SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1997
Commission File Number 1-9014
CHYRON CORPORATION
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation or organization)
11-2117385
(I.R.S. Employer Identification No.)
5 Hub Drive, Melville, New York
(Address of principal executive offices)
11747
(Zip Code)
Registrant's telephone number, including area code (516) 845-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by a check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Common Stock $.01 Par Value - 32,605,706 as of November 7, 1997
This document consists of 14 pages
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(In thousands except per share amounts)
(Unaudited)
1997 1996
Net sales $23,523 $20,632
Cost of products sold 12,586 9,817
Gross profit 10,937 10,815
Operating expenses:
Selling, general and administrative 6,901 5,890
Research and development 1,655 1,452
Total operating expenses 8,556 7,342
Operating income 2,381 3,473
Interest and other expense, net 411 450
Income before provision of income taxes 1,970 3,023
Income taxes/equivalent provision 734 1,189
Net income $ 1,236 $ 1,834
Net income per common share $ .04 $ .06
Weighted average number of common and
common equivalent shares outstanding 32,583 32,917
See Notes to the Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(In thousands except per share amounts)
(Unaudited)
1997 1996
Net sales $63,621 $56,889
Cost of products sold 34,617 26,887
Gross profit 29,004 30,002
Operating expenses:
Selling, general and administrative 21,606 16,351
Research and development 5,106 3,751
Non-recurring charges 3,082
Total operating expenses 29,794 20,102
Operating (loss) income (790) 9,900
Interest and other expense, net 1,175 872
(Loss) income before provision for income taxes (1,965) 9,028
Income taxes/equivalent (benefit) provision (573) 3,405
Net (loss) income (1,392) 5,623
Retained earnings - beginning of period 9,997 1,343
Retained earnings - end of period $ 8,605 $ 6,966
Net (loss) income per common share $ (.04) $ .18
Weighted average number of common and
common equivalent shares outstanding 32,516 32,186
See Notes to the Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands except share amounts)
(Unaudited)
ASSETS September 30, December 31,
1997 1996
Current assets:
Cash and cash equivalents $ 5,775 $ 5,623
Accounts and notes receivable 22,033 25,237
Inventories 25,111 23,502
Prepaid expenses 2,163 865
Deferred tax asset 7,588 6,015
Other 3,003 2,826
Total current assets 65,673 63,000
Property and equipment 12,396 12,701
Excess of cost over net tangible assets acquired 6,336 6,439
Investment in RT-SET 2,161 2,161
Software development costs 4,477 2,176
Deferred tax asset 4,911 4,709
Other 229 217
TOTAL ASSETS $96,183 $91,403
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts Payable and accrued expenses $20,223 $15,828
Current portion of long-term debt 13,854 5,080
Capital lease obligations 227 225
Total current liabilities 34,304 21,133
Long-term debt 8,008 15,163
Capital lease obligations 32 118
Other 744 1,043
Total liabilities 43,088 37,457
Commitments and contingencies
Shareholders' equity:
Preferred stock; par value without designation
Authorized - 1,000,000 shares, Issued - none
Common stock; par value $.01
Authorized - 150,000,000 shares
Issued and outstanding -
32,588,485 shares at September 30, 1997
32,384,635 shares at December 31, 1996 326 324
Additional paid-in capital 43,933 43,124
Retained earnings 8,605 9,997
Cumulative translation adjustment 231 501
Total shareholders' equity 53,095 53,946
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $96,183 $91,403
See Notes to the Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(In thousands)
(Unaudited)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/income $(1,392) $2,623
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Non-recurring charges 1,801
Depreciation and amortization 2,925 2,001
(Recognition) utilization of deferred tax asset (1,778) 688
Changes in operating assets and liabilities:
Accounts and trade notes receivable 2,933 914
Inventories (2,897) (4,748)
Prepaid expenses (1,312) (48)
Other assets (190)
Accounts payable and accrued expenses 3,939 (2,020)
Management fee payable (1,000)
Other liabilities (286) (59)
Net cash provided by operating activities 3,743 1,351
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Axis Holding Incorporated (413)
Acquisition of Pro-Bel, Ltd. (7,226)
AcquisitionS of property and equipment (1,588) (1,358)
Capitalized software development (1,583) (705)
Other (608)
Net cash used in investing activities (3,584) (9,897)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of capital lease obligations (80) (179)
Payment of truncated shares as a result of reverse
stock split (41)
Proceeds from exercise of common stock purchase
warrants, net 239
Proceeds from exercise of stock options 14 542
Payment of term loan (1,500) (1,000)
Payments (borrowings) of revolving credit
agreements, net 2,663 (4,644)
Proceeds from credit facility, net 11,654
Net cash provided by financing activities 1,056 6,612
Effect of foreign currency rate fluctuations on
cash and cash equivalents 5
Change in cash and cash equivalents 1,220 (1,934)
Cash and cash equivalents at beginning of period 4,555 5,012
Cash and cash equivalents at end of period $5,775 $3,078
Noncash investing and financing activities:
On March 31, 1997, the Company acquired the issued and outstanding shares
of Axis Holding Incorporated. The consideration in addition to cash paid
included the issuance of 173,913 of Chyron Corporation common stock valued
at $750,000 and notes payable of $667,000. See Note 2 for further
discussion.
