM
THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS
FACTORS, INCLUDING, WITHOUT LIMITATION, THE RISK FACTORS SET FORTH BELOW AND THE
MATTERS SET FORTH IN THE PROSPECTUS GENERALLY.
PRODUCT CONCENTRATION. The Company's graphics and character generator
products and switching and routing systems have generated substantially all of
the Company's net sales to date, and sales of these products and related
enhancements are expected to continue to account for a majority of the Company's
net sales at least through 1997. Accordingly, the Company's success depends on
continued sales of these products. A decline in demand for or average selling
prices of such products, whether as a result of the introduction of new products
or technologies by others, competition, technological change, inability of the
Company to enhance its products in a timely fashion, or otherwise, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Products."
DEPENDENCE ON ANALOG MARKET AND MATURE MARKET SEGMENTS. Television
broadcasters, cable television operators and other entities involved in the
production and presentation of video and audio content have historically relied
on analog systems for their production, post-production and distribution
systems. The Company believes that such entities are, and over time will
continue, converting their operations to digital systems. If this transition
occurs more rapidly than the Company currently anticipates, demand for certain
of the Company's products, such as routing switchers for analog signals, could
be significantly reduced, and any such reduction could have a material adverse
effect on the Company's business, financial condition and results of operations.
If for any reason the Company is not able to respond to such rapid transition
with appropriate products in a timely fashion or such products do not achieve
market acceptance, it could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, in certain
geographic regions served by the Company, the traditional broadcast markets have
matured. As a result, the equipment needs of many customers in such markets are
typically characterized by replacements and upgrades rather than expansion. See
"Business--Industry Background" and "--The Chyron Solution."
DEPENDENCE ON EMERGING DIGITAL MARKET. Television broadcasters, cable
television operators and others involved in the production and presentation of
video and audio content have historically relied on analog technology for many
applications. Digital video and audio technology is still relatively new and
requires a significant initial investment of capital by such users. The
Company's future growth will depend to a significant degree on both the rate at
which such users convert to digital video and audio systems and the rate at
which digital video and audio technology expands to additional market segments.
There can be no assurance that the use of digital video technology will expand
among television broadcasters and cable television operators or into additional
markets. Any failure by the market to accept digital video and audio technology
could have a material adverse effect on the Company's business, financial
condition and results of operations. Recently, a number of companies serving the
digital video and audio markets, including certain competitors of the Company,
have experienced business and financial difficulties, including operating
losses. See "Business--Industry Background."
5
<PAGE>
RISKS ASSOCIATED WITH THE ACQUISITION OF PRO-BEL. On April 12, 1996, the
Company acquired Pro-Bel, which is based in the United Kingdom. The Company's
future success will depend in part on its ability to integrate Pro-Bel, to
manage the manufacturing operations of such business, to eliminate redundancies
and excess costs and to consolidate the sales and marketing activities, research
and development activities, management information systems and other activities
of Pro-Bel. Although the Company expects it will realize certain business
synergies as a result of the acquisition, such synergies could be affected by
various factors beyond the Company's control, such as future conditions in the
graphics, signal management and control and automation markets and certain
activities of the Company's competitors. As a result, there can be no assurance
that the Company will be able to integrate successfully the operations of
Pro-Bel with those of the Company. The failure to integrate Pro-Bel, increase
the visibility and brand name recognition of Pro-Bel products in the United
States, provide effective local sales and support for Pro-Bel products in the
United States or sell significant amounts of Pro-Bel products in the United
States could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
HIGHLY COMPETITIVE ENVIRONMENT. The market for graphics imaging, editing
and animation systems, signal routing systems and media storage systems is
highly competitive and is characterized by rapid technological change and
evolving industry standards. Rapid obsolescence of products, frequent
development of new products and significant price erosion are all features of
the industry in which the Company operates. The Company anticipates increased
competition from both existing companies and new market entrants. The Company is
currently aware of several major and a number of smaller competitors. In the
graphics area, the Company believes its primary competitors are Aston Electronic
Designs Limited, Digital Graphix Inc., Dynatech Corporation, Quantel Inc. and
Scitex Corporation Ltd. In the signal management area, the Company believes its
primary competitors are Dynatech Corporation, Leitch Incorported, Philips
Electronics N.V., Sony Corporation and Tektronix, Inc. In the control and
automation area, the Company believes its primary competitors are Accom, Inc.,
Louth Automation, Philips Electronics N.V., Sony Corporation and Tektronix, Inc.
Many of these companies have significantly greater financial, technical,
manufacturing and marketing resources than the Company. In addition, certain
product categories and market segments, on a region-by-region basis, in which
the Company does or may compete, are dominated by certain vendors. As a result,
the Company's ability to compete in these areas may be limited.
The Company believes that its ability to compete depends on factors both
within and outside its control, including the success and timing of new product
developments introduced by the Company and its competitors, product performance
and price, market presence and customer support. There can be no assurance that
the Company will be able to compete successfully with respect to these factors.
Maintaining any advantage that the Company may have over its competitors will
require continuing investments by the Company in research and development, sales
and marketing and customer service and support. In addition, as the Company
enters new markets, whether through acquisitions, alliances with other companies
or on its own, the Company may encounter distribution channels, technical
requirements and competitive factors that differ from those in the markets in
which it currently operates. There can be no assurance the Company will be able
to compete successfully in these new markets. In addition, increased competition
in any of the Company's current markets could result in price reductions,
reduced margins or loss of market share, any of which could materially and
adversely affect the Company's business, financial condition and results of
operations. There can be no assurance that the Company will be able to compete
successfully against current or future competitors. See "Business--Competition."
RAPID TECHNOLOGICAL CHANGE. The markets for the Company's products are
characterized by rapidly changing technology, evolving industry standards and
frequent new product introductions and enhancements. Future technological
advances in the television and video industries may result in the availability
of new products or services that could compete with the Company's products or
reduce the cost of existing products or services, any of which could enable the
Company's existing or potential customers to fulfill their needs better and more
cost efficiently than with the Company's products. The Company's future
6
<PAGE>
success will depend on its ability to enhance its existing products and to
develop and introduce new products to meet and adapt to changing customer
requirements and emerging technologies. For example, the industry is moving
toward the adoption of a digital standard for ATV and HDTV. The Company does not
currently offer products that fully support ATV and HDTV. Further, customers are
increasingly using non-linear editing systems in addition to, or instead of,
traditional linear editing systems. The Company does not currently offer any
non-linear editing systems. There can be no assurance that the Company will be
successful in enhancing its products or developing, manufacturing or marketing
new products which satisfy these or other customer needs or achieve market
acceptance. In addition, there can be no assurance that services, products or
technologies developed by others will not render the Company's product or
technologies uncompetitive, unmarketable or obsolete, or that announcements of
currently planned or other new product offerings by either the Company or its
competitors will not cause customers to defer or fail to purchase existing
Company solutions. Rapid technological change also increases the risk to the
Company of possible excess or obsolete inventory. Furthermore, the trend toward
the use of open systems may cause price erosion in the Company's products,
create opportunities for new competitors, allow existing competitors enhanced
opportunities and limit the sale of the Company's proprietary systems. The
failure of the Company to respond to rapidly changing technologies could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Products" and "--Research and
Development."
RISK OF NEW PRODUCT INTRODUCTIONS. The Company's future success requires
that it develop and market new products and enhancements that achieve
significant market acceptance. There can be no assurance that the Company will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products and enhancements, that
its new products and enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance. Announcements of currently planned or
other new products or enhancements may cause customers to defer purchasing
existing Company products. Moreover, there can be no assurance that errors or
failures will not be found in the Company's products or, if discovered,
successfully corrected in a timely manner. Such errors or failures could cause
delays in product introductions and shipments or require design modifications
that could adversely affect the Company's competitive position. Any inability to
develop on a timely basis new products and enhancements, to correct errors, or
to achieve market acceptance and manage product transitions and inventory
levels, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Products" and
"--Research and Development."
RISKS ASSOCIATED WITH EXPANSION INTO NEW MARKETS. To date, a majority of
the Company's products have been sold in the United States and the United
Kingdom. The Company's success, however, depends in part on its expansion into
new geographic markets and new market segments. There can be no assurance that
the Company will be successful in marketing and selling its products to
customers in new markets. Customers in such markets may also have unique product
requirements, such as support of foreign languages or special features, which
may be difficult and expensive for the Company to develop and support. In
addition, competitive suppliers may have strong or dominant positions in such
markets. Any inability of the Company to penetrate these new markets could have
a material adverse effect on the Company's growth. See "Business--Products."
RISKS ASSOCIATED WITH THE COMPANY'S ACQUISITION AND ALLIANCE STRATEGY. In
pursuit of its strategic objective to expand through acquisitions of and
alliances with complementary businesses, the Company recently acquired Pro-Bel
and invested in and formed a strategic alliance with RT-SET. In the past, the
Company has also acquired other businesses, some of which subsequently have been
restructured and discontinued. The Company continually evaluates conditions for
acquisitions, strategic investments and alliances. The Company's acquisition and
alliance strategy entails the potential risks inherent in assessing the value,
strengths, weaknesses, liabilities and financial performance of acquisition and
alliance candidates and in integrating the operations of acquired businesses
with those of the Company. There can be no
7
<PAGE>
assurance, however, that acquisition or alliance opportunities will continue to
be available, that the Company will have access to the capital required to
finance potential acquisitions and alliances, that the Company will continue to
acquire businesses or enter into alliance agreements or that any business
acquired or alliance entered into will be integrated successfully or prove
profitable. Moreover, once an acquisition is completed, there can be no
assurance that acquired products, technologies or businesses will be effectively
assimilated into the Company's business or product offerings, that the Company
will be effectively able to derive the benefits of or continue to maintain the
brand name recognition of acquired companies or products, that the Company will
be able to effectively manage product transitions and inventory levels or that
the Company will be able to retain key employees of acquired companies. In
addition, the Company may incur significant expenses in completing any such
acquisitions and investments and in supporting the acquired products,
technologies or businesses. Acquisitions may also consume certain management
resources, which may temporarily divert management efforts from the day-to-day
business of the Company. There can be no assurance that any acquired products,
technologies or businesses will contribute to the Company's revenues or earnings
to any material extent.
The Company has made and expects it will continue to make acquisitions,
strategic investments and alliances outside of the United States. While these
activities may provide important opportunities for the Company to offer its
products and services internationally, they also entail the risks associated
with conducting business internationally, including the risk of currency
exchange rate fluctuations and social, political and economic instability. See
"Business--Strategy."
ABILITY TO MANAGE GROWTH AND EXPANSION. The Company plans to continue to
expand its operations. The management of the Company's growth, if any, will
require continued expansion of the Company's operational and financial control
systems, as well as an increase in the Company's research and development and
marketing and sales capabilities, all of which could place a significant strain
on the Company's resources. The Company's inability to manage its growth
effectively could have a material adverse effect on its business, financial
condition and results of operations. The Company's ability to compete
effectively and to manage future expansion of its operations, if any, will
require the Company to increase the number of its employees. The Company is
dependent to a substantial degree upon its marketing and sales and research and
development personnel and its technical, service and support staff. There is
considerable competition for the services of such personnel. There can be no
assurance that the Company will be able either to retain its present personnel
or to acquire additional qualified personnel as and when needed. See
"Business--Strategy."
SEASONALITY. The Company's business has typically been seasonal with more
orders usually being received and greater revenues being recognized in the
fourth quarter than in each of the first, second or third quarters,
respectively. The Company believes that the concentration of order placements in
specific quarterly periods is due to customers' buying patterns and budgeting
cycles. In addition, the Company's business is also affected by broadcast events
in the television industry such as the Olympics and national and local
elections. The Company anticipates that these patterns will continue in the
future. As a result, the Company's results of operations have in the past and
likely will in the future vary seasonally in accordance with such purchasing
activity. Due to the relatively fixed nature of certain of the Company's costs
throughout each quarterly period, including personnel and facilities costs, the
decline of revenues in any quarter typically results in lower profitability in
that period and, in such event, the price of the Company's Common Stock could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results of Operations."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's quarterly
operating results have in the past varied and in the future will be affected by
factors such as: (i) the timing and recognition of revenue from significant
orders; (ii) the seasonality of the placement of customer orders; (iii) the
success of the Company's products; (iv) increased competition; (v) changes in
the Company's pricing policies or those of
8
<PAGE>
its competitors; (vi) the financial stability of major customers; (vii) new
product introductions or enhancements by competitors; (viii) delays in the
introduction of products or product enhancements by the Company; (ix) customer
order deferrals in anticipation of upgrades and new products; (x) the ability to
access a sufficient supply of sole source and third-party components; (xi) the
quality and market acceptance of new products; (xii) the timing and nature of
selling and marketing expenses (such as trade shows and other promotions);
(xiii) personnel changes; (xiv) the lengthy sales cycle associated with the
Company's switching and routing systems and certain other products; (xv) high
per unit list prices for the Company's equipment, thereby posing significant
barriers to the purchase of equipment for potential customers; and (xvi)
economic conditions affecting the Company's customers. In addition, the Company
typically makes a significant portion of its quarterly shipments in the last
month of a quarter, frequently in the last weeks or even days of a quarter. As a
result, any delay, interruption or inability to ship products could have a
significant impact on the Company's quarterly business, financial condition and
results of operations. Any significant cancellation or deferral of purchases of
the Company's products could have a material adverse effect on the Company's
business, financial condition and results of operations in any particular
quarter and, to the extent significant sales occur in an earlier quarter than
expected, operating results for subsequent quarters may be adversely affected.
The Company's expense levels are based, in part, on its expectations as to
future revenues and the Company may be unable to adjust spending in a timely
manner to compensate for any revenue shortfall. If revenues are below
expectations, operating results are likely to be adversely affected and net
income may be disproportionately affected because a significant portion of the
Company's expenses do not vary with revenues.
Because of these factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Due to all of
the foregoing factors, in some future quarter the Company's operating results
may be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock would likely be materially and
adversely affected. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations."
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT. The Company's
success depends, in part, upon its ability to protect its proprietary software
technology and operate without infringing the rights of others. It relies on a
combination of patent, trademark, copyright and trade secret laws together with
non-disclosure and confidentiality agreements to establish and protect its
intellectual property rights in its technology. There can be no assurance that
the steps taken by the Company regarding its proprietary technology will be
sufficient to deter misappropriation or that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technologies. In addition, the laws of certain countries in
which the Company's products are or may be distributed do not protect the
Company's products and intellectual rights to the extent of the laws of the
United States.
In the systems and software industries, companies receive notices from time
to time alleging infringement of patents, copyrights or other intellectual
property rights of others. While the Company is not currently involved in any
pending intellectual property litigation, the Company has been and may from time
to time continue to be notified of claims that it may be infringing patents,
copyrights or other intellectual property rights owned by third parties. There
can be no assurance that these or other companies will not in the future pursue
claims against the Company with respect to the alleged infringement of patents,
copyrights or other intellectual property rights owned by third parties. In
addition, litigation may be necessary to protect the Company's intellectual
property rights and trade secrets, to determine the validity of and scope of the
proprietary rights of others or to defend against third-party claims of
invalidity. Any litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Patents and
Proprietary Rights."
9
<PAGE>
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. International sales have
represented a significant and growing portion of the Company's sales. The
Company's international operations are subject to a number of special risks,
including currency exchange rate fluctuations, trade barriers, exchange
controls, credit risk, length of payment terms, political risks and risks of
increases in duties, taxes and governmental royalties, as well as changes in
laws and policies governing operations of foreign-based companies. Currently,
the Company's sales are made in either United States dollars or United Kingdom
pounds sterling. Accordingly, the Company may be exposed to risks of currency
fluctuations. The Company has not and does not currently intend to engage in any
currency hedging activities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
LIMITED HISTORY OF NEW MANAGEMENT. The Company's current Chairman and Chief
Executive Officer was appointed in July 1995, following a change in control of
the Company pursuant to the sale by Pesa Inc. ("Pesa") of 19,804,910 shares of
Common Stock and the sale by Sepa Technologies Ltd., Co. ("Sepa"), an affiliate
of Pesa, of 1,666,666 shares of Common Stock to the current principal
shareholders of the Company. In 1990, the Company sought protection under
Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). The Company
subsequently emerged from Chapter 11 in December 1991 and underwent a
restructuring of its West Coast operations in 1994 to eliminate unprofitable
product lines. The Company's future success depends in large part upon the
ability of the Company's new management to develop and manage the Company's
business and growth, including the newly acquired Pro-Bel. Key members of new
management are located in both the United Kingdom and the United States. New
management's limited history managing the Company may make it more difficult for
potential investors to evaluate the likelihood of management's ability to manage
the Company successfully. See "The Company," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Management."
DEPENDENCE ON KEY PERSONNEL. The Company's future performance depends to a
significant degree upon the continued contributions of members of the Company's
senior management personnel and on its ability to attract, motivate and retain
highly qualified employees. Competition for highly qualified employees is
intense, and the process of identifying and successfully recruiting personnel
with the combination of skills and attributes required to execute the Company's
strategies is often lengthy. Accordingly, the loss of the service of any key
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be successful in retaining its key technical and management
personnel or in attracting and retaining the personnel it requires for continued
growth. See "Business--Employees" and "Management."
DEPENDENCE ON KEY SUPPLIERS AND THIRD-PARTY MANUFACTURERS. Certain key
components of the Company's products are currently purchased from a single or a
few key suppliers. The inability to obtain sufficient key components as
required, or to develop alternative sources if and as required in the future,
could result in delays or reductions in product shipments which, in turn, could
have a material adverse effect on the Company's business, financial condition
and results of operations. Moreover, the Company relies on a limited number of
third parties who manufacture all of the hardware components and sub-assemblies
utilized in certain of the Company's products, including its graphic systems.
While to date there has been suitable third-party manufacturing capacity readily
available at acceptable quality levels, there can be no assurance that such
manufacturers will be able to meet the Company's future volume or quality
requirements or that such services will continue to be available to the Company
at favorable prices. Any financial, operational, production or quality assurance
difficulties experienced by such third-party manufacturers that result in a
reduction or interruption in supply to the Company could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business-- Manufacturing."
RESTRICTIONS IMPOSED BY INDEBTEDNESS. In connection with the Company's
acquisition of Pro-Bel on April 12, 1996, the Company entered into a loan
agreement and credit facility which are secured by the
10
<PAGE>
Company's assets and contain a number of significant covenants that, among other
things, will restrict the ability of the Company and its subsidiaries to dispose
of assets, incur additional indebtedness, repay other indebtedness, pay
dividends, make certain investments or acquisitions, repurchase or redeem
capital stock, engage in mergers or consolidations, or engage in certain
transactions with subsidiaries and affiliates and otherwise restrict certain
corporate activities. There can be no assurance that such restrictions will not
adversely effect the Company's ability to finance its future operations or
capital needs or engage in other business activities that may be in the best
interest of the Company. In addition, the loan agreement and credit facility
require the Company to maintain compliance with certain financial ratios. The
ability of the Company to comply with such ratios may be affected by events
beyond the Company's control. A breach of any of these covenants or the
inability of the Company to comply with the covenants regarding financial ratios
could result in an event of default under the loan agreement and credit
facility. In the event of any such default, the lender could elect to declare
all borrowings outstanding thereunder, together with accrued interest and other
fees, to be due and payable and to require the Company to apply all of its
available cash to repay such borrowings. If the Company was unable to repay any
such borrowings when due, the lender could proceed against its collateral.
In addition, Pro-Bel has a separate loan facility which is secured by its
assets and is repayable on demand. This facility restricts Pro-Bel and its
subsidiaries from, among other things, obtaining additional financing or making
any equity or debt investments. The Company intends to enter into a new loan
facility with the same lender which will replace the current one and contain
similar restrictions.
REGULATION OF TELECOMMUNICATIONS AND TELEVISION INDUSTRIES. The
telecommunications and television industries are subject to extensive regulation
in the United States and other countries. The Company's business is dependent
upon the continued growth of such industries in the United States and
internationally. Although recent legislation has lowered the legal barriers to
entry for telecommunications companies into the United States' multichannel
television market, there can be no assurance that such telecommunications
companies will successfully enter this or related markets. Moreover, the growth
of the Company's business internationally is dependent in part on similar
deregulation of the telecommunications industry abroad and there can be no
assurance that such deregulation will occur. Television operators are subject to
extensive government regulation by the Federal Communications Commission and
other federal and state regulatory agencies. These regulations could have the
effect of limiting capital expenditures by television operators and thus could
have a material adverse effect on the Company's business, financial condition
and results of operations. The enactment by federal, state or international
governments of new laws or regulations, changes in the interpretation of
existing regulations or a reversal of the trend toward deregulation in these
industries could adversely affect the Company's customers, and thereby
materially adversely affect the Company's business, financial condition and
results of operations. See "Business-- Industry Background."
CONTROL BY PRINCIPAL SHAREHOLDERS, OFFICERS AND DIRECTORS. Upon the
completion of this offering, the Company's officers, directors and 5%
shareholders (and their affiliates) will, in the aggregate, beneficially own
approximately 58.4% of the Company's outstanding Common Stock and Mr. Michael I.
Wellesley-Wesley, Chairman of the Board of Directors and Chief Executive
Officer, will beneficially own approximately 20.3%. As a result, such persons,
acting together, will have the ability to control the vote on matters submitted
to shareholders of the Company for approval (including election of directors and
any merger, consolidation or sale of all or substantially all of the Company's
assets) and to control the management and affairs of the Company. Accordingly,
such concentration of ownership may have the effect of delaying, deferring or
preventing a change in control of the Company, impede a merger, consolidation,
takeover or other business combination involving the Company or discourage a
potential acquiror from making a tender offer or otherwise attempting to obtain
control of the Company. See "Management" and "Principal and Selling
Shareholders."
11
<PAGE>
BROAD DISCRETION AS TO USE OF PROCEEDS. The Company intends to use
approximately $12.4 million of the net proceeds from this offering to repay
indebtedness and the remaining net proceeds for working capital and other
general corporate purposes, including possible acquisitions, increased marketing
and such other purposes as management may determine in its sole discretion. The
Company's management has reserved the right to reallocate a portion of the net
proceeds and there can be no assurance that the proceeds will yield a
significant return. See "Use of Proceeds."
ABSENCE OF DIVIDENDS. The Company has not paid cash dividends on its Common
Stock since November 27, 1989 and does not anticipate paying any cash dividends
in the foreseeable future. The Company intends to retain any earnings for use in
its business. The decision to pay dividends in the future will be at the
discretion of the Board of Directors and is subject to certain restrictions
under its loan agreement and credit facility. See "Price Range of Common Stock"
and "Dividend Policy."
POTENTIAL DILUTION RELATED TO RT-SET. Pursuant to an alliance agreement
with RT-SET, the Company has the option to acquire up to a 51% interest in
RT-SET in exchange for Common Stock. The value of the shares of Common Stock
shall be calculated by taking the average closing price of shares of Common
Stock traded on the New York Stock Exchange for the 20 trading days immediately
prior to the date the Company sends a notice to RT-SET that it is exercising its
option. Although such shares of Common Stock shall not be registered with the
Commission, they will be subject to piggyback registration rights commencing 12
months after the date of closing of the exercise of the option. If the Company
exercises the option and issues Common Stock, purchasers of Common Stock offered
hereby could suffer dilution in the net tangible book value per share of the
Common Stock offered hereby. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ISSUANCE OF PREFERRED STOCK; POSSIBLE DELAY OR PREVENTION OF CORPORATE
TAKE-OVER. The Company is authorized to issue up to 1,000,000 shares of
preferred stock, par value $1.00 per share, without further stockholder
approval. The Board of Directors is authorized to determine, without any further
action by the holders of the Common Stock, the rights, preferences and
limitations of such preferred shares. Should the Board of Directors elect to
exercise such authority, the rights and privileges of holders of Common Stock
could be made subject to the rights and privileges of any such series of
preferred stock. The issuance of a series of preferred stock of the Company
could delay, defer or prevent a change in control of the Company without further
shareholder action and could adversely affect the market price of the shares of
Common Stock offered hereby. No shares of preferred stock are currently
outstanding. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECTS ON FUTURE MARKET
PRICE. Sales of a substantial number of shares of Common Stock following
completion of the offering could adversely affect prevailing market prices and
could impair the Company's future ability to raise capital through the sale of
its equity securities. Upon completion of this offering, the Company will have
37,632,413 shares of Common Stock outstanding. Of these shares of Common Stock,
7,650,000 shares will be freely tradeable without restriction under the
Securities Act (except by "affiliates" of the Company) of the remaining
32,382,413 outstanding shares of Common Stock, 11,584,643 shares (the
"Restricted Shares") will be "restricted securities" as defined in Rule 144
promulgated under the Securities Act ("Rule 144"). An additional 1,433,333
shares currently subject to contractual limitations on sale or transfer will
become eligible for sale to the public on July 25, 1997. The Company, its
officers and directors and the Selling Shareholders will be subject to lock-up
arrangements (the "Lock-Up") under which they have agreed not to offer, sell,
contract to sell, pledge or grant any option to purchase or otherwise dispose of
12,562,333 shares of Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of Oppenheimer & Co., Inc.
