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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, 1996
Commission File Number 1-9014
CHYRON CORPORATION
(Exact name of registrant as specified in its charger)
New York 11-2117385
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
5 Hub Drive, Melville, New York 11747
(Address of principal executive offices) (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 New York Stock Exchange
(Title of Class) (Name of exchange on which
registered)
Common Stock Purchase Warrants expiring January 31, 1996
Chicago 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 14, 1997 was $68,754,901.
The number of shares outstanding of the issuer's common stock, par value
$.01 per share, on March 14, 1997 was 32,384,635.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by a check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
YES X NO
DOCUMENTS INCORPORATED BY REFERENCE
Item 10 (Directors and Executive Officers of the Registrant), Item 11
(Executive Compensation), Item 12 (Security Ownership of Certain
Beneficial Owners and Management) and Item 13 (Certain Relationships and
Related Transactions) will be incorporated into the Company's Proxy
Statement to be filed within 120 days of December 31, 1996 and are
incorporated herein by reference.
Exhibit index is located on page 55
This document consists of 228 pages
PART I
ITEM 1. BUSINESS
General Information Regarding the Company
Chyron Corporation ("Chyron") 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"; collectively
with Chyron, the "Company"). 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 Early, Reading, Berks RG6 4PB and its
telephone number is 44-1734-86-61-21.
On September 17, 1990, Chyron and its subsidiaries sought relief under
Chapter 11 of the United States Bankruptcy Code. On December 27, 1991,
Chyron emerged from bankruptcy. Pursuant to its plan of reorganization,
Chyron issued to its banks shares of Common Stock which represented 81%
of the voting power and beneficial ownership of all the issued and
outstanding Common Stock on a fully diluted basis. Such shares of Common
Stock were then purchased from the banks by Pesa, Inc. ("Pesa"). An
aggregate of 4,666,666 shares of Common Stock owned by Pesa were
eventually acquired by Sepa Technologies Ltd., Co. ("Sepa"), an affiliate
of Pesa.
In May 1995, CC Acquisition Company A, L.L.C., a Delaware limited
liability company ("CCA"), acquired 3,333,333 shares of Common Stock from
Pesa. In July 1995, control of Chyron was transferred through the sale
of an additional 18,138,238 shares of Common Stock by Pesa and Sepa to
(i) CC Acquisition Company B, L.L.C., a Delaware limited liability
company ("CCB"); (ii) various funds managed by Weiss, Peck & Greer,
L.L.C. ("Weiss, Peck & Greer"); and (iii) Westpool Investment Trust plc
("Westpool") (Weiss, Peck & Greer and Westpool are collectively referred
to as the "WPG/Westpool Investment Group"). In addition, Sepa and other
parties transferred the voting control over an aggregate of 3,000,000
shares of Common Stock to these entities. As of March 10, 1997, CCA and
CCB together beneficially own 8,455,297 shares of Common Stock and the
WPB/Westpool Investor Group beneficially own in the aggregate 15,774,432
shares.
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.
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 new 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
Graphics and character generators. Chyron's family of iNFiNiT! products
use a digital computer and electronic storage to permit operators to
create images capable of being broadcast either independently or
superimposed on other images. Images broadcast directly from the system
have included election results, stock market quotations, sports scores,
commercial advertising and promotional material. Superimposed images are
similarly used for a variety of purposes such as identifying speakers
during interviews or displaying statistics during sports telecasts.
The flagship iNFiNiT! is a dual-user graphics workstation with one to
three output channels, each with a dedicated key signal. MAX!> is a
signal-user graphics system with one or two separate video and key
channels. MAXINE! is a single channel/single-user character generator.
MAX!> and MAXINE! have similar feature sets and effective resolution to
the iNFiNiT!. In September 1996, the Company introduced WiNFiNiT!, an
optional PC-based graphical user interface which utilizes the Microsoft
Windows NT operating system.
Still store management systems. IMAGESTOR! offers real-time playback
of uncompressed video frames and instant access to thousands of one-line
or archived images. Live newscasters and broadcast trucks use IMAGESTOR!
for live video capture as well as for image storage retrieval for on-air
display. The IMAGESTOR! system allows on-line storage of 2,000 still
images with optional additional storage available. The library of stills
can be searched and sorted by criteria, keywords and other attributes.
Users can create a playlist of images for automatic playback during live
on-air operations and embed the selected still images with effects such
as cut, dissolve, wipe, push, reveal and hide. IMAGESTOR! is available
as a stand-alone workstation or a database file management software
program for use with Chyron's iNFiNiT! family of graphics systems.
Compact graphics and character generators. The Company's compact
character generators, sold under the CODI and PC-CODI names, provide
real-time text, titling and logo generation which are used for
broadcasting time, temperature, weather warnings, sports statistics,
scoreboards, news updates and financial information. CODI products may
operate through touch screens for real-time on-screen drawing. They can
work with standard computer platforms regardless of operating system or
system performance.
Electronic paint and animation systems and software. Chyron's Liberty
family of paint and animation tools are resolution-independent, non-
linear, digital image processing systems and software. Liberty products
are used to create, edit and composite special visual effects in an on-
line, real-time environment. Liberty products have been used for high-
end film applications and have created special effects for major feature
films, including Casino and Broken Arrow. Liberty products operate on
various Silicon Graphics workstations and support all popular file
formats. Liberty offers a menu of video graphic creation tools, such as
painting, compositing, morphing, titling, 3D transforming, layering,
coloring, cycle animation, rotoscoping and cell animation.
Signal Management Systems
Switching and routing systems. Under the Pro-Bel name, the Company
provides a complete range of control solutions for matrix systems which
process and distribute multimedia signals. The PROCION product offers
a range of IBM PC/Windows touch screen control systems which are easy to
use and configure. System 3 provides a push button control panel which
can utilize simple signal matrix solutions and multi-matrix installations
with integrated tie-line management. System 3 and PROCION can co-exist
for maximum flexibility.
The new XD series of digital router switchers are large-scale routing
systems that can produce high-performance signal distribution across a
wide spectrum of applications. The TM Series are compact digital routing
switchers that provide a cost-effective solution for users moving from
analog to digital distribution and for smaller scale routing solutions
such as remote broadcast vehicles. The HD series of routing switchers
includes matrix products for digital and analog video, digital and analog
audio and RS422 machine control.
Intercom/talkback. The Trilogy Commander 400 Series combines Digital
Signal Processing ("DSP") audio techniques with control technology to
produce a digital intercom/talkback system. The system is supplied with
IBM compatible PC-based editing and control panels to manage audio
crosspoints. Intercom systems are implemented in a wide range of
applications including television and radio broadcast facilities,
airports, hospitals, outside and remote broadcast trucks, post-production
suites and leisure complexes.
Control and Automation Systems
Master control, storage and station automation. Pro-Bel has developed
a suite of products which are designed to process video, audio and
related data signals, automate playout of the signals and manage media
signal storage devices in the master control and transmission suites.
MAPP is a Windows-based, video server management and control system.
MAPP provides facilities to record, track, cache and replay broadcast
material according to a user defined schedule. MAPP easily interfaces
with disk based video servers manufactured by many different vendors.
The COMPASS station automation system provides comprehensive station
automation capability to major broadcasters that have complex playlists.
Video tape cartridge machines, video servers and other devices are
typically interfaced by high speed data links which allow the system to
control the devices according to a playlist schedule. The automation
system monitors all functions to check for discrepancies such as time
errors, machines not available for control or manual intervention.
