SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File Number 1-9014
CHYRON CORPORATION
(Exact name of registrant as specified in its charger)
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
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01
(Title of Class)
New York Stock Exchange
(Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
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 periods 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of voting stock held by non-affiliates of the
Company on March 10, 1999 was $26,124,963. The number of shares outstanding
of the issuer's common stock, par value $.01 per share, on March 10, 1999
was 32,058,026.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the Annual Meeting of Shareholders to
be held May 12, 1999 are incorporated by reference into Part III.
Exhibit index is located on page 48
This document consists of 52 pages
From time to time, including in this Annual Report on Form 10-K, the Company
may publish forward-looking statements relating to such matters as
anticipated financial performance, business prospects, technological
developments, changes in the industry, new products, research and
development activities and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the
Company notes that a variety of factors could cause the Company's actual
results to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance,
development and results of the Company's business include, without
limitation, the following: product concentration in a mature market,
dependence on the emerging digital market and the industry's transition to
DTV and HDTV, consumer acceptance of DTV and HDTV, resistance within the
broadcast or cable industry to implement DTV and HDTV technology, rapid
technological changes, new technologies that could render certain Chyron
products to be obsolete, a highly competitive environment, competitors with
significantly greater financial resources, new product introductions by
competitors, seasonality, fluctuations in quarterly operating results,
ability to maintain adequate levels of working capital, expansion into new
markets and the Company's ability to successfully implement its acquisition
and strategic alliance strategy.
PART I
ITEM 1. BUSINESS
General Information Regarding the Company
Chyron Corporation ("Chyron" or 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.
On April 12, 1996, Chyron acquired Pro-Bel Limited ("Pro-Bel"). 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, Berkshire RG6 4PB and its telephone number is 44-118-986-6123.
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.
Industry Transition to High Definition Television
In October 1996, the Federal Communications Commission ("FCC") adopted a
rule that requires broadcasters to utilize digital advanced television
transmission. This ruling requires broadcasters to adopt one of eighteen
formats deemed acceptable as broadcast standards for digital television
("DTV"), as opposed to the current analog equipment, and sets a timetable
for the adoption of DTV, specifically High Definition Television ("HDTV"),
broadcast by the year 2006.
This decision has set in motion the evaluation of which digital transmission
formats are acceptable and will be used for replacing the current analog
National Television Standards Committee ("NTSC") standards for broadcasting,
news, entertainment and other program sources. Today, broadcasters are
examining the performance of each of these formats, as well as their
technical requirements. By the year 2006, all the current analog NTSC
equipment will have to be upgraded or replaced as broadcasters discontinue
their analog NTSC broadcasts in order to comply with the recent FCC ruling.
The method and timing of broadcasters' conversion to digital television is
very important to the future profitability of Chyron. As an equipment
manufacturer, Chyron plans to provide broadcasters with innovative DTV and
HDTV equipment. Management views this industry transition as a great
opportunity. However, broadcasters' failure to convert on a timely basis
could have a negative impact on the future financial condition of the
Company.
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 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.
Graphic Systems
Duet and Duet HD: Duet/Duet HD is a real-time 2D/3D serial digital video
graphics processing platform that integrates open standards, a Windows NT
front end, and provides real-time performance for a variety of televison
graphics applications. Configurable as digital standard definition or
digital HDTV, it is the most significant new graphics product introduction
from Chyron since the iNFiNiT! nine years ago, representing the next
generation of video graphics engines. Currently shipped with Lyric graphics
composition application, Duet HD offers the first ever serial digital high
definition character generator capability.
Duet addresses the requirements of state-of-the-art installations, bringing
together the proprietary operating system necessary to execute broadcast
quality graphics and the Windows NT interface, which is increasingly
becoming the standard in broadcast and production facilities. Extending the
reach of Duet, CAL (Chyron Abstraction Layer) allows third party software
developers to use standard Open GL code to create custom applications,
making Duet as accessible for software product development as a personal
computer.
iNFiNiT! Family of Graphics and Character Generators: Chyron's family of
iNFiNiT! products has long been the gold standard for broadcast quality
character generators. Largely due to the iNFiNiT! family line, Chyron
believes that it has a 60-70% share of the installed base of the high-end
broadcast character generator market in the U.S.
The flagship iNFiNiT! is a dual-user graphics workstation with one 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 as the iNFiNiT!. All systems
can be configured with analog or digital outputs. In September 1996, the
Company introduced WiNFiNiT!, an optional PC-based graphical user interface
which utilizes the Microsoft Windows 95 or Windows NT operating systems.
In 1998, CLYPS, a live video/key capture/playback system, was launched.
Files are stored in JPEG format on a SCSI express drive, eliminating the
need for external playback devices. Also introduced in 1998 were Message
Compose version 10.00 and MAX!> Dual Preview Output.
Other options include Transform animation, Intelligent Interface remote
control, iNFiNiT! Third Channel Output option, MAXINE! Preview, IMAGESTOR!
still store and various paint and composition packages.
Chyron Aprisa Still Store Systems: The Chyron Aprisa 100 is a Windows NT
based family of still and clip store systems. Providing sophisticated
database functions, the Chyron Aprisa 100 allows play list creation and
playback with effects, search, sort and editing. Options include the Aprisa
200 Digital Disk Recorder and the Aprisa 300 Video Replay System (advanced
playback capability).
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.
Liberty Paint and Animation: Chyron's Liberty family of paint and animation
tools provides resolution-independent, non-linear, digital image processing
for creating, editing and compositing special visual effects in an on-line,
real-time environment. Liberty was used to create award-winning CNN
graphics and special effects in major feature films, including Batman and
Robin, Independence Day, Casino, Broken Arrow and Godzilla. Liberty
products operate on various Silicon Graphics workstations as well as the
Windows NT platform, 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. In 1998, three new versions of Liberty were
introduced: Liberty 6.5, running on the SGI platform; Liberty NT, running
on the Windows NT platform, providing Liberty graphics power previously
available only on more expensive SGI workstations; and Liberty HDTV, a full-
featured serial digital high definition graphics and animation system.
Media Management - Signal Management Systems
Pro-Bel Routing Switchers and Controllers: Under the Pro-Bel name, the
Company provides a complete range of control solutions for matrix systems
which process and distribute multimedia signals.
XD: The new XD series of digital routing switchers are large-scale routing
systems that can produce high-performance signal distribution across a wide
spectrum of applications.
16 x 16 HDTV Router: It provides a 16 x 16 HDTV router in 3RU and 1.485 Gb/s
SMPTE 292M compatibility. This product may operate as a standalone router
or as part of a larger routing system under Pro-Bel control.
Freeway: Mid-range routing switcher which is designed for facilities in the
process of converting from analog to digital operations.
Gemini: 16 x 2 compact multi-format routers designed for monitor switching
and similar applications. It also operates as a standalone router or
integrates with Pro-Bel control systems.
System 3 and Procion Controllers: System 3 provides a push button control
panel which can utilize simple signal matrix solutions and multi-matrix
installations with integrated tie-line management. Procion offers a range
of IBM PC/Windows touch screen control systems which are easy to use and
configure. System 3 and Procion can be integrated with each other and with
Pro-Bel routing systems for maximum flexibility.
Digital Master Control Switchers - TX 320 and TX 310: Compact and cost
effective, these switchers process serial digital video and digital analog
or embedded audio inputs. For sophisticated transitions, an optional 3D DVE
may be added. TX Series master control switchers provide unique built-in
integration with Pro-Bel Compass/Sextant automation and maximum flexibility,
where one panel can control many channels, or a number of panels can share
channels. HDTV channels for the TX series will be released in the first
half of 1999.
Media Management - Control and Automation Systems
Asset Management - MAPP: Pro-Bel has developed a suite of products which are
designed to process video, audio and related data signals, integrating with
Pro-Bel automation for signal playout. MAPP is a Windows based, video
server management and control system. MAPP provides facilities the ability
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. New MAPP products introduced in
1998:
Pro-Bel MAPP WAN Manager: A first from Pro-Bel, providing automatic
transport of video server media between remote sites via Wide Area Networks.
Pro-Bel MAPP Media Browse Acquisition/WAN Manager: Provides a simple method
to transfer the media from high bandwidth to low bandwidth server
environments, across standard WANs, for cost effective remote media browsing
and review applications.
Pro-Bel MAPP Version 5: New NT platform for MAPP Asset Management software.
MAPP tracks every storage device and item of material within the broadcast
operation. Database is available over a standard computer network with
multiple workstations. Multiple users enter, direct, monitor and control
each item and prepare it for manual or automated playout.
Pro-Bel MAPPEX (MAPP Exchange Interface): Provides interface to MIS systems.
Used primarily for tracking commercial airings for subsequent billing to
advertisers.
Automation Compass and Sextant: Each provides comprehensive station
automation for single and multi-channel operations, with Compass controlling
a larger number of devices including large cart machines. Sextant can be
upgraded to Compass functionality. Unique real-time hardware platform with
redundant controllers and power supplies provides the ultimate in
reliability. Users edit schedules and interface to traffic systems via
standard NT workstations that provide familiar and intuitive operation.
Extensive use of icons and graphical techniques provide readable schedules
with at-a-glance status.
Marketing and Sales
The Company markets its products and systems to traditional broadcast,
production 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 its products 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
SMPTE conventions. It also exhibits at the International Broadcasters
Convention (IBC) in Europe. 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 links between the
customer and the Company's development teams.
Sales of the Company's products outside of the United States and United
Kingdom are made through dealers and sales representatives covering specific
territories. The Company maintains sales offices in Hong Kong, China and
in Paris, France in an effort to increase foreign sales. In some
territories, dealers sell products from all of the Company's product
categories; in other territories, dealers handle only specific products.
Service, Support and Training
The Company offers comprehensive technical service, support and training to
its customers through 24 hours per day, seven days per week access to
trained service and support professionals.
Training courses are available through the Company and 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) and Atlanta (Georgia) centers. The Company also conducts on-site
training. Installation assistance, hardware and software maintenance
contracts and spare parts are made available by the Company. The Company
believes 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 ninety days to five years.
Research and Development
The Company's research and product development, conducted in Melville, New
York, Reading, United Kingdom and Cupertino, California, is focused on the
continued enhancement of its existing products and the development of new
ones. Product development efforts include both graphic products and routers
and switchers which will comply with the FCC ruling of October 1996. This
ruling will affect the broadcast industry across the next decade and beyond,
specifically the adoption of digital television, and more specifically HDTV
television.
Historically, the Company has focused 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.
Currently, engineering efforts include software stand alone products and
hardware with software products that address the FCC ruling described above.
During 1998, 1997 and 1996, the Company expensed approximately $9.5 million,
$6.8 million and $5.3 million, respectively, for research and development.
Such amounts were net of amounts capitalized with respect to software
development costs incurred in connection with the development of new
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 sub-
assemblies. 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.
Competition
The markets for graphics imaging, editing and animation systems, signal
routing systems and media storage systems are highly competitive and are
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 FCC's recent ruling requiring broadcasters to utilize
DTV transmission beginning in 1998 will require large future capital
expenditures by the broadcast industry. Management recognizes this as an
opportunity for the Company in the market place, but, as a result, the
Company also 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,
Dynatech Corporation, Pinnacle Systems Inc., Quantel Inc. and Accom. 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 Drake, 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.
Employees
As of December 31, 1998, the Company employed 414 persons on a full-time
basis, including 74 in sales and marketing, 133 in manufacturing and
testing, 50 in customer support, service and training, 59 in finance and
administration and 98 in research and development. None of these employees
is represented by a labor union.
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 names Chyron, Scribe, Chyron Scribe, Chyron Scribe Junior, Chyron
SuperScribe, iNFiNiT!, MAX!>, MAXINE!, CODI, I2, Chyron Care, Intelligent
Interface, Intelligent Interface (I2), CMX, CMX AEGIS, CMX OMNI, Aurora,
Liberty and Liberty Aurora and Design are registered trademarks of the
Company. The Company also has rights in trademarks and service marks which
are not federally registered. The Company does not have registered
copyrights on any of its intellectual property.
Government Regulations
The telecommunications and television industries are subject to extensive
regulation in the United States and other countries. For example, The
United States Federal Communications Commission has issued regulations
relating to shielding requirements for electromagnetic interface in
electronic equipment. The Company's products are in compliance with these
regulations. Furthermore, television operators are subject to extensive
government regulation by the FCC and other federal and state regulatory
agencies.
ITEM 2. PROPERTIES
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 7,000 square
feet in Cupertino, California and 4,300 square feet in Torrance, California
for research and development, which expire on December 31, 2002 and November
30, 2000, respectively. The Company also maintains sales offices in Atlanta
and Dunwoody, Georgia of 1,000 and 2,700 square feet, respectively, and in
Hong Kong of 2,000 square feet pursuant to leases which expire on January
31, 2001, November 30, 2002 and April 26, 2001, respectively. In the United
Kingdom, the Company's executive office is located in Reading, United
Kingdom where it owns a facility of approximately 19,000 square feet. This
facility is used for manufacturing, research and development and marketing.
The Company occupies additional facilities in the United Kingdom in Reading
and Andover, used primarily for research and development and manufacturing,
which total approximately 28,000 square feet pursuant to leases which expire
from December 25, 2012 through September 29, 2020. The Company currently
utilizes 90% to 100% of the space of all of its facilities. Management
currently believes that each facility is suitable for its existing
operations and does not foresee the need for any significant expansion of
its current facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is involved in routine legal matters
incidental to its business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 1998, there were
no matters submitted to a vote of the Chyron shareholders through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDERS MATTERS
Chyron's common stock is traded on the New York Stock Exchange ("NYSE")
under the ticker symbol "CHY". The approximate number of holders of record
of the Company's common stock at March 10, 1999 was 5,557.
The following table sets forth the high and low reported sales price for the
common stock adjusted to reflect the one-for-three reverse stock split which
occurred in February 1997.
Price Range of Common Stock
High Low
Year Ended December 31, 1998
Fourth quarter $3.000 $1.250
Third quarter 3.625 1.625
Second quarter 4.938 3.125
First quarter 4.813 3.125
Year Ended December 31, 1997
Fourth quarter $6.125 $4.125
Third quarter 5.500 4.063
Second quarter 5.875 3.750
First quarter 9.375 4.875
On March 10, 1999, the closing price of the Company's common stock as
reported on the NYSE was $1.938.
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. In connection with the Company's term loan and revolving credit
facility, the Company is prohibited from paying dividends in excess of 25%
of its net income for the then current fiscal year.
In December 1998, the Company sold $1.1 million aggregate principal amount
of 8% Subordinated Convertible Debentures (the "1998 Debentures"), due
December 31, 2003, to certain persons and entities, including certain
directors, affiliates and shareholders of the Company. The debentures are
convertible, at any time, at the option of the holders thereof, into Common
Stock of the Company at a conversion price of $2.466 per share (which is
equal to 120% of the average of the closing selling prices of the Common
Stock for the 90 trading days immediately preceding the issue date of the
debentures). The debentures may be redeemed by the Company at any time
after December 31, 1999 for a price equal to the principal and accrued but
unpaid interest on the debentures at the redemption date. Subject to
certain restrictions, the debentures are exchangeable, at the option of the
holders thereof, for a like principal amount of any series of convertible
subordinated debentures which the Company may issue pursuant to a private
placement, through a placement agent, within 180 days of the issue date of
the debentures. The net proceeds from the sale of the debentures were used
for general working capital purposes.
The sales of the debentures were made in reliance upon the exemption from
the registration provisions of the Securities Act of 1933, as amended,
afforded by Section 4(2) thereof and/or Regulation D promulgated thereunder,
as a transaction by an issuer not involving a public offering. To the best
of the Company's knowledge, the purchasers of the debentures acquired them
for their own accounts, and not with a view to any distribution thereof.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected data regarding the Company's
operating results and financial position. The data should be read in
conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Consolidated Financial Statements and
Notes thereto, all of which are contained in this Annual Report on Form 10-
K.
SUMMARY FINANCIAL DATA
(In thousands, except per share amounts)
Year Ended December 31,
1998 1997 1996(1) 1995 1994
Statement of Operations Data:
Net sales $83,710 $86,774 $82,608 $53,971 $42,762
Gross profit 39,460 39,830 42,667 31,225 23,850
Operating expenses:
Selling, general and
administrative 31,420 29,662 22,349 17,066 14,301
Research and
development 9,537 6,822 5,253 4,105 4,163
Non-recurring charges 3,979 3,082
Management fee 2,911 1,139
West Coast restructuring
charge (recapture) (1,339) 12,716
Total operating
expenses 44,936 39,566 27,602 22,743 32,319
Operating income
(loss) (5,476) 264 15,065 8,482 (8,469)
Gain on sale of
Trilogy Ltd. 1,194
Interest and other
expense, net (1,786) (1,242) (1,666) (536) ( 525)
Net (loss) income (4,447) (760) 8,654 7,476 (8,994)
Net (loss) income per
common share (2) (3)-
Basic $ (.14) $ (.02) $ .27 $ .26 $ (.31)
Diluted $ (.14) $ (.02) $ .27 $ .25 $ (.31)
Weighted average number of common
shares outstanding (2) (3) -
Basic 32,058 32,538 31,825 29,379 28,962
Diluted 32,058 32,538 32,327 30,382 28,962
As of December 31,
1998 1997 1996(1) 1995 1994
Balance Sheet Data:
Cash and cash
equivalents $1,585 $2,968 $4,555 $5,012 $1,555
Working capital 30,036 38,955 45,362 28,221 12,103
Total assets 83,116 94,080 91,403 44,332 28,644
Long-term obligations 17,315 21,959 21,226 4,911 4,829
Shareholders' equity 49,770 53,962 53,946 29,983 13,776
(1) Includes the operations of Pro-Bel since its acquisition on April 12,
1996.
(2) Adjusted to reflect the reverse stock split effected on February 7,
1997.
(3) Adjusted to reflect FASB Statement No. 128, "Earnings Per Share".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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. In
the fourth quarter of 1998 the Company delivered the first Duet HD systems,
featuring Lyric software, to major broadcast and production facilities.