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in conformity with generally accepted accounting principles for
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. These statements should be
read in conjunction with the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1996.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine months ended September
30, 1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997.
2. INVESTMENT IN AXIS HOLDINGS INCORPORATED
On March 31, 1997, the Company acquired 100% of the capital stock of
Axis Holdings Incorporated ("Axis") located in Los Angeles, California.
Axis develops software in professional video and audio tools created
specifically for use on the Microsoft Windows NT Operating System. The
purchase consisted of $413,000 in cash paid and professional fees, $667,000
in notes and 173,913 restricted shares of Chyron common stock valued at
$750,000.
As stated in the purchase agreement, the principal portion of the note
is to be paid in two successive annual installments. Installment payment
amounts are contingent upon Axis achieving certain revenue targets.
Installments of $350,000 and $317,000 are due on March 31, 1998 and March
31, 1999, respectively, provided that the targeted shipments of the primary
product associated with the Axis division are realized on or before March
15, 1998. If the Company does not achieve its target the installment
payment will be $250,000 and $417,000 due on March 31, 1998 and March 31,
1999, respectively. Interest is to be paid at the rate of 6% per year and
is due with the annual installments.
Additionally, payments equal to 20% of cumulative net profits, as
defined, on the Axis product line, in excess of $1 million, will be payable
to the sellers. The period for the calculation of cumulative net profits
is March 31, 1997 through December 31, 1999. Payments due for each year
will be made on or before April 30 of the next succeeding year.
The acquisition was accounted for as a purchase in accordance with APB
16. Accordingly, the costs of the acquisition were allocated to the net
assets acquired based on their estimated fair values. The majority of the
purchase price was capitalized as software development costs and will be
amortized over the estimated economic life of the products, commencing when
each product is available for general release.
3. RESTATEMENT AND RECLASSIFICATION
On January 24, 1997, the Company's shareholders ratified a one-for-
three reverse stock split. Net income (loss) per share, weighted average
number of common and common equivalent shares outstanding, common stock
issued and outstanding, additional paid-in-capital and all other common
stock transactions presented in these consolidated financial statements have
been restated to reflect the one-for-three reverse stock split. In
addition, certain prior year amounts have been reclassified to conform to
current year presentation.
4. ACQUISITION OF PRO-BEL LIMITED
On April 12, 1996, the Company completed the acquisition of the issued
and outstanding shares of Pro-Bel Limited ("Pro-Bel"), located in the 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 purchase price was allocated to the net assets acquired
based upon their estimated fair values. The excess of purchase price over
the estimated fair value of net assets acquired amounted to $7,276,000,
which is being amortized over 12 years using the straight line method.
The accompanying consolidated statements of operations include the
operating results of the Company and Pro-Bel since the date of the
acquisition. Actual unaudited consolidated operating results for the nine
months ended September 30, 1997 and proforma unaudited consolidated
operating results for the nine months ended September 30,1996 assuming the
acquisition had been made as of January 1, 1996, respectively, are
summarized below (in thousands except per share amounts).
Actual Performa
September 30, September 30,
1997 1996
Net sales $63,621 $67,313
Net (loss) income $(1,392) $ 5,581
(Loss) earnings per share $ (.04) $ .18
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 the basis of fixed assets and inventory, respectively, goodwill
amortization, a decrease in research and development 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
date, or of future results of operations of the consolidated entities.
5. ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable are stated net of an allowance for
doubtful accounts of $2,992,000 and $2,850,000 at September 30, 1997 and
December 31, 1996, respectively.
6. INVENTORIES
Inventories consist of the following (in thousands):
September 30, December 31,
1997 1996
Finished goods $11,798 $12,879
Work-in-process 6,059 5,271
Raw material 7,254 5,352
$25,111 $23,502
7. NON-RECURRING CHARGES
For the nine months ended September 30, 1997, the Company incurred
non-recurring charges totalling $3.1 million. Of these total charges,
$675,000 was related to the Company's planned secondary offering of common
stock which was terminated due to the market valuation of the stock. The
remainder ($2.4 million) related mainly to a repositioning by the Company
to address the domestic television market's need for high definition and
multichannel standard definition digital equipment that complies with recent
Federal Communication Commission rulings. Included in this charge was a
write-down of inventory related to product lines which have been
discontinued as a result of a new market positioning strategy, severance
expense related to a staff reduction in the second quarter, the write-off
of software development projects related to product not within the new
strategy, the consolidation of certain Chyron offices, the settlement of
litigation dating back several years and the write-off of costs related to
a potential acquisition that was abandoned due to the new strategy.
8. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement on Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." This accounting standard is effective for financial
statements issued for fiscal years beginning after December 15, 1997 and
requires restatement of all prior-period earnings per share data presented.
Adoption of SFAS 128 will not have a material impact on the calculation of
earnings per share for the periods presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITIONS
Results of Operations
Overview
This discussion should be read in conjunction with the Consolidated
Financial Statements including the Notes thereto:
Comparison of the Three Months Ended September 30, 1997 and 1996
Sales for the quarter ended September 30, 1997 increased to $23.5
million, an increase of $2.9 million, or 14.0% over the $20.6 million
reported for the third quarter of 1996. Pro-Bel product line sales
increased by over 45% for the period with substantial increases being
realized in U.S. sales of this line which grew over 200% in 1997 as compared
to the same period in 1996. Chyron graphic product sales decreased by
approximately 10%, with decreases being realized domestically. Domestic
sales declined due mainly to customers opting to fill their graphic system
needs with the Company's lower end Chyron products based on the recent
Federal Communications Commission ("FCC") ruling requiring broadcasters to
utilize digital advanced television transmission beginning in 1998 which
should cause large future capital expenditures by the broadcast industry.
The decrease in Chyron graphic product sales was driven mainly by a decrease
in demand for the high-end iNFiNiT product line, while sales of the Max,
Maxine and Liberty lines showed increases. Overall, international sales
increased.
Gross profit increased by $122,000, or 1.1%, to $10.9 million for the
quarter ended September 30, 1997 from $10.8 million for the third quarter
of 1996. Such increase was attributable to the increase in sales for the
third quarter of 1997 offset by decreases realized due to the change in the
product mix. Gross margins as a percentage of sales decreased to 46.5% in
1997 from 52.4% in 1996 mainly as a result of the increase in sales of Pro-
Bel products, which historically have had lower gross margins than Chyron's
gross margins. The decrease in the volume of Chyron graphics sales and the
change in the product mix of this line also contributed to the decrease in
gross margin.
Selling, general and administrative ("SG&A") expenses increased by $1
million, or 17.2%, to $6.9 million in the third quarter of 1997 compared to
$5.9 million for the third quarter of 1996. Such increase is due mainly to
increases in expenses based on increased sales volume. SG&A as a percentage
of sales increased slightly to 29.3% for the third quarter of 1997 from
28.5% for the comparable 1996 period.
Net research and development ("R&D") expenses increased for the third
quarter of 1997 over the 1996 third quarter by $203,000, or 14.0%. The
increase is due mainly to intensified efforts at Chyron and Pro-Bel to
address the FCC rulings described above in terms of new product development.
These increases are mainly the result of increased headcount at both Chyron
and Pro-Bel. This increase was offset by an increase in the net capitalized
software costs, which increased $463,000 for the third quarter of 1997
versus the same period in 1996.
Other expenses, which include interest income and expense and foreign
currency transaction gains and losses, decreased to $411,000, compared to
$450,000 for the third quarter of 1996. This decrease is mainly a result
of the foreign currency transaction gains recognized in the third quarter
of 1997.
Income before income taxes decreased $1 million, or 34.8%, to $2
million for the third quarter of 1997 compared to $3 million for the third
quarter of 1996. This decrease was attributable mainly to the decrease in
gross profit as a result of product mix and increases in SG&A and R&D as
described above.
Income taxes/equivalent provision decreased to $734,000, a decrease
of $455,000 from the $1.2 million reported for the third quarter of 1996.
This decrease is due mainly to the decrease in income before income taxes,
as described above.
Comparison of the Nine Months Ended September 30, 1997 and 1996
Sales for the nine month period ended September 30, 1997 increased to
$63.6 million, an increase of $6.7 million, or 11.8%, over the $56.9 million
reported for the 1996 comparable period. This increase was attributable to
the inclusion of Pro-Bel since its acquisition on April 12, 1996 offset by
a decrease of over 20% in Chyron graphic product sales. Chyron graphic
product sales increased for the Max, Maxine, Liberty and Codi lines and
decreased for the iNFiNiT product line.
Gross profit decreased to $29.0 million for the nine months ended
September 30, 1997. The decrease of $1.0 million, or 3.3% from the $30.0
million reported for the nine months of 1996, was attributable to a change
in the product mix from 1996 to 1997 as is also reflected in the decline in
gross margin percentages which decreased to 45.6% in 1997 from 52.7% in
1996. A shift in Chyron sales from the high end iNFiNiT lines to the Max,
Maxine and Codi lines and the overall decrease in Chyron graphic product
sales contributed to the decrease in both gross profit dollars and gross
margin percentages. The gross margin percentage decrease was also impacted
by the fact that 1997 amounts include Pro-Bel products (which historically
have lower gross margin percentages) for nine months versus six months in
1996.