The Company's digital master control switcher TX-220 employs component
digital and AES/EBU digital audio signal processing. Features include
10 bit component digital video/audio processing with an analog option,
up to 4 AES/EBU levels, stand-alone operation with an upstream keyer,
multifunction plasma display, simple user friendly manual control and
full integration with the compass Automation System. The master control
switcher switches and combines video and audio content signals from
various devices, such as video tape machines, disk based video servers,
character generators and still storage systems, to produce seamless
program flow for distribution to the final program delivery channel.
Electronic editing control systems. The CMX OMNI family of edit
controllers are designed to control and operate edit suite equipment.
CMX OMNI systems are flexible, configurable and easy to operate. They
are capable of controlling over 200 types of edit suite devices developed
by other manufacturers, including video tape recorders, video disks,
production control switchers, digital video effects equipment, time base
correctors and audio equipment.
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 at the major domestic and international trade shows of the
broadcast and computer graphics industries. In the United States, the
Company exhibits at the National Association of Broadcasters (NAB) and
ACM SIGGRAPH conventions. It also exhibits at the International
Broadcasters Conventions (IBC) in Europe, INTERBEE in Japan and
Broadcast-Asia in China. The Company uses direct-mail campaigns and
places advertisements in broadcast, post-production and computer industry
publications.
Sales of the Company's products in the United States and the United
Kingdom are made through Company direct sales personnel, dealers,
independent representatives, systems integrators and OEMs. Direct sales,
marketing and product specialists serving the domestic markets act as
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 several representatives covering
specific territories. Some of the dealers have been granted exclusive
rights to sell certain products in specified territories. During 1996,
the Company opened a sales and support office in Hong Kong in order to
better service the growing market of Asia. 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 hour 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), Atlanta (Georgia) and Burbank (California)
centers. The Company also conducts on-site training. Installation
assistance, hardware and software, maintenance contracts and spare parts
are made available by Company. Support contracts and a responsive spare
parts supply service facilitate customer satisfaction. Service is
provided both domestically and internationally by the Company or its
appointed dealers and representatives. The Company also provides sales
and service support to its dealers from time to time. The Company
provides warranties on all of its products ranging from 90 days to five
years.
Research and Development
The Company's research and product development, conducted in Melville,
New York, Reading, United Kingdom and Santa Clara, California is focused
on the continued enhancement of its existing products and the development
of new ones.
Historically, the Company has oriented its efforts toward the development
of complete systems rather than of either hardware or software standing
alone. A strategic engineering group evaluates hardware and software
technologies.
During 1996, 1995 and 1994, the Company expensed approximately $5.3
million, $4.1 million and $4.2 million, respectively, for research and
development and amortization of capitalized 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 subassemblies. It assembles such items and
standard parts, together with internally-developed software, to create
final products. The Company then performs testing and quality
inspections of each product.
Competition
The market for graphics imaging, editing and animation systems, signal
routing systems and media storage systems is highly competitive and is
characterized by rapid technological change and evolving industry
standards. Rapid obsolescence of products, frequent development of new
products and significant price erosion are all features of the industry
in which the Company operates. The Company anticipates increased
competition from both existing companies and new market entrants. The
Company is currently aware of several major and a number of smaller
competitors. In the graphics area, the Company believes its primary
competitors are Aston Electronic Designs Limited, Digital Graphix Inc.,
Dynatech Corporation, Quantel Inc. and Scitex Corporation Ltd. In the
signal management area, the Company believes its primary competitors are
Dynatech Corporation, Leitch Incorporated, Philips Electronics N.V., Sony
Corporation and Tektronix Inc. In the control and automation area, the
Company believes its primary competitors are Accom, Inc., Louth
Automation, Philips Electronics N.V., Sony Corporation and Tektronix,
Inc. Many of these companies have significantly greater financial,
technical, manufacturing and 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.
Backlog
The Company's backlog of orders at December 31, 1996 approximated $4
million. The Company believes these orders to be firm and expects to
fulfill the entire amount of this backlog in 1996.
Employees
As of December 31, 1996, the Company employed 405 persons on a full-time
basis, including 63 in sales and marketing, 159 in manufacturing and
testing, 39 in customer support, service and training, 50 in finance and
administration and 94 in research and development. None of these
employees is represented by a labor union.
Patents and Proprietary Rights
The Company's success depends upon its ability to protect its proprietary
software technology and operate without infringing the rights of others.
It relies on a combination of patent, trademark and trade secret laws to
establish and protect its proprietary rights in its technology.
The Company currently has seven patents. The names Chyron, Scribe,
Chyron Scribe, Chyron Scribe Junior, Chyron SuperScribe, iNFiNiT!, MAX!>,
MAXINE!, CODI, I2, Chyron Care, Intelligent Interface, Intelligent
Interface (I2), CMX, CMX AEGIS, CMX OMNI, Aurora, Liberty, PROCION and
PROCION INNOVATIVE CONTROL SOLUTIONS are registered trademarks of the
Company. The Company also has rights in trademarks and service marks
which are not federally registered. The Company does not have registered
copyrights on any of its intellectual property. The duration of patents
in the United States is 20 years from priority or 17 years from issuance.
As a result, the Company's existing patents will begin to expire
commencing in the year 1998.
Government Regulations
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.
ITEM 2. FACILITIES
The executive offices and principal office of the Company and its
graphics business are located in Melville, New York pursuant to a lease
that expires on June 30, 2004. This facility consists of approximately
47,000 square feet and is used for manufacturing, research and
development, marketing and the executive offices. The Company also
leases approximately 15,000 square feet in Santa Clara, California for
research and development. This lease expires on October 31, 1997. In
the United Kingdom, the Company's executive office is located in Reading,
United Kingdom where it owns an approximately 19,000 square foot
facility. This facility is used for manufacturing, research and
development and marketing. The Company occupies additional facilities
in the United Kingdom in Reading and Andover, used primarily for research
and development and manufacturing, which total approximately 28,000
square feet pursuant to leases which expire from October 31, 1997 through
September 24, 2020. Currently, the Company is considering expanding its
Andover facility but has not made any lease commitments. The Company
currently utilizes 90% to 100% of the space of all of its facilities.
Management currently believes that, other than the Andover facility, each
facility is suitable for its existing operations and does not foresee the
need for any significant expansion of its current facilities.
ITEM 3. LITIGATION
The Company is a party to Percival Hudgins & Company, Inc. v. Chyron
Corporation v. John Percival, pending in the United States District
Court, North District of Georgia (Atlanta), Civil Action No. 1 95-CV-CAM.
This is a breach of contract action for an alleged success fee in
connection with the sale of Common Stock by Pesa and Sepa to the new
investment group. Plaintiff alleges that such transaction was subject
to the terms of its engagement letter with the Company. Plaintiff seeks
damages of approximately $600,000 together with counsel fees. The
Company has answered, denying all material allegations, and has asserted
a third party claim against plaintiff's principal, alleging that he, as
a director of the Company while his investment banking firm was engaged
by the Company, breached his fiduciary duties to the Company and is
liable for any amounts that might be awarded to plaintiff, together with
counsel fees. Plaintiff has recently amended the complaint to add a
claim for quantum meruit. Discovery is continuing.
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
On January 24, 1997, at a Special Meeting of Shareholders, the Company's
shareholders' ratified a one-for-three reverse stock split of its common
stock which was effective February 10, 1997. 77,162,761 shares were
voted for the proposal, 2,876,490 shares were voted against the proposal
and 169,212 shares abstained.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDERS MATTERS
Principal Market
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 December 31, 1996 was 8,100.
The following table sets forth the high and low reported sales price for
the common stock adjusted to reflect the reverse stock split.