Duet HD is a real-time, HDTV video graphics processing platform that
integrates open standards, a Windows NT front-end, and provides real-time
performance for a variety of television graphics applications. Chyron's
family of iNFiNiT! products continues to be the standard for broadcast
quality character generators. 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 for at least 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's current business strategy includes the following key elements:
(i) position itself as a lead vendor in providing DTV and HDTV equipment to
broadcasters as they make their transition to digital television in response
to the recent FCC ruling; (ii) maintain and enhance its leadership position
in current markets; (iii) provide upgrades to existing equipment; (iv) cross
sell products to its existing customers; (v) address low-end and emerging
markets; (vi) expand its global presence; (vii) pursue strategic
acquisitions and alliances; and (viii) utilize open platforms. The Company
intends to continue to serve its worldwide customer base by introducing
products which address the requirements 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.
In 1997, as a result of the FCC's announcement on its position for HDTV, the
Company took steps to position itself for the transition to HDTV. In
connection therewith, the Company recorded a non-recurring charge of $2.4
million for costs related to repositioning the Company to address the
domestic television market's need for high definition and multichannel
standard definition digital equipment that complies with the FCC ruling. The
Company also appointed a new Chief Executive Officer.
Non-recurring Charges
During the second quarter of 1998, as a result of continued poor operating
results and the inability of the Company's Concerto Division to meet revenue
and operating targets, management determined that it would be in the
Company's best interest to implement a restructuring plan and refocus on its
core business of graphics, routing and automation products for the
television broadcast, cable and post production industries. Such
restructuring plan involved the disposal of the Concerto and Trilogy
Divisions, the modification of its investment in Real-Time Synthesized
Entertainment Technology, Ltd. ("RT-SET") and the reorganization of the
Company's core product sales force to be complementary to its new sales and
marketing strategy. As a result, the Company recorded a $3,979,000 charge
to operations during the second quarter of 1998. Such charge resulted from
a write-down of assets to estimated net realizable value, employee severance
and costs to reorganize the Company's sales functions as a result of such
restructuring plans. Additional amounts were accrued for litigation and
other costs.
Sale of Trilogy
On August 19, 1998, the Company completed the sale of Trilogy Broadcast
Limited ("Trilogy"), a wholly-owned subsidiary of Pro-Bel, to the management
of Trilogy. This transaction resulted in an overall gain of approximately
$1.2 million.
Acquisition of Axis
On March 31, 1997, the Company acquired Axis Holdings Incorporated ("Axis"),
located in Los Angeles, California, for an aggregate cost of $1.83 million.
Axis developed professional video and audio software specifically for use
on the Microsoft Windows NT Operating System.
The acquisition of Axis was accounted for as a purchase; therefore, the cost
was allocated to the net tangible assets and software development costs
acquired based on their estimated fair values. During the second quarter of
1998, as a result of this division's inability to meet revenue and operating
targets, this division was discontinued and all related software development
costs, totaling $2.3 million, were written off.
Acquisition of Pro-Bel
On April 12, 1996, the Company acquired Pro-Bel, located in Reading, United
Kingdom, for an aggregate price of $19.1 million. Pro-Bel develops,
manufactures and markets signal management systems and control and
automation systems. The acquisition of Pro-Bel was accounted for as a
purchase. Accordingly, the cost was allocated to the net tangible assets
acquired based upon their estimated fair values. The excess of cost over
the estimated fair values of the net tangible assets acquired amounted to
$6.9 million, which is being amortized over 12 years using the straight-line
method.
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 and is located in Israel. The Company
purchased shares of RT-SET convertible preferred stock in exchange for
800,000 restricted shares of Company 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. On May 26,
1998, the Company entered into a Modification Agreement with RT-SET whereby
RT-SET returned to the company 533,334 shares of Chyron common stock
previously issued and held in escrow and Chyron agreed to convert all of
its shares of RT-SET preferred stock into RT-SET common shares with an
equivalent value of $2,161,000.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Sales. Net sales decreased 3.6% to $83.7 million in 1998 from $86.8
million in 1997. The decrease was a result of lower international sales,
primarily in the UK and Asia, and the loss of revenues resulting from the
sale in August 1998 of the Company's Trilogy division which represented $2.4
million of the decline. The decrease was offset by an increase in sales of
Chyron graphics products and Pro-Bel products in the U.S. by $10 million.
The Company's net sales consisted of product sales, upgrades and
enhancements and rental income, as well as customer service revenue.
Gross Profit. Gross profit decreased to $39.5 million in 1998 from $39.8
million in 1997. Gross margin as a percentage of net sales increased to
47.1% in 1998 from 45.9% in 1997. The increase in gross margin as a
percentage of net sales was the result of improved margins on the sales of
the Company's core products offset by greater than anticipated costs on one
large customer contract. Customer service costs were included in selling,
general and administrative expenses and were not material.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("S,G&A") increased 6% to $31.4 million in 1998 from
$29.7 million in 1997. As a percentage of net sales, S,G&A expenses
increased to 37.5% in 1998 from 34.2% in 1997. The growth in overall S,G&A
expenses was directly related to the continued efforts to improve customer
service and to focus on sales and marketing initiatives, specifically
directed at supporting and growing the Pro-Bel product lines in America and
the establishment of the sales office in France. Offsetting this growth was
the benefit of reduced S,G&A expenses related to the sale of Trilogy.
Research and Development Expenses. Research and development expenses
("R&D") increased 40% to $9.5 million in 1998 from $6.8 million in 1997.
Increases in R&D occurred as the Company has focused its attention on new
product development related to the digital and HDTV markets.
Non-recurring Charges. During the second quarter of 1998, management
determined that it would be in the Company's best interest to implement a
restructuring plan and refocus its efforts on its core products of graphics,
routing and automation for the television broadcast, cable and post
production industries. This product line restructuring included the sale
of Trilogy, the modification of the Company's investment in RT-SET, the
reorganization of Chyron's sales and marketing organization and the
disposition of the Concerto Division. As a result, the Company recorded
restructuring and other non-recurring charges of $3,979,000 during fiscal
1998.
The restructuring charge included the write-down of Concerto assets, accrued
severance, legal costs and costs of disposition of such division totaling
$2.9 million. Other non-recurring charges totaled $1.1 million and related
to management's initiative to refocus on the Company's core products.
Included in other non-recurring charges were costs related to the sales
reorganization, accrued severance of $245,000 and other miscellaneous costs
of $315,000, all of which will require cash outlays. Additional accruals
have been made for litigation and other legal costs. Cash outlays related
to the non-recurring charges total $1.7 million, of which $1.0 million was
incurred by December 31, 1998.
Gain on Sale of Trilogy. In conjunction with the Company's decision to
refocus its efforts on core products, the Company sold its Trilogy division,
a wholly-owned subsidiary of Pro-Bel, to the management of Trilogy. This
transaction was completed in August 1998 and resulted in an overall gain of
approximately $1.2 million.
Interest and Other Expense, Net. Interest and other expense, net, increased
43.8% to $1.8 million in 1998 from $1.3 million in 1997. Included in
interest and other expense, net, were gains and losses resulting from
foreign exchange transactions. In fiscal 1998 an overall foreign exchange
loss of $308,000 was recognized, as opposed to a $423,000 gain recognized
in 1997. This was due primarily to the rate differential between U.S.
Dollars and British Pounds Sterling ("BPS") and the increased level in value
and number of transactions in such currencies. This increase was offset
by a decrease in interest expense due to lower average borrowings in 1998
as compared to 1997, as well as slightly lower interest rates.
Income Taxes/Equivalent (Benefit) Provision. The Company recognized a $1.6
million tax benefit for the twelve months ended December 31, 1998 compared
to $0.2 million for 1997. The Company's effective tax benefit rate was 26.7%
in 1998 as compared to 22.3% in 1997. The primary difference resulted from
the effects of foreign income taxed at lower rates.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net Sales. Net sales increased 5.0% to $86.8 million in 1997 from $82.6
million in 1996. The increase was attributable to an increase in Pro-Bel
product sales of 73% offset by a decrease in the Chyron Graphics line of
27%. The Pro-Bel increase was due to a combination of: (i) an increase in
sales of the Pro-Bel product in the U.S. market; (ii) the fact that 1997
amounts represented twelve months of revenue, while 1996 represented revenue
from the purchase date, April 12, 1996, through December 31, 1996 and (iii)
increases in Pro-Bel sales in the European and other non-U.S. markets.
Chyron sales declined mainly due to customers opting to fill their graphic
needs with the Company's lower-end Chyron products based on the FCC ruling
requiring broadcasters to utilize digital advanced television transmission
beginning in 1998.
Gross Profit. Gross profit decreased to $39.8 million in 1997 from $42.7
million in 1996. Gross margin as a percentage of net sales decreased to
45.9% in 1997 from 51.6% in 1996. This decrease was caused by increases
in Pro-Bel sales for the year, which have historically lower margins than
the Chyron lines, as well as decreases in the Chyron margin as a result of
a shift in product mix from high-end products to lower-end products as
described above. Customer service costs were included in S,G&A and were
not material.
Selling, General and Administrative Expenses. S,G&A increased 32.7% to
$29.7 million in 1997 from $22.3 million in 1996. As a percentage of net
sales, S,G&A increased to 34.2% in 1997 from 27.1% in 1996. The increase
was due mainly to the inclusion of Pro-Bel expenses for twelve months in
1997, while 1996 only included nine months of expenses. Additional
increases were due to an overall increase in sales volume and increases in
headcount at both Chyron and Pro-Bel.
Research and Development Expenses. R&D increased 29.9% to $6.8 million in
1997 from $5.3 million in 1996. This increase was mainly due to the
inclusion of Pro-Bel's expenditures for a full twelve month period in 1997.
Additional increases in R&D occurred as the Company focused its attention
on new product development to address the FCC ruling described above as well
as the development of the "Concerto" product line of Axis, which was
acquired on March 31, 1997. These increases were offset by net capitalized
software costs (exclusive of the $1.7 million of the cost of Axis
capitalized) which increased approximately $1.0 million for the twelve
months ended December 31, 1997 versus the same period in 1996.
Non-recurring Charges. During the first half of 1997, the Company incurred
non-recurring charges of $3.1 million. Of these total charges, $675,000
related to the Company's planned secondary offering of common stock which
was terminated due to the market valuation of the stock. The remainder,
approximately $2.4 million, related 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 FCC
rulings. The components of this charge included a write-down of inventory
related to product lines which were discontinued as a result of a new
marketing positioning strategy, severance expense related to a staff
reduction, the write-off of software development projects related to
products not within the new strategy, the consolidation of certain Chyron
offices, the settlement of litigation and the write-off of costs related to
a potential acquisition that was abandoned due to the new strategy.
Interest and Other Expense, Net. Interest and other expense, net, decreased
25.5% to $1.3 million in 1997 from $1.7 million in 1996. The decrease was
due to the fact that in 1997 a foreign transaction gain of $423,000 was
recognized, as opposed to a $264,000 loss recognized in 1996. This was due
to the increase in the foreign exchange rate for BPS over the respective
periods and the increased intercompany transactions between Chyron and Pro-
Bel. This decrease was offset by increases in interest expense due to
increases in average borrowings and interest rates over the comparable
twelve month periods.
Income Taxes/Equivalent (Benefit) Provision. The Company recognized a
$218,000 tax benefit for the twelve months ended December 31, 1997 compared
to an income tax provision of $4.7 million for 1996. The tax benefit was
primarily attributable to a pre-tax loss of $978,000 while the provision
was based on pre-tax income of $13.4 million.
Liquidity and Capital Resources
At December 31, 1998, the Company had cash on hand of $1.6 million and
working capital of $30.0 million.
The Company generated $6.8 million in cash from operations during the year
ended December 31, 1998 as compared to $4.0 million in 1997. The
improvement in cash flows from operations was principally due to improved
collections of accounts receivable and the timing of certain customer down
payments and reductions in inventory levels primarily as a result of
subcontracting inventory assemblies in lieu of manufacturing and applying
"just in time" methodologies. The Company also received $2.7 million in
gross proceeds from the sale of Trilogy. These funds were used to pay down
a portion of the Company's term loan.
During December 1998, Chyron issued $1.1 million of 1998 Debentures and is
in the process of raising up to $10 million of additional long-term
convertible debt to fund continued research and development and reduce the
Company's reliance on bank debt. There can be no assurance that the Company
will be successful in its effort to raise such additional funds. The
debentures will not be registered under the Securities Act of 1933 and may
not be offered or sold in the United States absent registration or an
applicable exemption from the registration requirements. Chyron's
management believes that now is a good time to position the Company for
selective acquisitions as the broadcast industry consolidates, and that
strengthening Chyron's balance sheet will facilitate that strategy. There
can be no assurance that the Company will be successful in making any
acquisitions. In addition, if the Company does make acquisitions, there can
be no assurance that such acquisitions will improve the financial condition
of the Company.
In connection with the acquisition of Axis, the Company issued promissory
notes to the shareholders of Axis for $667,000. The first installment of
the notes was paid on March 31, 1998 and the second installment of $417,000
is due March 31, 1999.
To finance the acquisition of Pro-Bel, the Company incurred additional debt
of $7.2 million, used cash on hand of $6.9 million and issued promissory
notes for 3.5 million BPS ($5.3 million at the exchange rate at date of
acquisition). The promissory notes were paid on April 15, 1998.
Pro-Bel has an overdraft facility with a bank that is renewed on an annual
basis. The current facility extends through December 31, 1999 and provides
for an overall borrowing capability of 3.0 million BPS. Total borrowings
are limited to amounts computed under a formula for eligible accounts
receivable. It is currently the Company's intention to refinance this
facility prior to its expiration date.
The Company is in the process of renegotiating its revolving credit facility
with its lender. The Company believes that it will be able to come to terms
on a new long-term facility before its expiration on March 28, 1999.
At December 31, 1998, the Company had operating and capital lease
commitments totaling $11.3 million and $1.0 million, respectively, of which
$1.3 million and $.5 million, respectively, is payable within one year.
Such lease commitments were for equipment, factory and office space and are
expected to be paid out of operating cash flows of the Company.
Impact of Inflation and Changing Prices
Although the Company cannot accurately determine the precise effect of
inflation, the Company has experienced increased costs of materials,
supplies, salaries and benefits and increased general and administrative
expenses. The Company attempts to pass on increased costs and expenses by
developing more useful and cost effective products for its customers that
can be sold at more favorable profit margins.
Industry Transition to High Definition Television
As discussed above, in October 1996, the FCC adopted a new digital
television standard. Conversion to the new standard will produce a
potentially great opportunity to companies involved in the broadcast
industry and related business; however, this change has caused uncertainty,
hesitation and confusion for broadcasters and other customers in their
decisions on capital spending. The delay in capital spending by
broadcasters has affected the level of the Company's sales. The method and
timing of broadcasters' conversion to digital television is very important
to the future profitability of the Company.
The Year 2000
The Company has taken actions to ensure that its products, internal systems
and procedures are Year 2000 compliant. To this end, the Company has
established a proactive plan to assess the Year 2000 impact in order to
minimize any interruption of its operations or its ability to serve its
customers. The Company has also established a Year 2000 Committee whose
members include senior management and functional area leaders.
The Company has structured its plan to address internal systems,
infrastructure, facilities, suppliers and vendors as well as products and
services. In this regard, the Company has completed the assessment of its
critical internal information technology (IT) and non-IT systems and has not
found any significant readiness problems with respect to such internal
systems and procedures. The Company has also completed its product review
and is engaged in remediation efforts, where appropriate, including
upgrading and retirement of systems and components. The Company believes
the remediation efforts required are not significant and will be completed
by June 1, 1999. All products being shipped currently have been extensively
tested and found to be compliant. The Company is in the process of assessing
Year 2000 readiness of its critical suppliers by means of surveys and
visits. These assessments will be completed during the first half of 1999
and contingency plans will be prepared, as needed, during the second half
of the year. The Company is utilizing internal resources in its efforts and
the associated costs are being expensed as incurred. Total costs are
expected to be less than $500,000.