SG&A expenses increased by $5.3 million, or 32.1%, to $21.6 million
in 1997 compared to $16.4 million for the first nine months of 1996. The
increase for the period is due mainly to the consolidation of Pro-Bel and
the additional depreciation and goodwill amortization as a result of the
application of the purchase accounting method on the acquired assets.
Additional increases were seen due to an increase overall in sales volume.
Net R&D expenses increased for the nine months ended September 30,
1997 compared to 1996 by $1.4 million, or 36.1%. This increase is mainly
attributable to the inclusion of Pro-Bel expenditures for the full nine
month period in 1997. Additional increases in R&D have been seen at both
Chyron and Pro-Bel as the Company has focused its attention on new product
development to address the FCC ruling described above. These increases were
offset by the net capitalized software cost, which increased $713,000 for
the nine months ended September 30, 1997 versus the same period in 1996.
For the nine months ended September 30, 1997, non-recurring charges
totaling $3.1 million were incurred by the Company. A non-recurring charge
of $675,000 incurred in the first quarter of 1997 was attributable to the
Company's planned secondary offering of common stock, which was terminated
due to the market valuation of the stock. During the second quarter of
1997, in an effort to position Chyron to meet the domestic television
market's need for high definition and multichannel standard definition
equipment that comply with the recent FCC rulings described above, the
Company underwent a repositioning which, together with several other items,
resulted in non-recurring charges in the second quarter totalling
$2,407,000.
Included in this charge was a write-down of inventory related to
product lines which have been discontinued as a result of a new market
positioning strategy, severance expense related to products not within the
new strategy, the consolidation of certain Chyron offices, the settlement
of litigation dating back several years and the write-off of costs related
to a potential acquisition that was abandoned due to the new strategy.
The specific components of the non-recurring charge are as follows (in
thousands):
Non-cash outlays:
Write-down of inventory $700
Write-off of software development costs 205
Litigation settlement 88
Total non-cash charges 993
Cash outlays:
Secondary offering termination 675
Severance 825
Write-off of acquisition costs 200
Litigation settlement 100
Other 289
Total $3,082
Cash outlays related to the non-recurring charges total $2.1 million,
of which $1.3 million was made by September 30, 1997.
Other expenses, which included interest income and expense and foreign
currency transaction gains and losses, increased to $1.2 million, or 34.7%,
from $872,000 for the nine months ended September 30, 1996. This increase
is mainly a result of the average increased borrowings for the nine months
ended 1997 versus 1996. Increases also stem from the purchase of Pro-Bel
in 1996 and Axis in 1997. Interest rates remained relatively consistent for
both nine month periods.
The Company incurred a loss before income taxes of $2.0 million
compared to income of $9.0 million for the same period in the prior year.
This loss was attributable mainly to the decrease in sales of Chyron
graphics products, the gross margin erosion as a result of the product mix,
increased SG&A and R&D expenses and the $3.1 million non-recurring charges
as discussed above.
The Company recognized a $573,000 tax benefit for the nine months
ended September 30, 1997 compared to an income tax provision of $3.4 million
for 1996. The tax benefit was primarily attributable to the loss of $2.0
million before taxes while the provision was based on pre-tax income of $9.0
million.
Liquidity and Capital Resources
On January 1, 1997, Pro-Bel entered into an agreement with Barclays
Bank PLC to obtain borrowing facilities totaling 3.0 million pounds sterling
($4,883,000 converted at the September 30, 1997 exchange rate). The
facility is payable on demand and matures December 31, 1997. This facility
replaced former bank facilities which expired on December 31, 1996. Upon
maturity, the Company intends to replace this borrowing facility with a
similar one.
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. Quarterly payments on the term loan portion of the facility are funded
by the Company's working capital.
On April 12, 1996, the Company issued promissory notes to the
shareholders of Pro-Bel for 3.5 million pounds sterling ($5.7 million
converted at the September 30, 1997 exchange rate). The 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 maturity, the notes will be repaid with the
letter of credit described above.
On March 31, 1997, the Company issued promissory notes to the
shareholders of Axis for $667,000. The notes are payable in two annual
installments beginning March 31, 1998. The Company intends to fund these
payments with its working capital.
At September 30, 1997, the Company's current ratio was 1.91 to 1 and
its working capital was $31,369,000.
At September 30, 1997, the Company had operating lease commitments for
equipment, factory and office space totaling $11,887,000 of which $907,000
is payable within one year.