After such period, such shares of Common Stock may be sold only pursuant to an
effective registration statement under the Securities Act, or pursuant to an
exemption therefrom, including exemptions to the provisions of Rule 144.
12
<PAGE>
Of the 11,524,643 Restricted Shares, up to 5,719,733 Restricted Shares will
become eligible for sale pursuant to Rule 144 during 1998; up to 3,000,000
Restricted Shares will become eligible for sale pursuant to Rule 144 during
1999; up to 2,000,000 Restricted Shares will become eligible for sale pursuant
to Rule 144 during 2000 and up to 804,910 Restricted Shares will become eligible
for sale pursuant to Rule 144 during 2001. See "Shares Eligible for Future
Sale."
The holders of 24,471,544 shares, including the Restricted Shares, may,
subject to the Lock-Up, by exercising demand registration rights, require the
Company, beginning 90 days after the effective date of this Prospectus (the
"Effective Date"), to file a registration statement under the Securities Act
with respect to their Restricted Shares, and the Company is required to use its
best efforts to effect such registration, subject to certain conditions and
limitations. Holders of an additional 1,048,735 Restricted Shares will become
entitled to demand registration rights during July 1997. If such holders, by
exercising such registration rights, cause a large number of shares to be sold
in the public market, the market price of the Common Stock could be adversely
affected. See "Description of Capital Stock--Registration Rights."
STOCK PRICE VOLATILITY. The trading price of the Common Stock has been and
may continue to be subject to fluctuations in response to quarter-to-quarter
variations in operating results, changes in earnings estimates by analysts,
general conditions in the television broadcasting and related industries,
announcements of technological innovations or new products introduced by the
Company or its competitors and other events or factors. The stock market in
general, and the shares of technology companies in particular, have experienced
extreme price fluctuations in recent years. This volatility has had a
substantial impact on the market prices of securities issued by many companies
for reasons unrelated to the operating performance of the companies affected.
These broad market fluctuations may adversely affect the market price of the
Common Stock.
13
<PAGE>
THE COMPANY
The Company was incorporated under the laws of the State of New York on
April 8, 1966 under the name The Computer Exchange, Inc., which was changed to
the present name on November 28, 1975. The Company's principal executive offices
are located at 5 Hub Drive, Melville, New York 11747 and its telephone number is
(516) 845-2000. Its executive offices in the United Kingdom are located at
Danehill, Lower Earley, Reading, Berks RG6 4PB and its telephone number is
44-1734-86-61-23.
On September 17, 1990, the Company and its subsidiaries sought relief under
Chapter 11 of the United States Bankruptcy Code. On December 27, 1991, the
Company emerged from bankruptcy. Pursuant to its plan of reorganization, the
Company issued to its banks shares of Common Stock which represented 81% of the
voting power and beneficial ownership of all the issued and outstanding Common
Stock on a fully diluted basis. Such shares of Common Stock were then purchased
from the banks by Pesa. Subsequently, Pesa transferred 4,666,666 shares of
Common Stock to its affiliate Sepa.
In May 1995, CC Acquisition Company A, L.L.C., a Delaware limited liability
company ("CCA"), an entity affiliated with Mr. Allan R. Tessler and Mr. Michael
I. Wellesley-Wesley, acquired 3,333,333 shares of Common Stock from Pesa. In
July 1995, control of the Company was transferred through the sale of an
additional 18,138,244 shares of Common Stock by Pesa and Sepa to (i) CC
Acquisition Company B, L.L.C., a Delaware limited liability company ("CCB"), an
entity affiliated with Mr. Tessler and Mr. Wellesley-Wesley; (ii) various funds
managed by Weiss, Peck & Greer, L.L.C. ("Weiss, Peck & Greer"); and (iii)
Westpool Investment Trust plc ("Westpool") (Weiss, Peck & Greer and Westpool are
collectively referred to as the "WPG/Westpool Investment Group"). In addition,
Sepa transferred the voting control over 3,000,000 shares of Common Stock to
these entities. CCA and CCB together beneficially own 8,455,297 shares of Common
Stock. The WPG/Westpool Investor Group beneficially owns in the aggregate
15,768,632 shares. As a result of the new investor groups obtaining control, a
new executive management team was put in place, a new Board of Directors was
elected and a new business strategy was adopted. In July 1995, Mr.
Wellesley-Wesley became the Chief Executive Officer and Chairman of the Board of
Directors and Mr. Isaac Hersly was promoted to President and Chief Operating
Officer.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company are estimated to be $ million, after deducting the
underwriting discount and the estimated offering expenses payable by the
Company. The Company expects to use approximately $12.4 million of the net
proceeds for the repayment of indebtedness (including accrued interest thereon)
which bears interest at rates ranging from 7.75% to 8.25% per annum and matures
through April 16, 2000. The outstanding borrowings under these facilities were
incurred to finance the Pro-Bel acquisition and to replace the Company's then
existing working capital loan. The balance of the net proceeds from this
offering will be used for general corporate purposes, possible acquisitions and
strategic alliances, marketing, working capital and other general corporate
purposes. As part of its business strategy, the Company continually evaluates
potential acquisitions of businesses, products and technologies as well as
strategic alliances. Accordingly, a portion of the net proceeds may be used for
the acquisition of complementary businesses, technologies or products as well as
strategic alliances. The Company currently has no understanding, commitment,
agreement or present intention with respect to any particular acquisition or
strategic alliance. Pending such uses, the Company intends to invest such funds
in short-term, high quality investment grade, interest-bearing securities of the
United States.
14
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the NYSE under the symbol "CHY". The following
table sets forth for the fiscal periods indicated the high and low last reported
sale prices for the Common Stock as adjusted to reflect the Reverse Stock Split.
No dividends on the Common Stock were declared or paid during such periods.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK(1)
--------------------
<S> <C> <C>
HIGH LOW
--------- ---------
Year ended December 31, 1996:
Fourth Quarter (through December 19, 1996)............................. $ 15.375 $ 8.250
Third Quarter.......................................................... 19.875 12.000
Second Quarter......................................................... 18.750 9.375
First Quarter.......................................................... 10.125 6.375
Year ended December 31, 1995:
Fourth Quarter......................................................... 8.625 5.250
Third Quarter.......................................................... 9.000 2.438
Second Quarter......................................................... 3.000 1.500
First Quarter.......................................................... 2.250 1.125
Year Ended December 31, 1994:
Fourth Quarter......................................................... 2.063 1.688
Third Quarter.......................................................... 2.250 1.688
Second Quarter......................................................... 2.250 1.688
First Quarter.......................................................... 2.250 1.688
</TABLE>
On December 19, 1996, the closing price of the Company's Common Stock as
reported on the NYSE was $8.625 per share and there were approximately 16,000
holders of Common Stock.
- ------------------------
(1) Share price data has been adjusted to reflect the Reverse Stock Split which
has been approved by the Board of Directors and is subject to the majority
vote of the shareholders.
DIVIDEND POLICY
The Company has not declared or paid any cash dividend since November 27,
1989. The Company currently plans to retain its future earnings, if any, for use
in the operation and expansion of its business and does not anticipate paying
cash dividends on the Common Stock in the foreseeable future. During the term of
its loan agreement with Fleet Bank, the Company is prohibited from paying
dividends in excess of 25% of its net income for the then current fiscal year.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996: (i) on an actual basis after giving effect to the Reverse
Stock Split and (ii) as adjusted to give effect to the sale of the 5,250,000
shares of Common Stock offered by the Company hereby after deducting the
estimated underwriting discount and estimated offering expenses payable by the
Company and the anticipated application by the Company of the estimated net
proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED(2)(3)
--------- ----------------
<CAPTION>
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Current portion of long-term debt................................ $ 4,716 $
--------- --------
--------- --------
Long term debt, excluding current portion........................ $ 14,977 $
--------- --------
Shareholders' equity:
Preferred stock, par value $1.00 per share; 1,000,000 shares
authorized; no shares issued and outstanding actual and as
adjusted..................................................... -- --
Common stock, par value $.01 per share; 150,000,000 shares
authorized; 32,382,413 shares issued and outstanding
actual(1)(3); 37,632,413 shares outstanding, as
adjusted(2)(3)............................................... 324
Additional paid-in capital..................................... 37,915
Retained earnings.............................................. 6,966
Cumulative translation adjustment.............................. 189
--------- --------
Total shareholders' equity................................. 45,394
--------- --------
Total capitalization....................................... $ 60,371 $
--------- --------
--------- --------
</TABLE>
- ------------------------
(1) Adjusted to reflect the Reverse Stock Split which has been approved by the
Board of Directors and is subject to the majority vote of the shareholders.
(2) Adjusted to give effect to Note 1 above and the sale of 5,250,000 shares of
Common Stock by the Company.
(3) Excludes, as of December 23, 1996, outstanding options to purchase an
aggregate of 1,326,981 shares of Common Stock issued pursuant to the
Company's 1995 Long Term Incentive Plan, as amended.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus. The statement
of operations data for the years ended December 31, 1993, 1994 and 1995 and the
balance sheet data as of December 31, 1994 and 1995 are derived from, and
qualified by reference to, the Company's consolidated financial statements
audited by Price Waterhouse LLP for the year ended December 31, 1995 and by
Ernst & Young LLP for the years ended December 31, 1994 and 1993 included
elsewhere in this Prospectus (except for the balance sheet data as of December
31, 1993 which has been derived from audited financial statements not included
herein). The statement of operations data and the balance sheet data as of and
for the year ended December 31, 1992 have been derived from audited consolidated
financial statements not included herein. The statement of operations data for
the nine month periods ended September 30, 1995 and 1996 and the balance sheet
data at September 30, 1995 are derived from, and qualified by reference to,
unaudited interim financial statements contained elsewhere herein. Management
believes that all normal recurring adjustments necessary for a fair presentation
have been made in such interim periods. The results of operations for the most
recent interim period, however, are not necessarily indicative of the Company's
financial results for the entire current fiscal year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1995 1996(1)
--------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (2):
Net sales................................................ $ 29,715 $ 37,391 $ 42,762 $ 53,971 $ 38,596 $ 56,889
Cost of products sold.................................... 12,512 16,816 18,912 22,746 16,920 26,887
--------- --------- --------- --------- --------- ---------
Gross profit............................................. 17,203 20,575 23,850 31,225 21,676 30,002
--------- --------- --------- --------- --------- ---------
Operating expenses:
Selling, general and administrative.................... 11,300 13,452 14,301 17,066 12,648 16,351
Research and development............................... 2,964 3,573 4,163 4,105 3,065 3,751
Management fee......................................... 891 800 1,139 2,911 695 --
West Coast restructuring charge (recapture)............ -- -- 12,716 (1,339) (552) --
--------- --------- --------- --------- --------- ---------
Total operating expenses............................. 15,155 17,825 32,319 22,743 15,856 20,102
--------- --------- --------- --------- --------- ---------
Operating income (loss).................................. 2,048 2,750 (8,469) 8,482 5,820 9,900
Interest expense, net.................................... 445 714 525 536 449 872
--------- --------- --------- --------- --------- ---------
Income (loss) before provision for income taxes.......... 1,603 2,036 (8,994) 7,946 5,371 9,028
Income tax/equivalent provision.......................... 598 760 -- 470 1,477 3,405
--------- --------- --------- --------- --------- ---------
Net income (loss)........................................ $ 1,005 $ 1,276 $ (8,994) $ 7,476 $ 3,894 $ 5,623
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net income (loss) per common share (3)................... $ 0.04 $ 0.05 $ (0.31) $ 0.25 $ 0.13 $ 0.18
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Weighted average number of common and common equivalent
shares outstanding (3)................................. 23,514 25,295 28,962 30,382 30,199 32,186
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- --------- --------- --------- -------------
<CAPTION>
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 403 $ 213 $ 1,555 $ 5,012 $ 3,078
Working capital........................................ 11,692 13,256 12,103 28,221 33,323
Total assets........................................... 35,623 38,516 28,644 44,332 81,851
Long-term obligations.................................. 3,000 200 4,829 4,911 15,125
Shareholders' equity................................... 17,882 22,627 13,776 29,983 45,394
</TABLE>
- ------------------------
(1) Includes the operations of Pro-Bel since its acquisition by the Company on
April 12, 1996. The acquisition was accounted for as a purchase. See Note 2
to the Consolidated Financial Statements.
(2) Amounts as of and for the year ended December 31, 1991 are not presented
herein because (i) the Company emerged from Chapter 11 in December 1991 and
adopted Fresh Start Reporting, thereby rendering a comparison of 1991 to
subsequent years not meaningful and (ii) during 1991, the Company changed
its fiscal year-end from June 30 to December 31.
(3) Adjusted to reflect the Reverse Stock Split which has been approved by the
Board of Directors and is subject to the approval of the shareholders.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN
THIS PROSPECTUS.
OVERVIEW
The Company develops, manufactures, markets and supports a broad range of
equipment, software and systems that facilitate the production and enhance the
presentation of live and pre-recorded video, audio and other data. The Company
introduced the iNFiNiT!, its flagship product, in late 1990. Subsequently, the
Company has introduced a broad range of graphics products such as the MAX!> and
MAXINE!, CODI, LIBERTY, WiNFiNiT! and IMAGESTOR!. These products superimpose
text, logos and other graphics onto a primary video image or create an
independent image to be televised by itself. The Company expects that revenue
from its current graphics and character generator systems will continue to
constitute a substantial percentage of its net sales in the near future. The
Company's Pro-Bel signal management systems interconnect video, audio and data
signals to and from equipment within a studio's control room or edit suite, as
well as to and from signal transmission sites. The Company expects that sales of
switching and routing systems will also be a significant contributor to net
sales in the coming years.
The Company's net sales have increased from $29.7 million in 1992 to $54.0
million in 1995, while gross profit has increased from $17.2 million in 1992 to
$31.2 million in 1995 and $30.0 million in the nine months ended September 30,
1996. During the same periods, net income was $1.0 million, $7.5 million, and
$5.6 million, respectively.
The Company was incorporated under the laws of the State of New York on
April 8, 1966. The Company filed for Chapter 11 protection in September 1990 and
emerged from Chapter 11 in December 1991. See "The Company." In 1994, the
Company restructured its West Coast operations, resulting in a charge of
approximately $12.7 million. In 1995, the new investor group obtained control, a
new executive management team was put in place, a new Board of Directors was
elected and a new business strategy was adopted.
The Company's strategy includes the following key elements: (i) maintain and
enhance its leadership position in current markets; (ii) provide upgrades to
existing equipment; (iii) cross sell products to its existing customers; (iv)
address low-end and emerging markets; (v) expand its global presence; (vi)
pursue strategic acquisitions and alliances; and (vii) utilize open platforms.
The Company intends to continue to serve its worldwide customer base by
introducing products which address the requirement to improve the production and
presentation of video, audio and other data. The Company also intends to
continue to upgrade its current high performance systems, invest in the
development of new options and enhancements for its products and provide
complete system solutions to its customers.
ACQUISITION OF PRO-BEL
On April 12, 1996, the Company acquired Pro-Bel, located in Reading, United
Kingdom. Pro-Bel manufactures and distributes video signal and switching
equipment and systems. The aggregate consideration consisted of $6.9 million in
cash, $5.3 million in two-year promissory notes and 1,048,735 restricted shares
of Common Stock valued at $6.9 million.
The acquisition of Pro-Bel was accounted for as a purchase. Accordingly, the
cost was allocated to the net assets acquired based upon their estimated fair
value. The excess of cost over the estimated fair value of the net assets
acquired amounted to $7.5 million, which is being amortized over 12 years using
the straight-line method.
18
<PAGE>
The consolidated financial statements of the Company at and for the nine
months ended September 30, 1996 include the accounts of the Company and its
wholly owned subsidiaries, Pro-Bel and subsidiaries, since their acquisition on
April 12, 1996, and Digital Services Corporation, which is presently inactive.
INVESTMENT IN RT-SET
On February 29, 1996, the Company purchased a 19% interest in RT-SET, which
develops, markets and sells real time virtual studio set software and
proprietary communications hardware. The Company purchased shares of RT-SET
Convertible Preferred Stock in exchange for 800,000 restricted shares of Common
Stock. In addition, the Company was granted certain call option rights which, if
and when exercised, allows the Company to purchase up to a 51% interest in
RT-SET in exchange for the issuance of additional shares of Common Stock. In
accordance with the purchase agreement, the 800,000 shares of Common Stock were
to be held in escrow and released in two tranches, subject to certain
conditions. One-third of such shares was released from escrow in June 1996 and
the remainder will be released upon a public offering of RT-SET's equity. Prior
to any public offering by RT-SET, the Company has the right to recover the
remaining two-thirds of its shares held in escrow in exchange for its interest
in RT-SET. The transaction has been recorded as the purchase of a right to
acquire a 19% interest in RT-SET. RT-SET shall retain the voting rights with
respect to the escrowed shares while such shares are held by the escrow agent.
The acquisition was recorded at the estimated fair value of the restricted
shares of Common Stock released from escrow. See "Business--RT-SET
Relationship."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
consolidated financial data for the Company as a percentage of net sales:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Net sales.............................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold.................................................. 45.0 44.2 42.1 43.8 47.3
--------- --------- --------- --------- ---------
Gross profit......................................................... 55.0 55.8 57.9 56.2 52.7
--------- --------- --------- --------- ---------
Operating expenses:
Selling, general and administrative.................................. 35.9 33.4 31.7 32.8 28.7
Research and development............................................. 9.6 9.7 7.6 7.9 6.6
Management fee....................................................... 2.1 2.7 5.4 1.8 --
West Coast restructuring charge (recapture).......................... -- 29.7 (2.5) (1.4) --
--------- --------- --------- --------- ---------
Total operating expenses............................................. 47.6 75.5 42.2 41.1 35.3
--------- --------- --------- --------- ---------
Operating income (loss)................................................ 7.4 (19.7) 15.7 15.1 17.4
Interest expense, net.................................................. 2.0 1.2 1.0 1.2 1.5
--------- --------- --------- --------- ---------
Income (loss) before provision for income taxes........................ 5.4 (20.9) 14.7 13.9 15.9
Income tax/equivalent provision........................................ (2.0) -- (0.8) (3.8) (6.0)
--------- --------- --------- --------- ---------
Net income (loss)...................................................... 3.4% (20.9%) 13.9% 10.1% 9.9%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
19
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
The Company's net sales consist of product sales, upgrades and enhancements
and rental income as well as customer service revenue.
NET SALES. Net sales increased 47.3% to $56.9 million for the nine months
ended September 30, 1996 from $38.6 million for the nine months ended September
30, 1995. This increase was primarily attributable to the inclusion of Pro-Bel's
sales, while sales of Chyron's graphic products also showed continued growth.
GROSS PROFIT. Gross profit increased to $30.0 million for the nine months
ended September 30, 1996 from $21.7 million for the nine months ended September
30, 1995. This increase was primarily attributable to the 47.3% increase in net
sales. Gross margin as a percentage of net sales decreased to 52.7% for the nine
months ended September 30, 1996 from 56.2% for the nine months ended September
30, 1995. This decrease was caused primarily by the inclusion since April 1996
of net sales from Pro-Bel products, which historically have lower margins. The
gross margin for the Chyron product lines decreased slightly as a result of the
product mix for the period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 29.3% to $16.4 million for the nine months
ended September 30, 1996 from $12.6 million in the nine months ended September
30, 1995. As a percentage of net sales, selling, general and administrative
expenses decreased to 28.7% for the nine months ended September 30, 1996 from
32.8% for the nine months ended September 30, 1995. The dollar increase was
primarily due to the inclusion of Pro-Bel's operations since April, 1996 and the
accounting for the acquisition under the purchase method resulting in goodwill
amortization and increased depreciation, as well as increased costs as a direct
result of increased sales volume. The decrease as a percentage of net sales was
also affected by the incurrence in 1995 of $443,000 of one-time legal and
investment banking fees and $390,000 of severance costs for former management.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 22.4% to $3.8 million for the nine months ended September 30, 1996
from $3.1 million for the nine months ended September 30, 1995. This increase
was primarily due to the inclusion of Pro-Bel's research and development
expenditures since April 1996. Research and development expenses related to
Chyron's product lines decreased for the period due to an increase of $415,000
in amounts capitalized and due to an increased percentage of research and
development undertaken internally instead of by outside consultants.
INTEREST EXPENSE, NET. Interest expense, net 94.2% to $872,000 for the nine
months ended September 30, 1996 from $449,000 for the nine months ended
September 30, 1995. In conjunction with the Pro-Bel acquisition, the Company
entered into various agreements with a bank, issued promissory notes to the
shareholders of Pro-Bel, and assumed Pro-Bel's existing bank debt, all of which
led to an increase in interest expense for the period.
INCOME BEFORE PROVISION FOR INCOME TAXES. Income before provision for
income taxes improved 68.1% to $9.0 million for the nine months ended September
30, 1996 from $5.4 million for the nine months ended September 30, 1995,
primarily due to the improved operating income of Chyron coupled with the
addition of Pro-Bel.
INCOME TAXES/EQUIVALENT PROVISION. Income taxes/equivalent provision
increased 130.5% to $3.4 million for the nine months ended September 30, 1996
from $1.5 million for the nine months ended September 30, 1995 primarily as a
result of the income tax benefit realized during 1995 as a result of the 1994
West Coast restructuring. This increase was also due to increased income before
income taxes for the 1996 period.
20
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
NET SALES. Net sales increased 26.2% to $54.0 million in 1995 from $42.8
million in 1994. This increase was primarily due to increased sales of the
Company's character generator lines. The iNFiNiT! product line showed the
largest dollar growth at $6.4 million, or 41%, with the MAX!> line showing the
largest percentage growth at 65%, or $4.7 million. Increases in net sales also
reflect growth in the Company's MAXINE! product line, sales of which grew by
$2.4 million, or 39%, over the prior year. The growth in sales was seen both
domestically and abroad. These increases were partially offset by the lack of
sales from products discontinued in connection with the West Coast
restructuring.
GROSS PROFIT. Gross profit increased 30.9% to $31.2 million in 1995 from
$23.9 million in 1994. This increase was primarily due to the 26.2% increase in
net sales. Gross margin as a percentage of net sales increased to 58% in 1995
from 56% in 1994 mainly due to increased manufacturing efficiencies and
management's cost reduction efforts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 19.3% to $17.0 million in 1995 from $14.3
million in 1994. This increase was primarily due to (i) legal and investment
banking fees of $443,000 incurred with respect to the undertakings of the
Special Transaction Committee of the Board of Directors, which had been
appointed in connection with the potential change in control of the Company,
(ii) the accrual of $430,000 of severance payments for former management and
(iii) increases due to increases in costs related to the 26.2% increase in net
sales. These increases were offset by costs cutting measures instituted by the
Company as part of the West Coast restructuring in the prior year resulting in a
decrease in selling, general and administrative expenses as a percentage of net
sales to 31.7% in 1995 from 33.5% in 1994.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased by $58,000 to $4.1 million in 1995. This decrease was primarily due to
benefits recognized as part of the Company's West Coast restructuring in the
third quarter of 1994, which eliminated costs related to the Company's
unprofitable product lines. Exclusive of 1994 costs related to unprofitable
product lines, research and development expenses increased by $359,000 in 1995.