Price Range of Common Stock
High Low
Year Ended December 31, 1996
Fourth Quarter............. $15.375 $ 8.25
Third Quarter.............. 19.875 12.00
Second Quarter............. 18.750 9.375
First Quarter.............. 10.125 6.375
Year Ended December 31, 1995
Fourth Quarter............. $8.625 $5.250
Third Quarter.............. 9.000 2.438
Second Quarter............. 3.000 1.500
First Quarter.............. 2.250 1.125
On March 14, 1997, the closing price of the Company's common stock as
reported on the NYSE was $6.50.
The Company has not declared or paid any cash dividend since November 27,
1989. The Company currently plans to retain its future earnings, if any,
for use in the operation and expansion of its business and does not
anticipate paying cash dividends on the common stock in the foreseeable
future. During the term of its loan agreement with Fleet Bank (formerly
NatWest Bank), the Company is prohibited from paying dividends in excess
of 25% of its net income for the then current fiscal year.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Year Ended December 31,
1996(1) 1995 1994 1993 1992
Statement of Operations Data:
Net sales................. $82,608 $53,971 $42,762 $37,391 $29,715
Cost of products sold..... 39,941 22,746 18,912 16,816 12,512
Gross profit.............. 42,667 31,225 23,850 20,575 17,203
Operating expenses:
Selling, general and
administrative............ 22,349 17,066 14,301 13,452 11,300
Research and development.. 5,253 4,105 4,163 3,573 2,964
Management fee............ 2,911 1,139 800 891
West Coast restructuring
charge (recapture)........ (1,339) 12,716
Total operating expenses.. 27,602 22,743 32,319 17,825 15,155
Operating income (loss)... 15,065 8,482 (8,469) 2,750 2,048
Interest and other
expense, net.............. 1,666 536 525 714 445
Income (loss) before
provision for income
taxes..................... 13,399 7,946 (8,994) 2,036 1,063
Income tax/equivalent
provision................. 4,745 470 760 598
Net income (loss)......... $ 8,654 $ 7,476 $(8,994) $ 1,276 $ 1,005
Net income (loss) per
common share(2)........... $ 0.27 $ 0.25 $ (0.31) $ 0.05 $ 0.04
Weighted average number
of common and common
equivalent shares
outstanding(2)............ 32,327 30,382 28,962 25,295 23,514
December 31,
1996 1995 1994 1993 1992
Balance Sheet Data:
Cash and cash equivalents. $ 4,555 $ 5,012 $ 1,555 $ 213 $ 403
Working capital........... 41,867 28,221 12,103 13,256 11,692
Total assets.............. 91,403 44,332 28,644 38,516 35,623
Long-term obligations..... 16,324 4,911 4,829 200 3,000
Shareholders' equity...... 53,946 29,983 13,776 22,627 17,882
(1) Includes the operations of Pro-Bel since its acquisition by the
Company on April 12, 1996. The acquisition was accounted for as a
purchase. See Note 2 to the Consolidated Financial Statements.
(2) Adjusted to reflect the Reverse Stock Split which was ratified by the
Company's shareholders on January 24, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
From time to time, the Company may publish forward looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, 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 the following:
product concentration in a mature market, dependence on the emerging
digital market, rapid technological changes, highly competitive
environment, new product introductions, seasonality, fluctuations in
quarterly operations results, expansion into new markets and the
Company's ability to implement successfully its acquisition and alliance
strategy.
Overview
The Company develops, manufactures, markets and supports a broad range
of equipment, software and systems that facilitate the production and
enhance the presentation of live and pre-recorded video, audio and other
data. The Company introduced the iNFiNiT!, its flagship product, in late
1990. Subsequently, the Company has introduced a broad range of graphics
products such as the MAX!> and MAXINE!, CODI, LIBERTY, WiNFiNiT! and
IMAGESTOR!. These products superimpose text, logos and other graphics
onto a primary video image or create an independent image to be televised
by itself. The Company expects that revenue from its current graphics
and character generator systems will continue to constitute a substantial
percentage of its net sales in the near future. The Company's Pro-Bel
signal management systems interconnect video, audio and data signals to
and from equipment within a studio's control room or edit suite, as well
as to and from signal transmission sites.
The Company's net sales have increased from $29.7 million in 1992 to
$82.6 million in 1996, while gross profit has increased from $17.2
million in 1992 to $42.7 million in 1996. Net income was $1.0 million
in 1992 and $8.7 million in 1996.
The Company was incorporated under the laws of the State of New York on
April 8, 1966. The Company filed for Chapter 11 protection in September
1990 and emerged from Chapter 11 in December 1991. In 1994, the Company
restructured its West Coast operations, resulting in a charge of
approximately $12.7 million. In 1995, a new investor group obtained
control, a new executive management team was put in place, a new Board
of Directors was elected and a new business strategy was adopted.
The Company's current business strategy includes the following key
elements: (i) maintain and enhance its leadership position in current
markets; (ii) provide upgrades to existing equipment; (iii) cross sell
products to its existing customers; (iv) address low-end and emerging
markets; (v) expand it global presence; (vi) pursue strategic
acquisitions and alliances; and (vii) utilize open platforms. The
Company intends to continue to serve its worldwide customer base by
introducing products which address the 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.
Acquisition of Pro-Bel
On April 12, 1996, the Company acquired Pro-Bel, located in Reading,
United Kingdom. Pro-Bel develops, manufactures and markets signal
management systems and control and automation systems. The aggregate
consideration of $19.1 million consisted of $6.9 million in cash, $5.3
million in two-year promissory notes and 1,048,735 restricted shares of
Common Stock valued at $6.9 million.
The acquisition of Pro-Bel was accounted for as a purchase. Accordingly,
the cost was allocated to the net tangible assets acquired based upon
their estimated fair values. The excess of cost over the estimated fair
value 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 Real Time
Synthesized Entertainment Technology, Ltd. ("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 Common Stock. In addition, the Company was granted
certain call option rights which, if and when exercised, allows the
Company to purchase up to a 51% interest in RT-SET in exchange for the
issuance of additional shares of Common Stock. In accordance with the
purchase agreement, the 800,000 shares of Common Stock were to be held
in escrow and released in two tranches, subject to certain conditions.
One-third of such shares was released from escrow in June 1996 and the
remainder will be released upon a public offering of RT-SET's equity or
upon RT-SET achieving two consecutive years of profitability. Prior to
any public offering by RT-SET or achievement of the aforementioned
profitability, the Company has the right to recover the remaining two-
thirds of its shares held in escrow in exchange for its interest in RT-
SET. The transaction has been recorded as the purchase of a right to
acquire a 19% interest in RT-SET which was diluted to 17% as a result of
a subsequent investment by a third party. RT-SET shall retain the voting
rights with respect to the escrowed shares while such shares are held by
the escrow agent. The acquisition was recorded at the estimated fair
value of the restricted shares of Common Stock released from escrow.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales increased 53.1% to $82.6 million in 1996 from $53.9
million in 1995. Over 85% of the $28.7 million increase was attributable
to the inclusion, since April 1996, of Pro-Bel's sales; Chyron's graphic
products showed modest growth. The Company's net sales consist of
product sales, upgrades and enhancements and rental income as well as
customer service revenue.
Gross Profit. Gross profit increased to $42.7 million in 1996 from $31.2
million in 1995. This increase was primarily attributable to the 53.1%
increase in net sales. Gross margin as a percentage of net sales
decreased to 51.6% in 1996 from 57.9% in 1995. This decrease was caused
primarily by the inclusion since April 1996 of net sales of Pro-Bel
products, which historically have had lower gross margins. The gross
margin for the Chyron product lines decreased slightly, primarily as a
result of the product mix for the year. Customer service costs are
included in selling, general and administrative expenses and are not
material.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 31.0% to $22.3 million in 1996 from
$17.1 million in 1995. As a percentage of net sales, selling, general
and administrative expenses decreased to 27.0% in 1996 from 31.6% in
1995. The increase in dollars was primarily due to the inclusion of Pro-
Bel's operations since April 1996 and the accounting for the acquisition
under the purchase method resulting in amortization of excess purchase
price over net tangible assets and increased depreciation, as well as
increased costs as a direct result of increased sales volume. The
decrease as a percentage of net sales was affected by the incurrence in
1995 of $443,000 of one-time legal and investment banking fees (incurred
with respect to the undertaking of the Special Transaction Committee of
the Board of Directors, which was appointed in connection with the
potential change in control of the Company) and $430,000 of severance
costs for former management.