PART II. OTHER INFORMATION
ITEMS 1., 2., 3. Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) On January 24, 1997, at a special meeting of shareholders, the
Company's shareholders' ratified a one-for-three reverse stock split of its
common stock which was effective February 10, 1997. 77,162,761 shares were
voted for the proposal, 2,876,490 shares were voted against the proposal and
169,212 shares abstained.
b) On May 14, 1997, the Company held its Annual Meeting of
Shareholders. At this meeting, the Company's shareholders re-elected
Sheldon D. Camhy, James Coppersmith, Charles M. Diker, Donald P. Greenberg,
Raymond Hartman, Isaac Hersly, Alan J. Hirschfield, Wesley W. Lang, Jr.,
Eugene M. Weber, and Michael Wellesley-Wesley to the Board of Directors.
No less than 20,256,462 shares were voted for the election of each director,
no more than 230,885 shares were voted against the election of each
director, and 0 shares abstained. Additionally, the shareholders voted to
amend the Company's Long-Term Incentive Plan, increasing the number of
shares by 1,333,334 shares to an aggregate of 3,000,000 shares. 20,250,283
shares were voted for the proposal, 459,150 shares were voted against the
proposal, and 85,322 shares abstained.
ITEM 5. Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
(1) On June 5, 1997, the Company entered into an Employment
Agreement with Edward Grebow. Such agreement is incorporated herein in its
entirety by reference to the report on Form 10-Q dated August 12, 1997.
(2) On September 17, 1997, the Company entered into an Agreement
with Isaac Hersly regarding the mutual agreement to sever Mr. Hersly's
employment relationship with the Company. In connection therewith Mr.
Hersly resigned as a Director and Officer of Chyron, effective September 26,
1997. The Severance Agreement is attached as Exhibit 1 to this document.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHYRON CORPORATION
(Registrant)
November 12, 1997 /s/ Edward Grebow
(Date) Edward Grebow
Chief Executive Officer
and President
November 12, 1997 /s/ Patricia Lampe
(Date) Patricia Lampe
Chief Financial Officer
and Treasurer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
THE AGREEMENT (the "Agreement"), made as of this 17th day of September 1997,
between CHYRON CORPORATION, a New York corporation (the "Company" or
"Chyron") having its principal offices at 5 Hub Drive, Melville, New York
11747, and ISAAC HERSLY ("Hersly"), an individual residing at 9 Lafayette
Drive, New City, New York 10956.
WITNESSETH:
WHEREAS, Hersly and Chyron are party to an employment agreement made as of
September 17, 1996 (the "Employment Agreement") by which, among other
things, Hersly was employed as President of Chyron for a term ending June
30, 1998 at an annual salary of $200,000;
WHEREAS, Hersly and Chyron wish to sever that employment relationship and
said Employment Agreement and this Agreement shall supersede that Employment
Agreement, any other employment arrangement or agreement between the
parties.
WHEREAS, Hersly was appointed to the Board of Directors on March 14, 1996
and was elected by Chyron's Shareholders on May 20, 1996.
NOW THEREFORE, in consideration of the mutual premises and agreements
contained herein, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Resignation: Hersly resigns from his present position at Chyron and
all its subsidiaries and affiliates effective September 26, 1997, and
further resigns as a member of the Board of Directors of Chyron and all its
subsidiaries and affiliates also effective September 26, 1997. Hersly shall
execute a formal letter of resignation in the form attached hereto as
Exhibit A.
2. Continued Employment as "Senior Advisor": For the period September
26, 1997 through January 10, 1998, Hersly will be employed in the position
of "Senior Advisor" to Chyron. This is an exempt position with no salary
or benefits except as set forth herein, provided, however, that Hersly will
be reimbursed for all approved out of pocket expenditures. As "Senior
Advisor", Hersly will not accrue any vacation or sick leave. As "Senior
Advisor", Hersly will render such services as reasonably are requested of
him by the Chief Executive Officer of Chyron, Edward Grebow, and shall
report to Mr. Grebow. Hersly will undertake such assignments as Grebow
shall give to him which Hersly shall perform on a mutually agreeable basis.
Hersly will not continue as an employee of Chyron on an at-will basis, or
on any other basis after January 10, 1998, except upon a further written
agreement subscribed to by both Hersly and Chyron pursuant to paragraph 15
hereof. In the event that Hersly accepts or undertakes regular full time
employment or work then his position as a "Senior Advisor" shall terminate
effective with the earlier of either his commencement of such other
employment or work on upon an effective date of a notice of resignation by
Hersly as "Senior Advisor".