This increase was primarily due to additional expenditures for new product
development to address emerging markets targeted by the Company as well as the
development of new features for the Company's existing products. Research and
development expenses includes the amortization of software development costs,
which increased by $82,000 in 1995 due to the release of new options in 1995 for
the Company's character generator product lines.
MANAGEMENT FEE. In December 1991, the Company entered into a management
agreement (the "Management Agreement") with an affiliate of Sepa to provide
business and technical services to the Company. This agreement was subsequently
transferred to Sepa. In December 1995, the Company (under its new management)
agreed to terminate the Management Agreement upon payment to Sepa of $2 million.
This is anticipated to result in aggregate savings to the Company of $1.0
million for the two year period ending December 31, 1997.
INTEREST EXPENSE, NET. Interest expense, net increased 2.1% to $536,000 in
1995 from $525,000 in 1994. This increase was primarily due to an increase in
the average prime rate of interest in 1995 and additional interest expense
related to the Company's capital lease obligations entered into in December
1994. This increase was offset by earnings on the Company's cash equivalents.
INCOME BEFORE PROVISION FOR INCOME TAXES. Income before provision for
income taxes was $7.9 million for 1995, an increase of $16.9 million over the $9
million loss in the prior year. Net income for the current year included a $2
million charge related to the termination of the Company's Management Agreement
with Sepa, which is further described in Note 17 to the Consolidated Financial
Statements, and a recapture of the prior year's restructuring charge of $1.3
million. For details of changes in the West Coast
21
<PAGE>
restructuring charge in 1995, see Note 18 to Consolidated Financial Statements.
Exclusive of the management fee charge in 1995 and amounts related to the West
Coast restructuring charge in 1994 and 1995, the income before provision for
income taxes increased $5 million due primarily to increases in net sales and
gross margins for 1995 coupled with increased efficiencies and cost savings
measures as well as the benefit of the West Coast restructuring commencing in
the third quarter of 1994.
INCOME TAXES/EQUIVALENT PROVISION. A total income tax/equivalent provision
of $470,000, or 6%, was recorded in 1995 and included a tax benefit of
approximately $1.0 million which was recognized as a result of the reduction in
the valuation allowance provided on deferred tax assets. The valuation allowance
was reduced because management believes that the Company will generate
sufficient future taxable income from ordinary and recurring operations to
realize the deferred tax assets. At December 31, 1995, the Company had recorded
a valuation allowance of approximately $5.4 million.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
NET SALES. Net sales increased 14.4% to $42.8 million in 1994 from $37.4
million in 1993. This increase was attributable to significant increases in
sales across the range of the Company's graphics products. Net sales of the
Company's three flagship high-end products increased 27%, with the iNFiNiT!
workstation showing a 29% volume growth, the entry level MAXINE! a 50% volume
growth and the intermediate MAX!> a 9% unit price improvement due to the
increased sale of featured options. The Codi titling and logo generators had a
28% unit volume growth, with an average system price improvement over the prior
year of 93%. In 1994, net sales also included a software license fee of $610,000
for use of the source code of the Company's Liberty paint and animation
software.
GROSS PROFIT. Gross profit increased 15.9% to $23.9 million in 1994 from
$20.6 million in 1993 primarily as a result of a 14.4% increase in net sales.
Gross margin as a percentage of net sales increased to 55.8% in 1994 from 55.1%
in 1993 as a result of management's efforts to enhance productivity in the
factory and the benefits of the West Coast restructuring.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 6.3% to $14.3 million in 1994 from $13.5
million in 1993, but decreased as a percentage of net sales to 33.4% in 1994
from 35.9% in 1993. This decrease was primarily due to savings from the
consolidation of the Company's two Melville facilities, reduction in staffing
levels and the West Coast restructuring, which in turn were offset by an
increase in costs related to the 14.4% increase in net sales, new marketing and
advertising initiatives, moving expenses and the write-off of the leasehold
improvements related to the consolidation of the Company's two Melville
facilities.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses,
including the amortization of capitalized software development costs, increased
16.5% to $4.2 million in 1994 from $3.6 million in 1993 due to strategic
initiatives in improving the Company's profitable product lines. Amortization of
software development costs (included in research and development expenses)
increased $167,000 as a result of the release of new products and options since
1993.
WEST COAST RESTRUCTURING. As of September 30, 1994, the Company's West
Coast operations, CMX and Aurora, reflected a continuing trend of poor operating
performance. Due to these disappointing results, the lack of certain products in
the high growth sector of the market and the strategic decision by management to
redirect its product lines to a broader base market and to reengineer its
research and development focus, the Company initiated a plan to restructure the
West Coast operations.
Consequently, the Company decided to eliminate unprofitable product lines
such as CMX 6000, Cinema, Gemini, LSI and the 3500 and 3600 series product
lines, reduce the West Coast workforce by 30% (or 12 employees), write-down to
estimated net realizable value certain assets directly attributable to the
unprofitable product lines, write-off software costs that the Company believed
no longer fit its strategic
22
<PAGE>
initiative and focus, dispose of certain assets, accrue losses for the
restructuring period of October 1, 1994 through March 31, 1995 and downsize the
Company's Santa Clara, California facility.
The result of these measures was a restructuring charge of $12.7 million for
the West Coast operations. The specific components of the restructuring charge
broken-out between asset write downs and cash outlays were as follows (in
thousands):
<TABLE>
<S> <C>
Asset write downs:
Write down of assets to estimated net realizable value........... $ 6,952
Write-off of software development costs.......................... 1,991
---------
Total non cash charges........................................... 8,943
Cash outlays:
Accrued operating losses through date of disposition............. 2,500
Loss on lease commitment......................................... 700
Accrued severance for reduction in workforce..................... 300
Other............................................................ 273
---------
Total........................................................ $ 12,716
---------
---------
</TABLE>
The cash outlays required by the restructuring have been funded by the
Company's profitable product lines. Cash outlays estimated for the six month
restructuring period were $3.8 million, of which $1 million was made by December
31, 1994. The loss on the lease was to be funded over the remaining lease term
of 31 months subsequent to the restructuring period. In 1995, a sublease was
obtained. The Company's graphics division had been funding the operating losses
of CMX and Aurora out of its working capital since CMX and Aurora began their
trend of unprofitability.
Operating results as a result of the West Coast restructuring were projected
to benefit by a savings of over $2 million for 1995, principally due to a
reduction in annual salaries and employee benefits of $750,000, a decrease in
depreciation and amortization expense of $200,000 per year, a reduction of
overhead costs of approximately $200,000 per year and a reduction in losses on
unprofitable product lines of approximately $850,000 per year. The Company
believes such savings have been substantially realized.
INTEREST EXPENSE, NET. Interest expense, net decreased 26.4 % to $525,000
in 1994 from $714,000 in 1993. This decrease was primarily due to the reduction
in the Company's secured credit facility from $6.5 million to $4.5 million at
December 31, 1994, offset in part by the increase in the average prime rate over
the prior period.
INCOME TAXES/EQUIVALENT PROVISION. Due to the West Coast restructuring
charge of $12.7 million, which included the disposition of inventory related to
unprofitable product lines, the Company had a book and tax loss for 1994 and,
accordingly, there was no provision or benefit for income taxes.
The operating loss of $8.5 million would have been an operating profit of
$4.2 million exclusive of the West Coast restructuring charge of $12.7 million
compared to $2.7 million for 1993. This increase was mainly attributable to the
fact that the fourth quarter losses of the West Coast operations of
approximately $1.0 million were provided for in the $12.7 million West Coast
restructuring charge taken in the quarter ended September 30, 1994 and also due
to the increase in sales and gross margins in 1994.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited quarterly statement of
operations data for each of the Company's last seven quarters, and such data
expressed as a percentage of net sales for each quarter. This data has been
prepared on a basis consistent with the Company's audited consolidated financial
statements included elsewhere in this Prospectus and includes all necessary
adjustments, consisting only of normal recurring accruals, that the Company
considers necessary for a fair presentation. The operating results for
23
<PAGE>
any quarter are not necessarily indicative of results for any future period. In
view of recent developments, including the acquisition of Pro-Bel and the
Company's recent growth, the Company believes that quarter-to-quarter
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................................... $ 11,437 $ 13,061 $ 14,099 $ 15,374 $ 13,725 $ 22,532 $ 20,632
Cost of products sold.............................. 5,075 5,755 6,091 5,825 5,939 11,131 9,817
--------- --------- --------- --------- --------- --------- ---------
Gross profit..................................... 6,362 7,306 8,008 9,549 7,786 11,401 10,815
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Selling, general and administrative.............. 3,589 4,423 4,637 4,417 3,705 6,755 5,890
Research and development......................... 980 1,057 1,027 1,041 1,108 1,191 1,452
Management fee................................... 232 232 232 2,215 -- -- --
West Coast recapture............................. -- -- (552) (787) -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses....................... 4,801 5,712 5,344 6,886 4,813 7,946 7,342
--------- --------- --------- --------- --------- --------- ---------
Operating income................................... 1,561 1,594 2,664 2,663 2,973 3,455 3,473
Interest expense, net.............................. 153 124 171 88 124 298 450
--------- --------- --------- --------- --------- --------- ---------
Income before provision for income taxes........... 1,408 1,470 2,493 2,575 2,849 3,157 3,023
Income tax/equivalent provision.................... (528) (263) (686) 1,007 (969) (1,248) (1,189)
--------- --------- --------- --------- --------- --------- ---------
Net income......................................... $ 880 $ 1,207 $ 1,807 $ 3,582 $ 1,880 $ 1,909 $ 1,834
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per share (1)........................... $ 0.03 $ 0.04 $ 0.06 $ 0.12 $ 0.06 $ 0.06 $ 0.06
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Number of shares used in computing net income
(loss) per share (1)............................. 29,948 30,083 30,469 30,642 30,815 32,746 32,917
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Adjusted to reflect the Reverse Stock Split which has been approved by the
Board of Directors and is subject to the majority vote of the shareholders.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
QUARTER ENDED
---------------------------------------------------------------
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold................................... 44.4 44.1 43.2 37.9 43.2
----- ----- ----- ----- -----
Gross profit.......................................... 55.6 55.9 56.8 62.1 56.8
----- ----- ----- ----- -----
Operating expenses:
Selling, general and administrative................... 31.4 33.9 32.9 28.7 27.0
Research and development.............................. 8.6 8.1 7.3 6.8 8.1
Management fee........................................ 2.0 1.7 1.6 14.4 --
West Coast recapture.................................. -- -- (3.9) (5.1) --
----- ----- ----- ----- -----
Total operating expenses............................ 42.0 43.7 37.9 44.8 35.1
----- ----- ----- ----- -----
Operating income........................................ 13.6 12.2 18.9 17.3 21.7
Interest expense, net................................... 1.3 1.0 1.2 0.6 0.9
----- ----- ----- ----- -----
Income before provision for income taxes................ 12.3 11.2 17.7 16.7 20.8
Income tax/equivalent provision......................... (4.6) (2.0) (4.9) 6.6 (7.1)
----- ----- ----- ----- -----
Net income.............................................. 7.7% 9.2% 12.8% 23.3% 13.7%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
<CAPTION>
<S> <C> <C>
JUNE 30, SEPT. 30,
1996 1996
----------- -----------
<S> <C> <C>
Net sales............................................... 100.6% 100.0%
Cost of products sold................................... 49.4 47.6
----- -----
Gross profit.......................................... 50.6 52.4
----- -----
Operating expenses:
Selling, general and administrative................... 30.0 28.5
Research and development.............................. 5.3 7.0
Management fee........................................ -- --
West Coast recapture.................................. -- --
----- -----
Total operating expenses............................ 35.3 35.5
----- -----
Operating income........................................ 15.3 16.9
Interest expense, net................................... 1.3 2.2
----- -----
Income before provision for income taxes................ 14.0 14.7
Income tax/equivalent provision......................... (5.5) (5.8)
----- -----
Net income.............................................. 8.5% 8.9%
----- -----
----- -----
</TABLE>
24
<PAGE>
The Company's quarterly operating results depend, among other things, on the
volume and timing of product orders received and delivered during the quarter
and the timing of new product introductions by the Company.
The quarter ended March 31, 1996 showed lower net sales compared to the
quarter ended December 31, 1995. The fourth quarter historically has been
Chyron's strongest quarter. The quarter ended June 30, 1996 increased 64% over
the quarter ended March 31, 1996 primarily as a result of the acquisition of
Pro-Bel during the quarter as well as seasonal purchases of equipment made in
anticipation of media coverage of the Olympics and the political primaries,
conventions and elections in the summer and fall of 1996. The quarter ended June
30, 1996 was the first quarter in which the Company reported consolidated
results with Pro-Bel. The quarter ended September 30, 1996 decreased from the
quarter ended June 30, 1996 but increased over the comparable 1995 quarter by
46%, primarily as a result of the acquisition of Pro-Bel.
LIQUIDITY AND CAPITAL RESOURCES
On February 1, 1996, Pro-Bel, entered into several agreements with a bank to
obtain borrowing facilities totaling 1.5 million pounds sterling (approximately
$2.4 million at the September 30, 1996 exchange rate). One of the facilities is
secured by Pro-Bel's outstanding accounts receivable. These facilities replaced
former bank facilities which had expired, and are used for working capital.
On March 28, 1996 and April 16, 1996, the Company entered into agreements
with a bank to obtain a revolving credit facility of $10 million and a term loan
of $8 million, respectively. The revolving portion of the facility matures 3
years from closing, while the term portion matures 4 years from closing. The
entire facility is secured by the Company's properties and assets. This facility
replaced the $10 million secured credit facility which was due to expire on
April 27, 1997. In April 1996, a portion of this new credit facility was used to
fund the acquisition of Pro-Bel.
On April 12, 1996, the Company issued, as part of the purchase price,
promissory notes to the shareholders of Pro-Bel for 3.5 million pounds sterling
($5.3 million). The promissory notes are secured by an irrevocable letter of
credit from a bank and limit amounts available under the revolving credit
facility described above. The notes are due on or before April 15, 1998.
At September 30, 1996, the Company had operating lease commitments for
equipment and factory and office space totaling $12.4 million, of which $1.3
million is payable within one year.
To finance the acquisition of Pro-Bel, the Company incurred additional debt
of $7.2 million and used cash on hand of $6.9 million. Since the acquisition of
Pro-Bel, the Company's consolidated financial statements include the Pro-Bel
accounts, as adjusted for purchase accounting. At the date of acquisition,
inventory increased by $7.8 million, accounts receivable increased by $5.9
million and accounts payable increased by $9.2 million which, in sum with other
current assets acquired and current liabilities assumed, increased working
capital by $3.5 million. Additionally, at the date of acquisition, property and
equipment increased by $8.8 million, excess of cost over net assets acquired of
$7.5 million was recorded and $3.6 million of Pro-Bel debt was assumed.
25
<PAGE>
BUSINESS
THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
The Company develops, manufactures, markets and supports a broad range of
equipment, software and systems that facilitate the production and enhance the
presentation of live and pre-recorded video, audio and other data. The Company's
products enable users to (i) create and manipulate text, logos and other graphic
images using special effects such as 3D transforming, compositing and painting;
(ii) manage, monitor and distribute video, audio and other data signals; and
(iii) control edit processes and automate broadcast equipment. The worldwide
market for equipment, software and systems used in the production and
presentation of video and audio content encompasses major television networks,
cable television broadcasters, direct to home satellite program distributors,
production companies and post-production houses, as well as organizations and
individuals creating materials such as corporate and specialized video and audio
presentations. The Company believes that the proliferation of users of high
quality video and audio content is increasing the demand for products used in
the production and presentation of such content. The Company's high performance
graphics systems are used daily by many of the world's leading broadcast
stations to display news flashes, election results, sports scores, stock market
quotations, programming notes and weather information. The Company's signal
management systems interconnect video, audio and data signals to and from
equipment within a studio's control room or edit suite, as well as to and from
signal transmission sites. The Company's control and automation systems are used
to automate the steps used in the management, editing and distribution of video
and audio content.
INDUSTRY BACKGROUND
OVERVIEW. The creation and delivery of video and audio content has three
distinct stages: production, post-production and distribution. Production
involves shooting video or film, recording sound and creating computer-generated
graphics and other elements for special visual effects. Both still and animated
images are created and stored at this point. During post-production, video and
audio signals are processed and edited using sophisticated equipment to combine
disparate elements, such as titles, graphics, still and moving images, and
computer-generated special effects through techniques such as scene sequencing,
compositing, layering and touch-up. Important attributes of the equipment used
in these processes include real time performance, high signal quality, high
reliability and feature and function upgradeability. The post-production process
may be eliminated when content is broadcast live or live to tape. Distribution
is the delivery of the finished content. The outlets available for distribution
of video and audio content are proliferating as new cable, satellite and direct
view alternatives supplement traditional broadcast delivery systems. Additional
outlets include video tapes, video discs, CD-ROMs and film.
Recently, a fundamental technological change has been occurring as
production, post-production and distribution facilities, which have historically
used an analog signal format, have been gradually converting, when appropriate,
to a digital signal format. Digital technology allows the reduction of internal
signal wiring, amplifier and other ancillary devices, increased signal quality
and superior reproduction capabilities. Prior to installing digital production
and post-production devices, all or part of the routing switcher, the device
which interconnects the signals of the various devices, must be converted to
digital. Converting to digital also partially prepares a facility for the
introduction of new digital standards, including ATV and HDTV which require a
digital signal.
In addition, as "open system" hardware and software become more powerful and
reliable, they are being adapted for use in the real time creation,
manipulation, storage and delivery of video and audio content. The use of
hardware, including computers, solid state memory devices, disk drives and
electronic writing tablets, may speed product development, defer price increases
and reduce repair costs and repair time. The use of software developed for mass
markets may permit greater interoperability between
26
<PAGE>
devices, easier modification and allow the customer or other third-party
software developers to add or enhance the devices' internal software for
additional functionality.
An important consideration for customers evaluating the incorporation of new
technologies, such as digital signal formats and open systems, into new or
existing facilities is the ability to preserve their investments in equipment
and systems. These investments, which include significant capital expenditures
and design, installation and training costs, result in a customer requirement
for modular, upgradeable products with a long anticipated useful life.
PRODUCTION AND POST-PRODUCTION. In the production and post-production
processes, video and audio content elements are created, manipulated, enhanced
and edited in the studio's control room or edit suite. An edit control system
manages the equipment in the studio's control room or edit suite, accessing
video and audio elements as required and sequencing them to editorial tastes.
The equipment used in these processes, which may be digital or analog, includes
video production switchers, video special effects devices, audio processing
units, paint and animation systems, still storage devices, character generators
and graphic systems. The sources of the numerous content elements as well as the
storage devices for finished edited content, such as video tape machines or disk
based storage systems, can each be analog or digital. These various devices are
typically interconnected through routing switchers which provide quick and easy
access to video, audio and other data from various devices. Routing switchers
are available to handle analog and digital signal formats and peripheral
products are available to convert signals between the two.
The following is a diagram of various steps in the broadcast process with the
equipment of the Company noted.
[INSERT DIAGRAM]
Post-production facilities may be categorized as high-end, mid-range and
low-end. High-end facilities typically create programming for national
television and cable networks and advertising agencies that create national
commercials. Mid-range facilities typically create programming for local
broadcasters, regional advertising agencies and producers of corporate
presentations. Low-end facilities typically create local cable commercials, low
budget programs and specialized videos. Finished or edited content, whether
created at independent post-production facilities or in-house facilities that
are located within a broadcast, movie or television studio, cable network,
corporation or other organization, reaches its audience through various
distribution methods.
DISTRIBUTION. Distribution is the final step by which content is delivered
to the consumer. Over the air terrestrial broadcasting has been and continues to
be the most common form of content mass distribution in the United States and
most other parts of the world. In the United States, the broadcast structure
initially included the ABC, CBS, NBC and PBS networks and their approximately
two hundred local broadcast station affiliates per network. In the last few
years, however, new networks have been established, including FOX, UPN and WB.
Outside the United States, many traditional broadcasters have historically been
government owned and often non-commercial. In recent years, many governments
have
27
<PAGE>
privatized their broadcast operations. Privatization has typically created the
need for commercial production, promotional spots and attractive program content
with sophisticated production values. Such content can be produced at the
broadcast station or newly established independent post-production facilities.
In many cases, the privatization of state broadcast operations has also made
television channels available to new private broadcasters. These broadcasters
have often commissioned and built complete new production, post-production and
distribution facilities to meet their own requirements.
For many years, cable penetration into United States households was limited
and cable systems offered only 20 to 30 channels. According to industry sources,
however, today's cable penetration exceeds 60% of all households in the United
States and cable delivery technology is capable of delivering over 100 channels.
As a result, cable networks, including Time Warner (CNN, CNN Headline News, HBO,
Showtime), Disney/ABC (ESPN, Disney Channel), General Electric/NBC (CNBC,
MSNBC), Viacom (MTV, Nickelodeon), News Corporation/Fox (FX, Fox News Channel,
Sky Channel) and others, are expanding by establishing new program channels.
This proliferation of cable program channels requires additional production,
post-production and distribution resources. The potential adoption of digital
transmission to a home set-top box may further increase the demand for such
resources. Outside the United States, in areas where low channel capacity cable
systems have been operating, cable expansion has generally been similar to that
in the United States. In many areas with limited cable systems infrastructure,
however, direct to home satellite program distribution ("DTH") is being
established instead of cable systems. DTH is now operating in the United States
and internationally. In the United States, many of the program services
available on conventional cable TV systems are also available on DTH. DTH
operators in the United States include Direct TV, USSB, Primestar, Echostar and
Alphastar. Internationally, they include Direct TV Latin America, BSkyB and
OPTUS.
Both in the United States and internationally, the proliferation of new
distribution channels require additional production, post-production and
distribution facility resources. In addition, international program networks
such as CNN, NBC, MTV, ESPN and others provide specialized programming for
services such as CNN International, NBC Super Channel, MTV Latin America and
ESPN Asia. As a result, these networks may seek equipment suppliers that can
sell and provide service, support and train in locations throughout the world
where they are establishing infrastructure.
Video and audio content is also produced for and distributed through a
variety of other formats, such as video tapes, CD-ROMs and film. Advances in
technology have begun to allow Local Area Networks and the Internet to be used
as distribution channels for video and audio content. Accordingly, demand for
content for these formats may also require additional production,
post-production and distribution resources.
THE CHYRON SOLUTION
The Company provides solutions for the production, post-production and
distribution of video, audio and other data. The Company leverages its core
technologies and proprietary and open system hardware and software to design and
develop product and system solutions. The Company believes it is a leading
supplier worldwide of character generators and graphics systems for the high-end
graphics market as well as a leading supplier in the United Kingdom of signal
management systems.
The Chyron solution offers the following benefits:
- HIGH PERFORMANCE. The Company's products create, manipulate and process
video, audio and other data in real time to the highest current industry
signal specifications.
- COMPLETE SOLUTION. The Company is able to combine certain of its products
into an integrated system solution, offering customers initial price
advantages and reduced long-term operating costs, thereby eliminating the
need to assemble a system of separate products from various suppliers.
28
<PAGE>
- UPGRADEABILITY. The Company's products are designed to be modular,
offering additional optional features and functions with expansion
capabilities to the base packages. As the Company offers new hardware
and/or software functionality, whether developed by the Company or its
suppliers, the Company believes customers will be able to take advantage
of these additional features that are usually easy to install and
integrate into the customer's existing system.
- ANALOG AND DIGITAL COMPATIBILITY. The Company's products support both
digital and analog signal formats allowing customers to operate in a
digital, analog or hybrid environment.
- OPEN SYSTEMS. The Company's products are generally compatible with
equipment offered by other manufacturers and enable control and overall
integration with other products. As a result, customers are able to use
the Company's products together with their existing equipment, systems and
software.