The Company is taking what it considers to be reasonable steps to prevent
major interruptions in its business due to Year 2000 issues. The inability
of the Company or significant third parties to adequately address Year 2000
issues could cause inefficiencies in the Company's business operations. At
this time, the Company has not encountered any Year 2000 issues which it
believes could have a material adverse effect on its business or current
products.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Financial Statements:
Report of Independent Auditors - PricewaterhouseCoopers LLP - page 21
Consolidated Balance Sheets at December 31, 1998 and 1997 - page 22
Consolidated Statements of Operations for the Years Ended December 31, 1998,
1997 and 1996 - page 23
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996 - page 24
Consolidated Statements of Shareholders' Equity for the Years Ended December
31, 1998, 1997 and 1996 - page 25
Notes to the Consolidated Financial Statements - page 26-45
Financial Statement Schedules:
II - Valuation and Qualifying Accounts - page 51
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of Chyron Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Items 14(a)(1) and (2) on page 47 present fairly, in all
material respects, the financial position of Chyron Corporation and its
subsidiaries at December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998 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 audits. We conducted our audits 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 audits provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
February 2, 1999
CHYRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31,
Assets 1998 1997
Current assets:
Cash and cash equivalents $ 1,585 $ 2,968
Accounts receivable, net 18,396 21,125
Inventories, net 19,378 26,540
Deferred tax assets 4,726 4,301
Prepaid expenses and other current assets 1,982 2,180
Total current assets 46,067 57,114
Property and equipment 12,545 12,373
Excess of purchase price over net tangible
assets acquired 5,104 6,779
Investments 2,286 2,161
Software development costs 4,458 5,224
Deferred tax assets 8,343 7,070
Other assets 4,313 3,359
TOTAL ASSETS $83,116 $94,080
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $14,136 $15,491
Current portion of long-term debt 1,512 2,318
Capital lease obligations 383 350
Total current liabilities 16,031 18,159
Long-term debt 13,486 17,774
Capital lease obligations 515 317
Pension and other liabilities 3,314 3,868
Total liabilities 33,346 40,118
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 - 32,058,020 and
32,591,705 at 1998 and 1997, respectively 321 326
Additional paid-in capital 44,021 44,016
Retained earnings 4,790 9,237
Accumulated other comprehensive income 638 383
Total shareholders' equity 49,770 53,962
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $83,116 $94,080
See Notes to Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
1998 1997 1996
Net sales $83,710 $86,774 $82,608
Cost of products sold 44,250 46,944 39,941
Gross profit 39,460 39,830 42,667
Operating expenses:
Selling, general and administrative 31,420 29,662 22,349
Research and development 9,537 6,822 5,253
Non-recurring charges 3,979 3,082
Total operating expenses 44,936 39,566 27,602
Operating (loss) income (5,476) 264 15,065
Gain on sale of Trilogy Broadcast
Limited 1,194
Interest and other expense, net (1,786) (1,242) (1,666)
(Loss) income before provision for
income taxes (6,068) (978) 13,399
Benefit (provision) for income taxes 1,621 218 (4,745)
Net (loss) income $(4,447) $(760) $8,654
Net (loss) income per common share -
basic and diluted $ (.14) $(.02) $ .27
Weighted average shares used in computing net
(loss) income per common share:
Basic 32,058 32,538 31,825
Diluted 32,058 32,538 32,327
See Notes to Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(4,447) $(760) $8,654
Adjustments to reconcile net (loss)
income to net cash
provided by operating activities:
Gain on sale of Trilogy Broadcast
Limited (1,194)
Restructuring and other non-recurring
charges 3,019 890
Depreciation and amortization 4,719 4,137 3,120
(Benefit) provision for deferred
income taxes (1,102) (1,241) 2,335
Changes in operating assets and
liabilities:
Accounts receivable 2,071 3,851 (3,505)
Inventories 5,196 (3,575) (3,303)
Prepaid expenses and other assets (293) (1,638) (581)
Accounts payable and accrued expenses (644) 1,382 (2,865)
Other liabilities (556) 936 (1,000)
Net cash provided by operating
activities 6,769 3,982 2,855
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions (413) (7,191)
Gross proceeds from sale of Trilogy
Broadcast Limited 2,746
Acquisition of property and equipment (2,323) (1,621) (1,802)
Capitalized software development (3,181) (2,678) (1,268)
Other 52
Net cash used in investing activities (2,758) (4,712) (10,209)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of term loan (3,500) (2,000) (1,500)
Borrowings from (payments of) revolving
credit agreement, net (2,691) 1,374 (4,144)
Proceeds from issuance of convertible
debentures 1,133
Payments of capital lease obligations (338) (290) (262)
Net proceeds from new credit facility 11,976
Proceeds from exercise of stock options
and common stock purchase warrants,
net 108 791
Other (52)
Net cash (used in) provided by
financing activities (5,396) (860) 6,861
Effect of foreign currency rate
fluctuations on cash and
cash equivalents 2 3 36
Change in cash and cash equivalents (1,383) (1,587) (457)
Cash and cash equivalents at beginning
of year 2,968 4,555 5,012
Cash and cash equivalents at end of year $1,585 $2,968 $4,555
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $1,126 $1,348 $1,636
Income taxes paid $ 391 $ 697 $2,920
See Notes to Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Accumulated
Additional Other
Paid-In Retained Comprehensive
Shares Amount Capital Earnings Income Total
Balance at January 1, 1996
30,024 $ 300 $28,340 $1,343 $29,983
Net income
8,654 8,654
Cumulative translation adjustment
$501 501
Total comprehensive income (loss)
9,155
Exercise of warrants
398 4 235 239
Exercise of stock options
114 1 551 552
Issuance of stock in connection with acquisition of Pro-Bel Ltd
1,049 11 6,857 6,868
Issuance of stock in connection with investment in RT-SET
800 8 1,942 1,950
Income tax equivalent benefit from reduction of deferred tax asset
valuation allowance
5,199 5,199
Balance at December 31, 1996
32,385 324 43,124 9,997 501 53,946
Net loss
(760) (760)
Cumulative translation adjustment
(118) (118)
Total comprehensive income (loss)
(878)
Exercise of stock options
22 108 108
Issuance of stock in connection with acquisition of Axis Holdings
174 2 748 750
Issuance of stock in connection with a litigation settlement
25 88 88
Payment of truncated shares as a result of reverse stock split
(15) (52) (52)
Balance at December 31, 1997
32,591 326 44,016 9,237 383 53,962
Net loss
(4,447) (4,447)
Cumulative translation adjustment
255 255
Total comprehensive income (loss)
(4,192)
Contingent shares canceled
(533) (5) 5
Balance at December 31, 1998
32,058 $ 321 $44,021 $4,790 $ 638 $49,770
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Chyron Corporation and its wholly-owned subsidiaries ("Chyron" or the
"Company") develop, manufacture, market and support a broad range of
equipment, software and systems, including paint and animation systems,
character generators, signal distribution systems, master control switchers
and broadcast automation and media management packages. 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.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany amounts have
been eliminated. Investments in affiliates of less than 20% are stated at
cost.
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, costs and expenses during
the periods presented. Actual results could differ from those estimates.
Restatement and Reclassification
On January 24, 1997, the Company's shareholders ratified a one-for-three
reverse stock split which was effected on February 7, 1997. (Loss)/income
per share, weighted average shares used in computing net (loss)/income per
common share, 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 the current year presentation.
Cash and Cash Equivalents
Cash includes cash on deposit and amounts invested in a highly liquid money
market fund. Cash equivalents consist of short term investments with
original maturities of three months or less. The carrying amount of cash
and cash equivalents approximates their fair value.
Inventories
Inventories are stated at the lower of cost or market, cost being determined
on the first-in, first-out method. The need for inventory obsolescence
provisions is evaluated by the Company and, when appropriate, provisions for
technological obsolescence, non-profitability of related product lines and
excess quantities on hand are made.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation and amortization
are provided on the straight line method over the following estimated useful
lives:
Building 35 years
Machinery and equipment 3-10 years
Furniture and fixtures 5-10 years
Leasehold improvements Shorter of the life of improvement
or remaining life of the lease
Excess of Cost over Net Tangible Assets Acquired
The Company continually evaluates whether changes have occurred that would
require revision of the remaining estimated useful life of the assigned
excess of cost over the value of net tangible assets acquired (goodwill) or
its carrying amount. In making such determinations, the Company evaluates
undiscounted cash flows of the underlying business which gave rise to such
amount. As of December 31, 1998, all of the Company's goodwill relates to
the 1996 acquisition of Pro-Bel Limited. Costs in excess of net assets are
being amortized over 12 years using the straight line method. Amortization
in 1998, 1997 and 1996 amounted to $577,000, $603,000 and $487,000,
respectively.
Software Development Costs
Certain software development costs are capitalized when incurred.
Capitalization of software development costs begins upon the establishment
of technological feasibility. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized
software development costs is continually monitored by management with
respect to anticipated future revenues and estimated economic life.
Amortization of capitalized software development costs is provided on a
product-by-product basis using the straight line method over each product's
estimated economic life, which ranges from 3-5 years.
Impairment of Long-Lived Assets
The Company continually evaluates whether changes have occurred that would
require revisions to the carrying amounts of its long-lived assets. In
making such determination, the Company reassesses market value, assesses
recoverability and replacement values and evaluates undiscounted cash flows
of the underlying business. Currently, management does not believe any of
its long-lived assets are impaired.
Revenue Recognition
Net sales, which include revenue derived from product sales and upgrades,
as well as service revenue, are recorded upon shipment of product or
performance of service. Customer service costs are included in selling,
general and administrative expenses and are not material. Revenues and costs
associated with long-term (generally six months or longer) contracts are
recognized on the percentage-of-completion method. Revisions in profit
estimates are reflected in the period in which the facts that give rise to
the revision become known. Provisions for anticipated losses are charged
to earnings when identified.
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes." Under SFAS 109, deferred income taxes are
recorded to reflect the tax consequences on future years of differences
between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end.
Foreign Currencies
Assets and liabilities of the Company's foreign subsidiaries are translated
into U.S. dollars at the current rate of exchange, while revenues and
expenses are translated at the average exchange rate during the year.
Adjustments from translating foreign subsidiaries' financial statements are
reported as a separate component of stockholders' equity. Transaction gains
or losses are included in interest and other expenses.
Net (Loss) Income Per Share
In 1997, the Company adopted the Financial Accounting Standards Board
Statement No. 128, "Earnings Per Share." All amounts prior to 1997 have been
restated to reflect this statement. Basic net (loss)/income per common share
is computed based on the weighted average number of common shares
outstanding during the year. Diluted net (loss) income per common share is
computed based on the weighted average number of common shares outstanding
during the year plus, when dilutive, additional shares issuable upon the
assumed exercise of outstanding common stock equivalents. Incremental
shares of nil in 1998 and 1997 and 502,000 in 1996, respectively, were used
in the calculation of diluted net (loss) income per share. For 1998 and 1997
outstanding common stock options of 2,765,304 and 2,458,423, respectively,
were not included in the computation of diluted net (loss) income per common
share because their effect would have been anti-dilutive. For 1996
outstanding stock options of 396,302 were not included in the computation
of diluted net income per share because the exercise price was greater than
the average market price of the common stock.
Stock-Based Compensation Plans
The Company accounts for stock based compensation awards pursuant to
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related interpretations which prescribe the use of the
intrinsic value based method. Accordingly, no compensation cost has been
recognized for its fixed stock option plans. However, the Company has
adopted the disclosure requirements of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation."
Segment Information
In 1998, the Company adopted Statement of Financial Accounting Standards No.
131 ("SFAS 131"), Disclosures about Segments of an Enterprise and Related
Information. SFAS 131 replaces the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments.
SFAS 131 also requires disclosures about products and services, geographic
areas, and major customers.
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." Total comprehensive income and the components of
accumulated other comprehensive income are presented in the Consolidated
Statements of Shareholders' Equity.
Software Revenue Recognition
In the first quarter of 1998, the Company adopted AICPA Statement of
Position 97-2 ("SOP 97-2"), "Software Revenue Recognition." This SOP
provides guidance on when revenue should be recognized for licensing,
selling, leasing, or otherwise marketing computer software. The adoption
of SOP 97-2 did not have a material effect on the results of operations of
the Company for the year ended December 31, 1998.
2. ACQUISITIONS
Pro-Bel Limited
On April 12, 1996, the Company acquired Pro-Bel Limited ("Pro-Bel") in
exchange for $6.9 million in cash, 3.5 million British Pounds Sterling
("BPS") in notes ($5.3 million at the exchange rate on date of acquisition)
and 1,048,735 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 following summary financial data includes the proforma operating results
of the Company and Pro-Bel for the year ended December 31, 1996, assuming
the acquisition of Pro-Bel had been made as of January 1, 1996 (in
thousands, except per share amounts).
Net sales $92,974
Net income 8,633
Net income per share .27
These pro forma results have been prepared for comparative purposes only and
include adjustments as a result of applying purchase accounting and the
conversion to generally accepted accounting principles in the United States.
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.
Axis Holdings Incorporated
On March 31, 1997, the Company acquired Axis Holdings Incorporated ("Axis")
located in Los Angeles, California. Axis developed professional video and
audio software specifically for use on the Microsoft Windows NT Operating
System. The purchase price consisted of $413,000 in cash, $667,000 in notes
(bearing interest at 6%) and 173,913 restricted shares of Chyron common
stock valued at $750,000. The first installment of the notes was paid on
March 31, 1998 and the final installment of $417,000 is due on March 31,
1999.
The acquisition was accounted for as a purchase. 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.
During the second quarter of 1998, as a result of this division's inability
to meet revenue and operating targets, this division, Concerto, was
discontinued and all related software development costs were written off.
See Note 3 to Consolidated Financial Statements.
3. NON-RECURRING CHARGES
During the second quarter of 1998, management determined that it would be
in the Company's best interest to implement a restructuring plan and refocus
its efforts on its core products of graphics, routing and automation for the
television broadcast, cable and post production industries. This product
line restructuring resulted in the sale of Trilogy Broadcast Limited
("Trilogy"), a wholly-owned subsidiary of Pro-Bel Limited; the modification
of the Company's investment in Real Time Synthesized Entertainment
Technology, Ltd. ("RT-SET"); the reorganization of Chyron's sales and
marketing organizations; and the planned disposition of the Concerto
Division. As a result, the Company recorded restructuring and other non-
recurring charges of $3,979,000.
The restructuring charge includes the write-down of Concerto assets, accrued
severance, legal costs and costs of disposition of such division totaling
$2.9 million. Other non-recurring charges relate to management's initiative
to refocus on the Company's core products and total $1.1 million. Included
in other non-recurring charges are costs related to the sales
reorganization, accrued severance of $245,000 and other miscellaneous costs
of $315,000, all of which will require cash outlays. Additional accruals
have been made for litigation and other legal costs. As of December 31, 1998
cash outlays of $960,000 have been made.
The specific components of this non-recurring charge are as follows (in
thousands):
Non-cash charges:
Write-down of Concerto assets to net
realizable value $2,300
Cash outlays:
Accrued severance 645
Accrued litigation and other
legal costs 500
Loss on lease commitment 120
Other 414
$3,979
During the first six months of 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
change in 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 1996 FCC rulings described above, the Company
underwent a repositioning which, together with several other items, resulted
in non-recurring charges totaling $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 staff reductions, the write-off of software development
projects related to products not within the new strategy, the consolidation
of certain Chyron offices, the settlement of litigation 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 charges:
Write-down of inventory $ 700
Write-off of software development costs 205
Litigation settlement - issuance of
Chyron common stock 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 $1.6 million was made by December 31, 1997. As of December 31, 1998
all cash outlays have been made.
4. INVESTMENT IN RT-SET
On February 29, 1996, the Company effectively purchased an option to acquire
a 19% interest in 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, which were
convertible into RT-SET common stock, in exchange for 800,000 shares of
Chyron restricted common stock. In accordance with the purchase agreement,
the 800,000 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 266,666 shares of Chyron restricted common stock
to RT-SET. In addition, Chyron was granted certain call option rights
which, if exercised, would result in the Company owning up to a 51% interest
in RT-SET.
On May 26, 1998 the Company entered into a Modification Agreement with RT-
SET whereby: (1) Chyron forfeited its call option rights, (2) RT-SET
returned the 533,334 shares of Chyron common stock, previously issued and
held in escrow, to the Company, and (3) Chyron agreed to convert all of its
shares of RT-SET preferred stock into RT-SET common shares at no less than
the equivalent value of $2,161,000. In October 1998, RT-SET completed a
private placement and such shares of RT-SET preferred stock were converted
into the equivalent value of common shares representing a 6% interest.
5. SALE OF TRILOGY BROADCAST LIMITED
On August 19, 1998, the Company completed the sale of Trilogy, a wholly-
owned subsidiary of Pro-Bel, to its management. The Company received gross
proceeds of 2.0 million BPS ($2.7 million at the exchange rate at closing),
an interest bearing note for 300,000 BPS ($502,500 at December 31, 1998) due
August 2003 with interest payable quarterly at LIBOR and a 19% interest in
the new company that results from this transaction. This transaction
resulted in an overall gain of approximately $1.2 million.
As a result of this sale, the Company's assets and liabilities decreased by
approximately $2.9 million and $800,000, respectively. For the year ended
December 31, 1998, Trilogy contributed sales, gross profit and operating
income of $2.9 million, $1.6 million and $20,000, respectively.
6. ACCOUNTS RECEIVABLE
Accounts receivable are stated net of an allowance for doubtful accounts of
$3,881,000 and $3,124,000 at December 31, 1998 and 1997, respectively. The
provision for doubtful accounts amounted to $1,176,000, $533,000 and nil for
1998, 1997 and 1996, respectively.
Accounts receivable are principally due from customers in, and dealers
serving, the broadcast video industry and non-broadcast display markets.
At December 31, 1998 and 1997, receivables included approximately $8.6
million and $13.6 million, respectively, due from foreign customers.
Accounts receivable include costs and estimated earnings in excess of
billings on uncompleted contracts accounted for on the percentage of
completion method of approximately $2.3 million at December 31, 1998. Such
amount represents revenue recognized on a long-term contract that has not
been billed pursuant to contract terms.
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. The carrying amounts of accounts receivable approximate their
fair values.
7. INVENTORIES
Inventories consist of the following (in thousands):
December 31,
1998 1997
Finished goods $7,266 $12,346
Work-in-progress 3,048 9,303
Raw material 9,064 4,891
$19,378 $26,540
8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
December 31,
1998 1997
Land $ 819 $ 798
Building 1,777 1,619
Machinery and equipment 16,706 14,019
Furniture and fixtures 2,626 2,287
Leasehold improvements 699 727
22,627 19,450
Less: Accumulated depreciation
and amortization 10,082 7,077
$12,545 $12,373
Machinery and equipment at December 31, 1998 and 1997 includes $1,556,000
and $1,045,000, respectively, of assets held under capital lease
obligations. Accumulated depreciation and amortization at December 31, 1998
and 1997 includes $968,000 and $516,000, respectively, attributable to
assets held under capital lease obligations.
Depreciation expense, which includes amortization of assets under capital
lease, was $2,495,000, $2,362,000 and $1,671,000 in 1998, 1997 and 1996,
respectively.
9. SOFTWARE DEVELOPMENT COSTS
The following amounts were capitalized, amortized and written off (in
thousands):
1998 1997 1996
Amounts capitalized $3,181 $4,425 $1,420
Less: Amortization (included in research
and development expense) (1,647) (1,172) (960)
Non-recurring charge-write-down
to net realizable value (2,300) (205)
Net increase (decrease) in software
development costs $ (766) $3,048 $ 460
Capitalized amounts for 1997 include $1.7 million arising from the purchase
of Axis. Accumulated amortization at December 31, 1998 and 1997 was
$4,186,000 and $4,554,000, respectively.