3. Compensation: In Consideration for (i) this Severance Agreement
inclusive of the agreement not to compete and any other surviving
obligations hereunder; (ii) in lieu of any surviving obligations of Chyron
under the Employment Agreement and any surviving obligations of Hersly
thereunder; and (iii) for his services as "Senior Advisor", Chyron shall pay
to Hersly, and Hersly agrees to accept the aggregate sum of $225,000 which
amounts will be paid in 26 bi-weekly installments beginning October 15,
1997. Hersly, at his option, may make a one time election to have up to
four bi-weekly payments paid in advance as a lump sum. If Hersly exercises
this one time election, then payments will be suspended during the period
of the paid advance. Hersly will give at least one week's notice of such
election. Except as set forth hereinbelow, Hersly shall be entitled to no
other cash payments for any reason whatsoever or based upon any claim
whatsoever. Hersly, or in the event of his death, his estate shall receive
the $225,000 regardless of whether he resigns as "Senior Advisor" prior to
January 10, 1998 or takes other employment, provided, however, that Hersly
is not in breach of any of his other obligations hereunder. If there is a
change of control" of Chyron, then payment of any outstanding portion of the
$225,000 due hereunder shall be accelerated and be paid within 30 days of
the effective date of the change of "control". For purposes of this
paragraph, a change of "control" means either (i) a change or beneficial
ownership of at least 50% of the common stock of Chyron; (i) a replacement
of at least 75% of the Chyron Board of Directors; or (iii)a change of the
CEO of Chyron.
4. Benefits: Hersly will continue to receive medical, dental, and
disability benefits in accordance with the standard policies of Chyron for
the shorter of September 25, 1998 or until Hersly has commenced other
regular full time employment ("Benefit Period"). Chyron shall continue the
existing life insurance policy on Hersly's life through the Benefit Period.
At the option of Hersly, Chyron shall transfer to him the term life
insurance policy which presently is in existence without adjustment for any
unexpired term. Chyron shall make payment of premiums on insurance and
other benefit plans on behalf of Hersly which comes due during such Benefit
Period, provided, however, that Hersly is only entitled to pension benefits
and to participate in the Chyron pension plan through the last date of his
employment with Chyron, (i.e., no later than January 10, 1998 as provided
in Paragraph 2 hereinabove).
5. Office and Secretarial Assistance: Chyron will furnish to Hersly a
closed office, if available, and secretarial assistance through January 31,
1998. Hersly shall be allowed to retain, and Chyron will transfer title to
Hersly of (i) the telecopy machine presently located in Hersly's residence;
(ii) the laster printer presently located in Hersly's office; and (iii) a
fully operational IBM compatible desk top computer. Hersly shall return to
Chyron the laptop computer that has been made available to him.
6. Reference: Chyron will give Hersly a positive reference. Hersly
expressly releases Chyron and waives any and all possible claims whether at
law or at equity against Chyron, regarding or arising from any reference
that is given pertaining to Hersly, except for any claim of defamation
arising subsequent to the execution hereof. Any reference will be
consistent with the announcement dated September 23, 1997, from Edward
Grebow to Chyron employees, a copy of which is attached hereto as Exhibit
B.
7. Stock Options: The incentive stock options and non-incentive stock
options that are to vest on July 25, 1998 are accelerated and shall vest
effective September 26, 1997. The one year period for exercise shall
commence on the earlier of January 10, 1998, as the last date of Hersly's
employment as a "Senior Advisor," or upon Hersly's earlier resignation from
Chyron. The provisions in paragraph 3(h) of the Employment Agreement
between Hersly and Chyron shall continue in full force and effect, are
incorporated herein by reference, and shall apply only to those options
which were granted as non-incentive stock options.
8. Representations and Warranties: Hersly represents and warrants to the
Company that: (a) Hersly is under no contractual or other restriction or
obligation which is inconsistent with the execution of this Agreement, the
performance of his duties hereunder, or the other rights of the Company
hereunder; and (b) Hersly is under no physical or mental disability that
would hinder his performance of duties under this Agreement.
9. Non-Competition: (i) Hersly agrees that he will note: (a) during the
period from the date of this Agreement through March 31, 1998, engage in,
or otherwise directly or indirectly be employed by, or act as a consultant
or lender to, or be a director, officer, employee, owner, member, or partner
of, any other business or organization worldwide that is or shall then be
competing, directly or indirectly, with Chyron, (b) during the period April
1, 1998 though December 31, 1998, engage in, or otherwise directly or
indirectly be employed by, or act as a consultant or lender to, or be a
director, officer, employee, owner, member, or partner of, any other
business or organization that is or shall then be a direct competitor of
Chyron. For purposes of this covenant, director competitors include:
Collage Leitch
Tektronix BTS - Philips
SONY* Louth Automation
Pinnacle Quantel
(ii) It is the intent of the parties to this Agreement that the provisions
of this paragraph 9 shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. If any particular provisions or portions of this
paragraph 9 shall be adjudicated to be invalid or unenforceable, such
provisions or portion thereof shall be deemed amended to the minimum extent
necessary to render such provision or portion valid and enforceable, such
amendment to apply only with respect to the operation of such provisions or
portions in the particular jurisdiction in which such adjudication is made.