- GLOBAL SERVICE, SUPPORT AND TRAINING. The Company offers comprehensive
customer support services 24 hours per day, 7 days a week. Trained service
and support personnel are located throughout the United States and in the
United Kingdom and Hong Kong. In addition, many of the Company's
international dealers are capable of installing, servicing and supporting
the Company's products as well as training customers.
STRATEGY
The Company's objective is to be the leading provider worldwide of
production, post-production and distribution solutions for video, audio and
other data. The Company's strategy includes the following key elements:
- MAINTAIN AND ENHANCE LEADERSHIP POSITION IN CURRENT MARKETS. The Company
plans to continue to develop and introduce innovative tools for the
creation, manipulation and distribution of content in its current markets.
With many of its products enjoying significant market share, the Company
is positioned to add options and enhancements to its installed base of
products and to offer new complementary products to more than 7,000
existing customer sites.
- PROVIDE UPGRADES TO EXISTING EQUIPMENT. The Company plans to continue to
develop and sell hardware and software upgrades for its equipment that is
currently installed at customer sites, such as upgrades that convert
customer equipment from analog to digital signal formats. In addition, the
anticipated conversion of conventional television to ATV and HDTV could
require the Company's customers to upgrade their current equipment or to
purchase additional equipment.
- CROSS SELL PRODUCTS TO EXISTING CUSTOMERS. The Company intends to leverage
its established reputation to sell additional products to existing
customers in its current markets. For example, the Company plans to
increasingly market its Pro-Bel signal management systems to its Chyron
graphics systems customers.
- ADDRESS LOW-END AND EMERGING MARKETS. The Company plans to leverage its
established reputation and core technologies as it addresses low-end
production, post-production and distribution markets with current and
future product offerings. In addition, the Company plans to address new
digital video applications as they emerge.
- EXPAND GLOBAL PRESENCE. The Company plans to expand its international
operations to support the needs of both new customers as well as the
Company's existing customers as they expand into markets outside their
traditional geographical operating areas. The Company plans to expand its
international marketing and sales staff as well as appoint additional
distributors. For example, the Company recently opened a sales and support
office in Hong Kong. Currently, approximately 70% of the Company's annual
sales are made to customers in the United States and the United
29
<PAGE>
Kingdom. The Company believes there exists a significant opportunity to
increase its sales in other geographic areas.
- PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. The Company plans to continue
to pursue strategic acquisitions and alliances to increase its product
offerings and expand its global reach. In April 1996, the Company acquired
Pro-Bel, a United Kingdom based developer, manufacturer and marketer of
routing switchers and other signal management products, and purchased a
minority interest in RT-SET, an Israeli developer of virtual reality
television studio systems. See "Risk Factors--Risks Associated with the
Company's Acquisition and Alliance Strategy," "The Company" and
"Business--RT-SET Relationship."
- UTILIZE OPEN PLATFORMS. The Company intends to continue to utilize, where
appropriate, general purpose devices and software written to industry
standard operating systems. Where the use of general purpose hardware is
not appropriate, the Company plans to continue to develop proprietary
hardware for products to deliver real time performance at the highest
signal quality industry standard.
PRODUCTS
The Company offers a broad range of products that address the needs of the
video and audio production, post-production and distribution markets. The
Company's line of high performance graphics systems are used daily by many of
the world's leading broadcast stations to display news flashes, election
results, sports scores, stock market quotations, programming notes and weather
information. The Company's signal management systems interconnect video, audio
and data signals to and from equipment within a studio's control room or edit
suite, as well as to and from signal transmission sites. The Company's line of
control and automation systems are used to automate the steps used in the
management, editing and distribution of video and audio content.
The following table summarizes the Company's principal products and their
primary applications:
<TABLE>
<CAPTION>
PRODUCT PRIMARY APPLICATION
<S> <C>
GRAPHICS SYSTEMS
- -------------------------------------------------------------------------------------------
Chyron Graphics and Character Generators
iNFiNiT! Real-time generation of titles, text, logos
MAX!> and animations for broadcasting time, weather
MAXINE! information and sports statistics.
WiNFiNiT! Optional PC based graphical user interface.
- -------------------------------------------------------------------------------------------
Chyron Still Store Management Systems
IMAGESTOR! On-line storage of thousands of still images
used during live broadcasts and in edit
suites.
- -------------------------------------------------------------------------------------------
Chyron Compact Graphics and Character Generators
CODI Compact systems that can operate either
PC-CODI remotely through a computer or through
electronic sketchpads for real-time on-screen
drawing.
- -------------------------------------------------------------------------------------------
Chyron Electronic Paint and Animation Systems and Software
Liberty 32 Digital image processing systems used to
Liberty 64 create electronic free-hand images.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
PRODUCT PRIMARY APPLICATION
<S> <C>
SIGNAL MANAGEMENT SYSTEMS
- -------------------------------------------------------------------------------------------
Pro-Bel Switching and Routing Systems
XD Routers Processing and distribution of analog and/or
TM Routers digital, video, audio and data signals during
HD Routers production, post-production and distribution.
System3 Control systems for routing matrices.
PROCION Control and signal monitoring system.
- -------------------------------------------------------------------------------------------
Trilogy Intercom/Talkback
Commander 400 series Audio signal distribution and intercom
systems.
- -------------------------------------------------------------------------------------------
Pro-Bel/Trilogy Monitoring, Distribution and Conversion
Mentor Broadcast standard test signal generators.
Peripheral products A comprehensive suite of modular
products--for signal translation,
distribution and transformation.
CONTROL AND AUTOMATION SYSTEMS
- -------------------------------------------------------------------------------------------
CMX Electronic Editing Control Systems
OMNI AEGIS On-line editing systems that control editing
OMNI 1000E suite equipment.
OMNI 850
OMNI 500
- -------------------------------------------------------------------------------------------
Pro-Bel Master Control, Storage and Station Automation
MAPP Media management and playout automation.
COMPASS Station automation systems.
TX 220 Digital master control switcher.
</TABLE>
GRAPHICS SYSTEMS
GRAPHICS AND CHARACTER GENERATORS. Chyron's family of iNFiNiT! products use
a digital computer and electronic storage to permit operators to create images
capable of being broadcast either independently or superimposed on other images.
Images broadcast directly from the system have included election results, stock
market quotations, sports scores, commercial advertising and promotional
material. Superimposed images are similarly used for a variety of purposes such
as identifying speakers during interviews or displaying statistics during sports
telecasts. At the 1996 Summer Olympic Games more than 50 iNFiNiT! systems were
used. The Company was awarded the 1991/1992 Emmy Award for outstanding
achievement in engineering development for creation and development of an
electric character generator for television.
The flagship iNFiNiT! is a dual-user graphics workstation with up to three
output channels, each with a dedicated key signal. MAX!> is a single-user
graphics system with one or two separate video and key channels. MAXINE! is a
single channel/single-user character generator. MAX!> and MAXINE! have similar
feature sets and effective resolution to the iNFiNiT!. In September 1996, the
Company introduced WiNFiNiT!, an optional PC-based graphical user interface
which utilizes the Microsoft Windows NT operating system.
31
<PAGE>
STILL STORE MANAGEMENT SYSTEMS. IMAGESTOR! offers real-time playback of
uncompressed video frames and instant access to thousands of on-line or archived
images. Live newscasters and broadcast trucks use IMAGESTOR! for live video
capture as well as for image storage retrieval for on-air display. The
IMAGESTOR! system allows on-line storage of 2,000 still images with optional
additional storage available. The library of stills can be searched and sorted
by criteria, keywords, and other attributes. Users can create a playlist of
still images for automatic playback during live on-air operations and embed the
selected still images with effects such as cut, dissolve, wipe, push, reveal and
hide. IMAGESTOR! is available as a stand-alone workstation or a database file
management software program for use with Chyron's iNFiNiT! family of graphics
systems.
COMPACT GRAPHICS AND CHARACTER GENERATORS. The Company's compact character
generators, sold under the CODI and PC-CODI names, provide real-time text,
titling and logo generation which are used for broadcasting time, temperature,
weather warnings, sports statistics, scoreboards, news updates and financial
information. CODI products may operate through touch screens for real-time
on-screen drawing. They can work with standard computer platforms regardless of
operating system or system performance. The CODI products are low-cost,
high-quality devices whose effective resolution permits broadcast quality text
display.
ELECTRONIC PAINT AND ANIMATION SYSTEMS AND SOFTWARE. Chyron's Liberty
family of paint and animation tools are resolution-independent, non-linear,
digital image processing systems and software. Liberty products are used to
create, edit and composite special visual effects in an on-line, real-time
environment. Liberty products have been used for high-end film applications and
have created special effects for major feature films, including CASINO and
BROKEN ARROW. Liberty products operate on various Silicon Graphics workstations
and support all popular file formats. Liberty offers a menu of video graphic
creation tools, such as painting, compositing, morphing, titling, 3D
transforming, layering, coloring cycle animation, rotoscoping and cell
animation. Liberty 64, a 64-bit digital film studio, offers a complete set of
high-end tools for demanding film effects creators and Liberty 32, a 32-bit
digital video design system, offers outstanding value for paint, animation and
compositing applications for television quality output.
SIGNAL MANAGEMENT SYSTEMS
SWITCHING AND ROUTING SYSTEMS. Under the Pro-Bel name, the Company provides
a complete range of control solutions for matrix systems which process and
distribute multimedia signals. The PROCION product offers a range of IBM
PC/Windows touch screen control systems which are easy to use and configure.
System3 provides a push button control panel which can utilize simple signal
matrix solutions and multi-matrix installations with integrated tie-line
management. System3 and PROCION can co-exist for maximum flexibility.
The new XD series of digital router switchers are large-scale routing
systems that can produce high-performance signal distribution across a wide
spectrum of applications. The TM Series are compact digital routing switchers
that provides a cost-effective solution for users moving from analog to digital
distributions, and for smaller scale routing solutions such as remote broadcast
vehicles. The HD series of routing switchers includes matrix products for
digital and analog video, digital and analog audio and RS422 machine control.
DISTRIBUTION AND CONVERSION. Mentor is a market-leading signal pulse
generator/test signal generator capable of providing timing references for
digital and mixed analog/digital environments. Such reference generators are
essential for the effective operation of a broadcast facility. Peripheral
products include equipment to perform line monitoring, testing and measurement
functions. Typical products include video and audio ADC/DACs, linear keyers,
video and audio distribution amplifiers, equalizers, serializers/ deserializers,
testers and analyzers. Peripheral products are sold in conjunction with routers
as well as on a stand-alone basis.
32
<PAGE>
INTERCOM/TALKBACK. The Trilogy Commander 400 Series combines DSP audio
techniques with control technology to produce a digital intercom/talkback
system. The system is supplied with IBM compatible PC-based editing and control
panels to manage audio crosspoints. Intercom systems are implemented in a wide
range of applications including TV and radio broadcast facilities, airports,
hospitals, outside and remote broadcast trucks, post-production suites and
leisure complexes.
CONTROL AND AUTOMATION SYSTEMS
ELECTRONIC EDITING CONTROL SYSTEMS. The CMX OMNI family of edit controllers
are designed to control and operate edit suite equipment. CMX OMNI systems are
flexible, configurable and easy to operate. They are capable of controlling over
200 types of edit suite devices developed by other manufacturers, including
video tape recorders, video disks, production control switchers, digital video
effects equipment, time base correctors and audio equipment.
MASTER CONTROL, STORAGE AND STATION AUTOMATION. Pro-Bel has developed a
suite of products which are designed to process video, audio and related data
signals, automate playout of the signals and manage media signal storage devices
in the master control and transmission suites.
MAPP is a Windows-based, video server management and control system. MAPP
provides facilities to record, track, cache and replay broadcast material
according to a user defined schedule. MAPP easily interfaces with disk based
video servers manufactured by many different vendors.
The COMPASS station automation system provides comprehensive station
automation capability to major broadcasters that have complex playlists. Video
tape cartridge machines, video servers and other devices are typically
interfaced by high speed data links which allow the system to control the
devices according to a playlist schedule. The automation system monitors all
functions to check for discrepancies such as time errors, machines not available
for control or manual intervention.
The Company's digital master control switcher TX-220 employs component
digital and AES/EBU digital audio signal processing. Features include 10 bit
component digital video/audio processing with an analog option, up to 4 AES/EBU
levels, stand-alone operation with an upstream keyer, multifunction plasma
display, simple user friendly manual control and full integration with the
Compass Automation System. The master control switcher switches and combines
video and audio content signals from various devices such as video tape
machines, disk based video servers, character generators and still storage
systems to produce seamless program flow for distribution to the final program
delivery channel.
CUSTOMERS
The Company has shipped its graphics segment products to over 7,000
customers in over 50 countries. In the United States and the United Kingdom,
broadcast customers for the Company's products include CBS, ABC, NBC, Fox, Time
Warner, TCI, BBC, ITN and Thames. Foreign broadcast customers include major
networks in Germany, France, Spain, Italy, Australia, South Africa, China,
Sweden, Brazil and Denmark. The Company's products are also purchased by video
production and post-production companies, industrial users and governmental
agencies. The Company also sells products to domestic and international dealers
serving the broadcast and video production industries. No single customer,
either domestic or foreign, accounted for more than 10% of the Company's
revenues in 1995.
33
<PAGE>
Customers of the Company include:
<TABLE>
<CAPTION>
UNITED STATES TELEVISION BROADCASTERS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NATIONAL NETWORKS LOCAL STATIONS
- --------------------------- -------------------------------------------------------------------------------------
ABC KABC WABC WMAQ
CBS KCAL WBBM WPWR
FOX KCBS WCBS WTTW
NBC KNBC WFLD WWOR
KTLA WLIW WXYZ
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL TELEVISION BROADCASTERS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Anglia Television, NBC SuperChannel, SDR, Germany TV3, Ljubliana
United Kingdom United Kingdom Shanghai Television, TV4, Malaysia
BBC-TV, United NOB, Holland China TVNZ, New Zealand
Kingdom Oman Television, Swedish Television, TVRI, Indonesia
Channel 4, United Oman Sweden UAE TV, United
Kingdom Pro 7, Germany Thames Television, Arab Emirates
Channel 5, Italy RAI, Italy United Kingdom Ulster Television,
HTV, United Kingdom RTL, Luxembourg TV GLOBO, Brazil United Kingdom
ITN, United Kingdom SABC, South Africa TVE, Spain Yorkshire Television,
KAO TV, Japan Scottish Television, TVT, Spain United Kingdom
La Cinquieme, France United Kingdom TV2, Morocco ZDF, Germany
</TABLE>
<TABLE>
<CAPTION>
CABLE TELEVISION NETWORKS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED STATES INTERNATIONAL
- -------------------------------------------------------- --------------------------------------------------------
Bloomberg HBO Abril Video, Brazil London News Network,
CNBC MTV ATC, Argentina United Kingdom
CNN TBS Canal Plus, France RTL, Germany,
Disney Time Warner CCTV, China Luxembourg and
ESPN Channel One, Netherlands
United Kingdom Shanghai Cable, China
VOX-TV, Germany
</TABLE>
<TABLE>
<CAPTION>
DIRECT-TO-HOME TELEVISION BROADCASTERS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES INTERNATIONAL
- -------------------------------------------------------- ------------------------------------------------------
Alphastar Primestar BSkyB, United Kingdom
Direct TV USSB OPTUS, Australia
Echostar Orbit, Italy
Starvision, Hong Kong
</TABLE>
<TABLE>
<CAPTION>
POST-PRODUCTION FACILITIES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED STATES INTERNATIONAL
- -------------------------------------------------------- --------------------------------------------------------
Editel The Post Group Access, New Zealand Studio Hamburg,
Iterface Video Post Perfect Carlton Television, Germany
Manhattan Transfer & Unitel United Kingdom TVI, United Kingdom
Edit Video Park Nordic Films, Denmark Ultimate Video,
Multi-Video Netherlands
VCF, France
</TABLE>
34
<PAGE>
MARKETING AND SALES
The Company markets its products and systems to traditional broadcast and
post-production facilities, government agencies, educational institutions and
telecommunications and corporate customers.
In order to maintain and increase awareness of its products, the Company
displays at the major domestic and international trade shows of the broadcast
and computer graphics industries. In the United States, the Company exhibits at
the National Association of Broadcasters (NAB) and ACM SIGGRAPH conventions. It
also exhibits at the International Broadcasters Conventions (IBC) in Europe,
INTERBEE in Japan and Broadcast-Asia in China. The Company uses direct-mail
campaigns and places advertisements in broadcast, post-production and computer
industry publications.
Sales of the Company's products in the United States and the United Kingdom
are made through Company direct sales personnel, dealers, independent
representatives, systems integrators and OEMs. Direct sales, marketing and
product specialists serving the domestic markets act as a link between the
customer and the Company's development teams. An early understanding of the
requirements of end users allows the Company to quickly respond to its
customers' changing needs.
Export sales of the Company's products are made through dealers and several
representatives covering specific territories. Some of the dealers have been
granted exclusive rights to sell certain products in specified territories. The
Company recently opened a sales and support office in Hong Kong in order to
better service the growing markets of Asia. In some territories, dealers sell
products from all of Company's product categories; in other territories, dealers
handle only a subset of products.
SERVICE, SUPPORT AND TRAINING
The Company offers comprehensive technical service, support and training to
its customers through 24 hour per day, 7 day a week access to trained service
and support professionals.
Training courses are available through the Company which range in length
from a few days to a few weeks and consist of a mix of classroom discussions and
hands-on training. The Company offers training courses for many of its products
at its Melville (New York) headquarters and its Reading (United Kingdom),
Atlanta (Georgia) and Burbank (California) centers. The Company also conducts
on-site training. Installation assistance, hardware and software, maintenance
contracts and spare parts are made available to the Company's customers. Support
contracts and a responsive spare parts supply service facilitate customer
satisfaction. Service is provided both domestically and internationally by the
Company or its appointed dealers and representatives. The Company also provides
sales and service support to its dealers from time to time. The Company provides
warranties on all of its products ranging from 90 days to five years.
COMPETITION
The market for graphics imaging, editing and animation systems, signal
routing systems and media storage systems is highly competitive and is
characterized by rapid technological change and evolving industry standards.
Rapid obsolescence of products, frequent development of new products and
significant price erosion are all features of the industry in which the Company
operates. The Company anticipates increased competition from both existing
companies and new market entrants. The Company is currently aware of several
major and a number of smaller competitors. In the graphics area, the Company
believes its primary competitors are Aston Electronic Designs Limited, Digital
Graphix Inc., Dynatech Corporation, Quantel Inc. and Scitex Corporation Ltd. In
the signal management area, the Company believes its primary competitors are
Dynatech Corporation, Leitch Incorporated, Philips Electronics N.V., Sony
Corporation and Tektronix Inc. In the control and automation area, the Company
believes its primary competitors are Accom, Inc., Louth Automation, Philips
Electronics N.V., Sony Corporation and Tektronix, Inc. Many of these companies
have significantly greater financial, technical, manufacturing and
35
<PAGE>
marketing resources than the Company. In addition, certain product categories
and market segments, on a region-by-region basis, in which the Company does or
may compete, are dominated by certain vendors. As a result, the Company's
ability to compete in these areas may be limited.
The Company believes that its ability to compete depends on factors both
within and outside its control, including the success and timing of new product
developments introduced by the Company and its competitors, product performance
and price, market presence and customer support. There can be no assurance that
the Company will be able to compete successfully with respect to these factors.
Maintaining any advantage that the Company may have over its competitors will
require continuing investments by the Company in research and development, sales
and marketing and customer service and support. In addition, as the Company
enters new markets, whether through acquisitions, alliances with other companies
or on its own, the Company may encounter distribution channels, technical
requirements and competitive factors that differ from those in the markets in
which it currently operates. There can be no assurance the Company will be able
to compete successfully in these new markets. In addition, increased competition
in any of the Company's current markets could result in price reductions,
reduced margins or loss of market share, any of which could materially and
adversely affect the Company's business, financial condition and results of
operations. There can be no assurance that the Company will be able to compete
successfully against current or future competitors.
RESEARCH AND DEVELOPMENT
The Company's research and product development, conducted in Melville, New
York, Reading, United Kingdom, and Santa Clara, California is focused on the
continued enhancement of its existing products and the development of new ones.
The Company has historically oriented its efforts toward the development of
complete systems, rather than of either hardware or software standing alone. A
strategic engineering group evaluates hardware and software technologies.
During 1993, 1994 and 1995, the Company expensed approximately $3.6 million,
$4.2 million and $4.1 million, respectively, for research and development and
amortization of capitalized software development costs incurred in connection
with the development of new graphics products and the modification and
enhancement of existing products.
MANUFACTURING
The Company has final assembly and system integration operations located in
Melville and Reading. The Company primarily uses third-party vendors to
manufacture and supply all of the hardware components and sub-assemblies
utilized in the Company's graphics systems and relies upon a combination of
third-party vendors and internal manufacturing for components and sub-assemblies
utilized in the Company's signal management systems. The Company designs many of
its system components to its own specifications, including metal and electronic
parts and components, circuit boards and certain subassemblies. It assembles
such items and standard parts, together with internally-developed software, to
create final products. The Company then performs testing and quality inspections
of each product.
PATENTS AND PROPRIETARY RIGHTS
The Company's success depends upon its ability to protect its proprietary
software technology and operate without infringing the rights of others. It
relies on a combination of patent, trademark and trade secret laws to establish
and protect its proprietary rights in its technology.
The Company currently has seven patents. The names Chyron, Scribe, Chyron
Scribe, Chyron Scribe Junior, Chyron SuperScribe, iNFiNiT!, MAX!>, MAXINE!,
CODI, I(2), Intelligent Interface, Intelligent
36
<PAGE>
Interface (I(2)), CMX, CMX AEGIS, CMX OMNI, Aurora, Liberty, PROCION and PROCION
INNOVATIVE CONTROL SOLUTIONS are registered trademarks of the Company. The
Company also has rights in trademarks and service marks which are not federally
registered, including the Chyron Care service mark. The Company does not have
registered copyrights on any of its intellectual property.
The duration of patents in the United States is 20 years from priority or 17
years from issuance. As a result, the Company's existing patents will begin to
expire commencing in the year 1998. There can be no assurance that any of the
Company's patents will not be invalidated or the Company will obtain new patents
for its pending applications. In addition, there can be no assurance any claims
allowed from existing or pending patents will be of sufficient scope or strength
or be issued in the primary countries where the Company's products can be sold
to provide meaningful protection or any commercial advantage to the Company. The
laws of certain foreign countries in which the Company's systems are sold may
not protect the Company's intellectual property rights to the same degree as the
United States, making the possibility of piracy of the Company's systems and the
underlying technology more likely.
To date, the Company has not undertaken an infringement analysis to identify
whether competitive product offerings infringe on issued patents. Such analysis
is inherently complex, uncertain and subject to numerous factual and legal
judgments. Moreover, a determination whether the Company has established a
strong intellectual property position cannot be determined without making
additional assumptions as to the likely interpretation of existing patents and
the scope of future patents currently under review by the U.S. Patent and
Trademark Office. The Company believes that it is possible for competitors to
introduce viable competitive systems without infringing the Company's existing
patents and that the Company's product development efforts will be more
important to its competitive position than its patent position. Aside from
patent and trademark protection, the Company relies on various laws to protect
it from unfair competition and to protect its trade secrets and proprietary
rights.
In the electronics industry, companies often receive notices alleging
infringement of patents or other intellectual property rights. While there is
currently no pending intellectual property litigation involving the Company, the
Company has been, and may from time to time continue to be, notified of claims
that it may be infringing patents, copyrights or other intellectual property
rights owned by third parties. There can be no assurance that these or other
companies will not, in the future, pursue claims against the Company with
respect to the alleged infringement of patents, copyrights or other intellectual
property rights. In addition, litigation may be necessary to protect the
Company's intellectual property rights and trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
third party claims of invalidity. Any litigation could result in substantial
costs and diversion of resources and could materially adversely affect the
Company's business, financial condition and results of operations.