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
December 31,
1998 1997
Accounts payable $ 7,554 $7,948
Compensation 1,630 1,898
Income taxes payable 257 486
Other accrued items 4,695 5,159
$14,136 $15,491
11. LONG-TERM DEBT
Long term debt consists of the following (in thousands):
December 31,
1998 1997
Term loan, maturing April 16, 2000 (a) $1,000 $4,500
Revolving credit facility, expiring
March 28, 1999 (a) 7,693 2,730
Commercial mortgage term loan,
maturing March 28, 2010 (b) 1,909 1,965
Promissory notes, payable
on or before April 15, 1998 (c) 5,766
Trade finance facility, expiring
December 31, 1998 (d) 2,846 4,464
Promissory notes, payable
on March 31, 1999 (e) 417 667
Convertible debentures, maturing
December 31, 2003 (f) 1,133
14,998 20,092
Less amounts due in one year 1,512 2,318
$13,486 $17,774
(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 Chyron's accounts receivable and inventory and the common stock of Pro-
Bel. Borrowings are limited to amounts computed under a formula for
eligible accounts receivable and inventory. Interest on the revolving
credit facility is equal to adjusted LIBOR plus 175 basis points or prime
(7.4% at December 31, 1998) 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
and is payable monthly. The Company must pay a commitment fee equal to 1/4
of 1% per annum on the average daily unused portion of the credit facility.
The commitment fee is payable on the last day of each quarter commencing
June 30, 1996. This agreement contains, among other provisions,
requirements for maintaining defined levels of net worth, leverage, capital
expenditures, lease payments and various financial ratios. The Company is
prohibited by the agreement from paying cash dividends in excess of 25% of
its net income for the then current fiscal year. As of December 31, 1998,
the Company was in violation of certain financial covenants under these
agreements for which it has obtained waivers. The Company is in the process
of renegotiating its revolving credit facility with its lender. The Company
believes that it will be able to come to terms on a new long-term facility
before its expiration on March 28, 1999.
(b) 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 plus 2% (7.6% at December 31, 1998) . The loan is
payable in quarterly installments of 80,600 BPS ($135,000, converted at the
December 31, 1998 exchange rate) plus interest.
(c) On April 12, 1996, the Company issued promissory notes to the
shareholders of Pro-Bel for 3.5 million BPS ($5,766,000, at the December 31,
1997 exchange rate) in conjunction with the acquisition. The promissory
notes were secured and paid by an irrevocable letter of credit from a bank.
The amount of this irrevocable letter of credit was drawn against the
revolving credit facility described in (a) above. Interest from April 16,
1997 through April 15, 1998 was equal to LIBOR as of April 15, 1997 (7.03%)
and was payable quarterly. Interest through April 15, 1997 was equal to
LIBOR as of April 15, 1996 (6.46%) and was payable quarterly. The notes
were subordinated to any obligations to a bank or financial institution
currently existing or subsequently entered into. As of April 15, 1998 the
notes were paid in full.
(d) Pro-Bel has an agreement with a bank for an overdraft facility that
has been renewed on an annual basis. This agreement, as renewed, provides
for an annual overdraft facility of 3 million BPS, 4 million BPS and 3
million BPS for the years ended December 31, 1997, 1998 and 1999,
respectively. Total borrowings are limited to amounts computed under a
formula for eligible accounts receivable. Interest is equal to the bank's
base rate plus 1.5% (7.75% at December 31, 1998) and is payable quarterly.
It is currently the Company's intention to refinance this facility prior to
its expiration date.
(e) On March 31, 1997, the Company issued promissory notes to the
shareholders of Axis for $667,000 in conjunction with the acquisition. The
promissory notes are due in installments with the final payment of $417,000
due March 31, 1999. Interest is payable with the installments, at a rate of
6% per annum.
(f) During December 1998, the Company issued $1,133,000 of 8% Subordinated
Convertible Debentures to certain persons and entities, including certain
directors, affiliates and shareholders of the Company. The debentures are
due December 31, 2003. The debentures are convertible into the Company's
common stock at a price of $2.466 per share which was equal to 120% of the
average of the closing selling price of the common stock for the 90 trading
days immediately preceding their issue date. The Company may redeem the
debentures at any time commencing on December 31, 1999 for the principal
plus accrued and unpaid interest to the redemption date. Subject to certain
restrictions, the debentures are exchangeable, at the option of the holders
thereof, for a like principal amount of any series of convertible
subordinated debentures which the Company may issue pursuant to a private
placement, through a placement agent, within 180 days of the issue date of
the debentures. The net proceeds from the offering were used for general
working capital purposes.
Aggregate maturities of long term debt are as follows (in thousands):
1999 $ 1,512
2000 10,634
2001 95
2002 95
2003 1,228
2004 1,434
The carrying amounts of long-term debt instruments approximate their fair
values.
Net interest expense was $1,479,000, $1,665,000 and $1,402,000 in 1998,
1997 and 1996, respectively.
12. LONG-TERM INCENTIVE PLAN
In May 1995, the Company's shareholders approved the Chyron Corporation
Long-Term Incentive Plan ("the Plan"). The Plan, as amended in May 1997,
allows for a maximum of 3,000,000 shares of common stock to be available
with respect to the grant of awards under the Plan. The Plan allows for the
award of incentive and non-incentive options to employees and non-incentive
options to non-employee members of the Company's Board of Directors.
Options issued to employees other than the Company's Chief Executive Officer
("CEO") and another officer vest over a three year period. Certain options
issued to the CEO and the other officer vest one third at issuance, with the
remaining two thirds vesting over two years. Additional options issued to
the CEO vest based on the earlier of the attainment of specified criteria
or December 15, 2003. Options issued to non-employee members of the
Company's Board of Directors vest immediately. All options have a term of
ten years.
In December 1998, the Company offered all option holders who were current
employees of the Company the opportunity to exchange certain of their
existing options for new options. As a result, options to purchase shares
of Common Stock were granted with the following terms: (a) fifty percent of
such new stock options were granted with an exercise price of $2.125 and
shall vest in equal installments over three years; and (b) the remaining
fifty percent of such new stock options were granted with the same exercise
price; all of such stock options shall vest in their entirety on December
15, 2003; provided, however, that such options shall vest earlier upon the
attainment of certain Company performance criteria related to earnings per
share.
Transactions involving stock options are summarized as follows:
Stock Options Range of Option
Outstanding Price per Share
Balance, January 1, 1996 1,071,665 $4.875 - $5.625
Granted 468,332 $9.375 - $16.125
Exercised (113,018) $4.875 - $5.625
Canceled (86,666) $4.875
Balance, December 31, 1996 1,340,313 $4.875 - $16.125
Granted 1,767,498 $4.25 - $5.875
Exercised (22,220) $4.875
Canceled (627,168) $9.00 - $12.75
Balance, December 31, 1997 2,458,423 $4.25 - $16.125
Granted 2,227,070 $2.00 - $4.00
Canceled (1,920,189) $3.938 - $5.875
Balance, December 31, 1998 2,765,304 $2.00 - $16.125
The following table summarizes information concerning currently outstanding
and exercisable stock options:
Exercise Outstanding at Weighted Average Exercisable at
Price December 31, 1998 Contractual Life December 31, 1998
$4.875 368,558 1.56 years 368,558
16.125 23,331 1.58 years 23,331
5.625 26,664 1.58 years 26,664
12.750 3,333 1.71 years 3,333
9.375 6,666 2.14 years 6,666
4.500 23,331 2.58 years 23,331
5.875 37,223 3.17 years 12,406
2.000 730,000 5.42 years
5.375 98,389 8.81 years 32,764
4.000 4,500 9.09 years
3.750 30,000 9.16 years 30,000
3.938 2,000 9.34 years
3.063 23,000 9.54 years
2.500 30,000 9.56 years 30,000
2.125 1,358,309 9.93 years 82,500
2,765,304 639,553
If the Company had elected to recognize compensation expense based upon the
fair values at the grant date for awards under this plan consistent with the
methodology prescribed by SFAS No. 123, "Accounting for Stock Based
Compensation", the Company's net (loss) income and net (loss) income per
share would be reduced to the pro forma amounts indicated below:
1998 1997 1996
Net (loss) income (in thousands):
As reported $(4,447) $(760) $8,654
Pro forma (6,401) (2,866) 7,560
Net (loss) income per common share:
As reported $(.14) $(.02) $.27
Pro forma (.20) (.09) .23
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over
the vesting period for purposes of future pro forma disclosures, and
additional options may be granted in future years. The fair value of these
options was estimated at the date of grant using the Black-Scholes option-
pricing model with the following weighted average assumptions for 1998, 1997
and 1996: dividend yield of 0; expected volatility of 50% and expected
life of 4-5 years in 1998 and 4 years in 1997 and 1996. The weighted
average risk free interest rates for 1998, 1997 and 1996 were 4.20%, 6.19%
and 6.54%, respectively. The weighted average fair values of options
granted during 1998, 1997 and 1996, for which the exercise price equaled the
market price on the grant dates, were $2.07, $5.254 and $12.87 per option,
respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including expected price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes
in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of employee stock
options.
13. INCOME TAXES
The (benefit) provision for income taxes consists of the following (in
thousands):
1998 1997 1996
Current:
Federal and State $(65) $(607) $1,937
Foreign 142 1,036 473
77 429 2,410
Deferred:
Federal and State (1,777) (647) 2,514
Foreign 79 (39)
Valuation reserve (140)
(1,698) (647) 2,335
Total (benefit)
provision $(1,621) $ (218) $4,745
The effective income tax rate differed from the Federal statutory rate as
follows (in thousands):
1998 1997 1996
Amount % Amount % Amount %
Federal income tax
(benefit) provision at
statutory rate $(2,063) (34.0) $(333) (34.0) $4,689 35.0
State income taxes, net
of federal tax benefit 16 0.3 3 0.3 409 3.0
Permanent differences 44 0.7 35 3.6 36 .3
Benefit from post
reorganization temporary
differences on tax
equivalent provision (140) (1.1)
Foreign income tax
provision 406 6.7 8 .1
Provision (benefit) of
lower tax rates on U.S.
federal provision (130) (2.1) 169 17.2 (121) (.9)
Effect of valuation
allowance of deferred
tax assets (150) (1.1)
Other, net 106 1.7 (92) (9.4) 14 .1
$(1,621) (26.7) $(218) (22.3) $4,745 35.4
The components of the Company's deferred tax assets and deferred tax
liabilities are presented in the tables below.
December 31,
1998 1997
Post-reorganization net operating loss carryforward $5,094 $3,433
Pre-reorganization net operating loss carryforward 4,631 4,631
Pre-reorganization deductible temporary differences 3,067 3,067
Other 1,691 1,976
Total deferred tax assets $14,483 $13,107
Pre-reorganization taxable temporary differences $ 83 $85
Software development costs 1,331 913
Other 738
Total deferred tax liabilities $1,414 $1,736
At December 31, 1998, the Company had net operating loss carryforwards
("NOLs") of approximately $28.6 million expiring beginning with the year
2000 through 2018. In connection with the Company's emergence in 1991 from
its reorganization under Chapter 11 of the U.S. Bankruptcy Code, the benefit
of the Company's pre-reorganization NOLs were not reflected in net income,
but rather recorded as an increase to paid-in capital. In addition, such
NOLs ($13.6 million) are subject to annual limitations under U.S. income tax
rules as a result of the changes in control of the Company.
Current accounting standards require that deferred income taxes reflect the
tax consequences on future years of differences between the tax bases of
assets and liabilities and their bases for financial reporting purposes.
In addition, future tax benefits, such as NOLs, are required to be
recognized to the extent that realization of such benefits is more likely
than not. A valuation allowance is established for those benefits that do
not meet the more likely than not criteria. Management believes that it is
more likely than not that the Company will generate taxable income
sufficient to realize the tax benefit associated with future deductible
temporary differences and NOL carryforwards prior to their expiration.
14. BENEFIT PLANS
Chyron Corporation has a domestic defined benefit pension plan (the "U.S.
Pension Plan") covering substantially all U.S. 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 of the U.S. Pension
Plan at December 31, 1998 include government bonds, equities, mutual funds
and cash and cash equivalents.
Effective July 1, 1998, the Company amended its defined benefit plan for its
U.S. operations. The amendment included a change in the determination of
average annual compensation for the calculation of the defined pension
benefit. In addition, the vesting period has decreased from 6 to 5 years
of service.
Benefit plan information for the U.S. Pension Plan is as follows (in
thousands):
1998 1997
Reconciliation of benefit obligation
Obligation at January 1 $4,502 $3,803
Service cost 425 444
Interest cost 285 294
Plan amendments (283)
Actuarial (gain) loss (42) 412
Benefit payments (704) (451)
Obligation at December 31 $4,183 $4,502
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1 $2,895 $2,709
Actual return on plan assets 301 277
Employer contributions 311 360
Benefit payments (704) (451)
Fair value of plan assets at December 31 $2,803 $2,895
Funded Status
Funded status at December 31 $(1,380) $(1,607)
Unrecognized prior-service cost (512) (255)
Unrecognized (gain) loss (261) (177)
Net amount recognized $(2,153) $(2,039)
1998 1997 1996
Components of net periodic pension cost
Service cost $ 424 $ 444 $ 414
Interest cost 285 294 267
Expected return on plan assets (248) (277) (206)
Amortization of prior service cost (26) (18) (18)
Amortization of net (gain) loss (11) 21 (25)
Net periodic benefit cost $ 424 $ 464 $ 432
Weighted-average assumptions as of
December 31
Discount rate 7.0% 7.5% 8.0%
Expected return on plan assets 9.0% 9.0% 9.0%
Rate of compensation increase 5.0% 5.0% 5.0%
Pro-Bel has a non-contributory defined benefit pension plan (the "U.K.
Pension Plan") covering all its permanent employees. Contributions are
determined on the basis of valuations using the projected unit method.
Pro-Bel's policy is to fund minimum contributions required pursuant to U.K.
rules and regulations. The assets of the U.K. Pension Plan at December 31,
1998 include cash equivalents and land and a building.
Benefit plan information for the U.K. Pension Plan is as follows (in
thousands):
1998 1997
Reconciliation of benefit obligation
Obligation at January 1 $7,505 $5,689
Service cost 706 560
Interest cost 576 455
Plan amendments 730
Actuarial (gain) loss (610) 818
Benefit payments (23) (17)
Obligation at December 31 $8,884 $7,505
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1 $9,588 $6,944
Actual return on plan assets 190 428
Employer contributions 792 2,233
Benefit payments (23) (17)
Fair value of plan assets at December 31 $10,547 $9,588
Funded status
Funded status at December 31 $1,663 $2,083
Unrecognized prior-service cost 683
Unrecognized loss 1,170 1,186
Net amount recognized $3,516 $3,269
1998 1997 1996
Components of net periodic pension cost
Service cost $ 706 $ 548 $ 303
Interest cost 576 446 285
Expected return on plan assets (799) (420) (457)
Amortization of prior service cost 49
Amortization of net (gain) loss 15 (224)
Net periodic pension cost $ 547 $ 350 $ 131
Weighted-average assumptions as of December 31
Discount rate 6.0% 7.0% 8.0%
Expected return on plan assets 7.0% 8.0% 9.0%
Rate of compensation increase 4.0% 5.0% 5.5%
The Company has adopted a 401(k) Plan exclusively for the benefit of
participants and their beneficiaries. All U.S. employees of Chyron
Corporation are eligible to participate in the 401(k) Plan. Effective July
1, 1998, the Company amended its 401(k) Plan by increasing the matching
contribution of the Company to 20% and changing its matching contributions
from cash to Company common stock and the vesting period for the matching
contribution to three years. 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 ($10,000 in 1998 and $9,500 in 1997), whichever is less.
Total compensation that can be considered for contribution purposes is
limited to $160,000.
Chyron Corporation can elect to make a contribution to the 401(k) Plan on
behalf of those participants who have made salary deferral contributions.
During 1998, 1997 and 1996, the Company contributed $97,000, $63,000 and
$51,000, respectively, to the 401(k) Plan.
15. COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Company was obligated under operating and capital
leases covering facility space and equipment as follows (in thousands):
Operating Capital
1999 $ 1,259 $ 498
2000 1,253 381
2001 1,115 120
2002 1,099
2003 835
2004 and thereafter 5,779
The operating leases contain provisions for escalations and for maintenance
and real estate taxes. Total rent expense was $1,125,000, $965,000 and
$826,000 for 1998, 1997 and 1996, respectively. The cumulative imputed
interest in the capital lease obligation was $103,000 at December 31, 1998.
The Company from time to time is involved in routine legal matters
incidental to its business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
16. RELATED PARTY TRANSACTIONS
The secretary of the Company, a non-executive position, and an individual
who held a board seat through May 1997 are affiliated with a law firm that
rendered various legal services to the Company for which the Company
incurred costs of $248,000, $783,000 and $861,000 during 1998, 1997 and
1996, respectively.
17. SEGMENT INFORMATION
In 1998, the Company adopted SFAS 131. Prior period segment information has
been restated to conform to the requirements of this statement. Chyron's
businesses are organized, managed and internally reported as two segments.
The segments, which are based on differences in products and technologies,
are Graphics Products and Media Management Systems.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies." The Company is an
integrated organization characterized by interdivisional cooperation, cost
allocations and inventory transfers. Therefore, management does not
represent that these segments, if operated independently, would report the
financial information shown below.
Business Segment Information
(In thousands)
Media
Graphics**Management*
Net sales
1998 $38,447 $45,263
1997 40,716 46,058
1996 55,888 26,720
Operating income (loss)
1998 $(4,165) $(1,311)
1997 (2,884) 3,148
1996 13,985 1,080
Identifiable assets
1998 $44,481 $38,635
1997 49,500 44,580
1996 52,007 39,396
Depreciation and amortization
1998 $ 2,548 $ 2,171
1997 2,193 1,944
1996 1,778 1,342
Geographic Areas
(In thousands)
United States** Europe* Other
Net sales
1998 $45,954 $33,640 $4,116
1997 35,901 40,745 10,128
1996 55,446 24,281 2,881
Operating income (loss)
1998 $(4,055) $(1,187) $ (234)
1997 (2,817) 3,157 (76)
1996 12,764 1,611 690
Identifiable assets
1998 $48,512 $34,539 $ 65
1997 51,160 42,860 60
1996 52,988 38,375 40
* Includes amount related to Pro-Bel subsequent to its acquisition on
April 12, 1996.