(iii) The parties acknowledge that damages and remedies at law for any
breach of this paragraph 9 and for following paragraphs 10, 11, and 12, will
be adequate and that the Company shall be entitled to specific performance
and other equitable remedies (including injunction) and such other relief
as a court or tribunal may deem appropriate in addition to any other
remedies the Company may have.
*Hersly may become employed by SONY as long as he does not, directly or
indirectly, work or consult with the Broadcast or Professional systems
operations, or any related operation or other SONY operation, whether
organized as a subsidiary division, unit, group, or otherwise, that in any
way competes, directly or indirectly with Chyron and only upon the further
condition that Hersly (1) not divulge or utilize any Chyron confidential
information and (2) first obtains approval from Chyron to take such
employment, which approval shall not unreasonably be withheld.
(iv) The provisions of this paragraph 9 will not be deemed breached merely
because Hersly owns not more than five percent (5.0%) of the outstanding
common stock of a corporation, if, at the time of its acquisition by Hersly,
such stock is listed on a national securities exchange, is reported on
NASDAQ, or is regularly traded in over-the-counter market by a member of a
national securities exchange.
(v) In the event that Chyron defaults in making the payments owned under
this Agreement of $225,000 as provided for in Paragraph 3 hereinabove, which
default is not cured upon 45 days written notice, then the non-compete
obligations of Hersly in this Paragraph 9 shall become ineffective and not
enforceable by Chyron. This is in addition to all other remedies that
Hersly might have by reason of such uncured default by Chyron. Nothing,
however, shall relieve Hersly of his obligations under Paragraph 11, 12, and
13 regarding "Confidential Information", "Non-Solicitation" and "Release",
respectively.
10. Patents: Copyrights: Any interest in patents, patent applications,
inventions, copyrights, developments, and processes ("Such Inventions")
which Hersly now or hereafter during the period he is or has been employed
by the Company may own or develop relating to the fields in which the
Company was or is then engaged shall belong to the Company; and forthwith
upon request of the Company, Hersly shall execute all such assignments and
other documents and take all such other action as the Company may reasonably
request in order to vest in the Company all his right, title, and interest
in and to Such Inventions, free and clear of all liens, charges, and
encumbrances.
11. Confidential and Company Information: All confidential information
which Hersly may now possess, or may obtain or create prior to the end of
the period he is employed by the Company, relating to the business of the
Company or of any employee , customer, or supplier of the Company shall not
be published, knowingly disclosed, or knowingly made accessible by him to
any other person, firm, or corporation during his continued employment or
any time thereafter without the prior written consent of the Company.
Hersly shall return all books, records, papers, reports, materials, and
information of Chyron, whether or not confidential, no matter how recorded
or stored, including computer files, disks, and data storage of every
description to the Company prior to or at the termination of his employment.
12. Non-Solicitation: Hersly shall not during the term of his continued
employment hereunder and thereafter through December 31, 1998 solicit,
directly or indirectly any then employee of Chyron, including its wholly and
partly owned subsidiaries, for employment on either a full-time, part-time
or consulting basis and shall refrain from discussing other employment
opportunities with any then Chyron employee which may benefit Hersly or his
then employer.
13. Confidentiality of this Agreement: Hersly agrees to keep this
Agreement and the substance hereof strictly confidential and not to divulge
it to any other person (other than his immediate family and his counsel) or
entity, unless Chyron makes the Agreement public or if disclosure is
required by reason of judicial process.
14. Release by Hersly: HERSLY, who has had at least 21 days to review and
consider this Agreement and who in connection herewith has consulted with
counsel of his choice, for and in consideration of the payment made by
CHYRON as set forth herein and other good and valuable consideration, hereby
releases and forever discharges, and by this instrument does release and
forever discharge CHYRON, its directors, officers , employees, and each of
its divisions, affiliates and subsidiaries, and each of their respective
present an former directors, officers, employees, trustees, agents,
attorneys, insurers, parent corporations, subsidiaries, divisions, related
and affiliated companies and entities, shareholders, representatives,
predecessors, successors and assigns; (hereinafter collectively referred to
as the 'RELEASED PARTIES") against all liabilities, claims, causes of
action, charges, complaints, controversies , grievances, obligations, costs,
losses, damages, injuries, attorneys' fees, and other legal responsibilities
(collective referred to as "claims:) of any form whatsoever, including but
not limited to any claims in law, equity, contract, tort or any claims
arising under the Employment Agreement, the ADEA, Title VII, the Civil
Rights Act, the CRA of 1991, the ADA, the FMLA, the FLSA, the NYHRL, the
NYCHRL and/or any and all other federal, state or local statutes, laws,
rules and regulations pertaining to employment, as well as any and all
claims under state contract or common law or tort law whether known,
unknown, unforeseen, unanticipated, unsuspected or latent which he, his
heirs, executors, administrators, successors and assigns ever had, now have
or hereafter can, shall or may have for upon or by reason of any matter,
cause or thing whatsoever from the beginning of the world to the date of the
execution of this Agreement. Hersly further releases and waives any and all
claims that might arise under this Agreement except for claims arising from
breaches or defaults of Chyron under Paragraph 3, 4, and 7 ("Compensation",
"Benefits", and "Stock Options" respectively).