There can be no assurance that infringement, invalidity, right to use or
ownership claims by third parties or claims for indemnification resulting from
infringement claims will not be asserted in the future. If any claims or actions
are asserted against the Company, the Company may seek to obtain a license under
a third-party's intellectual property rights. There can be no assurance,
however, that if a license is available, it will be under terms acceptable to
the Company. The failure to obtain a license under a patent or intellectual
property right from a third party for technology used by the Company could cause
the Company to incur substantial liabilities and to suspend the manufacture of
the products utilizing the invention. In addition, if a license is not available
the Company may be required to redesign its products to eliminate infringement.
Such redesign, if possible, could result in substantial delays in marketing its
products and in significant costs. In addition, should the Company decide to
litigate such claims, such litigation could be extremely expensive and time
consuming and could materially and adversely affect the Company's business,
financial condition and results of operations, regardless of the outcome of the
litigation. See "Risk Factors--Dependence on Proprietary Technology; Risks of
Infringement."
There can be no assurance that the steps taken by the Company regarding its
proprietary technology will be sufficient to deter misappropriation or that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technologies. In
37
<PAGE>
addition, the laws of certain countries in which the Company's products are or
may be distributed do not protect the Company's products and intellectual rights
to the extent of the laws of the United States.
The Company believes that, due to the rapid technological changes in the
electronics industry, the quality of its products, proprietary technology,
contract performance and the technical expertise and creative ability of its
personnel are more important in establishing and maintaining a technology
leadership position than the various legal protections afforded its technology.
EMPLOYEES
As of November 30, 1996, the Company employed 405 persons on a full-time
basis, including 63 in sales and marketing, 159 in manufacturing and testing, 39
in customer support, service and training, 50 in finance and administration and
94 in research and development. None of these employees is represented by a
labor union. The Company has not experienced any work stoppages and considers
its relations with its employees to be good.
FACILITIES
The executive offices and principal office of the Company and its graphics
business are located in Melville, New York pursuant to a lease that expires on
June 30, 2004. This facility consists of approximately 47,000 square feet and is
used for manufacturing, research and development, marketing and the executive
offices. The Company also leases approximately 15,000 square feet in Santa
Clara, California. This lease expires on October 31, 1997. In the United
Kingdom, the Company's principal office is located in Reading where it owns an
approximately 19,000 square foot facility. This facility is used for
manufacturing, research and development and marketing. The Company occupies
additional facilities in the United Kingdom in Reading and Andover which total
approximately 28,000 square feet pursuant to leases which expire from December
31, 1996 through September 24, 2020.
LITIGATION
The Company is a party to PERCIVAL HUDGINS & COMPANY, INC. V. CHYRON
CORPORATION V. JOHN PERCIVAL, pending in the United States District Court, North
District of Georgia (Atlanta), Civil Action No. 1 95-CV-CAM. This is a breach of
contract action for an alleged success fee in connection with the sale of Common
Stock by Pesa and Sepa to the new investment group. Plaintiff seeks damages of
approximately $600,000. The Company has answered, denying all material
allegations, and has asserted a third party claim against plaintiff's principal,
alleging that he breached his fiduciary duties to the Company and is liable for
any amounts that might be awarded to plaintiff, together with counsel fees.
RT-SET RELATIONSHIP
Through its recent alliance with RT-SET, the Company markets and supports
RT-SET's virtual studio systems in the United States. These systems integrate
live video and actors with virtual sets, composed of computer-generated 3D
graphics, to create a real-time composite image. RT-SET offers two systems:
LARUS, used for live-to-air programming, and OTUS, used for live-to-tape
programming. Either system may be used in conjunction with Chyron's iNFiNiT!
family of graphics systems and its Liberty paint and animation software. RT-SET
entered into an agreement with CBS News, pursuant to which the RT-SET virtual
studio was used by CBS News in its recent coverage of the Presidential elections
in the United States.
Subsequent to the Company's investment in RT-SET, there were additional
equity investors in RT-SET. As a result, as of November 30, 1996, the Company's
interest was reduced from 19% to approximately 17% of the outstanding equity of
RT-SET. The Company maintains the option to acquire up to 51% of the equity of
RT-SET in exchange for Chyron Common Stock. In addition, the Company entered
into a marketing and cooperation agreement with RT-SET by which the Company
agreed to promote and sell RT-SET products and share expenses relating to such
activities. See "Risk Factors--Potential Dilution Related to RT-SET."
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The current executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---------------------------------------- ----- ----------------------------------------------------------------
<S> <C> <C>
Michael I. Wellesley-Wesley............. 44 Chairman of the Board and Chief Executive Officer
Isaac Hersly............................ 48 President and Chief Operating Officer, Director
Roger Henderson......................... 40 Executive Vice President, Managing Director of Pro-Bel
Roi Agneta.............................. 50 Executive Vice President
Patricia Arundell Lampe................. 36 Chief Financial Officer and Treasurer
Raymond W. Hartman...................... 62 Director, Deputy Chairman of Pro-Bel
Sheldon D. Camhy(1)..................... 67 Director
S. James Coppersmith(1)................. 63 Director
Charles M. Diker(2)..................... 62 Director
Donald P. Greenberg..................... 62 Director
Alan J. Hirschfield(2).................. 60 Director
Wesley W. Lang, Jr.(1).................. 39 Director
Eugene M. Weber(2)...................... 46 Director
</TABLE>
- ------------------------
(1) Member of the Compensation and Stock Option Committee.
(2) Member of the Audit Committee.
MICHAEL I. WELLESLEY-WESLEY is the Chief Executive Officer and Chairman of
the Board of Directors and has held such positions since July 1995. From May
1995 until July 1995, he was a member of the Board of Directors. From 1992 until
1995, he was a Director and Executive Vice President of Data Broadcasting
Corporation ("DBC") and from 1990 until 1992 he was a consultant to that
corporation's predecessor. DBC is a provider of various financial data and
proprietary information. Mr. Wellesley-Wesley was an executive director of
Stephen Rose & Partners Ltd., a London-based investment banking firm, from 1980
to 1990. Mr. Wellesley-Wesley is also an officer and indirectly a member of CCA
and CCB, which are shareholders of the Company.
ISAAC HERSLY is President and Chief Operating Officer of the Company and has
held such positions since July 1995. He was an Executive Vice President of the
Company from December 1991 until July 1995. He was also President and Chief
Operating Officer of the Company from November 1989 until December 1991, during
which time the Company filed for bankruptcy. He was appointed President of the
Company's Telesystems and Video Products division in 1988 and prior to such
position he was appointed a Vice President in 1988. Prior to joining the
Company, Mr. Hersly was employed from 1970 to 1986 by ABC, a New York-based
television network, and from 1981 to 1986 he was ABC's Vice President of
Engineering. Mr. Hersly has been a Director since March 1996.
ROGER HENDERSON is an Executive Vice President of the Company and has held
such position since May 1996. He has been Managing Director of Pro-Bel since
April 1996. From 1987 to March 1996, he was Software Director of Pro-Bel and
Managing Director of Pro-Bel Software Ltd.
ROI AGNETA is an Executive Vice President of the Company and has held such
position since May 1996. From October 1995 to May 1996, Mr. Agneta was Vice
President, Strategic Planning, of the Company. From 1974 to 1993, he held
several executive management positions at the Company, including Vice President
of Engineering. From 1993 to October 1995, he held several senior management
positions with Dynatech Corporation's Video Group, including General Manager,
Production Business Unit.
PATRICIA ARUNDELL LAMPE is the Chief Financial Officer and Treasurer of the
Company and has held such positions since October 1994. She had served as Acting
Vice President, Chief Financial Officer,
39
<PAGE>
Treasurer and Secretary since July 1994. Ms. Lampe joined the Company in July
1993 as Corporate Controller. Prior to that date, she was an Audit Manager with
Price Waterhouse.
RAYMOND W. HARTMAN is the Deputy Chairman of Pro-Bel. From 1993 until April
1996, he was the Chairman of Pro-Bel, where he served as Finance Director from
1978 to 1993. Mr. Hartman has been a Director since May 1996.
SHELDON D. CAMHY is a senior partner of the law firm of Camhy Karlinsky &
Stein LLP, which acts as legal counsel to the Company, and has held such
position since January 1991. From 1966 to 1990, Mr. Camhy was a partner with the
law firm of Shea & Gould. Mr. Camhy has been a Director since July 1995.
S. JAMES COPPERSMITH is the Chairman of the Board of Trustees of Emerson
College and has held such position since December 1993. From August 1990 to June
1994, Mr. Coppersmith was the President and General Manager of WCVB-TV, New
England's Channel 5, a division of the Hearst Corporation. He is also a member
of the Board of Directors of Sun America Mutual Asset Management Corporation,
Waban Inc., The Pizzeria Uno Corporation, The Kushner-Locke Corporation,
All-Comm Media Corporation and The Boston Stock Exchange. Mr. Coppersmith has
been a Director since March 1996.
CHARLES M. DIKER is a non-managing principal with the investment management
company of Weiss, Peck & Greer and has been associated with such company since
1976. Weiss, Peck & Greer manages, directly or indirectly, the following funds:
WPG Corporate Development Associates IV, L.P., WPG Corporate Development
Associates IV (Overseas), L.P., Weiss, Peck & Greer Venture Associates III, L.P.
and WPG Enterprise Fund II, L.P. These funds are shareholders of the Company. He
is also the Chairman of the Board of Directors of Cantel Industries, Inc. Mr.
Diker is also a member of the Board of Directors of DBC, BeautiControl
Cosmetics, Inc., International Specialty Products Inc. and AMF Group Inc. Mr.
Diker has been a Director since September 1995.
DONALD P. GREENBERG is the Jacob Gould Schuman Professor of Computer
Graphics and Director, Program of Computer Graphics, at Cornell University. He
has been a professor at Cornell University since 1968. He is also a Director,
National Science and Technology Center for Computer Graphics and Scientific
Visualization. He is also a member of the Board of Directors of Data
Broadcasting Corporation. Mr. Greenberg has been a Director since September
1996.
ALAN J. HIRSCHFIELD is Co-Chairman of the Board of Directors and Co-Chief
Executive Officer of Data Broadcasting Corporation and has held such positions
since June 1992. In October 1990, Mr. Hirschfield was appointed to serve as part
of a restructuring team to address the financial problems of Financial News
Network Inc. ("FNN") and in that capacity he served as Co-Chief Executive
Officer of FNN from October 1990 until June 1992. As part of this restructuring,
FNN filed for bankruptcy protection under Chapter 11 of the United States
Bankruptcy Code in March 1991. Pursuant to FNN's plan of reorganization, DBC was
spun off in June 1992. Prior to his current positions, he served as Chief
Executive Officer of Twentieth Century-Fox Film Corp., from 1980 to 1985, and
Columbia Pictures Entertainment Inc., from 1973 to 1978. Mr. Hirschfield is also
a member of the Board of Directors of Cantel Industries, Inc. Mr. Hirschfield is
a member of CCA and CCB which are shareholders of the Company. Mr. Hirschfield
has been a Director since July 1995.
WESLEY W. LANG, JR. is a principal with the investment management company of
Weiss, Peck & Greer and has been associated with such company since 1985. WPG
manages, directly or indirectly, the following funds: WPG Corporate Development
Associates IV, L.P., WPG Corporate Development Associates IV (Overseas), L.P.,
Weiss, Peck & Greer Venture Associates III, L.P. and WPG Enterprise Fund II,
L.P. These funds are shareholders of the Company. He is also a member of the
Board of Directors of Durakon Industries, Inc. Mr. Lang has been a Director
since July 1995.
EUGENE M. WEBER is the President of Bluewater Capital Management, Inc., an
investment consulting firm. From 1994 to 1995, Mr. Weber was an independent
consultant to Westpool Investment Trust plc, a shareholder in the Company, and,
from 1983 to 1994, he was a partner with Weiss, Peck & Greer, an investment
management firm. Mr. Weber has been a Director since July 1995.
40
<PAGE>
Directors are elected to serve until the next annual meeting of stockholders
and until their successors have been elected and have qualified. Officers are
appointed to serve until the meeting of the Board of Directors following the
next annual meeting of stockholders and until their successors have been elected
and have qualified.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's shares of Common Stock as of November 30, 1996, and
as adjusted to give effect to the sale of shares offered hereby, by (i) each
person who is known by the Company to own beneficially more than five percent of
the Company's Common Stock, (ii) each of the Company's directors and executive
officers, (iii) all current directors and executive officers as a group and (iv)
each Selling Shareholder. A total of approximately 16,000 shares of the
Company's Common Stock were issued and outstanding as of November 30, 1996.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES BENEFICIALLY NUMBER SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING OF OWNED AFTER
(2)(3) SHARES OFFERING(2)(3)
NAME OF ADDRESS ------------------------ TO BE ------------------------
OF BENEFICIAL OWNER NUMBER PERCENT SOLD NUMBER PERCENT
- ----------------------------------------------------------------- ------------- --------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
5% HOLDERS:
WPG Corporate Development Associates IV, L.P.(4)................. 6,686,918 20.6% 584,516 6,029,603 16.0%
One New York Plaza
New York, NY 10004
WPG CDA IV (Overseas), Ltd.(5)................................... 1,612,513 5.0% -- 1,447,386 3.8%
BankAmerica Trust and Banking Corp.
P.O. Box 1092
Georgetown, Grand Cayman Island
WPG Private Equity Partners, L.P.(6)............................. 6,686,918 20.6% -- 6,029,602 16.0%
One New York Plaza
New York, NY 10004
WPG Enterprise Fund II, L.P.(7).................................. 1,661,572 5.1% 145,238 1,498,306 4.0%
555 California Street
San Francisco, CA 94104
WPG Private Equity Partners (Overseas), LP(8).................... 1,612,513 5.0% -- 1,447,387 3.8%
BankAmerica Trust and Banking Corp.
P.O. Box 1092
Georgetown, Grand Cayman Island
WPG Venture Partners III, L.P.(9)................................ 3,043,100 9.3% -- 2,744,131 7.3%
555 California Street
San Francisco, CA 94104
WPG Corporate Development Associates IV (Overseas), L.P.(10)..... 1,612,513 5.0% 140,947 1,447,386 3.8%
BankAmerica Trust and Banking Corp.
P.O. Box 1092
Georgetown, Grand Cayman Island
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES BENEFICIALLY NUMBER SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING OF OWNED AFTER
(2)(3) SHARES OFFERING(2)(3)
NAME OF ADDRESS ------------------------ TO BE ------------------------
OF BENEFICIAL OWNER NUMBER PERCENT SOLD NUMBER PERCENT
- ----------------------------------------------------------------- ------------- --------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Steven N. Hutchison(11).......................................... 8,299,431 25.4% -- 7,476,989 19.9%
Weiss Peck & Greer, L.L.C.
One New York Plaza
New York, NY 10004
Philip Greer(12)................................................. 4,655,614 14.4% -- 3,607,002 9.6%
Weiss, Peck & Greer, L.L.C.
555 California Street
San Francisco, CA 94104
Gill Cogan(13)................................................... 3,043,100 9.4% -- 2,579,004 6.9%
Weiss, Peck & Greer, L.L.C.
555 California Street
San Francisco, CA 94104
Westpool Investment Trust plc(14)................................ 2,628,163 8.1% 229,730 2,369,932 6.3%
Carlton House
33 Robert Adam Street
London W1M 5AH
England
CC Acquisition Company A, L.L.C.(15)............................. 4,533,333 14.0% 328,923 4,089,945 10.9%
P.O. Box 9205
Jackson, WY 83001
CC Acquisition Company B, L.L.C.................................. 3,921,964 12.1% 387,006 3,534,958 9.4%
P.O. Box 9205
Jackson, WY 83001
Allan R. Tessler(16)............................................. 8,455,297 26.1% -- 7,624,903 20.3%
3490 Clubhouse Drive
Box 7443
Jackson, WY 83001
EXECUTIVE OFFICERS AND DIRECTORS(1):
Michael I. Wellesley-Wesley(17).................................. 8,455,297 26.1% -- 7,624,903 20.3%
Isaac Hersly(18)................................................. 123,180 * 2,806 122,245 *
Roi Agneta(19)................................................... 18,864 * -- 18,864 *
Patricia Arundell Lampe(19)...................................... 16,666 * -- 16,666 *
Roger Henderson(25).............................................. 34,530 * -- 34,530 *
Sheldon D. Camhy(20)............................................. 6,666 * -- 6,666 *
S. James Coppersmith(21)......................................... 3,333 * -- 3,333 *
Charles M. Diker(20,22).......................................... 559,794 1.7% 48,364 504,905 1.3%
Donald P. Greenberg(21).......................................... 3,333 * -- 3,333 *
Raymond W. Hartman............................................... 191,119 * -- 191,119 *
Alan J. Hirschfield(20,23)....................................... 7,261,964 22.4% -- 6,546,035 17.4%
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES BENEFICIALLY NUMBER SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING OF OWNED AFTER
(2)(3) SHARES OFFERING(2)(3)
NAME OF ADDRESS ------------------------ TO BE ------------------------
OF BENEFICIAL OWNER NUMBER PERCENT SOLD NUMBER PERCENT
- ----------------------------------------------------------------- ------------- --------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Wesley W. Lang(20,24)............................................ 8,302,765 25.6% -- 7,480,322 19.9%
Eugene M. Weber(20).............................................. 6,666 * -- 6,666 *
All directors and executive officers as a group (13 persons)..... 17,728,879 54.7% 51,170 15,984,688 42.5%
OTHER SELLING SHAREHOLDERS:
Sepa Technologies Ltd., Co.(26).................................. 1,566,666 4.8% 286,163 1,280,503 3.4%
Lion Investments Limited......................................... 1,244,808 3.8% 108,820 1,122,796 3.0%
Weiss Peck & Greer Venture
Associates III, L.P.(27)....................................... 1,381,528 4.3% 120,765 1,245,825 3.3%
Ilan Kaufthal.................................................... 99,514 * 9,820 89,694 *
Mint House Nominees, Ltd......................................... 24,452 * 2,413 22,039 *
Pine Street Venture L.L.C........................................ 20,471 * 2,020 18,451 *
A.J.L. Beare, Esq................................................ 14,785 * 1,459 13,326 *
Alan I. Annex.................................................... 10,235 * 1,010 9,225 *
</TABLE>
- ------------------------
* Less than one percent (1%).
<TABLE>
<C> <S>
(1) Unless otherwise noted, the address is Chyron Corporation, 5 Hub Drive, Melville, New
York 11747.
(2) Beneficial ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned by a person
and the percentage of ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable or exercisable within 60
days of November 30, 1996 are deemed outstanding. To the Company's knowledge, except
as set forth in the footnotes to this table and subject to applicable community
property laws, each person named in the table has sole voting and investment power
with respect to the shares set forth opposite such person's name.
(3) In calculating the percent of the outstanding shares of Common Stock, all shares
issuable on exercise of stock options held by the particular beneficial owner that are
included in the column to the left of this column are deemed to be outstanding. The
figures set forth under the caption "Shares Beneficially Owned After Offering" assume
no exercise of the over-allotment option.
(4) Includes 763,380 shares of Common Stock owned in the aggregate by Sepa, The DSF
Investment Trust I ("DSF") and Alfred O.P. Leubert Ltd. ("Leubert"), a New York
corporation, over which it has voting control.
(5) WPG CDA IV (Overseas), Ltd. ("Overseas") serves as one of the general partners of WPG
Corporate Development Associates IV (Overseas), L.P. ("CDAO"). Overseas disclaims
beneficial ownership of such shares, except to the extent of its interest in CDAO.
(6) WPG Private Equity Partners, L.P. ("PEP") serves as the general partner of WPG
Corporate Development Associates IV, L.P. ("CDA"). PEP disclaims beneficial ownership
of such shares, except to the extent of its interest in CDA.
(7) Includes 189,720 shares of Common Stock owned by Sepa, DSF and Leubert over which it
has voting control.
(8) WPG Private Equity Partners (Overseas), L.P. ("PEPO") serves as one of the general
partners of CDAO. PEPO disclaims beneficial ownership of such shares, except to the
extent of its interest in CDAO.
</TABLE>
43
<PAGE>
<TABLE>
<C> <S>
(9) WPG Venture Partners III, L.P. ("WPGVP") serves as the general partner of WPG
Enterprise Fund II, L.P. ("WPGEF") and Weiss, Peck & Greer Venture Associates III,
L.P. ("WPGVA"). WPGVA has voting power over 157,680 shares of Common Stock owned by
Sepa, DSF and Leubert. WPGVP disclaims beneficial ownership of such shares, except to
the extent of its interest in WPGEF and WPGVA.
(10) Includes 184,140 shares of Common Stock owned by Sepa, DSF and Leubert over which its
general partners, Overseas and PEPO have voting control.
(11) Mr. Hutchinson is a co-managing partner of PEP and PEPO and a director of Overseas.
Mr. Hutchinson disclaims beneficial ownership of such shares, except to the extent of
his interest in PEP, PEPO and Overseas.
(12) Mr. Greer is a co-managing partner of WPGVP, a general partner of PEP and PEPO, and a
director of Overseas. Mr. Greer disclaims beneficial ownership of such shares, except
to the extent of his interests in PEPO, PEP, Overseas and WPGVP.
(13) Mr. Cogan is a co-managing partner of WPGVP and a director of Overseas. Mr. Cogan
disclaims beneficial ownership of such shares, except to the extent of his interest in
WPGVP and Overseas.
(14) Includes 300,060 shares of Common Stock owned by Sepa, DSF and Leubert over which it
has voting control.
(15) Includes 1,200,000 shares of Common Stock owned by Sepa, DSF and Leubert over which it
has voting control.
(16) Mr. Tessler is the President and sole manager of CCA and CCB. Mr. Tessler does not
admit that he is, for purposes of Section (16)(a) of the Exchange Act or otherwise,
the beneficial owner of such shares.
(17) Mr. Wellesley-Wesley is indirectly one of several members of and the Vice President of
CCA and CCB. Mr. Wellesley-Wesley does not admit that he is, for purposes of Section
16(a) of the Exchange Act or otherwise, the beneficial owner of such shares. Includes
1,200,000 shares owned by Sepa, DSF and Leubert over which he has voting control. Mr.
Wellesley-Wesley will be selling indirectly in this offering 64,501 shares.
(18) Includes 55,555 shares that may be acquired upon the exercise of presently exercisable
options.
(19) Includes 16,666 shares that may be acquired upon the exercise of presently exercisable
options.
(20) Includes 6,666 shares that may be acquired upon the exercise of presently exercisable
options.
(21) Includes 3,333 shares that may be acquired upon the exercise of presently exercisable
options.
(22) Mr. Diker directly owns 490,127 shares of Common Stock and has voting control over
63,000 shares owned by Sepa, DSF and Leubert.
(23) Of these shares, 7,255,297 are owned by CCA and CCB. Mr. Hirschfield is one of several
members of CCA and CCB and he does not admit that he is, for purposes of Section 16(a)
of the Exchange Act or otherwise, the beneficial owner of such shares. Mr. Hirschfield
will be selling indirectly in this offering an aggregate of 82,426 shares.
(24) Includes 7,351,911 shares beneficially owned by CDA, CDAO, PEP, PEPO and Overseas.
Includes 947,520 shares of Common Stock owned by Sepa, DSF and Leubert over which Mr.
Lang has indirect voting control. Mr. Lang is the co-managing partner of PEP and PEPO
and a director of Overseas. Mr. Lang disclaims beneficial ownership of such shares,
except to the extent of his interests in PEP, PEPO and Overseas.
(25) Includes 1,158 shares of Common Stock owned by his spouse, as to which Mr. Henderson
disclaims beneficial ownership.
(26) Includes 157,680 shares of Common Stock owned by Sepa, DSF and Leubert over which it
has voting control.
(27) Includes 142,020 shares of Common Stock owned by Sepa, DSF and Leubert over which it
has voting control.