** Operating income includes non-recurring charges in 1998 and 1997 of
$3,979 and $3,082, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
In connection with the Annual Meeting of Shareholders of the Company, the
Company intends to furnish Shareholders with proxy material which sets forth
the information required by Items 10, 11, 12 and 13 of this Part III.
Copies of such material will be duly filed with the U.S. Securities and
Exchange Commission pursuant to Rule 14a-(6)/(c) promulgated under the
Securities Exchange Act of 1934, as amended, not later than 120 days after
the end of the fiscal year covered by this Annual Report on Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) (1) Financial Statements
See index to Consolidated Financial Statements on page 20.
(2) Financial Statement Schedules
The following Consolidated Financial Statement schedule of Chyron
Corporation and subsidiaries is included in Item 14(d) found on page
51:
Schedule II - Valuation and Qualifying Accounts for the Years Ended
December 31, 1998, 1997 and 1996.
All other schedules called for under Regulation S-X are not submitted
because they are not applicable or not required or because the
required information is not material or is included in the
Consolidated Financial Statements or notes thereto.
(3) Financial Statement Exhibits
See list of exhibits to the Financial Statements in Section (c) below:
(b) Reports on Form 8-K
None
Note
(c) Exhibits
3. Articles of Incorporation and By-Laws.
(a) Restated Certificate of Incorporation of Chyron
Corporation (1)
(b) Amended and Restated By-Laws of Chyron Corporation,
adopted October 28, 1998 (8)
(c) Amendment of Certificate of Incorporation of Chyron
Corporation, adopted January 24, 1997 (5)
4. Instruments defining rights of security holders, including
debentures.
(a) Registration Rights Agreement, dated December 27, 1991,
between Chyron Corporation and Pesa, Inc. (2)
(b) Registration Rights Agreement dated July 25, 1995 by and
between Chyron Corporation and CC Acquisition Company A,
L.L.C., CC Acquisition Company B, L.L.C., WPG Corporate
Development Associates, IV, L.P., WPG Corporate Development
Associates IV (Overseas), L.P., WPG Enterprise Fund II, L.P.,
Weiss, Peck & Greer Venture Associates, III, L.P., Westpool
Investment Trust PLC, Lion Investment Limited, Charles Diker,
Mint House Nominees Limited, Pine Street Ventures, L.L.C.,
Isaac Hersly, Alan I. Annex, Ilan Kaufthal, Z Four Partners
L.L.C. and A.J.L. Beare (4)
(c) 8% Subordinated Convertible Debenture Due December
31, 2003 (8)
(d) Subscription Agreement and Investment Representation for the
purchase of the 8% Subordinated Convertible Debenture Due
December 31, 2003 (8)
10. Material Contracts.
(a) Distribution and License Agreement, dated September 22, 1994,
between Chyron Corporation and Comunicacion Integral
Consultores, S.L. (3)
(b) Termination Agreement, dated November 6, 1995, between
Chyron Corporation and Comunicacion Integral Consultores,
S.L. (4)
(c) Loan Agreement between Chyron Corporation and NatWest Bank
N.A. (currently known as Fleet Bank), dated March 28, 1996 (5)
(d) Loan Agreement between Pro-Bel Limited and Barclays Bank, PLC
dated December 19, 1996 effective January 1997 (5)
(e) Indemnification Agreement between Chyron Corporation and
Roi Agneta dated November 19, 1996 (5)
(f) Indemnification Agreement between Chyron Corporation and
James Coppersmith dated November 19, 1996 (5)
(g) Indemnification Agreement between Chyron Corporation and
Daniel DeWolf dated November 19, 1996 (5)
(h) Indemnification Agreement between Chyron Corporation and
Charles M. Diker dated November 19, 1996 (5)
(i) Indemnification Agreement between Chyron Corporation and
Donald P. Greenberg dated November 19, 1996 (5)
(j) Indemnification Agreement between Chyron Corporation and
Ray Hartman dated November 19, 1996 (5)
(k) Indemnification Agreement between Chyron Corporation and
Roger Henderson dated November 19, 1996 (5)
(l) Indemnification Agreement between Chyron Corporation and
Alan J. Hirschfield dated November 19, 1996 (5)
(m) Indemnification Agreement between Chyron Corporation and
Patricia Lampe dated November 19, 1996 (5)
(n) Indemnification Agreement between Chyron Corporation and
Wesley W. Lang, Jr. dated November 19, 1996 (5)
(o) Indemnification Agreement between Chyron Corporation and
Eugene M. Weber dated November 19, 1996 (5)
(p) Indemnification Agreement between Chyron Corporation and
Michael Wellesley-Wesley dated November 19, 1996 (5)
(q) Employment Agreement between Chyron Corporation and
Edward Grebow dated June 5, 1997 (6)
(r) Indemnification Agreement between Chyron Corporation and
Edward Grebow dated June 5, 1997 (7)
23. Consents and experts of counsel.
(a) Consent of PricewaterhouseCoopers dated March
30, 1999 (8)
(1) Incorporated herein in its entirety by reference to the Annual Report
for the Fiscal Year Ended June 30, 1991 on Form 10-K dated January 31,
1992.
(2) Incorporated herein in its entirety by reference to the report on Form
8-K dated December 27, 1991.
(3) Incorporated herein in its entirety by reference to the Annual Report
for the fiscal year ended December 31, 1994 on Form 10-K dated March 24,
1995.
(4) Incorporated herein in its entirety by reference to the Annual Report
for the fiscal year ended December 31, 1995 on Form 10-K dated March 14,
1996.
(5) Incorporated herein in its entirety by reference to the Annual Report
for the fiscal year ended December 31, 1996 on Form 10-K dated March 20,
1997.
(6) Incorporated herein in its entirety by reference to the Form 10-Q for
the quarter ended June 30, 1997 dated August 12, 1997.
(7) Incorporated herein in its entirety by reference to the Annual Report
for the fiscal year ended December 31, 1997 on Form 10-K dated March 16,
1998.
(8) Incorporated herein in this Annual Report for the fiscal year ended
December 31, 1998 on Form 10-K dated March 30, 1999.
d) Financial Statement Schedules
Schedule II
CHYRON CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Column A Column B Column C Column D Column E
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
Reserves and allowances deducted from
asset accounts:
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts
$3,124 $1,176 $ 419 $3,881
Inventory reserves
8,162 2,996 1,092 10,066
YEAR ENDED DECEMBER 31,1997
Allowance for doubtful accounts
2,850 533 259 3,124
Inventory reserves
12,041 1,887 5,766 8,162
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts
3,134 284 2,850
Inventory reserves
12,233 192 12,041
Deferred tax assets valuation allowance
5,400 5,400 0
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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
/s/ Edward Grebow
Edward Grebow
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below on March 30, 1999, by the following
persons on behalf of the registrant and in the capacities on the date
indicated.
/s/ Michael Wellesley-Wesley
(Michael Wellesley-Wesley)
Chairman of the Board of Directors
/s/ Charles Diker
(Charles Diker)
Director
/s/ Joseph Flaherty
(Joseph Flaherty)
Director
/s/ Edward Grebow
(Edward Grebow)
President, Chief Executive Officer and Director
/s/ Donald Greenberg
(Donald Greenberg)
Director
/s/ Roger Henderson
(Roger Henderson)
Director
/s/ Alan Hirschfield
(Alan Hirschfield)
Director
/s/ Dawn Johnston
Dawn Johnston
Chief Financial Officer
/s/ Wesley Lang
(Wesley Lang)
Director
/s/ Eugene Weber
(Eugene Weber)
Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the December 31,1998 company's consolidated financial statements and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,585
<SECURITIES> 0
<RECEIVABLES> 22,277
<ALLOWANCES> 3,881
<INVENTORY> 19,378
<CURRENT-ASSETS> 46,067
<PP&E> 22,627
<DEPRECIATION> 10,082
<TOTAL-ASSETS> 83,116
<CURRENT-LIABILITIES> 16,031
<BONDS> 0
0
0
<COMMON> 321
<OTHER-SE> 49,449
<TOTAL-LIABILITY-AND-EQUITY> 83,116
<SALES> 83,710
<TOTAL-REVENUES> 83,710
<CGS> 44,250
<TOTAL-COSTS> 44,250
<OTHER-EXPENSES> 44,936
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,786
<INCOME-PRETAX> (6,068)
<INCOME-TAX> (1,621)
<INCOME-CONTINUING> (4,447)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,447)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
AMENDED AND RESTATED
BY-LAWS
of
CHYRON CORPORATION
Amended as of October 28, 1998
ARTICLE I
Shareholders
Section 1. Annual Meeting. A meeting of shareholders of the Corporation
shall be held annually at the principal office of the Corporation in the
State of New York, at 10:00 A.M. on the first Tuesday in November, or at
such other place within or without the State of New York, at such other time
and on such date as may from time to time be fixed by the Board of
Directors, for the election of directors and for the transaction of such
other business as may come before the meeting.
Section 2. Special Meetings. Special meetings of shareholders of the
Corporation may be called by the Board of Directors or the Chairman, and
shall be called by the Secretary upon the written request of shareholders
of record holding at least a majority in number of the issued and
outstanding shares of the Corporation entitled to vote at such meeting.
Special meetings shall be held at such place within or without the State of
New York, at such time and on such date as shall be specified in the call
thereof. At any special meeting, only such business may be transacted which
is related to the purpose or purposes set forth in the notice of such
special meeting.
Section 3. Notice of Meetings. Written notice of each meeting of
shareholders stating the place, date and hour thereof and, unless it is an
annual meeting, the purpose or purposes for which the meeting is called and
that it is being issued by or at the direction of the person or persons
calling the meeting, shall be given personally or by mail, not less than ten
nor more than fifty days before the date of such meeting, to each
shareholder entitled to vote at such meeting. If mailed, such notice is
given when deposited in the United States mail, with postage thereon
prepaid, directed to the shareholder at his or her address as it appears on
the record of shareholders or, if he or she shall have filed with the
Secretary a written request that notices to him or her be mailed to some
other address, then directed to him or her at such other address. If, at any
meeting, action is proposed to be taken which would, if taken, entitle
shareholders fulfilling the requirements of Section 623 of the Business
Corporation Law to receive payment for their shares, the notice of such
meeting shall include a statement of that purpose and to that effect.
Section 4. Waiver of Notice. Notice of any meeting of shareholders need not
be given to any shareholder who submits a signed waiver of notice, in person
or by proxy, whether before or after the meeting. The attendance of any
shareholder at a meeting in person or by proxy, without protesting prior to
the conclusion of the meeting the lack of notice of such meeting, shall
constitute a waiver of notice by him or her.
Section 5. Adjournment. When any meeting of shareholders is adjourned to
another time or place, it should not be necessary to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned
are announced at the meeting at which the adjournment is taken, and at the
adjourned meeting any business may be transacted that might have been
transacted on the original date of the meeting. However, if after such
adjournment the Board of Directors fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be given to each
shareholder of record on the new record date entitled to vote at such
meeting.
Section 6. Quorum. Except as otherwise provided by law, the holders of a
majority of the shares entitled to vote at any meeting of shareholders,
shall constitute a quorum thereat for the transaction of any business. When
a quorum is once present to organize a meeting, it is not broken by the
subsequent withdrawal of any shareholders. The shareholders present may
adjourn a meeting despite the absence of a quorum.
Section 7. Proxies. Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may
authorize another person or persons to act for him or her by proxy. Every
proxy must be signed by the shareholder or his or her attorney-in-fact. No
proxy shall be valid after the expiration of eleven months from the date
thereof unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the shareholder executing it, except as
otherwise provided by law.
Section 8. Voting. Every shareholder of record shall be entitled at every
meeting of shareholders to one vote for every share standing in his or her
name on the record of shareholders. Directors shall, except as otherwise
required by law, be elected by a plurality of the votes cast at a meeting
of shareholders by the holders of shares entitled to vote in such election.
Whenever any corporate action, other than the election of directors, is to
be taken by vote of the shareholders, it shall, except as otherwise required
by law, be authorized by a majority of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote thereon.
Section 9. Action Without a Meeting. Any action required or permitted to be
taken by shareholders by vote may be taken without a meeting on written
consent, setting forth the action so taken, signed by the holders of all
outstanding shares entitled to vote thereon.
Section 10. Record Date. The Board of Directors may fix, in advance, a
date, which date shall not be more than fifty nor less than ten days before
the date of any meeting of shareholders nor more than fifty days prior to
any other action, as the record date for the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders
or any adjournment thereof, or to express consent to or dissent from any
proposal without a meeting, or for the purpose of determining shareholders
entitled to receive payment of any dividend or the allotment of any rights,
or for the purpose of any other action. When a determination of shareholders
of record entitled to notice of or to vote at any meeting of shareholders
has been made as provided herein, such determination shall apply to any
adjournment thereof, unless the Board of Directors fixes a new record date
for the adjourned meeting.
ARTICLE II
Directors
Section 1. Number and Qualifications. The number of directors constituting
the entire Board of Directors shall be three or such other number, but not
more than ten nor less than three, as a majority of the entire Board of
Directors may from time to time determine, except that where all the shares
of the Corporation are owned beneficially and of record by less than three
shareholders, the number of directors may be less than three but not less
than the number of shareholders. Directors need not be shareholders of the
Corporation. Each of the directors shall be at least eighteen years of age.
Section 2. Election and Term of Office. At each annual meeting of
shareholders, directors shall be elected to hold office until the next
annual meeting of shareholders. Each director shall hold office until the
expiration of such term, and until his or her successor has been elected and
qualified, unless he or she sooner die, resign or be removed.
Section 3. Meetings. A meeting of the Board of Directors shall be held for
the election of officers and for the transaction of such other business as
may properly come before such meeting as soon as practicable after the
annual meeting of shareholders. Other regular meetings of the Board of
Directors may be held at such times as the Board of Directors may from time
to time determine. Special meetings of the Board of Directors may be called
at any time by the Chairman or by a majority of the directors then in
office. Meetings of the Board of Directors shall be held at the principal
office of the Corporation in the State of New York or at such other place
within or without the State of New York as may from time to time be fixed
by the Board of Directors.
Section 4. Notice of Meetings; Adjournment. No notice need be given of the
first meeting of the Board of Directors after the annual meeting of
shareholders or of any other regular meeting of the Board of Directors,
provided the time and place of such meetings are fixed by the Board of
Directors. Notice of each special meeting of the Board of Directors and of
each regular meeting the time and place of which has not been fixed by the
Board of Directors, specifying the place, date and time thereof, shall be
given personally, by mail or telegraphed to each director at his or her
address as such address appears upon the books of the Corporation at least
two business days (Saturdays, Sundays and legal holidays not being
considered business days for the purpose of these By-Laws) before the date
of such meeting. Notice of any meeting need not be given to any director who
submits a signed waiver of notice, whether before or after the meeting, or
who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him or her. Notice of any directors'
meeting or any waiver thereof need not state the purpose of the meeting. A
majority of the directors present, whether or not a quorum is present, may
adjourn any meeting to another time and place. Notice of any adjournment of
a meeting of the Board of Directors to another time or place shall be given
to the directors who were not present at the time of the adjournment and,
unless such time and place are announced at the meeting, to the other
directors.
Section 5. Quorum; Voting. At any meeting of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business or of any specified item of business. Except as
otherwise required by law, the vote of a majority of the directors present
at the time of the vote, if a quorum is present at such time, shall be the
act of the Board of Directors.
Section 6. Participation by Telephone. Any one or more members of the
Board of Directors or any committee thereof may participate in a meeting of
the Board of Directors or such committee by means of a conference telephone
or similar communications equipment allowing all persons participating in
the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
Section 7. Action Without a Meeting. Any action required or permitted to
be taken by the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board of Directors or such committee
consent in writing to the adoption of a resolution authorizing the action.
The resolution and the written consents thereto by the members of the Board
of Directors or such committee shall be filed with the minutes of the
proceedings of the Board of Directors or such committee.
Section 8. Committees. The Board of Directors, by resolution adopted by a
majority of the entire Board of Directors, may designate from among its
members an Executive Committee and other committees, each consisting of
three or more directors. Each such committee, to the extent provided in such
resolution, shall have all the authority of the Board of Director, except
that no such committee shall have authority as to the following matters:
(a) the submission to shareholders of any action that needs shareholders'
approval pursuant to law, (b) the filling of vacancies in the Board of
Directors or in any committee, (c) the fixing of the compensation of the
directors for serving on the Board of Directors or on any committee, (d) the
amendment or repeal of these By-Laws, or the adoption of new By-Laws, or (e)
the amendment or repeal of any resolution of the Board of Directors which
by its terms shall not be so amendable or repealable. The Board of Directors
may designate one or more directors as alternate members of any such
committee, who may replace any absent member or members at any meeting of
such committee. Each such committee shall serve at the pleasure of the Board
of Directors.
Section 9. Removal; Resignation. Any or all of the directors may be removed
for cause or without cause by vote of the shareholders, and any of the
directors may be removed for cause by action of the Board of Directors. Any
director may resign at any time, such resignation to be made in writing and
to take effect immediately or on any future date stated in such writing,
without acceptance by the Corporation.
Section 10. Vacancies. Newly created directorships resulting from an
increase in the number of directors and vacancies occurring in the Board of
Directors for any reason may be filled by vote of the Board of Directors or
by vote of the shareholders. If any newly created directorship or vacancy
is to be filled by vote of the Board of Directors and the number of
directors then in office is less than a quorum, such newly created
directorship or vacancy may be filled by vote of a majority of the directors
then in office. A director elected to fill a vacancy, unless elected by the
shareholders, shall hold office until the next meeting of shareholders at
which the election of directors is in the regular order of business, and
until his or her successor been elected and qualified, and any director
elected by the shareholders to fill a vacancy shall hold office for the un-
expired term of his or her predecessor unless, in either case, he or she
shall sooner die, resign or be removed.