Research and Development Expenses. Research and development expenses
increased 27.9% to $5.3 million in 1996 from $4.1 million in 1995. This
increase was primarily due to the inclusion of Pro-Bel's research and
development expenditures since April 1996. Research and development
expenses related to Chyron's product lines decreased in 1996 in part due
to an increase of approximately $800,000 in the amount of software
capitalized and an increased percentage of research and development
undertaken internally instead of by outside consultants.
Interest and Other Expense, Net. Interest and other expense, net,
increased 210.8% to $1,666,000 in 1996 from $536,000 in 1995. In
conjunction with the Pro-Bel acquisition, the Company entered into
various agreements with a bank, issued promissory notes (payable in
pounds sterling) to the shareholders of Pro-Bel and assumed Pro-Bel's
existing bank debt, all of which led to an increase of $866,000 in
interest expense for the year. Net foreign currency transaction losses
of $264,000 have been recognized in 1996 due to the change in the
exchange rate from date of acquisition of Pro-Bel to December 31, 1996.
Income Before Provision for Income Taxes. Income before provision for
income taxes increased 68.6% to $13.4 million in 1996 from $7.9 million
in 1995, primarily due to the improved operating income of Chyron coupled
with the addition of the operating income generated by Pro-Bel.
Income Taxes/Equivalent Provision. Income taxes/equivalent provision
increased to $4.7 million in 1996 from $470,000 in 1995, primarily
because in 1995 an income tax benefit of approximately $2.2 million was
realized as a result of the 1994 West Coast restructuring. The increase
was also due to increased income before income taxes in 1996.
Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994
Net Sales. Net sales increased 26.2% to $54.0 million in 1995 from $42.8
million in 1994. This increase was primarily due to increased sales of
the Company's character generator lines. The iNFiNiT! product line
showed the largest dollar growth at $6.4 million, or approximately 41%,
with the MAX!> line showing the largest percentage growth at
approximately 65%, or $4.7 million. Increases in net sales also reflect
growth in the Company's MAXINE! product line, sales of which grew $2.4
million, or approximately 39%, over the prior year. The growth in sales
has been both domestically and abroad. These increases were partially
offset by the lack of sales from products discontinued in connection with
the West Coast restructuring.
Gross Profit. Gross profit increased 30.9% to $31.2 million in 1995 from
$23.9 million in 1994. This increase was primarily due to the 26.2%
increase in net sales. Gross margin as a percentage of net sales
increased to 57.9% in 1995 from 55.9% in 1994 mainly due to increased
manufacturing efficiencies and management's cost reduction efforts.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 19.3% to $17.1 million in 1995 from
$14.3 million in 1994. This increase was primarily due to (i) legal and
investment banking fees of $443,000, incurred with respect to the
undertakings of the Special Transaction Committee of the Board of
Directors, which had been appointed in connection with the potential
change in control of the Company, (ii) the accrual of $430,000 of
severance payments for former management and (iii) increases due to
increases in costs related to the 26.2% increase in net sales. These
increases were offset by cost cutting measures instituted by the Company
as part of the West Coast restructuring in 1994 resulting in a decrease
in selling, general and administrative expenses as a percentage of net
sales to 31.7% in 1995 from 33.4% in 1994.
Research and Development Expenses. Research and development expenses
decreased 1.4% to $4.1 million in 1995 from $4.2 million in 1994. This
decrease was primarily due to benefits recognized as part of the
Company's West Coast restructuring in the third quarter of 1994, which
eliminated costs related to the Company's unprofitable product lines.
Exclusive of 1994 costs related to unprofitable product lines, research
and development expenses increased by $359,000 in 1995. This increase
was primarily due to additional expenditures for new product development
to address emerging markets targeted by the Company as well as the
development of new features for the Company's existing products.
Research and development expenses include the amortization of software
development costs, which increased by $82,000 in 1995 due to the release
of new options in 1995 for the Company's character generator product
lines.
Management Fee. In December 1991, the Company entered into a management
agreement (the "Management Agreement") with an affiliate of Sepa to
provide business and technical services to the Company. This agreement
was subsequently transferred to Sepa. In December 1995, the Company
(under its new management) agreed to terminate the Management Agreement
upon payment to Sepa of $2.0 million. Pursuant to the original
Management Agreement, the Company would have paid $1.5 million in both
1996 and 1997.
West Coast Restructuring (Recapture). As of September 30, 1994, the
Company's West Coast operations, CMX and Aurora, reflected a continuing
trend of poor operating performance. Due to these disappointing results,
the lack of certain products in the high growth sector of the market and
the strategic decision by management to redirect its product lines to a
broader base market and to reengineer its research and development focus,
the Company initiated a plan to restructure the West Coast operations.
Consequently, the Company decided to eliminate unprofitable product lines
such as CMX 6000, Cinema, Gemini, LSI and the 3500 and 3600 series
product lines, reduce the West Coast workforce by 30% (or 12 employees),
write-down to estimated net realizable value certain assets directly
attributable to the initiative and focus, dispose of certain assets,
accrue losses for the restructuring period of October 1, 1994 through
March 31, 1995 and downsize the Company's Santa Clara, California
facility.
The result of these measures was a restructuring charge of $12.7 million
for the West Coast operations and subsequently a recapture of $1.3
million of such charge in 1995. The specific components of the
restructuring charge broken-out between asset write downs and cash
outlays were as follows (in thousands):
Asset write downs:
Write down of assets to estimated net
realizable value...................... $ 6,952
Write-off of software development costs. 1,991
Total non cash charges.................. 8,943
Cash outlays:
Accrued operating losses through date of
disposition........................... 2,500
Loss on lease commitment................ 700
Accrued severance for reduction in
workforce............................. 300
Other................................... 273
Total................................. $12,716
The cash outlays required by the restructuring were funded by the
Company's profitable product lines. Cash outlays estimated for the six
month restructuring period were $3.8 million, of which $1.0 million was
made by December 31, 1994. The loss on the lease was to be funded over
the remaining lease term of 31 months subsequent to the restructuring
period. In 1995, a sublease was obtained. The Company's graphics
division had been funding the operating losses of CMX and Aurora out of
its working capital since CMX and Aurora began their trend of
unprofitability.
Operating results as a result of the West Coast restructuring were
projected to benefit by a savings of over $2.0 million for 1995,
principally due to a reduction in annual salaries and employee benefits
of $750,000, a decrease in depreciation and amortization expense of
$200,000 per year, a reduction of overhead costs of approximately
$200,000 per year and a reduction in losses on unprofitable product lines
of approximately $850,000 per year. The Company believes such savings
have been substantially realized.
Interest and Other Expense, Net. Interest and other expense, net,
increased 2.1% to $536,000 in 1995 from $525,000 in 1994. This increase
was primarily due to an increase in the average prime rate of interest
in 1995 and additional interest expense related to the Company's capital
lease obligations entered into in December 1994. This increase was
offset by earnings on the Company's cash equivalents.