</TABLE>
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue 150,000,000 shares of Common Stock, par
value $.01 per share. As of the date of this Prospectus, shares of Common
Stock are outstanding and are held of record by ( ) persons. Holders
of Common Stock are entitled to receive, subject to the rights of holders of
outstanding stock having prior rights as to dividends, such dividends as are
declared by the Board of Directors, one vote for each share at all meetings of
stockholders and, subject to the rights of holders of outstanding stock having
prior rights as to asset distributions, the remaining assets of the Company upon
liquidation, dissolution or winding up of the Company. The holders of Common
Stock have no preemptive or other subscription or conversion rights. There are
no redemption or sinking fund provisions applicable to the Common Stock. All
shares of Common Stock now outstanding are fully paid and nonassessable and all
shares of Common Stock which are the subject of this offering will be fully paid
and nonassessable when issued.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of preferred
stock, par value $1.00 per share, without further stockholder approval (except
as may be required by applicable law or stock exchange regulations). The Board
of Directors is authorized to determine, without any further action by the
holders of the Common Stock, the rights, preferences and privileges, including
the dividend rights, dividend rates, conversion rights, voting rights, rights
and terms of redemption, liquidation preferences and sinking fund terms, of any
series of preferred stock, as well as the number of shares constituting such
series and the designation thereof. Should the Board of Directors elect to
exercise such authority, the rights and privileges of holders of the Common
Stock could be made subject to the rights and privileges of any such series of
preferred stock.
These provisions give the Board of Directors the power to approve the
issuance of a series of preferred stock of the Company with voting and
conversion rights which could adversely affect voting power and other rights of
the holders of shares of common stock, including the loss of voting control to
others. The issuance of shares of preferred stock may delay, defer or prevent a
change in control without further action by the shareholders of the Company and
adversely affect the market price of the shares of Common Stock offered hereby.
The Company does not have any shares of preferred stock outstanding and has no
present intention to issue any shares of preferred stock.
REGISTRATION RIGHTS
The holders of approximately 25,520,312 shares of Common Stock (the
"Registrable Shares") are entitled to certain rights with respect to the
registration of such shares under the Securities Act. Under the terms of
agreements between the Company and such holders, if the Company proposes to
register any of its securities under the Securities Act, either for its own
account or the account of security holders exercising incidental registration
rights, holders of 24,471,577 Registrable Shares are entitled to notice of such
registration and are entitled to include their Registrable Shares therein.
Holders of an additional 800,000 and 1,048,735 Registrable Shares will be
entitled to such incidental registration rights as of February 28, 1997 and
April 12, 1997, respectively.
In addition, a sufficient number of holders of 24,471,577 Registrable Shares
have demand registration rights and can require the Company to file a
registration statement under the Securities Act with respect to their shares of
Common Stock, and the Company is required to use its best efforts to effect such
registration. The holders of such Registrable Shares may exercise such right,
beginning 90 days after the Effective Date, subject to the lock up, on four
occasions. In addition, as of July 12, 1997, a majority of the holders of
1,048,735 Registrable Shares will be able to exercise such right on not more
than one occasion.
45
<PAGE>
All such registration rights are subject to certain conditions and
limitations, including the right of the underwriters of an offering to limit the
number of such shares included in such registration. In addition, the Company
need not effect a requested registration within 90 days following any offering
of securities for the account of the Company. Generally, the Company is required
to bear the expense of all such registrations, except for stock transfer fees
and underwriters' fees, discounts or commissions relating to the sale of
securities by holders.
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar is American Stock Transfer &
Trust Company, 40 Wall Street, New York, New York 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices and could impair the Company's
future ability to raise capital through the sale of its equity securities.
Upon completion of this offering, based on the outstanding shares of Common
Stock at December 19, 1996 the Company will have 37,632,413 shares of Common
Stock outstanding, assuming no exercise of the Underwriters' Over-Allotment
Option and no exercise of the outstanding options to purchase 1,439,999 shares
of Common Stock. Of these shares of Common Stock, the 7,650,000 shares of Common
Stock offered hereby will be freely tradeable without restriction or further
registration under the Securities Act unless they are held by "affiliates" of
the Company as that term is used under the Securities Act and the regulations
promulgated thereunder. Of the remaining 32,382,413 shares of Common Stock held
by existing shareholders, 11,584,643 shares are "restricted shares" as defined
in Rule 144 (the "Restricted Shares"). Restricted Shares may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144 or 144(k) promulgated under the Securities Act,
which rules are summarized below.
Of the 11,584,643 Restricted Shares, up to 5,719,733 Restricted Shares will
become eligible for sale pursuant to Rule 144 during 1998; up to 3,000,000
Restricted Shares will become eligible for sale pursuant to Rule 144 during
1999; up to 2,000,000 Restricted Shares will become eligible for sale pursuant
to Rule 144 during 2000, and up to 804,910 Restricted Shares will become
eligible for sale pursuant to Rule 144 during 2001. An additional 1,433,333
shares currently subject to contractual limitations on sale or transfer will
become eligible for sale to the public on July 25, 1997. An additional
12,562,333 shares are subject to contractual limitations on sale or transfer as
described below, and will become eligible for sale beginning 180 days after the
Effective Date.
On December 19, 1996, options to purchase 1,439,999 shares of Common Stock
(the "Options") were outstanding, of which 363,881 Options have or will become
exercisable during 1996, 480,550 Options will become exercisable during 1997,
453,896 Options will become exerciseable during 1999 and the remaining 141,670
Options will become exercisable during 1999. All but 451,666 of the Options will
expire in 2000. The remaining 451,666 Options will expire in 2001. The Company
has filed a registration statement under the Securities Act to register the
1,439,999 shares issuable upon exercise of the Options and an additional 226,667
shares reserved for issuance under the Company's 1995 Long-Term Incentive Plan,
thus permitting the resale of such shares when received by non-affiliates in the
public market without restriction under the Securities Act. See "Risk
Factors--Shares Eligible for Future Sale; Possible Adverse Effects on Future
Market Price."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated),
including an affiliate, who has beneficially owned shares for at least two years
is entitled to sell within any three-month period a number of shares that does
not exceed the greater of 1% of the then outstanding shares of the Company's
Common Stock (approximately
46
<PAGE>
shares immediately after this offering) or the average weekly trading
volume of the Company's Common Stock on the NYSE during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission.
Sales under Rule 144 are also subject to certain requirements relating to the
manner of sale provisions, notice requirements and the availability of current
public information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the three months preceding a sale, and who owns Restricted Shares
that were purchased from the Company (or an affiliate) at least three years
previously, would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitations manner of sale provisions, public information
requirements or notice requirements. The Commission has recently proposed
reducing the initial Rule 144 holding period to one year and the Rule 144(k)
holding period to two years. There can be no assurance as to when or whether
such rule changes will be enacted. If enacted, such modifications may have a
material effect on the times when the shares of the Company's Common Stock
become eligible for resale.
Beginning 180 days after the Effective Date of this offering, the holders of
12,562,333 Registrable Shares will be entitled to certain rights with respect to
the registration of such shares under the Securities Act. Holders of an
additional 1,848,735 shares of Common Stock will become entitled to certain
registration rights during 1997. See "Description of Capital Stock-Registration
Rights."
47
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company and Selling Shareholders have agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom Oppenheimer & Co., Inc., Volpe, Welty & Company and Southcoast Capital
Corporation are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company and the Selling Shareholders, the
respective number of shares of Common Stock set forth opposite of each such
Underwriter:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ----------------------------------------------------------------------------- ----------
<S> <C>
Oppenheimer & Co., Inc. .....................................................
Volpe, Welty & Company.......................................................
Southcoast Capital Corporation...............................................
----------
Total.................................................................. 7,650,000
----------
----------
</TABLE>
The Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of $ per share. The Underwriters may allow and such dealers
may reallow, a concession not in excess of $ per share to certain other
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the public offering price and other selling terms may from time to
time be varied by the Representatives.
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase Common Stock are subject to certain conditions, including that, if
any of the Common Stock is purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares must be so purchased.
The Selling Shareholders have granted to the Underwriters an option,
exercisable for up to 30 days after the date of this Prospectus, to purchase up
to an aggregate of 1,147,500 additional shares of Common Stock solely to cover
over-allotments, if any, at the public offering price less the underwriting
discount set forth on the cover page of this Prospectus. If the Underwriters
exercise such option to purchase any of the additional 1,147,500 shares of
Common Stock, the Underwriters has severally agreed, subject to certain
conditions, to purchase approximately the same percentage as the number of
shares of Common Stock to be purchased by each of them bears to the 7,650,000
shares of Common Stock offered pursuant to this Prospectus. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered pursuant to this Prospectus. The Selling
Shareholders will be obligated, pursuant to the over-allotment option, to sell
shares of Common Stock to the Underwriters to the extent such over-allotment
option is exercised.
The Company and the Selling Shareholders have agreed to indemnify the
Representatives of the Underwriters and the several Underwriters against certain
liabilities, including, without limitation, liabilities under the Securities
Act, and to contribute to certain payments that the Underwriters may be required
to make in respect thereof.
The Company's executive officers and directors, the Selling Shareholders and
certain shareholders of the Company have agreed not to offer, sell or contract
to sell, grant any option to purchase or otherwise transfer or dispose of shares
of Common Stock or any security convertible into or exchangeable for, or
warrants, options or rights to acquire any shares of Common Stock for 180 days
after the date of this Prospectus. Subject to certain limitations, the Company
has also agreed that it will not, without the consent of Oppenheimer & Co.,
Inc., offer, sell, contract to sell or dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock or securities exchangeable
for or convertible into shares of Common Stock until 180 days after this
offering.
48
<PAGE>
In connection with this offering, the Representatives and the Underwriters
and selling group members (if any) or their respective affiliates intend to
engage in passive market making transactions in the Common Stock of the Company
on the New York Stock Exchange in accordance with Rule 10b-6A under the Exchange
Act during the two business day period before commencement of offers or sales of
the shares of Common Stock offered hereby. The passive market making
transactions must be identified as such and comply with applicable volume and
price limits. In general, a passive market maker may display its bid at a price
not in excess of the highest independent bid for the security, if all
independent bids are lowered below the passive market makers bid; however, such
bid must then be lowered when certain purchase limits are exceeded.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain legal matters
relating to the offering will be passed upon for the Company and the Selling
Shareholders by Camhy Karlinsky & Stein LLP, New York, New York. Sheldon D.
Camhy is a partner in Camhy Karlinsky & Stein LLP and has been a director of the
Company since July 1995. Further, one partner in the firm is a Selling
Shareholder of 1,010 shares and one partner may be deemed to have beneficial
ownership (although such beneficial ownership is disclaimed) of shares owned by
a Selling Shareholder which is selling 2,020 shares. In addition, certain legal
matters relating to the offering will be passed upon for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and for the year then ended included in this Prospectus and Registration
Statement have been so included in reliance on the report of Price Waterhouse
LLP, independent auditors, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Chyron Corporation and subsidiary
appearing or incorporated by reference in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, to the
extent indicated in their reports thereon also appearing elsewhere herein and in
the Registration Statement or incorporated by reference. Such consolidated
financial statements have been included herein or incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
The historical financial statements of Pro-Bel as of and for the year ended
October 31, 1995 included at Exhibit III of the Company's Form 8-K/A dated June
21, 1996 have been so incorporated in reliance on the report of Bronsens,
independent auditors, given on the authority of said firm as experts in auditing
and accounting.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at its
principal offices at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Seven World Trade Center, Suite 1300, New York, New York 10048 and at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials also can be obtained from the
Public Reference Section of the Commission at prescribed rates at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains
a Web site that contains reports, proxy and information statements and other
information regarding the registrant that is filed electronically
49
<PAGE>
with the Commission and the address is http://www.sec.gov. In addition, the
Registration Statement and the exhibits thereto, reports, proxy information and
other information concerning the Company can be inspected and copied at the
public reference facilities and regional offices referred to above and at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby (including all amendments and
supplements thereto, the "Registration Statement"). This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain items of which are
contained in the exhibits and schedules thereto permitted by the rules and
regulations of the Commission. Statements contained herein concerning the
provisions of such documents are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference thereto and
makes a part hereof the following documents, heretofore filed with the
Commission pursuant to the Exchange Act: (i) the Company's Annual Report on Form
10-K for the year ended December 31, 1995; (ii) the Company's Quarterly Report
on Form 10-Q for the three months ended March 31, 1996; (iii) the Company's
Quarterly Report on Form 10-Q for the three months ended June 30, 1996; (iv) the
Company's Quarterly Report on Form 10-Q for the three months ended September 30,
1996; (v) the Company's Proxy Statement dated March 28, 1996 for the 1996 Annual
Meeting of Stockholders; (vi) the Company's Current Report on Form 8-K filed on
April 26, 1996; (vii) the Company's Current Report on Form 8-KA filed on June
21, 1996; and (viii) the description of the Company's Common Stock set forth in
the Company's Form 8-A filed on February 18, 1992.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
termination of the offering being made hereby shall be deemed to be incorporated
in this Prospectus by reference and to be a part hereof from the respective
dates of the filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus and the
Registration Statement of which it is a part to the extent that a statement
contained herein or in any subsequently filed document which also is, or is
deemed to be, incorporated by reference herein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus or such
Registration Statement.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon written or oral request
of any such person, a copy of any and all of the documents referred to above
which have been or may be incorporated in this Prospectus by reference, other
than exhibits to such documents which are not specifically incorporated by
reference into such documents. Requests for such copies should be directed to
Judy Mauro, Director of Corporate Communications, Chyron Corporation, 5 Hub
Drive, Melville, New York 11747, telephone (516) 845-2000.
50
<PAGE>
CHYRON CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Reports of Independent Auditors....................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and (unaudited) September
30, 1996............................................................................ F-4
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and the (unaudited) nine months ended September 30, 1995 and 1996.............. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and the (unaudited) nine months ended September 30, 1995 and 1996.............. F-6
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1993,
1994 and 1995 and the (unaudited) nine months ended September 30, 1996.............. F-8
Notes to Consolidated Financial Statements............................................ F-9
Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended
September 30, 1996.................................................................. F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of Chyron Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Chyron
Corporation and its subsidiaries at December 31, 1995 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 8, 1996, except as to Note 3,
which is as of February 29, 1996, and
Note 2, which is as of April 12, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Chyron Corporation and Subsidiary
We have audited the accompanying consolidated balance sheet of Chyron
Corporation and subsidiary as of December 31, 1994 and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
two years in the period ended December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these 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
Chyron Corporation and subsidiary at December 31, 1994, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1994 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Melville, New York
February 17, 1995
F-3
<PAGE>
CHYRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
-------------
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 1,555 $ 5,012 $ 3,078
Accounts and notes receivable.............................................. 13,225 13,967 20,206
Inventories................................................................ 5,464 11,645 24,123
Prepaid expenses........................................................... 1,898 578 794
Deferred tax asset......................................................... 6,457 5,821
Other...................................................................... 633
--------- --------- -------------
Total current assets..................................................... 22,142 37,659 54,655
Property and equipment....................................................... 3,646 3,300 12,766
Excess of cost over net assets acquired...................................... 7,205
Investment in RT-SET......................................................... 2,161
Software development costs................................................... 2,520 1,716 1,915
Deferred tax asset........................................................... 1,403 1,403
Other........................................................................ 336 254 1,746
--------- --------- -------------
TOTAL ASSETS................................................................. $ 28,644 $ 44,332 $ 81,851
--------- --------- -------------
--------- --------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses...................................... $ 7,008 $ 8,120 $ 16,253
Management fee payable..................................................... 1,000
Reserve for West Coast restructuring....................................... 2,824 158
Current portion of long-term debt.......................................... 4,716
Capital lease obligations.................................................. 207 160 264
Other...................................................................... 99
--------- --------- -------------
Total current liabilities................................................ 10,039 9,438 21,332
Long-term debt............................................................... 4,500 4,741 14,977
Capital lease obligations.................................................... 229 170 148
Convertible subordinated notes payable....................................... 100
--------- --------- -------------
Total liabilities........................................................ 14,868 14,349 36,457
--------- --------- -------------
Commitments (See Note 15)
Shareholders' equity:
Preferred stock, par value $1.00; Authorized--1,000,000 shares-- Issued -
none
Common stock, par value $.01; Authorized--150,000,000 shares-- Issued and
outstanding, 87,392,524, 90,071,394 and 97,147,241 shares at 1994, 1995
and 1996, respectively 874 901 971
Additional paid-in capital................................................. 19,035 27,739 37,268
Retained earnings/(accumulated deficit).................................... (6,133) 1,343 6,966
Cumulative translation adjustment.......................................... 189
--------- --------- -------------
Total shareholders' equity............................................... 13,776 29,983 45,394
--------- --------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................... $ 28,644 $ 44,332 $ 81,851
--------- --------- -------------
--------- --------- -------------
</TABLE>
See Notes to the Consolidated Financial Statements
F-4
<PAGE>
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................................. $ 37,391 $ 42,762 $ 53,971 $ 38,596 $ 56,889
Cost of products sold................................. 16,816 18,912 22,746 16,920 26,887
--------- --------- --------- ----------- -----------
Gross profit.......................................... 20,575 23,850 31,225 21,676 30,002
--------- --------- --------- ----------- -----------
Operating expenses:
Selling, general and administrative................. 13,452 14,301 17,066 12,648 16,351
Research and development............................ 3,573 4,163 4,105 3,065 3,751
Management fee...................................... 800 1,139 2,911 695
West Coast restructuring charge (recapture)......... 12,716 (1,339) (552)
--------- --------- --------- ----------- -----------
Total operating expenses.............................. 17,825 32,319 22,743 15,856 20,102
--------- --------- --------- ----------- -----------
Operating income (loss)............................... 2,750 (8,469) 8,482 5,820 9,900
Interest expense, net................................. 714 525 536 449 872
--------- --------- --------- ----------- -----------
Income (loss) before provision for income taxes....... 2,036 (8,994) 7,946 5,371 9,028
Income taxes/equivalent provision..................... 760 470 1,477 3,405
--------- --------- --------- ----------- -----------
Net income (loss)..................................... $ 1,276 $ (8,994) $ 7,476 $ 3,894 $ 5,623
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Net income (loss) per common share.................... $ .02 $ (.10) $ .08 $ .04 $ .06
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Weighted average number of common and common
equivalent shares outstanding....................... 75,885 86,886 91,148 90,597 96,558
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Unaudited pro forma information:(1)
Net income (loss) per common share.................. $ .05 $ (.31) $ .25 $ .13 $ .18
--------- --------- --------- ----------- -----------
Weighted average number of common and common
equivalent shares outstanding..................... 25,295 28,962 30,382 30,199 32,186
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
- ------------------------
(1) The unaudited pro forma information has been developed on the assumption
that the one-for-three reverse stock split described in Note 20 has been
approved by the Company's shareholders and no cash in lieu of fractional
shares has been paid.
See Notes to the Consolidated Financial Statements
F-5
<PAGE>
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- --------------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,276 $ (8,994) $ 7,476 $ 3,894 $ 5,623
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
West Coast restructuring charge (recapture)............ 11,766 (1,339)
Depreciation and amortization.......................... 1,816 2,037 2,067 1,481 2,001
Utilization of deferred tax asset...................... 1,342 688
Income tax equivalent provision........................ 608 354
Loss on abandonment of leasehold improvements.......... 350
Changes in operating assets and liabilities:
Accounts and trade notes receivable.................... (2,175) 567 (742) (1,463) 914
Inventories............................................ (894) 2,879 (6,181) (4,944) (4,748)
Prepaid expenses....................................... 141 (1,184) 1,320 586 (48)
Income taxes receivable................................ 248
Accounts payable and accrued expenses.................. 1,044 (1,913) 1,112 5,345 (2,020)
Management fee payable................................. 1,000 (1,000)
Reserve for West Coast restructuring................... (1,327)
Other liabilities...................................... (1,908) (59)
--------- --------- --------- ----------- ------
Net cash provided by operating activities................ 2,064 5,508 3,740 4,333 1,351
--------- --------- --------- ----------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Pro-Bel and investment in RT-SET.......... (7,226)
Acquisitions of property and equipment................... (731) (660) (710) (656) (1,358)
Capitalized software development......................... (1,741) (1,383) (207) (190) (705)
Sales of equipment held for lease........................ 112
Other.................................................... 141 102 28 82 (608)
--------- --------- --------- ----------- ------
Net cash (used in) investing activities.................. (2,219) (1,941) (889) (764) (9,897)
--------- --------- --------- ----------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligations.................... (106) (69) (179)
Payments of loans payable................................ (1,985) (4,500)
Net proceeds from new credit facility.................... 4,741 6,128 11,654
Proceeds from exercise of common stock purchase warrants,
net.................................................... 61 43 471 323 239
Proceeds from exercise of stock options.................. 542
Payments of Chapter 11 claims and other reorganization
items.................................................. (96) (283)
Payments of revolving credit agreement................... (4,500) (5,644)
Other.................................................... (52)
--------- --------- --------- ----------- ------
Net cash provided by (used in) financing activities...... (35) (2,225) 606 1,830 6,612
--------- --------- --------- ----------- ------
Change in cash and cash equivalents...................... (190) 1,342 3,457 5,399 (1,934)
Cash and cash equivalents at beginning of period......... 403 213 1,555 1,555 5,012
--------- --------- --------- ----------- ------
Cash and cash equivalents at end of period............... $ 213 $ 1,555 $ 5,012 $ 6,954 $ 3,078
--------- --------- --------- ----------- ------
--------- --------- --------- ----------- ------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................ $ 945 $ 548 $ 555 $ 394 $ 599
--------- --------- --------- ----------- ------
--------- --------- --------- ----------- ------
Income taxes paid........................................ $ 27 $ 71 $ 116 $ 98 $ 2,847
--------- --------- --------- ----------- ------
--------- --------- --------- ----------- ------
</TABLE>
See Notes to the Consolidated Financial Statements
F-6
<PAGE>
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
Noncash investing and financing activities:
During January 1996, the Company entered into capital lease obligations
totaling $90,000 for the purchase of equipment.
On February 29, 1996, the Company acquired a 19% interest in RT-SET Ltd. in
exchange for 2.4 million shares of Chyron common stock. See Note 3 to the
Consolidated Financial Statements.
On April 12, 1996, the Company acquired the issued and outstanding shares of
Pro-Bel Limited. The consideration in addition to cash included 3,146,205 shares
of Chyron common stock valued at $6,868,000 and notes payable valued at
$5,349,000. See Note 2 to the Consolidated Financial Statements.
F-7
<PAGE>
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS CUMULATIVE
------------------------ PAID-IN (ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992.......................... 72,309 $ 723 $ 15,574 $ 1,585
Net income............................................ 1,276
Exercise of warrants.................................. 304 3 58
Conversion of subordinated notes...................... 14,000 140 2,660
Benefit of utilization of net operating loss
carryforward under Fresh Start Reporting............ 608
----------- ----- ----------- ------ -----
BALANCE AT DECEMBER 31, 1993.......................... 86,613 866 18,900 2,861
Net loss.............................................. (8,994)
Exercise of warrants.................................. 280 3 40
Conversion of subordinated notes...................... 500 5 95
----------- ----- ----------- ------ -----
BALANCE AT DECEMBER 31, 1994.......................... 87,393 874 19,035 (6,133)
Net income............................................ 7,476
Exercise of warrants.................................. 2,178 22 449
Conversion of subordinated notes...................... 500 5 95
Benefit of utilization of net operating loss
carryforward under Fresh Start Reporting............ 1,360
Income tax equivalent benefit from reduction of
deferred tax asset valuation allowance.............. 6,800
----------- ----- ----------- ------ -----
BALANCE AT DECEMBER 31, 1995.......................... 90,071 901 27,739 1,343
Net income for the nine months ended September 30,
1996 (unaudited).................................... 5,623
Exercise of warrants (unaudited)...................... 1,198 12 227
Exercise of stock options (unaudited)................. 332 3 539
Issuance of stock in connection with acquisition of
Pro-Bel............................................. 3,146 31 6,837
Issuance of stock in connection with investment in
RT-SET.............................................. 2,400 24 1,926
Cumulative translation adjustment (unaudited)......... $ 189
----------- ----- ----------- ------ -----
BALANCE AT SEPTEMBER 30, 1996 (UNAUDITED)............. 97,147 $ 971 $ 37,268 $ 6,966 $ 189
----------- ----- ----------- ------ -----
----------- ----- ----------- ------ -----
</TABLE>
See Notes to the Consolidated Financial Statements
F-8
<PAGE>
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Chyron Corporation's ("Chyron" or the "Company") business is organized under
a group concept that coordinates product development, marketing, advertising,
distribution and procurement. The Company has a multi-product approach for
filling customer requirements for equipment and systems used in video or film
production. These products include graphics, character generation systems,
electronic paint and animation systems and software. As a result, the Company
operates as one business segment.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Until April 12, 1996, the Company's other
subsidiaries were inactive. On April 12, 1996, the Company acquired Pro-Bel
Limited and its subsidiaries (see Note 2). Certain prior year amounts have been
reclassified to conform to the current year presentation.