ARTICLE III
Officers
Section 1. Election; Qualification. At the first meeting of the Board of
Directors and as soon as practicable after each annual meeting of
shareholders, the Board of Directors shall elect or appoint a Chairman of
the Board, one or more Vice Chairman, a President, one or more Vice-
Presidents, a Secretary and a Treasurer, and may elect or appoint at such
time and from time to time such other officers as it may determine. No
officer need be a director of the Corporation. Except as otherwise provided
by law, one person may be elected or appointed to more than one office. When
all of the issued and outstanding stock of the Corporation is owned by one
person, such person may hold all or any combination of offices.
Section 2. Term of Office; Vacancies. All officers shall be elected or
appointed to hold office until the meeting of the Board of Directors
following the next annual meeting of shareholders. Each officer shall hold
office for such term, and until his or her successor has been elected or
appointed and qualified unless he or she shall earlier resign, die, or be
removed. Any vacancy occurring in any office, whether because of death,
resignation or removal, with or without cause, or any other reason, shall
be filled by the Board of Directors.
Section 3. Removal; Resignation. Any officer may be removed by the Board
of Directors with or without cause. Any officer may resign his or her office
at any time, such resignation to be made in writing and to take effect
immediately or on any future date stated in such writing, without acceptance
by the Corporation.
Section 4. Powers and Duties of the Chairman of the Board. The Chairman of
the Board shall be the chief executive officer of the Corporation and shall
have the general charge of the business, affairs and property thereof,
subject to the direction of the Board of Directors, and shall have general
supervision over its officers and agents. He shall preside at all meetings
of the shareholders and the Board of Directors. The Chairman of the Board
shall have such other powers and shall perform such other duties as may from
time to time be assigned to him or her by the Board of Directors.
Section 5. Powers and duties of the Vice-Chairman. The Vice Chairman shall
perform the duties of the Chairman of the Board in the absence or inability
to act of the Chairman of the Board. The Vice Chairman shall have such
powers and shall perform such duties as may from time to time be assigned
to him or her by the Board of Directors.
Section 6. Powers and Duties of the President. The President shall be the
chief operating officer of the Corporation and shall have general charge and
supervision of its business, affairs, administration and operations. The
President shall from time to time make such reports concerning the
Corporation as the Board of Directors may direct. The President shall
preside at all meetings of shareholders and the Board of Directors in the
absence of the Chairman of the Board and Vice Chairman. The President shall
have such other powers and shall perform such other duties as may from time
to time be assigned to him or her by the Board of Directors.
Section 7. Powers and Duties of the Vice-Presidents. Each of the Vice-
Presidents shall have such powers and shall perform such duties as may from
time to time be assigned to him or her by the Board of Directors.
Section 8. Powers and Duties of the Secretary. The Secretary shall record
and keep the minutes of all meetings of shareholders and of the Board of
Directors. The Secretary shall attend to the giving and serving of all
notices by the Corporation. The Secretory shall be the custodian of, and
shall make or cause to be made the proper entries in, the minute book of the
Corporation and such books and records as the Board of Directors may direct.
The Secretary shall be the custodian of the seal of the Corporation and
shall affix or cause to be affixed such seal to such contracts, instruments
and other documents as the Board of Directors may direct. The Secretary
shall have such other powers and shall perform such other duties as may from
time to time be assigned to him or her by the Board of Directors.
Section 9. Powers and Duties of the Treasurer. The Treasurer shall be the
custodian of all funds and securities of the Corporation. Whenever required
by the Board of Directors, the Treasurer shall render a statement of the
Corporation's cash and other accounts, and shall cause to be entered
regularly in the proper books and records of the Corporation to be kept for
such purpose full and accurate accounts of the Corporation's receipts and
disbursements. The Treasurer shall at all reasonable times exhibit the
Corporation's books and accounts to any director of the Corporation upon
application at the principal office of the Corporation during business
hours. The Treasurer shall have such other powers and shall perform such
other duties as may from time to time be assigned to him or her by the Board
of Directors.
Section 10. Delegation. In the event of the absence of any officer of the
Corporation or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors may at any time and from time to time
delegate all or any part of the powers or duties of any officer to any other
officer or officers or to any director or directors.
ARTICLE IV
Shares
The shares of the Corporation shall be represented by certificates signed
by the Chairman of the Board, Vice Chairman or the President and by the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer,
and may be sealed with the seal of the Corporation or a facsimile thereof.
Each certificate representing shares shall state upon the face thereof (a)
that the Corporation is formed under the laws of the State of New York, (b)
the name of the person or persons to whom it is issued, (c) the number and
class of shares which such certificate represents and (d) the designation
of the series, if any, which such certificate represents.
ARTICLE V
Execution of Documents
All contracts, instruments, agreements, bills payable, notes, checks,
drafts, warrants or other obligations of the Corporation shall be made in
the name of the Corporation and shall be signed by such officer or officers
as the Board of Directors may from time to time designate.
ARTICLE VI
Seal
The seal of the Corporation shall contain the name of the Corporation, the
words "Corporate Seal," the year of its organization, and the words "New
York."
ARTICLE VII
Indemnification of Directors, Officers, Employees and Agents
Any director, officer, employee, or agent of the Corporation made or
threatened to be made a party to an action or proceeding, whether civil,
criminal, administrative, or investigative, and whether or not the claim
asserted against such person is based on matters which antedate the adoption
of this Article VII, by reason of the fact that he, his testator, or his
intestate then, is, or was a director, officer, employee, or agent of the
Corporation, or then serves or has served any other entity in any capacity
at the request of the Corporation, shall be indemnified by the Corporation
against any and all expenses (including reasonable attorneys' fees and
expenses), costs, judgments, and fines, and any amounts paid in settlement
of a claim to the full extent that officers and directors are permitted to
be indemnified by the laws of the State of New York at the time such
expenses, costs, judgments, fines, and amounts are paid, or at the time the
acts or omissions complained of occurred, whichever give the greater
protection.
ARTICLE VIII
Fiscal Year
The fiscal year of the Corporation shall be determined by resolution of the
Board of Directors.
ARTICLE IX
Amendment of By-Laws
Except as otherwise provided by law, these By-Laws may be amended or
repealed, and any new By-Law may be adopted, by vote of the holders of the
Shares at the time entitled to vote in the election of any directors or by
a majority of the entire Board of Directors, but any by-law adopted by the
Board of Directors may be amended or repealed by the shareholders entitled
to vote thereon as herein provided.
8% SUBORDINATED CONVERTIBLE DEBENTURE
DUE DECEMBER 31, 2003
CHYRON CORPORATION
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THIS CERTIFICATE. THE
SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT OR AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE
COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER, OR DISPOSITION MAY
BE EFFECTUATED WITHOUT REGISTRATION UNDER THE ACT.
Melville, New York
$
No.
December 31, 1998
FOR VALUE RECEIVED, the undersigned, CHYRON CORPORATION, a New York
corporation (the "Company"), hereby promises to pay to or its
permitted assigns (the "Holder") the principal sum of Dollars ($ ),
together with interest thereon at the rate provided herein, and payable on
the terms set forth below. This Debenture is one of an issue of Debentures
of the Company designated as its 8% Subordinated Convertible Debentures Due
December 31, 2003 (the "Debentures").
SECTION 1. INTEREST; PAYMENT OF INTEREST AND PRINCIPAL.
1.1 Interest. This Debenture shall bear interest on the outstanding
principal amount from the date hereof (the "Issue Date"), until this
Debenture is converted, exchanged, redeemed or paid in full, at an annual
rate of 8% (computed on the basis of a 365-day year) (the "Interest Rate").
Interest on this Debenture shall be payable quarterly or the first day of
each April, July, October, and January commencing April 1, 1999, or upon
conversion, exchange, redemption or at maturity of this Debenture, whichever
occurs first.
1.2 Principal. The principal on this Debenture shall be paid upon
maturity of this Debenture, unless it has been converted, exchanged, or
redeemed in accordance with its terms prior thereto.
1.3 Maturity. All principal and unpaid interest on this Debenture shall
be due on December 31, 2003 (the "Maturity Date").
1.4 Manner of Payment. All payments of principal and interest shall be
made in lawful money of the United States of America at the time of any such
payment either by wire transfer to the account designated by the Holder for
such purpose or by check mailed to the Holder at the address shown in the
register maintained by the Company for such purpose, at the option of the
Holder.
1.5 Subordination.
(a) Upon any distribution of assets of the Company in connection with any
dissolution, winding-up or liquidation of the Company (whether or not in
bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors) or any other marshaling of the assets and
liabilities of the Company or upon the reorganization of the Company, the
holders of Senior Indebtedness (as hereinafter defined) shall first be
entitled to receive payment in full in money or money's worth, in accordance
with the terms of such Senior Indebtedness, of all sums due in respect
thereto, before the Holder shall be entitled to receive from the Company any
payment hereunder and, upon such dissolution, winding-up, liquidation,
marshaling of assets or reorganization, any payment from the Company to
which the Holder would otherwise be entitled, except for the provisions
hereof, shall be made by the person making such payment or distribution,
whether an officer of the Company, an assignee, a trustee in bankruptcy,
debtor in possession, a receiver or liquidating trustee or otherwise (which
person is hereby directed to make payment) to the holders of Senior
Indebtedness to the extent necessary to pay in full in money or money's
worth all Senior Indebtedness remaining unpaid after giving effect to any
concurrent payment or distribution to the holders of such Senior
Indebtedness, and to the full extent necessary for that purpose, the Holder
hereby assigns to the holders of Senior Indebtedness all of the Holder's
rights to any payments or distributions to which the Holder otherwise would
be entitled from the Company.
(b) For purposes of this Debenture, the term "Senior Indebtedness" shall
mean Indebtedness (as hereinafter defined) of the Company whether
outstanding on the Issue of this Debenture or thereafter created, incurred,
assumed or guaranteed (including, without limitation, interest that accrues
on or after the filing of a petition in bankruptcy or for reorganization,
if a claim for post-petition interest is allowed in such proceeding), except
for: (i) any Indebtedness outstanding after the date of this Debenture as
to which, by the express terms of the instrument creating or evidencing the
same, it is provided that such Indebtedness is not senior or superior in
right of payment to the Debentures, (ii) the Debentures, (iii) any
Indebtedness of the Company owed to any Subsidiary or to any Affiliate of
the Company, (iv) Indebtedness incurred in connection with the purchase of
goods, assets, materials or services in the ordinary course of business or
representing amounts recorded as accounts payable, trade payables or other
current liabilities on the books of the Company (other than the current
portion of any long-term Indebtedness of the Company that but for this
clause (iv) would constitute Senior Indebtedness), and (v) any Indebtedness
of or amount owed by the Company to employees for services rendered to the
Company.
(c) "Indebtedness" is defined as, with respect to any person, any of the
following (without duplication): (i) the principal of, premium, if any, and
interest on and all other amounts owing with respect to any indebtedness
(including any such indebtedness representing any deferred payment
obligation for the payment of the purchase price of property or assets) of
such person for money borrowed or evidenced by bonds, indentures, debentures
or similar obligations, including any guaranty by such person of any
indebtedness for money borrowed of any other person, whether any such
indebtedness or guaranty is outstanding on the date of this Debenture or is
thereafter created, assumed or incurred, (ii) the principal of, premium, if
any, and interest on and all other amounts owing with respect to any
indebtedness for money borrowed, incurred, assumed or guaranteed by such
person in connection with the acquisition by it or any of its subsidiaries
of any other businesses, properties or other assets, (iii) lease obligations
which such person capitalizes in accordance with generally accepted
accounting principles and (iv) any amounts payable by such person under or
in respect of any interest rate exchange agreement, interest rate swap
agreement or other similar agreement entered into in respect of all or any
portion of the above.
(d) "Subsidiary" or "Subsidiaries" shall mean any corporation or other
organization, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership interest and in
which such ownership interest entitles the Company to elect a majority of
the Board of Directors or similar governing body.
(e) "Affiliate" shall have the meaning set forth in Rule 144 promulgated
under the Securities Act of 1933, as amended.
(f) Moreover, should it become necessary in any bankruptcy or other
proceedings or in connection with any assignment for the benefit of the
Company's creditors or the execution by the Company of any other creditor's
agreement, or the dissolution of or the winding up of the Company's
business, for the Holder to file one or more claims against the Company on
account of or arising hereunder, the Holder will file such claim or claims
and will assign to the holders of Senior Indebtedness the Holder's rights
thereunder. If for any reason the Holder does not file such claim or
claims, any holder of Senior Indebtedness shall have the right as the
Holder's agent and attorney-in-fact, to sign and file such proof of claim
in the Holder's name, or in the discretion of such holder of Senior
Indebtedness, to assign the claim to and to file proof thereof in the name
of the holders of Senior Indebtedness or their nominee.
(g) If, notwithstanding anything herein to the contrary, upon any such
dissolution, winding-up, liquidation, marshaling of assets or
reorganization, any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or security shall be received
by the Holder before all Senior Indebtedness is paid in full in money or
money's worth, such payment or distribution shall be held in trust by the
Holder and, immediately upon notice to such effect from any holder of Senior
Indebtedness, turned over by the Holder for payment on all Senior
Indebtedness remaining until all such Senior Indebtedness shall have been
paid in full in money or money's worth, after giving effect to any
concurrent payment or distribution to the holders of such Senior
Indebtedness.
(h) Neither the payments or distributions to the holders of Senior
Indebtedness to which the Holder would be entitled except for the provisions
hereof, nor the payment to the holders of Senior Indebtedness from the
Holder pursuant to the provisions hereof, shall be deemed, as between the
Company, its creditors (other than the holders of Senior Indebtedness) and
the Holder, a payment by the Company to or on account of the Holder; it
being understood that the provisions hereof are intended solely for the
purposes of defining relative rights of the Holder on the one hand, and the
holders of Senior Indebtedness on the other hand; and, except as otherwise
expressly set forth herein, nothing contained herein is intended to or shall
abrogate the obligations of the Company to pay the Holder or to affect the
relative rights of the Holder and the creditors of the Company other than
the holders of Senior Indebtedness.
(i) Until there shall occur a default under Senior Indebtedness (which
shall include the occurrence of any event or existence of any circumstances
as a result of which any amount is due and payable under any guarantee
thereof), the Holder shall be entitled to receive and retain any payment of
principal or interest made by the Company in respect of its obligations
under this Debenture. In the event of and during the continuance of any
such default, no payment of the principal of or interest on the Debenture
shall be made by the Company or, to the extent made by the Company, retained
by Holder. Specifically, except with the written consent of the holder or
holders of all of the then-outstanding principal amount of Senior
Indebtedness, the Holder may take no action against the Company to enforce
payment of this Debenture (i) unless and until the holders of Senior
Indebtedness shall have received payment in full of all principal and
interest on such Senior Indebtedness, and/or (ii) for so long as there is
any obligation, absolute or contingent, under any guarantee of such Senior
Indebtedness; provided, however, that nothing herein shall be deemed to
affect the time at which an event of default occurs under the terms of the
documents evidencing Senior Indebtedness.
(j) The Holder shall have no right of subrogation until such Senior
Indebtedness has been paid in full. The subordination shall be effective
notwithstanding the presence or absence of security granted to the holder
of Senior Indebtedness with respect to its enforcement of any rights against
the Company or against any security, or the intentional or unintentional
release, waiver or compromise of any such claim.
1.6 Priority. The Debentures shall be equal to, or pari passu with, the
Private Placement Debentures, as defined herein, with respect to any
distribution of assets of the Company in connection with any dissolution,
winding-up or liquidation of the Company.
SECTION 2 EVENTS OF DEFAULT
2.1 Nature of Events. An "Event of Default" shall exist if any of the
following occurs and is continuing:
(a) Failure to pay interest on this Debenture on or before the date such
payment is due and such failure to pay remains uncured for a period of 10
days after such date (whether or not such payment is prohibited by Section
1.5);
(b) Failure to pay principal on this Debenture on or before the date such
payment is due (whether or not such payment is prohibited by Section 1.5);
(c) Failure to perform or observe any other covenant or agreement of the
Company contained in this Debenture which remains uncured for the period and
after the notice specified below and the holders of more than 50% in
principal amount of the Debentures then outstanding notify the Company of
the default and the Company does not cure the default within 45 days after
receipt of the notice, which notice must specify the default, demand that
it be remedied and the state that the notice is a "Notice of Default;"
(d) A custodian, receiver, liquidator or trustee of the Company, or of any
of its property, is appointed or takes possession and such appointment or
possession remains in effect for more than 60 days; or the Company is
adjudicated bankrupt or insolvent; or an order for relief is entered under
the Federal Bankruptcy Code against the Company; or any of the property of
the Company is sequestered by court order and the order remains in effect
for more than 60 days; or an involuntary petition is filed against the
Company under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of indebtedness, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, and is not dismissed
within 60 days after filing;
(e) The Company files a petition in voluntary bankruptcy or seeking relief
under any provision of any bankruptcy, reorganization, arrangement,
insolvency, readjustment of indebtedness, dissolution or liquidation law of
any jurisdiction, whether now or hereafter in effect, or consents to the
filing of any petition against it under any such law; or
(f) The Company makes an assignment for the benefit of its creditors, or
generally fails to pay its obligations as they become due, or consents to
the appointment of or taking possession by a custodian, receiver, liquidator
or trustee of the Company or all or any substantial part of its property;
or
2.2 Default Remedies.
(a) In case an Event of Default (other than an Event of Default described
in paragraphs (d), (e) and (f)) has occurred and is continuing, the holders
of Debentures, by notice to the Company from the holders of more than 50%
of the principal amount of the Debentures then outstanding, may declare the
principal of the Debentures, plus accrued interest, to be immediately due
and payable, and upon any such declaration such principal and accrued
interest shall become due and payable immediately. In case an Event of
Default described in paragraphs (d), (e) and (f) occurs, such amounts will
become due and payable without any declaration or any act on the part of the
holders of the Debentures. Such declaration of acceleration may be
rescinded and past defaults may be waived by the holders of at least 50% of
the principal amount of the Debentures then outstanding as provided herein.