Income Before Provision for Income Taxes. Income before provision for
income taxes was $7.9 million for 1995, an improvement of $16.9 million
over the $9.0 million loss in the prior year. Net income for 1995
included a $2.0 million charge related to the termination of the
Company's Management Agreement with Sepa, which is further described in
Note 16 to the Consolidated Financial Statements, and a recapture of $1.3
million of the prior year's $12.7 million restructuring charge. For
details of 1995 activity related to the West Coast restructuring, see
Note 17 to the Consolidated Financial Statements. Exclusive of the
management fee charge in 1995 and amounts related to the West Coast
restructuring change in 1994 and 1995, income before provision for income
taxes increased $5.0 million due primarily to increases in net sales and
gross margins for 1995 coupled with increased efficiencies and cost
saving measures as well as the benefit of the West Coast restructuring
commencing in the third quarter of 1994.
Income Taxes/Equivalent Provision. A total income tax/equivalent
provision of $470,000, or 5.9%, was recorded in 1995 and included a tax
benefit of approximately $1.0 million which was recognized as a result
of the reduction in the valuation allowance provided on deferred tax
assets. The valuation allowance was reduced because management believed
that the Company would generate sufficient future taxable income from
ordinary and recurring operations to realize the deferred tax assets.
At December 31, 1995, the Company had recorded a valuation allowance of
approximately $5.4 million. At December 31, 1996, the valuation
allowance was released in its entirety.
Liquidity and Capital Resources
At December 31, 1996, the Company had cash on hand of $4.5 million,
working capital of $41.9 million and an unused borrowing commitment
available of $3.9 million.
To finance the acquisition of Pro-Bel, the Company incurred additional
debt of $7.2 million and used cash on hand of $6.9 million. In
connection with the acquisition of Pro-Bel, the Company issued promissory
notes to the shareholders of Pro-Bel for 3.5 million pounds sterling
($5.9 million, converted at the December 31, 1996 exchange rate) in
conjunction with the acquisition (see Note 2 to Consolidated Financial
Statements). The promissory notes are secured by an irrevocable letter
of credit from a bank. The amount of this irrevocable letter of credit
is included as an outstanding borrowing in the formula used to calculate
borrowing availability for the Company's facility with Fleet Bank
described below. Interest through April 15, 1997 is equal to LIBOR as
of April 15, 1996 (6.46%) and is payable quarterly. Interest through
April 15, 1998 is equal to LIBOR as of April 15, 1997. The notes are due
on or before April 15, 1998 and are subordinated to any obligations to
a bank or financial institution currently existing or subsequently
entered into. The notes can be prepaid without penalty subsequent to
November 1, 1996. See Note 10 to Consolidated Financial Statements.
Since the Pro-Bel acquisition, the Company's consolidated financial
statements include the Pro-Bel accounts, as adjusted for purchase
accounting. At the date of acquisition, inventory increased by $7.8
million, accounts receivable increased by $6.9 million and accounts
payable increased by $9.5 million which, in sum with other current assets
acquired and current liabilities assumed, increased working capital by
$6.8 million. Additionally, at the date of acquisition, property and
equipment increased by $8.8 million, excess of cost over net tangible
assets acquired of $6.9 million was recorded and $3.6 million of Pro-Bel
debt was assumed.
On March 28, 1996 and April 16, 1996, the Company entered into agreements
with Fleet Bank (formerly NatWest Bank) to obtain a revolving credit
facility of $10.0 million and a term loan of $8.0 million, respectively.
The entire facility is secured by certain of the Company's assets.
Borrowings are limited to amounts computed under a formula for eligible
accounts receivable and inventory. Additionally, an over-advance is
available above the borrowing formula in an amount not to exceed $3.0
million. Interest on the revolving credit facility is equal to adjusted
LIBOR plus 175 basis points or prime (8.25% at December 31, 1996) and is
payable monthly. The term loan is payable in quarterly installments of
$500,000, commencing June 1, 1996. Interest on the term loan is equal
to adjusted LIBOR plus 200 basis points or prime and is payable monthly.
See Note 10 to Consolidated Financial Statements.
Pro-Bel has a commercial mortgage term loan with Barclay's Bank Plc.
("Barclays"). The loan is secured by a building and property located
in the United Kingdom. Interest is equal to LIBOR (6% at December 31,
1996) plus 2%. The loan (including interest) is payable in quarterly
installments of 80,600 pounds sterling ($136,000, converted at the
December 31, 1996 exchange rate). See Note 10 to Consolidated Financial
Statements.
On February 1, 1996, Pro-Bel entered into an agreement with Barclays to
obtain a trade finance facility of 750,000 pounds sterling ($1,267,000,
converted at the December 31, 1996 exchange rate). The facility is
secured by Pro-Bel's accounts receivable. Interest is equal to the
bank's base rate plus 2% (8% at December 31, 1996) on advances against
accounts receivable in pounds sterling and equal to the Barclays currency
call loan rate plus 2% (8% at December 1, 1996) on advances against
foreign accounts receivable. Interest is payable quarterly, in arrears.
See Note 10 to Consolidated Financial Statements.
On February 1, 1996, Pro-Bel entered into an agreement with Barclays to
obtain an overdraft facility of 750,000 pounds sterling. Interest is
equal to the bank's base rate plus 2.5% (8.5% at December 31, 1996) and
is payable quarterly commencing in March 1996. The facility has a
sublimit for overdraft on Pro-Bel's wholly owned subsidiary, Trilogy
Broadcast Limited, of 160,000 pounds sterling ($270,000, converted at the
December 31, 1996 exchange rate). This facility is payable upon written
demand by the bank and any undrawn portion may be cancelled by the bank
at any time. See Note 10 to Consolidated Financial Statements.
In January 1997, Pro-Bel entered into an agreement with Barclays whereby
Barclays agreed to provide an overdraft facility of up to 3.0 million
pounds sterling through December 31, 1997 to Pro-Bel and its
subsidiaries. The overdraft facility provides for interest at 1.5% per
annum over the bank's base rate. Interest is payable quarterly, in
arrears. This facility replaces the trade finance facility of up to
750,000 pounds sterling and the overdraft facility of up to 750,000
pounds sterling in place at December 31, 1996. All monies under the
facility are repayable upon written demand and are secured by accounts
receivable. See Note 10 to Consolidated Financial Statements.
At December 31, 1996, the Company had operating lease commitments for
equipment and factory and office space totaling $12.7 million, of which
$1.0 million is payable within one year. See Note 10 to Consolidated
Financial Statements.
Impact of Inflation and Changing Prices
Although the Company cannot accurately determine the precise effect of
the 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.
REPORT OF INDEPENDENT AUDITORS
February 3, 1997
To the Board of Directors and
Shareholders of Chyron Corporation
In our opinion, the consolidated financial statements as of December 31,
1996 and 1995 and for each of the two years in the period ended December
31, 1996 listed in the index appearing under Item 14(a)(1) and (2) on
page 56 present fairly, in all material respects, the financial position
of Chyron Corporation and its subsidiaries at December 31, 1996 and 1995
and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1996, 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.
As discussed in Note 1, on January 24, 1997, the Company's shareholders
ratified a one-for-three reverse stock split. The consolidated financial
statements for the year ended December 31, 1994 have been restated to
reflect retroactive application of this reverse stock split. We have
audited the adjustments described in Note 1 that were applied to restate
the 1994 consolidated financial statements. In our opinion, such
adjustments are appropriate and have been properly applied to the 1994
consolidated financial statements.