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet at September 30, 1996 and the related
statements of income and of cash flows for the nine months ended September 30,
1995 and 1996 and the statement of shareholders' equity for the nine months
ended September 30, 1996 are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair statement of results of the interim periods.
The data disclosed in these notes to the financial statements at such dates and
for such periods are also unaudited.
ACCOUNTING 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods
presented.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit and amounts invested in a
highly liquid money market fund. Cash equivalents consist of short term
investments convertible into cash within 3 months or less. The carrying amounts
of cash and cash equivalents approximate their fair value.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are carried at cost and are depreciated on the
straight-line method over estimated useful lives of 3-10 years. Leasehold
improvements are amortized over the shorter of the remaining life of the lease
or the life of the improvement.
REVENUE RECOGNITION
Revenue is recognized when finished products are shipped.
F-9
<PAGE>
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
In connection with the Company's emergence in 1991 from its reorganization
proceeding under Chapter 11 of the United States Bankruptcy Code, the Company
adopted "Fresh Start Reporting" in accordance with AICPA Statement of Position,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code."
Fresh Start Reporting requires that the Company report an income tax
equivalent provision when there is book taxable income and a pre-reorganization
net operating loss carryforward. This requirement applies despite the fact that
the Company's pre-reorganization net operating loss carryforward would eliminate
(or reduce) the related income tax payable. The current and future year benefit
related to the carryforward is not reflected in Net Income, but instead is
recorded as a direct increase to Additional Paid-in Capital. The income tax
equivalent provision does not affect the Company's tax liability.
The Company's deferred tax liability is determined based on the differences
between the financial reporting and tax bases of assets and liabilities and
enacted tax rates that are expected to be in effect for the years in which the
differences are expected to reverse. The deferred tax liability is reduced by
cumulative tax credits and losses carried forward for tax purposes and by tax
deductible temporary differences (deferred tax assets). See Note 13.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency for the Company's foreign operations is the
applicable local currency. The translation from the applicable foreign currency
to U.S. dollars is performed for asset and liability accounts using period-end
exchange rates and for revenue and expense accounts using a weighted average
exchange rate during the period. The gains or losses resulting from such
translation are recorded in the cumulative translation adjustment account which
is included in shareholders' equity.
COMMON STOCK EQUIVALENTS
In December 1991, the Company issued to Pesa, Inc. ("Pesa"), a Delaware
corporation, $5 million of Convertible Subordinated Notes ("Notes"). The Notes
were convertible into shares of common stock at a conversion price of $.20 per
share. As of December 31, 1995, all of the Notes had been converted into shares.
See Note 11.
In January 1992, shareholders of the Company, other than Pesa, received one
warrant for every two shares of common stock held when the Company issued
5,795,555 Common Stock Purchase Warrants. Each warrant entitled its holder to
purchase one share of common stock at $.20 per share. These warrants expired on
January 31, 1996. As of December 31, 1995, a total of 4,070,024 Common Stock
Purchase Warrants had been exercised. In January 1996, an additional 1,138,523
warrants were exercised.
During 1995, the Company's Board of Directors granted 3,125,000 Incentive
Stock Options to certain employees for the purchase of Chyron common stock at a
purchase price ranging from $1.625 to $1.875. Additionally during 1995, 90,000
Non-Incentive Stock Options were granted to members of the Board of Directors at
a purchase price of $1.875. The exercise price of the stock options granted
represents the quoted closing market price at the dates of the grant. The
options vest over three years and expire on July 25, 2000. During 1995, no
options were exercisable. See Note 12.
F-10
<PAGE>
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of
common shares outstanding during the period plus, when dilutive, additional
shares issuable upon the assumed exercise of outstanding Common Stock Purchase
Warrants and outstanding Incentive Stock Options. Fully diluted net income
(loss) per share is not presented since such presentation would not be
materially different from primary net income (loss) per share.
2. ACQUISITION OF PRO-BEL LIMITED
On April 12, 1996, the Company acquired Pro-Bel Limited ("Pro-Bel"), located
in Reading, United Kingdom. Pro-Bel manufactures and distributes video signal
and switching equipment and systems. The consideration consisted of $6.9 million
in cash, $5.3 million in notes and 3,146,205 shares of restricted Chyron common
stock valued at $6.9 million.
The acquisition of Pro-Bel was accounted for as a purchase. Accordingly, the
cost of the acquisition was allocated to the net assets acquired based upon
their estimated fair values. The excess of cost over the estimated fair value of
net assets acquired amounted to $7,532,000, which is being amortized over 12
years using the straight line method.
The accompanying consolidated statement of operations includes the operating
results of Pro-Bel since the date of the acquisition. Pro forma unaudited
consolidated operating results of the Company and Pro-Bel for the nine months
ended September 30, 1995 and 1996, assuming the acquisition had been made as of
January 1, 1995 and 1996, respectively, are summarized below (in thousands
except per share amounts).
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Net sales............................................................... $58,533 $67,313
Net income.............................................................. $2,589 $5,580
Net income per share.................................................... $.03 $.06
</TABLE>
These pro forma results have been prepared for comparative purposes only and
include adjustments as a result of applying purchase accounting and conversion
to generally accepted accounting principles in the United States, such as
additional depreciation expense and cost of goods sold due to the step-up in
basis of fixed assets and inventory, respectively, goodwill amortization, a
decrease in research and development expense due to the capitalization of
software development costs and increased interest expense on acquisition debt
adjusted for tax effect. The pro forma financial information is not necessarily
indicative of the operating results that would have occurred if the acquisition
had taken place on the aforementioned dates, or of future results of operations
of the consolidated entities.
3. INVESTMENT IN RT-SET
On February 29, 1996, the Company effectively purchased an option to acquire
a 19% interest in Real Time Synthesized Entertainment Technology, Ltd.
("RT-SET"), located in Tel Aviv, Israel. RT-SET develops, markets and sells real
time virtual studio set software and proprietary communications hardware that
operate on Silicon Graphics systems. In form, Chyron purchased shares of RT-SET
Convertible Preferred Stock in exchange for 2.4 million shares of Chyron
restricted common stock. In accordance with the purchase agreement, the 2.4
million shares of Chyron common stock were to be held in escrow and released in
tranches of one-third and two-thirds, subject to certain conditions. During
1996, the first of these conditions was met, which resulted in the release of
800,000 shares of Chyron restricted common
F-11
<PAGE>
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT IN RT-SET (CONTINUED)
stock to RT-SET. Upon the satisfaction of the remaining conditions, the
remaining 1,600,000 escrowed shares will be released. If the conditions are not
met, the shares of Chyron restricted common stock held in escrow will be
returned to the Company. Accordingly, the transaction has been recorded as the
purchase of a right to acquire a 19% interest in RT-SET. RT-SET retains the
voting rights with respect to the escrowed Chyron shares while such shares are
held by the escrow agent. The acquisition was recorded at the estimated fair
value of the Chyron restricted common stock released from escrow. In addition,
Chyron was granted certain call option rights which, if and when exercised, will
result in the Company owning up to a 51% interest in RT-SET.
4. CONTROL OF REGISTRANT
On May 26, 1995, Pesa sold 10,000,000 shares of common stock of Chyron to CC
Acquisition Company A, a Delaware limited liability company ("CCACA"). On July
25, 1995, Pesa sold 49,414,732 shares to the entities listed below.
Additionally, on July 25, 1995, Sepa Technologies, Ltd., a Georgia limited
liability company ("Sepa"), and an affiliate of Pesa, sold 5,000,000 shares to
the entities listed below.
The sales were made pursuant to two agreements entered into on May 26, 1995:
(1) CCACA and CC Acquisition Company B, a Delaware limited liability company
("CCACB"), and an affiliate of CCACA, entered into a stock purchase agreement
with Pesa (the "Pesa Agreement") pursuant to which (i) CCACA acquired 10,000,000
shares and (ii) CCACA and CCACB agreed to acquire an additional 49,414,732
shares and (2) CCACA entered into a stock purchase agreement with Sepa (the
"Sepa Agreement") pursuant to which CCACA agreed to acquire 5,000,000 shares and
the voting rights and right of first refusal to an additional 9,000,000 shares.
CCACA and CCACB are collectively referred to herein as CCAC.
On July 25, 1995, CCACA entered into an agreement (the "Leubert Agreement")
with Alfred O.P. Leubert Ltd., a New York corporation ("Leubert"), pursuant to
which CCACA was granted a right of first refusal to acquire 300,000 shares,
which shares were acquired by Leubert from Sepa and which reduced from 9,000,000
to 8,700,000 the Company's right of first refusal to acquire shares as set forth
in the Sepa Agreement.
On July 25, 1995, CCACA and CCACB entered into an assignment and assumption
agreement (the "Assignment Agreement") by and among CCACA, CCACB, WPG Corporate
Development Associates IV, L.P., a Delaware limited partnership ("CDA"), WPG
Corporate Development Associates IV (Overseas), L.P., a Cayman Islands exempt
limited partnership ("CDAO"), WPG Enterprise Fund II, L.P., a Delaware limited
partnership ("WPGII"), Weiss, Peck & Greer Venture Associates III, L.P., a
Delaware limited partnership ("WPGIII"), Westpool Investment Trust plc., a
public limited company organized under the laws of England ("WIT"), Lion
Investments Limited, a limited company organized under the laws of England
("Lion"), and Charles M. Diker (such individual together with CDA, CDAO, WPGII,
WPGIII, WIT and Lion, the "WPG/Westpool Investor Group") and certain other
persons (such persons together with the WPG/Westpool Investor Group, the
"Assignees") pursuant to which (i) CCACA assigned to the Assignees its rights
under the Pesa Agreement to acquire 20,000,000 shares, (ii) CCACA assigned its
rights under the Sepa Agreement to acquire 5,000,000 shares, (iii) CCACA
assigned its right of first refusal to acquire 5,400,000 of the 9,000,000 shares
as set forth in the Sepa Agreement and the Leubert Agreement described above and
(iv) CCACB assigned its rights under the Pesa Agreement to acquire 17,648,839
shares.
The closing, as contemplated by the Pesa Agreement and the Sepa Agreement,
occurred on July 25, 1995. Consequently, CCAC beneficially owns in the aggregate
21,765,892 shares and the WPG/Westpool
F-12
<PAGE>
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. CONTROL OF REGISTRANT (CONTINUED)
Investor Group beneficially owns in the aggregate 41,905,896 shares. Beneficial
ownership does not include 9,000,000 shares for which the voting rights have
been assigned to CCAC and the WPG/Westpool Investor Group.
<TABLE>
<CAPTION>
DATE OF
NAME OF OWNER NUMBER OF SHARES ACQUISITION
- --------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
CCACA.......................................................... 10,000,000 May 26, 1995
CCACB.......................................................... 11,765,892 July 25, 1995
CDA............................................................ 17,770,615 July 25, 1995
CDAO........................................................... 4,285,120 July 25, 1995
WPGII.......................................................... 4,415,557 July 25, 1995
WPGIII......................................................... 3,671,545 July 25, 1995
WIT............................................................ 6,984,311 July 25, 1995
Lion........................................................... 3,308,366 July 25, 1995
C.M. Diker..................................................... 1,470,382 July 25, 1995
Others......................................................... 742,944 July 25, 1995
</TABLE>
Pesa was a 100% owned subsidiary of a Spanish Company, Pesa Electronica,
S.A. ("Electronica"), which in turn was 99% owned by a Spanish Company, Amper,
S.A. ("Amper"). On June 24, 1994, Amper sold all of its shares of stock of
Electronica to Sepa. On August 2, 1994, Sepa acquired 14,000,000 shares of
Chyron common stock from certain foreign shareholders. Consequently, Sepa
directly and indirectly through Pesa became the beneficial owner of 73,414,732
shares of Chyron common stock.
On October 5, 1994, Electronica filed for receivership in Spain ("Suspension
de Pagos"). The proceedings are comparable to a Chapter 11 reorganization under
the U.S. Bankruptcy laws. The sale by Pesa of its Chyron common stock to CCAC,
the WPG/Westpool Investor Group and certain other persons on July 25, 1995.
5. ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable are stated net of an allowance for
doubtful accounts of $2,204,000 and $3,134,000 at December 31, 1994 and 1995,
respectively, and $5,617,000 at September 30, 1996. The provision for doubtful
accounts amounted to $547,000, $729,000, and $466,000 for 1993, 1994 and 1995,
respectively. The carrying amounts of accounts and notes receivable approximate
their fair values.
The Company periodically evaluates the credit worthiness of its customers
and determines whether collateral (in the form of letters of credit or liens on
equipment sold) should be taken or whether reduced credit limits are necessary.
Credit losses have consistently been within management's expectations.
Accounts and notes receivable are principally due from customers in, and
dealers serving, the broadcast video industry and non-broadcast display markets.
At December 31, 1994 and 1995, receivables included approximately $2.7 million
due from foreign customers.
F-13
<PAGE>
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Finished goods...................................................... $ 1,811 $ 3,345 $ 8,811
Work-in-process..................................................... 1,807 5,250 7,860
Raw material........................................................ 1,846 3,050 7,452
--------- --------- -------------
$ 5,464 $ 11,645 $ 24,123
--------- --------- -------------
--------- --------- -------------
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
Land....................................................................... $ 53 $ 53
Machinery and equipment.................................................... 3,881 4,441
Furniture and fixtures..................................................... 1,348 1,501
Leasehold improvements..................................................... 296 299
--------- ---------
5,578 6,294
Less: Accumulated depreciation and amortization............................ 1,932 2,994
--------- ---------
$ 3,646 $ 3,300
--------- ---------
--------- ---------
</TABLE>
Machinery and equipment at December 31, 1994 and 1995 includes $436,000 and
$473,000, respectively, of assets held under capital lease obligations. See Note
15.
Depreciation expense, which includes amortization of the Company's capital
lease assets, was $785,000, $1,106,000 and $1,054,000 in 1993, 1994 and 1995,
respectively.
8. SOFTWARE DEVELOPMENT COSTS
Certain software development costs are capitalized and amortized over their
estimated economic life, ranging from 3 to 5 years, commencing when each product
is available for general release. The following amounts were capitalized,
amortized and written off (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Amounts capitalized....................................................... $ 1,741 $ 1,383 $ 207
Less: Amortization (included in Research and Development)................. (764) (931) (1,013)
West Coast restructuring write-down to net realizable value............... (1,991)
--------- --------- ---------
Net (decrease) increase in software development costs..................... $ 977 $ (1,539) $ (806)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Accounts payable........................................................... $ 3,389 $ 2,818
Compensation (including pension liability)................................. 2,667 3,136
Other accrued items........................................................ 792 2,003
Income taxes payable....................................................... 160 163
--------- ---------
$ 7,008 $ 8,120
--------- ---------
--------- ---------
</TABLE>
The carrying amounts of accounts payable and accrued expenses approximate
their fair values.
10. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
DECEMBER 31,
<CAPTION> -------------- SEPTEMBER 30,
1994 1995 1996
-------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Term loan, maturing April 16, 2000 (a)............................................................ $ 7,000
Revolving credit facility, maturing March 28, 1999 (a)............................................ 2,730
Revolving credit facility, maturing April 27, 1997 (b)............................................ $4,741
Commercial mortgage term loan, maturing March 28, 2010 (c)........................................ 1,973
Promissory notes, payable on or before April 15, 1998 (d)......................................... 5,349
Trade finance facility, maturing December 31, 1996 (e)............................................ 915
Overdraft facility, maturing December 31, 1996 (f)................................................ 1,726
Notes payable, expiring April 27, 1995 (g)........................................................ $4,500
------ ------ -------------
4,500 4,741 19,693
Less amounts due in one year...................................................................... (4,716)
------ ------ -------------
$4,500 $4,741 $14,977
------ ------ -------------
------ ------ -------------
</TABLE>
(a) On March 28, 1996 and April 16, 1996, the Company entered into
agreements with a bank to obtain a revolving credit facility of $10 million and
a term loan of $8 million, respectively. The entire facility is secured by the
Company's assets. Borrowings are limited to amounts computed under a formula for
eligible accounts receivable and inventory. Additionally, an over-advance is
available above the borrowing formula in an amount not to exceed $3 million.
Interest on the revolving credit facility is equal to adjusted LIBOR plus 175
basis points or prime (8.25% at September 30, 1996) and is payable monthly. The
term loan is payable in quarterly installments of $500,000, commencing June 1,
1996. Interest on the term loan is equal to adjusted LIBOR plus 200 basis points
or prime (8.25% at September 30, 1996) and is payable monthly.
(b) At December 31, 1995, the Company had $4.7 million outstanding with a
financial institution under a secured revolving credit facility. Interest was
payable monthly at the prime rate (8.5% at December 31, 1995) plus 2% per annum.
The facility was due to expire on April 27, 1997, but was replaced by the
banking facility described in (a) above in conjunction with the financing of the
acquisition of Pro-Bel.
F-15
<PAGE>
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
(c) Pro-Bel has a commercial mortgage term loan with a bank. The loan is
secured by a building and property located in the United Kingdom. Interest is
equal to LIBOR (5.98% at September 30, 1996) plus 2%. The loan (including
interest) is payable in quarterly installments of 80,600 pounds sterling
($127,000, converted at the September 30, 1996 exchange rate).
(d) On April 12, 1996, the Company issued promissory notes to the
shareholders of Pro-Bel for $5.3 million (3.5 million pounds sterling) in
conjunction with the acquisition (See Note 2). The promissory notes are secured
by an irrevocable letter of credit from a bank. The amount of this irrevocable
letter of credit is included as an outstanding borrowing in the formula used to
calculate borrowing availability for the facilities described in (a) above.
Interest through April 15, 1997 is equal to LIBOR as of April 15, 1996 (6.46%)
and is payable quarterly. Interest from April 16, 1997 to April 15, 1998 is
equal to LIBOR as of April 15, 1997 and is payable quarterly. The notes are due
on or before April 15, 1998 and are subordinated to any obligations to a bank or
financial institution currently existing or subsequently entered into. The notes
can be prepaid without interest or penalty subsequent to November 1, 1996.
(e) On February 1, 1996, Pro-Bel entered into an agreement with a bank to
obtain a trade finance facility of 750,000 pounds sterling ($1,182,000,
converted at the September 30, 1996 exchange rate). The facility is secured by
the Company's accounts receivable. Interest is equal to the bank's base rate
plus 2% (7 3/4% at September 30, 1996) on advances against accounts receivable
in pounds sterling and equal to the Barclays Bank PLC currency call loan rate
plus 2% (7 3/4% at September 30, 1996) on advances against foreign accounts
receivable. Interest is payable quarterly, in arrears.
(f) On February 1, 1996, Pro-Bel entered into an agreement with a bank to
obtain an overdraft facility of 750,000 pounds sterling ($1,182,000, converted
at the September 30, 1996 exchange rate). Interest is equal to the bank's base
rate plus 2.5% (8 1/4% at September 30, 1996) and is payable quarterly
commencing in March 1996. The facility has a sublimit for overdraft on Pro-Bel's
wholly owned subsidiary, Trilogy Broadcast Limited, of 160,000 pounds sterling
($252,000, converted at the September 30, 1996 exchange rate). This facility is
payable upon written demand by the bank and any undrawn portion may be cancelled
by the bank at any time.
(g) At December 31, 1994, the Company had $4.5 million outstanding with
another financial institution under a secured revolving credit facility, which
was classified as long-term debt as the Company, on February 1, 1995, had
received a commitment for the two-year facility described in (b) above. Interest
on the former facility was payable monthly at prime plus 2% per annum.
Aggregate maturities of long-term debt in the next five years are as follows
(in thousands):
<TABLE>
<S> <C>
Three months ending December 31, 1996....... $ 1,568
1997........................................ 4,716
1998........................................ 7,424
1999........................................ 4,810
2000........................................ 1,085
2001........................................ 90
</TABLE>
The carrying amounts of long-term debt instruments approximate their fair
values.
F-16
<PAGE>
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. CONVERTIBLE SUBORDINATED NOTES PAYABLE
In 1991, the Company issued to Pesa 4-year Convertible Subordinated Notes in
the principal amount of $5.0 million maturing on January 31, 1996 and bearing
interest (payable annually in arrears) at the prime rate, adjusted annually each
December. The Notes were convertible into 25,000,000 shares of common stock of
the Company at a conversion rate of 20 cents per share. As of December 31, 1995,
all of the Notes had been converted into shares of common stock of the Company.
12. LONG-TERM INCENTIVE PLAN
In May 1995, the Company's shareholders approved the Chyron Corporation
Long-Term Incentive Plan ("the Plan"). The Plan allows for a maximum of
5,000,000 shares of common stock to be available with respect to the grant of
awards under the Plan; any or all of such common stock may be granted for awards
of Incentive Stock Options. In May 1996, the shareholders approved an amendment
to the Plan to provide that all Directors who are not officers of the Company
shall receive, on an annual basis on the last trading date of each July, stock
options for 10,000 shares of the Company's common stock, at an exercise price
equal to the quoted closing market price of the stock on the date of grant.
On July 25, 1995 and November 21, 1995, the Board of Directors granted
Incentive Stock Options for the purchase of 2,975,000 and 150,000, respectively,
shares to certain employees; the exercise price per option share is $1.625 and
$1.875, respectively, the quoted closing market prices at the dates of grant.
Additionally, on July 31, 1995, the non-employee members of the Board of
Directors received Non-Incentive Stock Options for the purchase of 90,000 such
shares at $1.875 per option share, the quoted closing market price at the date
of grant. The options to employees vest over three years at 33 1/3% per annum
and expire on July 25, 2000. During 1995, no options were exerciseable.
13. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
--------- ----- ---------
<S> <C> <C> <C>
Current:
State.................................................................. $ 152 $ $ 50
Tax Equivalent provision............................................... 608 420
--------- --- ---------
$ 760 $ $ 470
--------- --- ---------
--------- --- ---------
</TABLE>
F-17
<PAGE>
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES (CONTINUED)
The effective income tax rate differed from the Federal statutory rate as
follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
---------------------- -------------------- --------------------
AMOUNT % AMOUNT % AMOUNT %
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax provision (benefit) at statutory rate.... $ 692 34.0 $ (3,058) (34.0) $ 2,702 34.0
State income taxes, net of federal tax benefit.............. 100 4.9 33 .4
Benefit from post reorganization temporary differences on
tax equivalent provision.................................. (1,351) (17.0)
Effect of valuation allowance of deferred tax assets........ 3,058 34.0 (940) (11.8)
Other, net.................................................. (32) (1.6) 26 .3
----- --- --------- --------- --------- ---------
$ 760 37.3 $ $ 470 5.9
----- --- --------- --------- --------- ---------
----- --- --------- --------- --------- ---------
</TABLE>
The Company has deferred tax assets and deferred tax liabilities as
presented in the table below. The net deferred tax assets are subject to a
valuation allowance, which was $14.5 million and $5.4 million at December 31,
1994 and 1995, respectively. This valuation allowance is primarily attributable
to a pre-Chapter 11 reorganization net operating loss carryforward and
pre-Chapter 11 reorganization deductible temporary differences. As a result of
current and projected future profitability, the allowance was partially reduced
in 1995.