(b) No course of dealing or delay or failure on the part of the Holder to
exercise any right under this Section 2.2 shall operate as a waiver of such
right or otherwise prejudice such Holder's rights, powers and remedies. The
Company will pay or reimburse the Holder, to the extent permitted by law,
for all costs and expenses, including but not limited to reasonable
attorneys' fees, incurred by it in collecting any sums due on this Debenture
or in otherwise enforcing any of its rights.
(c) The holders of more than 50% in principal amount of the outstanding
Debentures may on behalf of the holders of all Debentures waive certain past
defaults, except a default in payment of principal of or interest on any
Debenture, or in respect of certain provisions of the Debentures which
cannot be modified or amended without the consent of the holder of each
outstanding Debenture affected thereby in accordance with Section 6.5.
SECTION 3. CONVERSION
3.1 Conversion Privilege. Subject to and upon compliance with the
provisions of this Section 3, at the option of the Holder, this Debenture
or any portion of the principal amount thereof, may, at any time and from
time to time, be converted into fully paid and nonassessable whole shares
of Common Stock of the Company, at the Conversion Price (as defined herein)
in effect at the date of such conversion.
3.2 Manner of Exercise of Conversion Privilege. To exercise the
conversion privilege, the Holder shall surrender this Debenture, together
with a written conversion notice, in the form attached hereto, to the
Company at its principal office. This Debenture or portion thereof shall
be deemed to have been converted immediately prior to the close of business
on the date of receipt of such Debenture and notice by the Company, even if
the Company's stock transfer books are on that date closed, and the Holder,
or the nominee or nominees of such Holder, shall be treated for all purposes
as the record holder of the shares of Common Stock deliverable upon such
conversion as of the close of business on such date. Promptly after receipt
by the Company of this Debenture and proper notice, the Company shall issue
and deliver, at its expense, to the Holder, or to the nominee or nominees
of such Holder, a certificate or certificates for the number of shares of
its Common Stock due on such conversion. Interest shall accrue on the
unpaid principal amount of this Debenture converted to the date of
conversion, and the Company shall pay such interest at the time of
conversion; provided, however, that in the case of a conversion of only a
portion of the outstanding principal amount of this Debenture, the Company
shall execute and deliver to the Holder (or its nominee or nominees), at the
expense of the Company, a replacement Debenture in a principal amount equal
to and in exchange for the unconverted portion of such Debenture and dated
and bearing interest from the date to which interest has been paid on such
Debenture or dated the date of such Debenture if no interest has been paid
thereon.
3.3 Fractional Shares. No fractional shares of Common Stock shall be
issued, at any time, upon conversion of this Debenture. Instead of any
fractional share of Common Stock which would otherwise be issuable upon
conversion of this Debenture, the Company shall pay a cash adjustment in
respect of such fractional interest (in accordance with the Conversion
Price, as defined herein, then in effect). The Holder, by its acceptance
thereof, expressly waives any right to receive any fractional share upon
conversion of this Debenture.
3.4 Conversion Price. The conversion price (the "Conversion Price") at
which Common Stock shall be issuable upon the conversion of this Debenture
shall initially be $2.466 (which amount is 120% of the average of the
closing prices of the Common Stock, as such prices were reported by the New
York Stock Exchange, for the ninety (90) trading days immediately preceding
the initial Issue Date) in principal amount of this Debenture for each share
of Common Stock; provided, however, that the Conversion Price and the
conversion terms shall be subject to adjustment as follows:
(a) In the event the Company should at any time or from time to time after
the Issue Date, fix a record date for the effectuation of a forward split
or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents"), without payment of
any consideration by such holder for the additional shares of Common Stock
or the Common Stock Equivalents (including the additional shares of Common
Stock issuable upon conversion or exercise thereof), then, as of such record
date (or the date of such dividend distribution, split or subdivision if no
record date is fixed), the Conversion Price shall be appropriately decreased
so that the number of shares of Common Stock issuable on conversion of this
Debenture shall be increased in equal proportion to such increase of
outstanding shares of Common Stock.
(b) If the number of shares of Common Stock outstanding at any time after
the Issue Date is decreased by a combination of the outstanding shares of
Common Stock, then following the record date of such combination, the
Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of this Debenture shall be
decreased in equal proportion to such decrease in outstanding shares of
Common Stock.
3.5 Other Distributions. In the event the Company shall declare a
distribution payable in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 3.4(a), then,
in each such case for the purpose of this Section 3.5, the Holder, upon
conversion of this Debenture, shall be entitled to a proportionate share of
any such distribution as though it were the holder of the number of shares
of Common Stock of the Company into which this Debenture was then
convertible as of the record date fixed for the determination of the holders
of Common Stock of the Company entitled to receive such distribution.
3.6 Fundamental Change. In the event that the Company shall be a party
to (i) any recapitalization or reclassification of the Common Stock (other
than a change in par value or as a result of a subdivision or combination
of the Common Stock); (ii) any consolidation or merger of the Company with
or into another corporation as a result of which holders of Common Stock
shall be entitled to receive securities or other property or assets
(including cash) with respect to or in exchange for Common Stock (other than
a merger which does not result in a reclassification, conversion, exchange
or cancellation of the outstanding Common Stock); (iii) any sale or transfer
of all or substantially all of the assets of the Company; or (iv) any
compulsory share exchange, pursuant to any of which holders of Common Stock
shall be entitled to receive other securities, cash or other property (each,
a "Fundamental Change"), then appropriate provision shall be made so that
the holder of each Debenture then outstanding shall have the right
thereafter to convert such Debentures only into the kind and amount of the
securities, cash or other property that would have been receivable upon such
Fundamental Change by a holder of the number of shares of Common Stock
issuable upon conversion of such Debenture immediately prior to such
Fundamental Change at the Conversion Price (subject to adjustment pursuant
to Section 3.4).
3.7 No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, recapitalization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action
as may be necessary or appropriate in order to protect the conversion rights
of the Holder of this Debenture against impairment.
3.8 Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Conversion Price pursuant to this Section 3, the
Company, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
the Holder a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon the written request at any time of the
Holder, furnish or cause to be furnished to such Holder a like certificate
setting forth (A) such adjustment and readjustment, (B) the Conversion Price
at the time in effect, and (C) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon
the conversion of the then outstanding principal amount of this Debenture.
3.9 Notices of Record Date. In the event of any taking by the Company of
a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, any right to subscribe
for, purchase or otherwise acquire any shares of stock or any class of any
other securities or property, or to receive any other right, the Company
shall mail to the Holder, at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right.
3.10 Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion
of the aggregate principal amount of the Debentures such number of its
shares of Common Stock as shall from time to time be sufficient to effect
the conversion of the then outstanding aggregate principal amount of the
Debentures; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of the then
outstanding aggregate principal amount of the Debentures, in addition to
such other remedies as shall be available to the Holder, the Company will
promptly take all reasonable corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such
purposes.
SECTION 4. REDEMPTION
4.1 Call Provision. This Debenture may be redeemed by the Company at any
time or from time to time commencing one year from the Issue Date, at the
Company's option, in whole or in part, upon written notice to the registered
Holder hereof at their last registered address, for the principal of this
Debenture, plus accrued and unpaid interest to the redemption date. Notice
of redemption having been given as provided in Section 4.2, the Debentures
to be redeemed, shall, on the redemption date, become due and payable at the
redemption price therein specified, and from and after such date (unless the
Company shall default in the payment of the redemption price and any accrued
but unpaid interest) such Debentures shall cease to bear interest and the
Company shall have no further obligation under such Debentures.
4.2 Notice of Redemption. Notice of redemption shall be given, in
accordance with Section 5.4 hereof, not less than fifteen (15) nor more than
forty-five (45) days prior to the redemption date, to each registered Holder
of Debentures to be redeemed, at such Holder's address in the register
maintained by the Company. All notices of redemption shall state: (a) the
redemption date, (b) the redemption price, (c) if less than all the
outstanding Debentures are to be redeemed, the principal amounts of the
Debentures to be redeemed, (d) that on the redemption date the redemption
price will become due and payable upon each Debenture (or portion thereof)
to be redeemed and that interest thereon will cease to accrue on and after
such said date, (e) the Conversion Price, the date on which the right to
convert the principal of the Debentures to be redeemed will terminate and
the manner in which such Debentures may be surrendered for conversion, and
(f) the manner in which the Debentures are to be surrendered for payment
of the redemption price.
4.3 Deposit of Redemption Price. On or prior to any redemption date, the
Company shall segregate and hold in trust an amount of money sufficient to
pay the redemption price of, and accrued but unpaid interest on, all
Debentures to be redeemed on that date other than any Debentures called for
redemption on that date which have been converted prior to the date of such
deposit. If any Debenture called for redemption is converted, any money so
segregated and held in trust for redemption of such Debenture(s) shall be
discharged from such trust.
4.4 Debentures Redeemed in Part. Any Debenture which is to be redeemed
only in part shall be surrendered to the Company at its principal office.
In such instance, the Company shall execute and deliver to the Holder (or
its nominee(s)), at the expense of the Company, a replacement Debenture in
a principal amount equal to and in exchange for the unredeemed portion of
such Debenture.
SECTION 5. EXCHANGE
5.1 Exchange Privilege. Subject to and upon compliance with the
provisions of this Section 5, at the sole option of the Holder, this
Debenture, in whole but not in part, may be, subject to Section 5.3 hereof,
exchanged for a like principal amount of any series of convertible
subordinated debentures which the Company may issue pursuant to a private
placement, through a placement agent, within 180 days from the Issue Date
(the "Private Placement Debentures").
5.2 Manner of Exercise of Exchange Privilege. The Company shall notify
each Holder of its intent to issue the Private Placement Debentures by
giving written notice at least 15 days prior to the issue date of the
Private Placement Debentures. If the Holder intends to exchange this
Debenture then it shall surrender this Debenture, together with a written
exchange notice in the form attached hereto, to the Company at its principal
office within ten (10) days from the date of the Company's notice. This
Debenture shall be deemed to have been exchanged immediately into the
Private Placement Debenture on the first date of issue of such debenture.
Promptly after receipt by the Company of this Debenture and proper notice,
the Company shall issue and deliver, at its expense, to the Holder, a
certificate representing the Private Placement Debenture for which this
Debenture was exchanged. Interest shall accrue on the unpaid principal
amount of this Debenture to the date immediately prior to the issuance of
the Private Placement Debenture, and the Company shall pay such interest at
the time of exchange.
5.3 Limitation of Exchange.
(a) In the event that the exchange would, in the sole discretion of the
Company, result in the Company being required to obtain shareholder approval
of the transaction under which this Debenture is issued or the Private
Placement Debenture transaction under the rules of the New York Stock
Exchange, then the Holder's ability to exchange this Debenture shall be
limited to such amount, if any (as determined solely by the Company), which
would not result in the Company being required to obtain shareholder
approval of such transaction. In the case of an exchange of only a portion
of the outstanding principal amount of this Debenture (pursuant to this
Section 5.3(a)), the Company shall execute and deliver to the Holder, at the
expense of the Company, a replacement Debenture in a principal amount equal
to and in exchange for the unexchanged portion of this Debenture. In no
event shall the Company be obligated to exchange this Debenture for a
debenture which would cause the Company to be required to obtain shareholder
approval.
(b) In the event that the Private Placement Debenture transaction is
consummated, in the sole discretion of the Company, pursuant to a exemption
under the Act for which the Holder hereof does not qualify, or, in the sole
discretion of the Company, the Private Placement Debentures contain a term
or condition which the Holder hereof does not qualify for, then, in exchange
for this Debenture, the Holder hereof shall be entitled to receive a
debenture as substantially similar to the Private Placement Debentures as
practicable under the circumstances (as determined by the Company). By way
of example, but not limitation, in the event that the Private Placement
Debentures contain provisions, which make them eligible for the NASD PORTAL
Market, and the Company, in its sole discretion, determines that the Holder
hereof is not eligible for such provision or exemption, then the Holder
shall be issued a debenture which does contain such provision but is
otherwise identical in all other material respects to the Private Placement
Debentures. In no event shall the Company be obligated to issue to the
Holder hereof in exchange for this Debenture a debenture which, in the sole
discretion of the Company (i) would cause Company to be ineligible to
consummate the Private Placement Debenture transaction, or (ii) which
contains a term or condition which the Holder hereof does not qualify for.
SECTION 6. MISCELLANEOUS
6.1 Successors and Assigns. The terms and conditions of this Debenture
shall inure to the benefit of and be binding upon the respective successors
and assigns of the parties. Nothing in this Debenture, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Debenture, except as expressly
provided in this Debenture. This Debenture may not be assigned by the Holder
hereof without the written consent of the Company.
6.2 Governing Law. This Debenture shall be governed by, and construed
under the laws of the State of New York as applied to agreements entered
into and to be performed entirely within New York, without giving effect to
the laws of such State governing conflicts of laws.
6.3 Headings. The titles and subtitles used in this Debenture are used
for convenience only and are not to be considered in construing or
interpreting this Debenture.
6.4 Notices. All notices, authorizations, demands or requests required
or permitted to be delivered to any party in connection with this Debenture
shall be in writing and shall be deemed to have been duly given if
personally delivered, if sent by facsimile transmission (with receipt
confirmed by automatic transmission report), if sent by a nationally-
recognized overnight courier with charges prepaid, if sent by registered or
certified mail, return receipt requested and postage prepaid (or by the most
nearly comparable method if mailed from or to a location outside the United
States), addressed as follows:
If to the Company, to:
Chyron Corporation
5 Hub Drive
Melville, New York 11747
Attn: President
Fax: (516) 845-5210
With copies (which copies shall not constitute notice) to:
Camhy Karlinsky & Stein LLP
1740 Broadway
New York, New York 10019
Attn: Robert S. Matlin, Esq.
Fax: 212-977-8389
If to the Holder, to: the address shown in the register maintained by the
Company for such purpose; or to such other address as the party to whom the
notice is to be given may have furnished to the other party hereto in
writing in accordance with the provisions of this Section 6.4. Any such
notice or communication shall be deemed to have been received (i) in the
case of personal delivery, on the date of such delivery, (ii) in the case
of facsimile transmission (with receipt confirmed by automatic transmission
report), on the date of such transmission, (iii) in the case of a
nationally-recognized overnight courier, on the next business day after the
date when delivered to such courier, and (iv) in the case of mailing (or by
the most nearly comparable method if mailed from or to a location outside
the United States), on the third business day following that on which the
piece of mail containing such communication is posted; provided, however,
that three additional business days shall be added to the time any notice
or communication sent from or to a location outside the United States shall
be deemed to have been received in (iii) or (iv) above.
6.5 Amendments and Waivers. Any term of this Debenture may be amended or
supplemented and the observance of any term of this Debenture may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and at least
a majority in principal amount of the outstanding Debentures; provided,
however, that without the consent of each Holder of the Debentures affected,
an amendment, waiver or supplement may not (i) extend the final maturity of
any Debenture; (ii) reduce the principal amount of any Debenture; (iii)
reduce the rate or extend the time of payment of any interest on any
Debenture; (iv) impair or affect the right of any Holder of any Debenture
to institute suit for the payment or conversion of any Debenture; (v) change
the currency for payment of principal of, or interest on, any Debenture; or
(vi) materially and adversely affect the right to convert the Debentures in
accordance herewith; and further, provided, however, that an amendment,
waiver or supplement may not reduce the percentage of Debentures, the
consent of the Holders of which is required for any such supplemental
indenture or waiver, without the consent of the Holders of all Debentures
then outstanding.
6.6 Severability. If one or more provisions of this Debenture are held
to be unenforceable under applicable law, such provision shall be excluded
from this Debenture and the balance of this Debenture shall be interpreted
as if such provision was so excluded and shall be enforceable in accordance
with its terms.
6.7 Replacement of Debenture. If the Holder loses this Debenture, the
Company shall issue an identical replacement Debenture to the Holder upon
the Holder's delivery to the Company of a customary agreement to indemnify
the Company for any losses resulting from issuance of the replacement
Debenture.
6.8 Unsecured. This Debenture is an unsecured obligation of the Company.
IN WITNESS WHEREOF, CHYRON CORPORATION has caused this Debenture to be
dated, executed and issued on its behalf by its officer or officers thereto
duly authorized.
CHYRON CORPORATION
Attest:
By: /s/Daniel I. DeWolf By: /s/Dawn Johnston
Name: Daniel I. DeWolf Name: Dawn Johnston
Title: Secretary Title: Chief Financial Officer
FORM OF
NOTICE OF CONVERSION OF
8% SUBORDINATED CONVERTIBLE DEBENTURE
OF CHYRON CORPORATION
Chyron Corporation
5 Hub Drive
Melville, New York 11747
Attention: President
Dear Sir:
I am the Holder of Chyron Corporation 8% Subordinated Convertible Debenture
number (the "Debenture"). As of the date hereof, $ aggregate
principal amount of the Debenture remains unconverted.
I hereby give notice to Chyron Corporation (the "Company") of my desire and
intent to convert $ aggregate principal amount of the Debenture into
common stock, par value $.01 per share, of the Company in accordance with
the provisions of Section 3 of the Debenture.
Very truly yours,
Date: Name:
FORM OF
NOTICE OF EXCHANGE OF
8% SUBORDINATED CONVERTIBLE DEBENTURE
OF CHYRON CORPORATION
Chyron Corporation
5 Hub Drive
Melville, New York 11747
Attention: President
Dear Sir:
I am the Holder of Chyron Corporation 8% Subordinated Convertible Debenture
number (the "Debenture"). I hereby give notice to Chyron Corporation
(the "Company") of my desire and intent to exchange the Debenture into the
Private Placement Debentures in accordance with the provisions of Section
5 of the Debenture.