PRICE WATERHOUSE LLP
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Chyron Corporation and Subsidiary
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows for the year ended December 31, 1994
of Chyron Corporation and subsidiary. Our audit also included the
consolidated financial statement schedule listed in the Index at Item
14(a) for the year ended December 31, 1994. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit prior to the restatement discussed in Note
1.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of Chyron Corporation and subsidiary for the
year ended December 31, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related consolidated
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young, LLP
Melville, New York
February 17, 1995
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHYRON CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)
December 31,
Assets 1996 1995
Current assets:
Cash and cash equivalents............. $ 4,555 $ 5,012
Accounts and notes receivable......... 25,237 13,967
Inventories........................... 23,502 11,645
Prepaid expenses...................... 865 578
Deferred tax asset.................... 6,015 6,457
Other................................. 2,826
Total current assets................ 63,000 37,659
Property and equipment................. 12,701 3,300
Excess of cost over net tangible
asset acquired........................ 6,439
Investment in RT-SET................... 2,161
Software development costs............. 2,176 1,716
Deferred tax asset..................... 4,709 1,403
Other.................................. 217 254
TOTAL ASSETS........................... $91,403 $44,332
Liabilities and Shareholders Equity
Current Liabilities:
Accounts payable and accrued expenses. $15,828 $ 8,120
Management fee payable................ 1,000
Reserve for West Coast restructuring.. 158
Current portion of long-term debt..... 5,080
Capital lease obligations............. 225 160
Total current liabilities........... 21,133 9,438
Long-term debt......................... 15,163 4,741
Capital lease obligations.............. 118 170
Other.................................. 1,043
Total liabilities.................... 37,457 14,349
Commitments and contingencies (See Note 15)
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, 32,384,635 and
30,023,798 shares at 1996 and 1995,
respectively.......................... 324 300
Additional paid-in capital............. 43,124 28,340
Retained earnings...................... 9,997 1,343
Cumulative translation adjustment...... 501
Total shareholders equity............ 53,946 29,983
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY................................. $91,403 $44,332
See Notes to Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
1996 1995 1994
Net sales............................ $82,608 $53,971 $42,762
Cost of products sold................ 39,941 22,746 18,912
Gross profit......................... 42,667 31,225 23,850
Operating expenses:
Selling, general and administrative. 22,349 17,066 14,301
Research and development............ 5,253 4,105 4,163
Management fee...................... 2,911 1,139
West Coast restructuring charge
(recapture)......................... (1,339) 12,716
Total operating expenses............. 27,602 22,743 32,319
Operating income (loss).............. 15,065 8,482 (8,469)
Interest and other expense, net...... 1,666 536 525
Income (loss) before provision for
income taxes........................ 13,399 7,946 (8,994)
Income taxes/equivalent provision.... 4,745 470
Net income (loss).................... $ 8,654 $ 7,476 $(8,994)
Net income (loss) per common share... $ .27 $ .25 $ (.31)
Weighted average number of common
and common equivalent shares
outstanding......................... 32,327 30,382 28,962
See Notes to the Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $8,654 $7,476 $(8,994)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
West Coast restructuring (recapture).. (1,339) 11,766
Depreciation and amortization......... 3,120 2,067 2,037
Utilization of deferred tax asset..... 2,335 354
Loss on abandonment of leasehold
improvements.......................... 350
Changes in operating assets and
liabilities:
Accounts and trade notes receivable... (3,505) (742) 567
Inventories........................... (3,303) (6,181) 2,879
Prepaid expenses...................... (117) 1,320 (1,184)
Other assets.......................... (464)
Accounts payable and accrued expenses. (2,865) 1,112 (1,913)
Management fee payable................ (1,000) 1,000
Reserve for West Coast restructuring.. (1,327)
Net cash provided by operating
activities............................ 2,855 3,740 5,508
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Pro-Bel and Investment
in RT-SET............................. (7,191)
Acquisition of property and equipment. (1,802) (710) (660)
Capitalized software development...... (1,268) (207) (1,383)
Other................................. 52 28 102
Net cash (used in) investing
activities............................(10,209) (889) (1,941)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligations. (262) (106)
Payments of revolving credit
agreement............................. (5,644) (4,500) (1,985)
Net proceeds from new credit facility. 11,976 4,741
Proceeds from exercise of common
stock purchase warrants, net.......... 239 471 43
Proceeds from exercise of stock
options............................... 552
Payments of Chapter 11 claims and
other reorganization items............ (283)
Net cash (used in) provided by
financing activities.................. 6,861 606 (2,225)
Effect of foreign currency rate
fluctuations on cash and cash
equivalents........................... 36
Change in cash and cash equivalents... (457) 3,457 1,342
Cash and cash equivalents at beginning
of year............................... 5,012 1,555 213
Cash and cash equivalents at end of
year.................................. $4,555 $5,012 $ 1,555
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid......................... $1,636 $ 555 $ 548
Income taxes paid..................... $2,920 $ 116 $ 71
See Notes to Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Non-cash investing and financing activities:
On February 29, 1996, the Company effectively acquired an option to
acquire a 19% interest in RT-SET Ltd. in exchange for 800,000 shares of
Chyron common stock. See Note 3 to the Consolidated Financial
Statements.
On April 12, 1996, the Company acquired the issued and outstanding
shares of Pro-Bel. The consideration in addition to cash included
1,048,735 shares of Chyron common stock valued at $6,868,000 and notes
payable of $5,349,000 (3.5 million pounds sterling valued at the
exchange rate at the date of acquisition). See Note 2 to the
Consolidated Financial Statements.
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Cumu-
Retained lative
Addi- Earnings Trans-
tional Accumu- lation
Paid-in lated Adjust-
Shares Amount Capital Deficit) ment
Balance at December 31, 1993. 28,871 $289 $19,477 $2,861
Net loss..................... (8,994)
Exercise of warrants......... 93 1 42
Conversion of subordinated
notes......................... 167 1 99
Balance at December 31, 1994.. 29,131 291 19,618 (6,133)
Net income.................... 7,476
Exercise of warrants.......... 726 7 464
Conversion of subordinated
notes......................... 167 2 98
Benefit of utilization of net
operating loss carryforward
under Fresh Start Reporting... 1,360
Income tax equivalent benefit
from reduction of deferred
tax asset valuation allowance. 6,800
Balance at December 31, 1995.. 30,024 300 28,340 1,343
Net income.................... 8,654
Exercise of warrants.......... 398 4 235
Exercise of stock options..... 114 1 551
Issuance of stock in
connection with acquisition of
Pro-Bel, Ltd.................. 1,049 11 6,857
Issuance of stock in
connection with investment in
RT-SET........................ 800 8 1,942
Cumulative translation
adjustment.................... $501
Income tax equivalent benefit
from reduction of deferred tax
asset valuation allowance..... 5,199
Balance at December 31, 1996.. 32,385 $324 $43,124 $9,997 $501
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Chyron Corporation and its wholly-owned subsidiaries("Chyron" or 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. Chyron's wholly-owned subsidiary, Pro-Bel Limited ("Pro-Bel"),
develops, manufactures and markets signal management systems and control
and automation systems.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. On April 12, 1996, the
Company acquired Pro-Bel and its subsidiaries (see Note 2). The
Company's other subsidiaries are inactive.
Restatement and Reclassification
On January 24, 1997, the Company's shareholders ratified a one-for-three
reverse stock split. Net income (loss) per share, weighted average
number of common and common equivalent shares outstanding, common stock
issued and outstanding, additional paid-in-capital and all other common
stock transactions presented in these consolidated financial statements
have been restated to reflect the one-for-three reverse stock split.
In addition, certain prior year amounts have been reclassified to
conform to the current year presentation.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues, costs and
expenses during the periods presented.
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
convertible into cash within 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 (first-in, first-out basis)
or market. The need for inventory obsolescence provisions is evaluated
quarterly 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:
Buildings................. 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
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.
Income Taxes
In connection with the Company's emergence in 1991 from its
reorganization proceeding under Chapter 11 of the United States
Bankruptcy Code, the Company adopted "Fresh Start Reporting" in
accordance with AICPA Statement of Position No. 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code."