Deferred tax assets (deductible temporary differences) prior to the
allocation of the valuation allowance consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Post-reorganization net operating loss carryforward..................... $ 675 $ 280
Pre-reorganization net operating loss carryforward...................... 8,670 7,250
Pre-reorganization deductible temporary differences..................... 3,972 4,555
Restructuring reserve................................................... 1,063 55
Other................................................................... 1,500 2,000
--------- ---------
Total deferred tax assets............................................. $ 15,880 $ 14,140
--------- ---------
--------- ---------
</TABLE>
Deferred tax liabilities (taxable temporary differences) consisted of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
Pre-reorganization taxable temporary differences............................. $ 615 $ 85
Software development costs................................................... 683 585
Other........................................................................ 152 210
--------- ---------
Total deferred tax liabilities............................................. $ 1,450 $ 880
--------- ---------
--------- ---------
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards
("NOL") of approximately $22.1 million for tax purposes, expiring beginning with
the year 1996 through 2009. The U.S. Federal income tax code provides that the
amount of pre-Chapter 11 reorganization NOLs (approximately $21.3
F-18
<PAGE>
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES (CONTINUED)
million) at December 31, 1995 that can utilized will be limited each year as a
result of the change in control of the Company at the end of 1991 and certain
other annual limitations. Post-Chapter 11 reorganization NOLs (approximately $.8
million at December 31, 1995) are also subject to such limitations, due to the
change in control on July 25, 1995.
14. BENEFIT PLANS
The Company has a defined benefit pension plan (the "Pension Plan") covering
substantially all employees meeting minimum eligibility requirements. Benefits
paid to retirees are based upon age at retirement, years of credited service and
average compensation. Pension expense is actuarially determined using the
projected unit credit method. The Company's policy is to fund the minimum
contributions required under the Employees Retirement Income Security Act. The
assets held by the Pension Plan at December 31, 1995 include government
securities, corporate bonds and mutual funds.
The net periodic pension cost and its components under the provisions of
SFAS No. 87 are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefit earned during the period........................................... $ 388 $ 437 $ 383
Interest cost on projected benefit obligation........................................... 290 312 292
Actual return on plan assets............................................................ (217) (269) (227)
Net amortization and deferral........................................................... (15)
--------- --------- ---------
Net periodic pension cost............................................................... $ 461 $ 480 $ 433
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of the funded status of the Pension Plan to the Company's
balance sheet is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1993 1994 1995
--------- --------- ---------
Accumulated pension benefit obligation:
Vested............................................................................... $ 2,036 $ 2,431 $ 2,265
Non-vested........................................................................... 87 63 79
--------- --------- ---------
Total................................................................................ $ 2,123 $ 2,494 $ 2,344
--------- --------- ---------
--------- --------- ---------
Projected benefit obligation......................................................... $ 3,765 $ 4,532 $ 4,138
Plan assets at fair value............................................................ 2,663 3,352 2,609
--------- --------- ---------
Projected benefit obligation in excess of assets..................................... 1,102 1,180 1,529
Less items not yet recognized in net periodic pension cost:
Unrecognized net gain (loss) from past experience and changes in assumptions......... (45) (35) 49
--------- --------- ---------
Pension liability.................................................................... $ 1,057 $ 1,145 $ 1,578
--------- --------- ---------
--------- --------- ---------
</TABLE>
In each year presented, the expected long-term rate of return on Pension
Plan assets was 9%. The weighted average discount rate used to determine the
accumulated benefit obligation was 9% in 1993 and 8% in 1994 and 1995. The rate
of compensation increase used was 6% for all years presented.
F-19
<PAGE>
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. BENEFIT PLANS (CONTINUED)
In 1994, the Company adopted a 401(k) Plan exclusively for the benefit of
participants and their beneficiaries. All employees of the Company are eligible
to participate in the 401(k) Plan except non-resident aliens and employees who
are members of a union who bargain separately for retirement benefits during
negotiations. An employee may elect to contribute a percentage of his or her
current compensation to the 401(k) Plan, subject to a maximum of 20% of
compensation or the Internal Revenue Service annual contribution limit ($9,240
in 1994 and 1995), whichever is less. Total compensation that can be considered
for contribution purposes is limited to $150,000.
The Company can elect to make a contribution to the Plan on behalf of those
participants who have made salary deferral contributions. During 1995, the
Company contributed $29,000 to the Plan. During 1994, no contributions were made
by the Company.
15. COMMITMENTS AND CONTINGENCIES
At December 31, 1995, the Company was obligated under operating and capital
leases covering facility space and equipment as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
----------- -----------
<S> <C> <C>
1996..................................................................... $ 563 $ 183
1997..................................................................... 506 110
1998..................................................................... 374 58
1999..................................................................... 387 19
2000..................................................................... 401
2001 and thereafter...................................................... 1,420
----------- -----
$ 3,651 $ 370
----------- -----
----------- -----
</TABLE>
The operating leases contain provisions for maintenance and escalations for
real estate taxes. Total rent expense was $822,000, $530,000 and $496,000 for
1993, 1994 and 1995, respectively. The cumulative imputed interest in the
capital lease obligation was $40,000 at December 31, 1995.
As of December 31, 1995, the Company had outstanding letters of credit
totalling $28,000 which guaranteed various trade activities. The contract amount
of the letters of credit approximates their fair value as the value for each is
fixed over the life of the commitment. The Company maintains a total credit line
of $100,000 specifically for obtaining standby letters of credit.
There are several legal actions pending against the Company. It is
management's belief that none of these actions have merit nor will any outcome
materially affect the financial position of the Company.
16. NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed
of." This accounting standard, which is effective for financial statements
issued for fiscal years beginning after December 15, 1995, is not expected to
have a material impact on the Company's results or financial reporting.
F-20
<PAGE>
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. NEW ACCOUNTING STANDARDS (CONTINUED)
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation". This accounting standard is effective for financial statements
issued for fiscal years beginning after December 15, 1995. The Company plans to
adopt SFAS 123 in 1996 through disclosure in the Notes to the Consolidated
Financial Statements.
17. RELATED PARTY TRANSACTIONS
Sepa, prior to the change in control discussed in Note 4, was the beneficial
owner of 73,414,732 shares of Chyron common stock. Consequent to such ownership,
Sepa had an amended and restated management agreement with Chyron whereby Chyron
agreed to pay management fees to Sepa at 2.5% of consolidated revenues through
December 31, 1997. The management fees under this agreement were subject to an
annual limitation of $1.5 million. In July 1994, Chyron took advantage of an
option to prepay the management fee at a 25% discount from the aggregate
estimated yearly fees for the period July 1, 1994 through December 31, 1995,
resulting in estimated aggregate total savings of $486,000 in fees for the
eighteen month period ending December 31, 1995.
In December 1995, Chyron and Sepa agreed to terminate the Management
Agreement upon payment to Sepa of $2 million, which resulted in aggregate
savings for the Company of $1 million for the two year period ending December
31, 1997. The $2 million was paid in equal installments in December 1995 and
January 1996.
The Company shared certain trade show and facility costs with Pesa and
Electronica. Such services amounted to $127,000, $303,000 and $30,000 for 1993,
1994 and 1995, respectively, and were billed to these related parties under a
usage based allocation. During 1993, the Company also performed certain
development work for Electronica and sold to it certain products that were
billed under an arm's length arrangement. These sales amounted to $272,000.
As of December 31, 1994, the Company was indebted to Sepa and its affiliates
for $49,000, representing the cost of services provided and interest accrued on
the Convertible Subordinated Notes. Also, the Company had outstanding
receivables due from Electronica and its affiliates for equipment and services
at December 31, 1994 and 1995 amounting to $685,000 and $483,000, respectively.
In light of Electronica's filing "Suspension de Pagos" in Spain, reserves of
$545,000 and $389,000, respectively, have been provided for these receivables.
A director of the Company is a partner of a law firm that rendered various
legal services to the Company for which the Company incurred costs of $273,000
during 1995.
18. WEST COAST RESTRUCTURING
During the third quarter of 1994, as the result of continuing significant
operating losses by the Company's West Coast Operations and their inability to
meet revenue and operating targets, management implemented a restructuring plan
to eliminate a substantial number of the CMX and Aurora product lines and
consolidate certain remaining products into the Company's Graphics Operations,
with only certain product engineering capabilities remaining on the West Coast.
As a result, the Company recorded a $12.7 million charge to operations during
the third quarter of 1994, resulting from headcount reductions, consolidation
costs, write-downs of assets related to discontinued product lines and accrual
of estimated operating losses anticipated during the disposition period. For
1995, operating losses of $1,707,000 related to the discontinued product lines
were charged against the reserve for West Coast restructuring.
F-21
<PAGE>
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. WEST COAST RESTRUCTURING (CONTINUED)
During August 1995, the Company entered into an agreement to sublease a
portion of the office space for the West Coast Operations. The subleasing served
to decrease future rent commitments and, as a result, the Company reversed
$356,000 of the original $12.7 million charge to account for the decrease in
projected rent expense.
Additionally, during 1995, the Company sold certain inventory that had been
fully reserved for in the original $12.7 million charge. The Company realized a
gain of $380,000 related to this inventory.
During December 1995, the Company recaptured $603,000 of the original
restructuring charge as a result of lower than anticipated costs related to the
disposition period. As of December 31, 1995, the amount of the Reserve for West
Coast Restructuring of $158,000 represented future rent commitments through
1997.
A summary of activity for 1995 related to the West Coast Restructuring is
presented below (in thousands):
<TABLE>
<CAPTION>
RESERVE FOR WEST COAST
WEST COAST RESTRUCTURING
RESTRUCTURING RECAPTURE
------------- -------------
<S> <C> <C>
Balance at January 1, 1995...................................... $ 2,824 $ 0
Current year operating loss..................................... 1,707
Sublease agreement.............................................. 356 356
Realization on asset write-down................................. 380
Recapture....................................................... 603 603
------ ------
Balance at December 31, 1995.................................... $ 158 $ 1,339
------ ------
------ ------
</TABLE>
19. OTHER INFORMATION
Customers for the Company's products include broadcasters, video production
and post-production companies, cable television distributors and operators,
industrial users, governments and governmental agencies and domestic and
international dealers serving the video production and display industries for
non-broadcast and broadcast markets.
Export sales are made through several international distributors. Export
sales are principally to customers in Europe and Canada and amounted to
$6,049,000, $6,623,000 and $7,511,000, for 1993, 1994 and 1995, respectively.
20. REVERSE STOCK SPLIT (UNAUDITED)
On October 14, 1996, the Company's Board of Directors approved a
one-for-three reverse stock split subject to shareholders' approval. A
shareholders' meeting is scheduled for January 24, 1997. Other than the
pro-forma net income (loss) per share and pro forma weighted average number of
common and common equivalent shares outstanding presented in the consolidated
statements of operations, these consolidated financial statements do not reflect
the one-for-three reverse stock split subject to shareholder approval.
F-22
<PAGE>
CHYRON CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
INCREASE/
CHYRON PRO-BEL(F) (DECREASE) CONSOLIDATED
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales...................................................... $ 56,889 $ 10,424 $ 67,313
Cost of products sold.......................................... 26,887 5,630 $ 713(a) 33,230
--------- ----------- ----------- ------------
Gross profit................................................... 30,002 4,794 (713) 34,083
--------- ----------- ----------- ------------
Operating expenses:
Selling, general and administrative............................ 16,351 2,578 236(b) 19,165
Research and development....................................... 3,751 593 (50)(c) 4,294
--------- ----------- ----------- ------------
Total operating expenses....................................... 20,102 3,171 186 23,459
--------- ----------- ----------- ------------
Operating income............................................... 9,900 1,623 (899) 10,624
Interest expense, net.......................................... 872 68 280(d) 1,220
--------- ----------- ----------- ------------
Income before provision for income tax......................... 9,028 1,555 (1,179) 9,404
Income taxes/equivalent provision.............................. 3,405 518 (99)(e) 3,824
--------- ----------- ----------- ------------
Net income..................................................... $ 5,623 $ 1,037 $ (1,080) $ 5,580
--------- ----------- ----------- ------------
--------- ----------- ----------- ------------
Net income per common share.................................... $ .06 $ .06
--------- ------------
--------- ------------
Weighted average number of common and common equivalent shares
outstanding.................................................. 96,558 97,728
--------- ------------
--------- ------------
</TABLE>
THE UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS PRESENTED ABOVE
ASSUMES THE ACQUISITION OF PRO-BEL BY THE COMPANY AT THE BEGINNING OF THE PERIOD
PRESENTED.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME:
(a) Reflects the increase in depreciation expense for the step up in basis
of property, plant and equipment acquired and the increase in cost of products
sold for the step up in basis of inventory acquired.
(b) Reflects the increase in depreciation expense for the step up in basis
of property, plant and equipment acquired and the amortization expense of excess
of cost over fair value net assets acquired in connection with the acquisition
of Pro-Bel.
(c) Reflects the decrease in research and development expense due to the
capitalization of certain of Pro-Bel's software development costs, net of the
amortization of such costs for the period.
(d) Reflects additional interest expense on indebtedness incurred in
connection with the acquisition of Pro-Bel.
(e) Reflects the estimated income tax effect on the acquisition financing.
(f) Results of operations from January 1, 1996 through the date of
acquision.
F-23
<PAGE>
The following is one page of pictures of various graphics produced by certain
of the Company's products with description of the graphics.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR BY ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK
REFERRED TO BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION TO SUCH PERSON IN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER
OR SOLICITATION MAY NOT BE LAWFULLY MADE. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 5
The Company.................................... 14
Use of Proceeds................................ 14
Price Range of Common Stock.................... 15
Dividend Policy................................ 15
Capitalization................................. 16
Selected Consolidated Financial Data........... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 26
Management..................................... 39
Principal and Selling Shareholders............. 41
Description of Capital Stock................... 45
Shares Eligible for Future Sale................ 46
Underwriting................................... 48
Legal Matters.................................. 49
Experts........................................ 49
Additional Information......................... 49
Incorporation of Certain Documents by
Reference..................................... 50
Index to Financial Statements.................. F-1
</TABLE>
7,650,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
OPPENHEIMER & CO., INC.
VOLPE, WELTY & COMPANY
SOUTHCOAST CAPITAL
CORPORATION
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be incurred in connection with the offering are as
follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 27,993
NYSE registration fee............................................. 18,375
NASD filing fee................................................... 9,738
Printing and engraving expenses................................... 100,000
Registrar and transfer agent fees and expenses.................... 5,000
Accounting fees and expenses...................................... 150,000
Legal fees and expenses........................................... 200,000
Miscellaneous fees and expenses................................... 113,894
---------
TOTAL............................................................. $ 625,000
</TABLE>
The Selling Shareholders will bear no part of the expenses listed above.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the statutes of the State of New York, a director or officer of
a corporation is entitled, under specified circumstances, to indemnification by
the corporation against reasonable expenses, including attorney's fees, incurred
by him in connection with the defense of a civil or criminal proceeding to which
he has been made, or threatened to be made, a party by reason of the fact that
he was such director or officer. In certain circumstances, indemnity is provided
against judgments, fines and amounts paid in settlement. In general,
indemnification is available where the director or officer acted in good faith,
for a purpose he reasonably believed to be in the best interests of the
corporation. Specific court approval is required in some cases. The foregoing
statement is subject to the detailed provisions of Sections 715, 717 and 721-725
of the New York Business Corporation Law ("BCL").
The Registrant has entered into indemnity agreements with each of its
directors and executive officers. The indemnity agreements provide that
directors and executive officers (the "Indemnitees") will be indemnified and
held harmless to the fullest possible extent permitted by law including against
all expenses (including attorneys' fees), judgments, fines, penalties and
settlement amounts paid or incurred by them in any action, suit or proceeding on
account of their services as director, officer, employee, agent or fiduciary of
the Registrant or as directors, officers, employees or agents of any other
company or entity at the request of the Registrant. The Registrant will not,
however, be obligated pursuant to the agreements to indemnify or advance
expenses to an indemnified part with respect to any action (1) in which a
judgment adverse to the Indemnitee establishes (a) that the Indemnitee's acts
were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material, or (b) that the Indemnitee
personally gained in fact a financial profit or other advantage to which he or
she was not legally entitled, or (2) which the Indemnitee initiated, prior to a
change in control of the company, against the Registrant or any director or
officer of the Registrant unless the Registrant consented to the initiation of
such claim.
The indemnity agreements require an Indemnitee to reimburse the Registrant
for expenses advanced only to the extent that it is ultimately determined that
the director or executive officer is not entitled, under Section 723(a) of the
BCL) and the indemnity agreement, to indemnification for such expenses.
II-1
<PAGE>
The indemnification provision in the Bylaws, and the indemnification
agreements entered into between the Registration and the Indemnitees, may be
sufficiently broad to permit indemnification of the Indemnitees for liabilities
arising under the Securities Act.
The Registrant has agreed to indemnify the Underwriter and its officers,
directors, partners, employees, agents and controlling persons as to any losses,
claims, damages, expenses or liabilities arising out of any untrue statement or
omission of a material fact contained in the registration statement. The
Underwriter has agreed to indemnify the Registrant and its directors, officers
and controlling persons as to any losses, claims, damages, expenses or
liabilities arising out of any untrue statement or omission in the registration
statement based on information relating to the Underwriter furnished by it for
use in connection with the registration statement. See Section of the
Underwriting Agreement which will be filed in an amendment as Exhibit 1.1 to
this Registration Statement.
The Registrant has purchased directors' and officers' liability insurance.
ITEM 16. EXHIBITS.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
5.1 Opinion and Consent of Camhy Karlinsky & Stein LLP.
23.1 Consent of Camhy Karlinsky & Stein LLP (included in Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Bronsens, Chartered Accountants.
24.1 Power of Attorney (contained on page II-5 of this Registration Statement).
</TABLE>
- ------------------------
* To be filed by Amendment.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described above
in Item 15, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby also undertakes:
(1) That, for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A
II-2
<PAGE>
and contained in the form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of the registration statement as of the time it was declared effective.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Include any additional or changed material information on the plan
of distribution.
(4) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the termination of the offering.
(5) To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial information
required to be presented by Article 3 of Regulation S-X is not set forth in the
prospectus, to deliver, or cause to be delivered to each person whom the
prospectus is sent or given, the latest quarterly report that is specifically
incorporated by reference in the prospectus to provide such interim financial
information.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of New York, State of New York, on December 20, 1996.
<TABLE>
<S> <C> <C> <C>
CHYRON CORPORATION
By:
BY:
<CAPTION>
/s/ MICHAEL I. WELLESLEY-WESLEY
------------------------------------------
Michael I. Wellesley-Wesley
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
/S/ PATRICIA ARUNDELL LAMPE
------------------------------------------
Patricia Arundell Lampe
CHIEF FINANCIAL OFFICER
</TABLE>
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints and hereby authorizes Michael Wellesley-Wesley
and Patricia A. Lampe, separately, as such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such person and in his name, place and stead, in any and all
capacities, to sign any and all amendments, including post-effective amendments,
to this Registration Statement, and to sign any and all additional registration
statements relating to the same offering of securities as this Registration
Statement that are filed pursuant to Rule 462(b) of the Securities Act of
1933,and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, full power and authority to do separately and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes may lawfully do
or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed below by the following
persons in the capacities and on the dates stated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ MICHAEL I. Chairman of the Board and
WELLESLEY-WESLEY Chief Executive Officer
- ------------------------------ (Principal Executive December 20, 1996
Michael I. Wellesley-Wesley Officer)
/s/ ISAAC HERSLY
- ------------------------------ President, Chief Operating December 20, 1996
Isaac Hersly Officer and Director
Treasurer And Chief
/s/ PATRICIA ARUNDELL LAMPE Financial Officer
- ------------------------------ (Principal Financial December 20, 1996
Patricia Arundell Lampe and Accounting Officer)
/s/ SHELDON D. CAMHY
- ------------------------------ Director December 20, 1996
Sheldon D. Camhy
/s/ S. JAMES COPPERSMITH
- ------------------------------ Director December 20, 1996
S. James Coppersmith
/s/ CHARLES M. DIKER
- ------------------------------ Director December 20, 1996
Charles M. Diker
II-5
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ DONALD P. GREENBERG
- ------------------------------ Director December 20, 1996
Donald P. Greenberg
/s/ RAYMOND W. HARTMAN
- ------------------------------ Director December 20, 1996
Raymond W. Hartman
/s/ ALAN HIRSCHFIELD
- ------------------------------ Director December 20, 1996
Alan Hirschfield
/s/ WESLEY LANG, JR.
- ------------------------------ Director December 20, 1996
Wesley Lang, Jr.
/s/ EUGENE M. WEBER
- ------------------------------ Director December 20, 1996
Eugene M. Weber
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
1.1 Form of Underwriting Agreement.*
5.1 Opinion and Consent of Camhy Karlinsky & Stein LLP.
23.1 Consent of Camhy Karlinsky & Stein LLP (included in Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Bronsens, Chartered Accountants.
24.1 Power of Attorney (contained on page II-5 of this Registration Statement).
</TABLE>
- ------------------------
* To be filed by Amendment.
<PAGE>
EXHIBIT 5.1
December 19, 1996
Chyron Corporation
5 Hub Drive
Melville, New York 11747
Re: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
You have requested our opinion in connection with the above-captioned
Registration Statement on Form S-3 to be filed by Chyron Corporation, a New York
corporation (the "Company"), with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations promulgated thereunder (the "Rules"). The Registration Statement
relates to the offering of up to 8,797,500 shares (the "Shares") of common
stock, par value $.01 per share (the "Common Stock").
We have examined such records and documents and have made such examination
of law as we considered necessary to form a basis for the opinions set forth
herein. In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity with the originals of all documents submitted to us as copies
thereof.
Based upon such examination, it is our opinion that when there has been
compliance with the Act and applicable state securities laws and when the
Underwriting Agreement, a form of which will be filed as an exhibit to the
Registration Statement, is duly and validly executed and delivered, the Common
Stock, when issued, delivered and paid for in the manner described in such
Underwriting Agreement, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Opinions" in the Registration Statement. In so doing, we do not admit that we
are in the category of persons whose consent is required under Section 7 of the
Act or under the Rules.
Very truly yours,
/s/ CAMHY KARLINSKY & STEIN LLP
Camhy Karlinsky & Stein LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion in the Prospectus constituting part of
this Registration Statement on Form S-3 of our report dated February 8, 1996,
except as to Note 3, which is as of February 29, 1996, and Note 2, which is as
of April 12, 1996, appearing on page F-2 of the Prospectus. We also consent to
the application of such report to the Financial Statement Schedule for the year
ended December 31, 1995 appearing on page 45 of Chyron Corporation's Annual
Report on Form 10-K for the year ended December 31, 1995, which is incorporated
by reference in the Prospectus constituting part of this Registration Statement
on Form S-3 when such schedule is read in conjunction with the financial
statements referred to in our aforementioned report. We also consent to the
references to us under the headings "Experts" and "Selected Consolidated
Financial Data" in such Prospectus.
/S/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
December 18, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data," and to the use of our report dated
February 17, 1995 in the Registration Statement (Form S-3 No. 333- )
and related Prospectus of Chyron Corporation and subsidiary for the registration
of 7,650,000 shares of its common stock and to the incorporation by reference
therein of our report dated February 17, 1995, with respect to the consolidated
financial statements and schedule of Chyron Corporation and subsidiary included
in its Annual Report (Form 10-K) for the year ended December 31, 1995 filed with
the Securities and Exchange Commission.
/S/ ERNST AND YOUNG LLP
Ernst and Young LLP
Melville, New York
December 18, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
June 20, 1996 appearing on Appendix III of Chyron Corporation's Form 8-K/A dated
June 17, 1996. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ Bronsens
________________________
Bronsens
Chartered Accountants
Registered Auditors
December 21, 1996
26 Beaumont Street
Oxford
OX1 2NP
England