Very truly yours,
Date: Name:
NAME OF SUBSCRIBER:
To: CHYRON CORPORATION
5 HUB DRIVE
MELVILLE, NEW YORK 11747
CHYRON CORPORATION
SUBSCRIPTION AGREEMENT AND INVESTMENT REPRESENTATION
SECTION 1.
1.1 Subscription. The undersigned, intending to be legally bound, hereby
subscribes for and agrees to purchase the amount of 8% Subordinated
Convertible Debentures (each a "Debenture") issued by Chyron Corporation,
a New York corporation (the "Company"), indicated on page 10 hereof. Each
Debenture shall be convertible at any time, at the option of the holder
thereof, into shares of common stock, par value $0.01 per share, of the
Company (the "Common Stock") in accordance with the terms set forth in the
Form of Debenture, a copy of which is attached hereto as Exhibit A.
1.2 Purchase of Debentures. The undersigned understands and acknowledges
that the purchase price to be remitted to the Company in exchange for the
Debentures, if any, shall be one-thousand United Stated Dollars ($1,000)
per Debenture. Payment for the Debenture(s) shall be made by certified
check or wire transfer in accordance with the instructions of the Company,
together with an executed copy of this Agreement and any other required
documents.
SECTION 2.
2.1 Acceptance or Rejection.
(a) The undersigned understands and agrees that the Company reserves the
right to reject this subscription for the Debenture(s) in whole or part in
any order, if, in its reasonable judgment, it deems such action in the best
interests of the Company, at any time prior to the applicable Closing (as
defined herein), notwithstanding prior receipt by the undersigned of notice
of acceptance of the undersigned's subscription.
(b) The undersigned understands and agrees that subscriptions may be revoked
provided that written notice of revocation is sent by certified or
registered mail, return receipt requested, and is received by the Company
at least two business days prior to the applicable Closing.
(c) In the event of rejection of this subscription, or in the event the sale
of the Debenture(s) subscribed for by the undersigned is not consummated by
the Company for any reason (in which event this Subscription Agreement shall
be deemed to be rejected), this Subscription Agreement and any other
agreement entered into between the undersigned and the Company relating to
this subscription shall thereafter have no force or effect and the Company
shall promptly return or cause to be returned to the undersigned the
purchase price remitted to the Company by the undersigned, without interest
thereon or deduction therefrom.
2.2 Closing; Closing Date.
The initial closing shall take place at the offices of the Company or such
other place as determined by the Company, on such date as is set by the
Company. The Company's acceptance of the undersigned's subscription shall
be evidenced by the Company's execution of this Agreement and execution of
the Debenture(s) subscribed for. Subsequent closings, if any, will be held
at such times, and in such places, as are determined by the Company (each
a "Closing"). At the Closing of the purchase and sale of the Debenture(s)
subscribed to by the undersigned, the Company shall prepare for delivery to
the undersigned the certificate(s) for the Debenture(s) to be issued and
sold to the undersigned, duly registered in the undersigned's name against
payment in full by the undersigned of the aggregate principal amount of the
Debenture(s).
SECTION 3
3.1 Investor Representations and Warranties.
The undersigned hereby acknowledges, represents and warrants to, and agrees
with, the Company and its affiliates as follows:
(a) The undersigned is acquiring the Debenture(s) for his own account as
principal, not as a nominee or agent, for investment purposes only, and not
with a view to, or for, resale, distribution or fractionalization thereof
in whole or in part. Further, the undersigned does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or
grant participations to such person or to any third person, with respect to
the Debenture(s), or the Common Stock into which same may convert, for which
the undersigned is subscribing.
(b) The undersigned has full power and authority to enter into this
Agreement, the execution and delivery of this Agreement has been duly
authorized, if applicable, and this Agreement constitutes a valid and
legally binding obligation of the undersigned.
(c) The undersigned acknowledges his understanding that the offering and
sale of the Debentures is intended to be exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act") by virtue of
Section 4(2) of the Securities Act and the provisions of Regulation D
promulgated thereunder ("Regulation D"). In furtherance thereof, the
undersigned represents and warrants to and agrees with the Company and its
affiliates as follows:
(i) The undersigned realizes that the basis for the exemption may not be
present if, notwithstanding such representations, the undersigned has in
mind merely acquiring the Debenture(s) for a fixed or determinable period
in the future, or for a market rise, or for sale if the market does not
rise. The undersigned does not have any such intention;
(ii) The undersigned has the financial ability to bear the economic risk of
his investment, has adequate means for providing for his current needs and
personal contingencies and has no need for liquidity with respect to his
investment in the Company;
(iii) (insert name of Purchaser Representative: if
none, so state) has acted as the undersigned's Purchaser Representative for
purposes of the private placement exemption under the Securities Act. If
the undersigned has appointed a Purchaser Representative (which term is used
herein with the same meaning as given in Rule 501(h) of Regulation D), the
undersigned has been advised by his Purchaser Representative as to the
merits and risks of an investment in the Company in general and the
suitability of an investment in the Debenture(s) for the undersigned in
particular; and
(iv) The undersigned (together with his Purchaser Representative(s), if any)
has such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of the prospective investment
in the Debenture(s). If other than an individual, the undersigned also
represents it has not been organized for the purpose of acquiring the
Debenture(s).
(d) The information in the Investor Questionnaire completed and executed by
the undersigned (the "Investor Questionnaire") is accurate and true in all
respects and the undersigned is an "accredited investor," as that term is
defined in Rule 501 of Regulation D.
(e) The undersigned and his Purchaser Representative(s), if any:
(i) Have been furnished with copies of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and all Quarterly Reports
on Form 10-Q filed thereafter to date, including all exhibits thereto, and
any documents which may have been made available upon request for a
reasonable period of time prior to the date hereof (collectively, the
"Documents"). The undersigned or his Purchaser Representative(s) have
carefully read the Documents and have relied solely (except as indicated in
subsections (ii) and (iii) below) on the information contained in the
Documents (including all exhibits thereto);
(ii) Have been provided an opportunity for a reasonable period of time prior
to the date hereof to obtain additional information concerning the offering
of the Debentures, the Company and all other information to the extent the
Company possesses such information or can acquire it without unreasonable
effort or expense;
(iii) Have been given the opportunity for a reasonable period of time prior
to the date hereof to ask questions of, and receive answers from, the
Company or its representatives concerning the terms and conditions of the
offering of the Debentures and other matters pertaining to this investment,
and have been given the opportunity for a reasonable period of time prior
to the date hereof to obtain such additional information necessary to verify
the accuracy of the information contained in the Documents or that which was
otherwise provided in order for him to evaluate the merits and risks of
purchase of the Debenture(s) to the extent the Company possesses such
information or can acquire it without unreasonable effort or expense;
(iv) Have not been furnished with any oral representation or oral
information in connection with the offering of the Debentures which is not
contained herein or in the Documents; and
(v) Have determined that the Debenture(s) are a suitable investment for the
undersigned and that at this time the undersigned could bear a complete loss
of such investment.
(f) The undersigned is not relying on the Company, or its affiliates with
respect to economic considerations involved in this investment. The
undersigned has relied on the advice of, or has consulted with only those
persons, if any, named as Purchaser Representative(s) herein and in the
Investor Questionnaire. Each Purchaser Representative is capable of
evaluating the merits and risks of an investment in the Debentures and each
Purchaser Representative has disclosed to the undersigned in writing (a copy
of which is annexed to this Agreement) the specific details of any and all
past, present or future relationships, actual or contemplated, between
himself and the Company or any affiliate or subsidiary thereof.
(g) The undersigned represents, warrants and agrees that he will not sell
or otherwise transfer the Debenture(s), or the Common Stock into which the
Debenture(s) may convert, without registration under the Securities Act or
an exemption therefrom and fully understands and agrees that he must bear
the economic risk of his purchase because, among other reasons, the
Debenture(s), and the Common Stock into which the Debenture(s) may convert
have not been registered under the Securities Act or under the securities
laws of any state and, therefore, cannot be resold, pledged, assigned or
otherwise disposed of unless they are subsequently registered under the
Securities Act and under the applicable securities laws of such states or
an exemption from such registration is available. In particular, the
undersigned is aware that the Debenture(s) and Common Stock into which the
Debenture(s) may convert are "restricted securities," as such term is
defined in Rule 144 promulgated under the Securities Act ("Rule 144"), and
they may not be sold pursuant to Rule 144 unless all of the conditions of
Rule 144 are met. The undersigned also understands that, except as
otherwise provided herein, the Company is under no obligation to register
the Debenture(s), or the Common Stock into which same may convert, on his
behalf or to assist him in complying with any exemption from registration
under the Securities Act or applicable state securities laws. The
undersigned further understands that sales or transfers of the Debenture(s),
or the Common Stock into which same may convert, are further restricted by
state securities laws and the provisions of this Agreement.
(h) No representations or warranties have been made to the undersigned by
the Company, or any officer, employee, agent, affiliate or subsidiary of the
Company, other than the representations of the Company contained herein, and
in subscribing for the Debentures the undersigned is not relying upon any
representations other than those contained herein.
(i) Any information which the undersigned has heretofore furnished to the
Company with respect to his financial position and business experience is
correct and complete as of the date of this Agreement and if there should
be any material change in such information he will immediately furnish such
revised or corrected information to the Company.
(j) The undersigned understands and agrees that the certificates for the
Debenture(s), or the Common Stock into which same may convert, shall bear,
substantially, the following legend until (i) such securities shall have
been registered under the Securities Act and effectively been disposed of
in accordance with a registration statement that has been declared
effective; or (ii) in the opinion of counsel for the Company such securities
be may sold without registration under the Securities Act as well as any
applicable "Blue Sky" or state securities laws:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THIS CERTIFICATE. THE
SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT OR AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE
COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER, OR DISPOSITION MAY
BE EFFECTUATED WITHOUT REGISTRATION UNDER THE ACT."
(k) The undersigned understands that an investment in the Debentures is a
speculative investment which involves a high degree of risk and the
potential loss of his entire investment.
(l) The undersigned's overall commitment to investments which are not
readily marketable is not disproportionate to the undersigned's net worth,
and an investment in the Debentures will not cause such overall commitment
to become excessive.
(m) The undersigned: (A) is not (i) a director, officer, or substantial
security holder of the Company (a "Related Party"), (ii) a subsidiary,
affiliate or other closely-related person of a Related Person, or (iii) any
company or entity in which a Related Party has a has a substantial direct
or indirect interest; or (B) represents, warrants and agrees that he shall
not subscribe for or purchase Debentures, which upon conversion as provided
in the Debenture(s), shall represent more than one percent (1%) of the
shares of Common Stock outstanding prior to the sale of the Debentures.
(n) The foregoing representations, warranties and agreements shall survive
the Closing.
SECTION 4.
4.1 Registration Rights.
(a) The Company represents and warrants that it will use its best efforts
to file a registration statement with the United States Securities and
Exchange Commission (the "SEC"), relating to the shares of Common Stock
underlying the Debentures (the "Registrable Securities"), within 120 days
after the final Closing. In addition, the Company further represents and
warrants that it will (i) use its best efforts to have such registration
statement declared effective by the SEC in a timely manner, and (ii)
maintain the effectiveness of the registration statement for a period of at
lest two years from the initial effective date. The Company shall not be
obligated to effect more than one registration under this Section 4.1(a).
Assuming such registration statement is declared effective by the SEC,
holders shall have no further registration right pursuant to this Section
4.1(a).
(b) The Company has agreed that the all expenses incurred with a
registration statement pursuant to this Section 4 (exclusive of underwriting
discounts and marketing expenses), including without limitation all federal
and "blue sky" registration and qualification fees, printer's and accounting
fees, shall be borne by the Company.
SECTION 5.
5.1 Indemnification of the Company.
(a) The undersigned agrees to indemnify and hold harmless the Company, its
officers and directors, employees, agents and affiliates and each other
person, if any, who controls any thereof, against any loss, liability,
claim, damage and expense whatsoever (including, but not limited to, any and
all expenses whatsoever reasonably incurred in investigating, preparing or
defending against any litigation commenced or threatened or any claim
whatsoever) arising out of or based upon any false representation or
warranty or breach or failure by the undersigned to comply with any covenant
or agreement made by the undersigned herein or in any other document
furnished by the undersigned to any of the foregoing in connection with this
transaction.
(b) In addition to the indemnity in Section 5.1(a) above, the holder(s)
of the Registrable Securities to be sold pursuant to a registration
statement, and their successors and assigns, shall severally, and not
jointly, indemnify the Company, its officers, directors and agents and each
person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act, against all
loss, claim, damage or expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any
claim whatsoever) to which they may become subject under the Securities Act,
the Exchange Act or otherwise, arising from written information furnished
by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement; provided, however, that
each holder shall be liable under this Section 5.1(b) only up to and
including the principal amount of the Debenture(s) purchased by such holder.
5.2 Indemnification of Holders of Registrable Securities. In connection
with any registration statement filed pursuant to Section 4.1(a) hereof, the
Company agrees to indemnify, to the fullest extent permitted by law, each
holder of Registrable Securities, its officers, directors and agents and
each person who controls such holder of Registrable Securities against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in such registration
statement or any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statement
therein, in the light of the circumstances under which they made, not
misleading.
5.3 Modification. Neither this Agreement nor any provisions hereof shall
be modified, discharged or terminated except by an instrument in writing
signed by the party against whom any waiver, change, discharge or
termination is sought.
5.4 Notices. All notices, authorizations, demands or requests required or
permitted to be delivered to any party in connection with this Agreement
shall be in writing and shall be deemed to have been duly given if
personally delivered, if sent by facsimile transmission (with receipt
confirmed by automatic transmission report), if sent by a nationally-
recognized overnight courier with charges prepaid, if sent by registered or
certified mail, return receipt requested and postage prepaid (or by the most
nearly comparable method if mailed from or to a location outside the United
States), or addressed as follows:
If to the Company, to:
Chyron Corporation
5 Hub Drive
Melville, New York 11747
Attn: President
Fax: (516) 845-5210
With copies (which copies shall not constitute notice) to:
Camhy Karlinsky & Stein LLP
1740 Broadway
New York, New York 10019
Attn: Robert S. Matlin, Esq.
Fax: 212-977-8389
If to the undersigned, to: the address shown on page 11 or 12 hereof;
or to such other address as the party to whom the notice is to be given may
have furnished to the other party hereto in writing in accordance with the
provisions of this Section 5.4. Any such notice or communication shall be
deemed to have been received (i) in the case of personal delivery, on the
date of such delivery, (ii) in the case of facsimile transmission (with
receipt confirmed by automatic transmission report), on the date of such
transmission, (iii) in the case of a nationally-recognized overnight
courier, on the next business day after the date when delivered to such
courier, and (iv) in the case of mailing (or by the most nearly comparable
method if mailed from or to a location outside the United States), on the
third business day following that on which the piece of mail containing such
communication is posted; provided, however, that three additional business
days shall be added to the time any notice or communication sent from or to
a location outside the United States shall be deemed to have been received
in (iii) or (iv) above.
5.5 Counterparts. This Agreement may be executed through the use of separate
signature pages or in any number of counterparts (and by facsimile
signature), and each of such counterparts shall, for all purposes,
constitute one agreement binding on all parties, notwithstanding that all
parties are not signatories to the same counterpart.
5.6 Binding Effect. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties and their
heirs, executors, administrators, successors, legal representatives and
assigns. If the undersigned is more than one person, the obligation of the
undersigned shall be joint and several and the agreements, representations,
warranties and acknowledgments herein contained shall be deemed to be made
by and be binding upon each such person and his heirs, executors,
administrators and successors.
5.7 Entire Agreement. This Agreement and the documents referenced herein
contain the entire agreement of the parties and there are no
representations, covenants or other agreements except as stated or referred
to herein and therein.
5.8 Assignability. This Agreement is not transferable or assignable by the
undersigned.
5.9 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of law principles of such State.
5.10 Pronouns. The use herein of the masculine pronouns "he", "him" or
"his" or similar terms shall be deemed to include the feminine and neuter
genders as well and the use herein of the singular pronoun shall be deemed
to include the plural as well.
ALL SUBSCRIBERS MUST COMPLETE THIS PAGE
IN WITNESS WHEREOF, the undersigned has executed this Agreement on the
day of December, 1998.
X $1,000 Per Debenture = $
Debentures Subscribed For Purchase Price
Manner in which Title is to be held (Please Check One):
1. Individual
2. Joint Tenants with Right of Survivorship
3. Community Property
4. Tenants in Common
5. Corporation/Partnership/Limited Liability Company
6. IRA
7. Trust/Estate/Pension or Profit Sharing Plan
Date Opened:
8. As a Custodian for:
Under the Uniform Gift to Minors Act of the State of:
9. Married with Separate Property
10. Keogh
11. Tenants by the Entirety
IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.
INDIVIDUAL SUBSCRIBES MUST COMPLETE PAGE 11.
SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGE 12.
EXECUTION BY NATURAL PERSONS
Exact Name in Which Title is to be Held
Name:
(Please Print)
Residence:
Number and Street
City, State and Zip Code
Social Security Number
(Signature)
Name of Additional Purchaser:
(Please Print)
Address of Additional Purchaser:
Number and Street
City, State and Zip Code
Social Security Number
(Signature)
ACCEPTED this day of December, 1998 on behalf of the Company.
BY:/s/Edward Grebow
Name: Edward Grebow
Title: President and Chief Executive Officer
EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY
(Corporation, Partnership, Trust, LLC, Etc.)
Name of Entity (Please Print)
Date of Incorporation or Organization:
State of Principal Offices:
Federal Taxpayer Identification Number:
BY:
Name:
Title:
[seal]
Attest:
(If Entity is a Corporation)
Address:
ACCEPTED this ______ day of December, 1998 on behalf of the Company.
BY:/s/Edward Grebow
Name: Edward Grebow
Title: President and Chief Executive Officer
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-50927) of our report dated February 2, 1999,
relating to the financial statements of Chyron Corporation, appearing on
page 21 of this Annual Report on Form 10-K dated March 30, 1999.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
March 30, 1999