Fresh Start Reporting requires that the Company report an income tax
equivalent provision when there is book taxable income and a
pre-reorganization net operating loss carryforward. This requirement
applies despite the fact that the Company's pre-reorganization net
operating loss carryforward would eliminate (or reduce) the related
income tax payable. The current and future year benefit related to the
carryforward is not reflected in net income, but instead is recorded as
a direct increase to additional paid-in capital. The income tax
equivalent provision does not affect the Company's tax liability.
The Company's net deferred tax assets represent the tax benefit to be
derived from the pre- and post- reorganization net deductible temporary
differences.
Translation of Foreign Currencies
The functional currency for the Company's foreign operations is the
applicable local currency. The translation from the applicable foreign
currency to U.S. dollars is performed for asset and liability accounts
using period-end exchange rates and for revenue and expense accounts
using a weighted average exchange rate during the period. The gains or
losses resulting from such translation are recorded in the cumulative
translation adjustment account which is included in shareholders'
equity. Transaction gains or losses are included in interest and other
expenses.
Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of
common shares outstanding during the period plus, when dilutive,
additional shares issuable upon the assumed exercise of outstanding
common stock equivalents. Fully diluted net income (loss) per share is
not presented since such presentation would not be materially different
from primary net income (loss) per share.
Common Stock Equivalents
In December 1991, the Company issued to Pesa, Inc. ("Pesa"), a Delaware
corporation, and its then majority shareholder, $5 million of
Convertible Subordinated Notes ("Notes"). The Notes were convertible
into shares of common stock at a conversion price of $.60 per share.
As of December 31, 1995, all of the Notes have been so converted. See
Note 11.
In January 1992, shareholders of the Company, other than Pesa, received
one warrant for every two shares of common stock held when the Company
issued 1,931,851 Common Stock Purchase Warrants. Each warrant entitled
its holder to purchase one share of common stock at $.60 per share. As
of December 31, 1996, a total of 1,736,182 Common Stock Purchase
Warrants had been exercised. The remaining warrants expired on January
31, 1996.
During 1995 and 1996, respectively, the Company's Board of Directors
granted to certain employees 1,041,666 and 425,000 Incentive Stock
Options for the purchase of Chyron common stock and to non-employee
members of the Board of Directors 30,000 and 29,999 Non-Incentive Stock
Options for the purchase of Chyron common stock. The exercise price of
each stock option granted is the quoted closing market price at the date
of such grant. The options vest over three years and expire five years
from the date of grant. See Note 12.
Stock-Based Compensation Plans
The Company elected to continue following Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) in
accounting for its employee stock options, rather than adopt the
alternate method of accounting provided under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123). Under APB 25, the Company does not recognize compensation
expense on stock options granted to employees because the exercise price
of each option is equal to the market price of the underlying stock on
the respective date of grant. See Note 12.
2. ACQUISITION OF PRO-BEL LIMITED
On April 12, 1996, the Company acquired all of the issued and
outstanding capital stock of Pro-Bel Limited, located in Reading,
United Kingdom in exchange for $6.9 million in cash, 3.5 million British
pounds sterling ($5.3 million) in notes 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 excess of cost
over the estimated fair value of net tangible assets acquired amounted
to $6,928,000, which is being amortized over 12 years using the straight
line method. Amortization in 1996 amounted to $489,000. The Company
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 or its carrying amount. In
making such determinations, the Company evaluates undiscounted cash
flows of the underlying business which gave rise to such amount.
The following unaudited pro forma statements of operations include the
operating results of the Company and Pro-Bel for the years ended
December 31, 1996 and 1995, assuming the acquisition of Pro-Bel had been
made as of January 1, 1996 and 1995, respectively (in thousands except
per share amounts).
Pro Forma Statement of Operations
for the Year Ended December 31, 1996
(Unaudited)
Pro Forma
Adjustment
(a) Increase/
Pro-Bel Chyron (Decrease) Consolidated
Net sales................ $10,366 $82,608 $92,974
Cost of products sold.... 5,596 39,941 $784 (b) 46,321
Gross profit............. 4,770 42,667 (784) 46,653
Operating expenses:
Selling, general and
administrative......... 2,580 22,349 285 (c) 25,214
Research and development. 591 5,253 (50)(d) 5,794
Total operating expenses. 3,171 27,602 235 31,008
Operating income......... 1,599 15,065 (1,019) 15,645
Interest and other
expense, net........... 80 1,666 280 (e) 2,026
Income before provision
for income tax......... 1,519 13,399 (1,299) 13,619
Income/taxes equivalent
provision.............. 340 4,745 (99)(f) 4,986
Net income............... $1,179 $8,654 ($1,200) $8,633
Net income per common
share.................. $ .27 $ .27
Weighted average number
of common and common
equivalent shares
outstanding............ 32,327 32,623
Pro Forma Statement of Operations
for the Year Ended December 31, 1995
(Unaudited)
Pro Forma
Adjustment
(g) Increase/
Pro-Bel Chyron (Decrease) Consolidated
Net sales................ $28,763 $53,971 $82,734
Cost of products sold.... 15,902 22,746 $698 (b) 39,346
Gross profit............. 12,861 31,225 (698) 43,388
Operating expenses:
Selling, general and
administrative......... 9,064 17,066 741 (c) 26,871
Research and development. 1,548 4,105 (167)(d) 5,486
Management fee........... 2,911 2,911
West Coast restructuring
(recapture)............ (1,339) (1,339)
Total operating expenses. 10,612 22,743 574 33,929
Operating income......... 2,249 8,482 (1,272) 9,459
Interest and other
expense, net........... 461 536 1,052 (e) 2,049
Income before provision
for income tax......... 1,788 7,946 (2,324) 7,410
Income taxes/equivalent
provision.............. 782 470 (373)(f) 879
Net income............... $1,006 $7,476 ($1,951) $6,531
Net income per common
share.................. $ .25 $ .21
Weighted average number
of common and common
equivalent shares
outstanding............ 30,382 31,431
Notes to Unaudited Pro Forma Consolidated Statement of Operations:
(a) Results of operations from January 1, 1996 through the date of
acquisition at the average exchange rate for the period.
(b) Reflects the increase in depreciation expense for the step up in
basis of property, plant and equipment acquired and the increase in cost
of products sold for the step up in basis of inventory acquired.
(c) Reflects the increase in depreciation expense for the step up in
basis of property, plant and equipment acquired and the amortization of
excess of cost over net tangible assets acquired.
(d) Reflects the decrease in research and development expense due to the
capitalization of certain of Pro-Bel's software development costs, net
of the amortization of such costs for the year.
(e) Reflect additional interest expense on indebtedness incurred in
connection with the acquisition of Pro-Bel.
(f) Reflects the estimated income tax effect on the acquisition
financing.
(g) Results of operations for the twelve months ended October 31, 1995,
as this was Pro-Bel's operating period prior to the acquisition by
Chyron, at the average exchange rate for the period.
These pro forma results have been prepared for comparative purposes only
and include adjustments as a result of applying purchase accounting and
conversion to generally accepted accounting principles in the United
States. The pro forma financial information is not necessarily
indicative of the operating results that would have occurred if the
acquisition had taken place on the aforementioned dates or of future
results of operations of the consolidated entities.