15. Survival: The covenants, agreements, representations, and warranties
contained in or made pursuant to this Agreement shall survive Hersly's
termination of employment, irrespective of any investigation made by or on
behalf of any party.
16. Release by Chyron: CHYRON, for the mutual covenants herein and other
good and valuable consideration hereby releases and forever discharges
Hersly from any and all liabilities, claims, causes of action, charges,
complaints, controversies, grievances, obligations, costs, losses, damages,
injuries, attorneys' fees, and other legal responsibilities (collectively
"claims") of any form whatsoever, including but not limited to any claims
in law, equity, contract, tort from the beginning of the world to the date
of this Agreement provided that such claims are now known to either the
current Chairman of the Board (Michael Wellesley-Wesley) CEO (Grebow) or CFO
(Lampe) of Chyron, and to the extent not known, all claims except for claims
arising from discrimination, harassment, dishonesty or other wrongful
conduct, intentional or otherwise, by Hersly, whether or not such claims are
formally asserted against Chyron by a third party on account of any conduct
by Hersly.
17. Modifications: This Agreement sets forth the entire understanding of
the parties with respect to the subject matter hereof, supersedes all
existing agreements between them concerning such subject matter, and may be
modified only by a written instrument duly executed by each party.
18. Notices: Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be delivered in person or
mailed by certified mail, return receipt requested, or delivered against
receipt to the party to whom it is to be given at the address of such party
set forth in the preamble to this Agreement (or to such other address as the
party shall have furnished in writing in accordance with the provisions of
this Section 14). In the case of a notice to the Company, a copy of such
notice (which copy shall not constitute notice) shall be delivered to Camhy
Karlinsky & Stein LLP, 1740 Broadway, 16th Floor, New York, New York 10019-
4315, Attn: Daniel I. DeWolf, Esq. Notice to the estate of Hersly shall be
sufficient if addressed to Hersly as provided in this Section 14. Any
notice or other communication given by certified mail shall be deemed given
at the time of certification thereof, except for a notice changing a party's
address which be deemed given at the time of receipt thereof.
19. Waiver: Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to
any term of this Agreement on one or more occasions shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term of any other term of this Agreement. Any waiver must
be in writing.
20. Binding Effects: Hersly's rights and obligations under this Agreement
shall not be transferable by assignment or otherwise, such rights shall not
be subject to encumbrance or the claims of Hersly's creditors, and any
attempt to do any of the foregoing shall be void. Subject to the foregoing,
the provisions of this Agreement shall be binding upon and inure to the
benefit of Hersly and his heirs and personal representatives, and shall be
binding upon and inure to the benefit of the company and its successors and
its assigns. If Hersly shall die, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to Hersly's devisee, legatee or other designee, or, if there be
no such designee, to Hersly's estate.
21. Arbitration: Any controversy or claim arising out of or relating to
this Agreement or the breach thereof, shall be settled by arbitration in the
City of New York in accordance with the laws of the State of New York by
three arbitrators, one of whom shall be appointed by the Company, one by
Hersly and the third of whom shall be appointed by the first two
arbitrators. If the first two arbitrators cannot agree on the appointment
of a third arbitrator, then the third arbitrator shall be appointed by the
Chief Judge of the United States Court of Appeals for the Second Circuit.
The arbitration shall be conducted in accordance with the rules of the
American Arbitration Association, except with respect to the selection of
arbitrators which shall be as provided in this Section 17. Judgement upon
the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Nothing in this paragraph shall impair or impede the
rights of Chyron to seek injunctive relief for violation of paragraphs 9,
10, 11, or 12 and Chyron expressly reserves and does not waive such right
to seek judicial redress for such purpose.
22. This Severance Agreement supersedes the Employment Agreement and that
Agreement is of no further force or effect except as set forth hereinabove.
23. Headings: The headings in this Agreement are solely for the
convenience of reference and shall be given no effect in the construction
or interpretation of this Agreement.
24. Counterparts: Governing Laws: This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. It shall
be governed by , and construed in accordance with, the laws of the State of
New York, without given effect to the rules governing the conflicts of laws.
IN WITNESS WHEREOF, the parties have duly executed this Severance Agreement
as of the date first written above, except for all the release provisions
which are executed this 30th day of October 1997.
<PAGE>
CHYRON CORPORATION
By: /s/ Edward Grebow
Edward Grebow
Chief Executive Officer
/s/ Isaac Hersly
Isaac Hersly
</TABLE>