3. INVESTMENT IN RT-SET
On February 29, 1996, the Company effectively purchased an option to
acquire a 19% interest in Real Time Synthesized Entertainment
Technology, Ltd. ("RT-SET"), located in Tel Aviv, Israel. RT-SET
develops, markets and sells real time virtual studio set software and
proprietary communications hardware that operate on Silicon Graphics
systems. In form, Chyron purchased shares of RT-SET Convertible
Preferred Stock, which are 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 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. Upon the
satisfaction of the remaining conditions, the remaining 533,334 escrowed
shares will be released. If the conditions are not met or at Chyron's
option, the remaining shares of Chyron restricted common stock held in
escrow will be returned to the Company in exchange for the RT-SET
Convertible Preferred Stock held by the Company. Accordingly, the
transaction has been recorded as the purchase of a right to acquire a
19% interest in RT-SET. RT-SET retains the voting rights with respect
to the escrowed Chyron shares while such shares are held by the escrow
agent. The acquisition was recorded at the estimated fair value of the
Chyron restricted common stock released from escrow. In addition,
Chyron was granted certain call option rights which, if and when
exercised, will result in the Company owning up to a 51% interest in RT-
SET.
4. CONTROL OF REGISTRANT
On May 26, 1995, Pesa, Inc. ("Pesa") the former parent of the Company,
sold 3,333,333 shares of common stock of Chyron to CC Acquisition
Company A, a Delaware limited liability company ("CCACA"). On July 25,
1995, Pesa sold 16,471,571 shares to the entities listed below.
Additionally, on July 25, 1995, Sepa Technologies, Ltd., a Georgia
limited liability company ("Sepa"), and an affiliate of Pesa, sold
1,666,667 shares to the entities listed below.
The sales were made pursuant to two agreements entered into on May 26,
1995: (1) CCACA and CC Acquisition Company B, a Delaware limited
liability company ("CCACB"), and an affiliate of CCACA, entered into a
stock purchase agreement with Pesa (the "Pesa Agreement") pursuant to
which (i) CCACA acquired 3,333,333 shares and (ii) CCACA and CCACB
agreed to acquire an additional 16,471,571 shares and (2) CCACA entered
into a stock purchase agreement with Sepa (the "Sepa Agreement")
pursuant to which CCACA agreed to acquire 1,666,667 shares and the
voting rights and right of first refusal with respect to an additional
3,000,000 shares. CCACA and CCACB are collectively referred to herein
as CCAC.
On July 25, 1995, CCACA entered into an agreement (the "Leubert
Agreement") with Alfred O.P. Leubert Ltd., a New York corporation
("Leubert"), pursuant to which CCACA was granted a right of first
refusal to acquire 100,000 shares, which shares were acquired by Leubert
from Sepa and which reduced from 3,000,000 to 2,900,000 the number of
shares covered by the Company's right of first refusal as set forth in
the Sepa Agreement.
On July 25, 1995, CCACA and CCACB entered into an assignment and
assumption agreement (the "Assignment Agreement") by and among CCACA,
CCACB, WPG Corporate Development Associates IV, L.P., a Delaware limited
partnership ("CDA"), WPG Corporate Development Associates IV (Overseas),
L.P., a Cayman Islands exempt limited partnership ("CDAO"), WPG
Enterprise Fund II, L.P., a Delaware limited partnership ("WPGII"),
Weiss, Peck & Greer Venture Associates III, L.P., a Delaware limited
partnership ("WPGIII"), Westpool Investment Trust plc., a public limited
company organized under the laws of England ("WIT"), Lion Investments
Limited, a limited company organized under the laws of England ("Lion"),
and Charles M. Diker (such individual together with CDA, CDAO, WPGII,
WPGIII, WIT and Lion, the "WPG/Westpool Investor Group") and certain
other persons (such persons together with the WPG/Westpool Investor
Group, the "Assignees") pursuant to which (i) CCACA assigned to the
Assignees its rights under the Pesa Agreement to acquire 6,666,666
shares, (ii) CCACA assigned its rights under the Sepa Agreement to
acquire 1,666,667 shares, (iii) CCACA assigned its right of first
refusal to acquire 1,800,000 of the 3,000,000 shares as set forth in the
Sepa Agreement and the Leubert Agreement described above and (iv) CCACB
assigned its rights under the Pesa Agreement to acquire 5,882,946
shares.
The closing, as contemplated by the Pesa Agreement and the Sepa
Agreement, occurred on July 25, 1995. Consequently, at closing CCAC
beneficially owned in the aggregate 7,255,297 shares and the
WPG/Westpool Investor Group beneficially owned in the aggregate
13,968,629 shares. Beneficial ownership does not include 3,000,000
shares for which the voting rights have been assigned to CCAC and the
WPG/Westpool Investor Group.
As a consequence of the above transactions, the principal shareholders
as of July 25, 1995 were as follows:
Name of Owner Number of Shares Date of Acquisition
CCACA 3,333,333 May 26, 1995
CCACB 3,921,964 July 25, 1995
CDA 5,923,538 July 25, 1995
CDAO 1,428,373 July 25, 1995
WPGII 1,471,852 July 25, 1995
WPGIII 1,223,848 July 25, 1995
WIT 2,328,103 July 25, 1995
Lion 1,102,788 July 25, 1995
C.M. Diker 490,127 July 25, 1995
Others 247,645 July 25, 1995
Pesa was a 100% owned subsidiary of a Spanish Company, Pesa Electronica,
S.A. ("Electronica"), which in turn was 99% owned by a Spanish Company,
Amper, S.A. ("Amper"). On June 24, 1994, Amper sold all of its shares
of stock of Electronica to Sepa. On August 2, 1994, Sepa acquired
4,666,666 shares of Chyron common stock from certain foreign
shareholders. Consequently, Sepa directly and indirectly through Pesa
became the beneficial owner of 24,471,570 shares of Chyron common stock.
On October 5, 1994, Electronica filed for receivership in Spain
("Suspension de Pagos"). The proceedings are comparable to a Chapter
11 reorganization under the U.S. Bankruptcy laws.
5. ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable are stated net of an allowance for
doubtful accounts of $2,850,000 and $3,134,000 at December 31, 1996 and
1995, respectively. The provision for doubtful accounts amounted to
$nil, $466,000 and $729,000 for 1996, 1995, and 1994, respectively. The
carrying amounts of accounts and notes receivable approximate their fair
values.
The Company periodically evaluates the credit worthiness of its
customers and determines whether collateral (in the form of letters of
credit or liens on equipment sold) should be taken or whether reduced
credit limits are necessary. Credit losses have consistently been
within management's expectations.
Accounts and notes receivable are principally due from customers in, and
dealers serving, the broadcast video industry and non-broadcast display
markets. At December 31, 1996 and 1995, receivables included
approximately $12.5 million and $2.7 million, respectively, due from
foreign customers.
6. INVENTORIES
Inventories consist of the following (in thousands):
December 31,
1996 1995
Finished goods........ $12,879 $ 3,345
Work-in-process....... 5,271 5,250
Raw materials......... 5,352 3,050
$23,502 $11,645
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
December 31,
1996 1995
Land..................... $ 878 $ 53
Building................. 1,794
Machinery and equipment.. 11,593 4,441
Furniture and fixtures... 2,386 1,501
Leasehold improvements... 715 299
17,366 6,294
Less: Accumulated
depreciation and
amortization............ 4,665 2,994
$12,701 $3,300
Machinery and equipment at December 31, 1996 and 1995 includes $818,000
and $473,000, respectively, of assets held under capital lease
obligations. Accumulated depreciation and amortization at December 31,
1996 and 1995 includes $381,000 and $278,000, respectively, attributable
to assets held under capital lease obligations. See Note 15.
Depreciation expense, which includes amortization of capital lease
assets, was $1,671,000, $1,054,000 and $1,106,000 in 1996, 1995 and
1994, respectively.
8. SOFTWARE DEVELOPMENT COSTS
Certain software development costs are capitalized and amortized over
their estimated economic life, ranging from 3 to 5 years, commencing
when each product is available for general release. The following
amounts were capitalized, amortized and written off (in thousands):
1996 1995 1994
Amounts capitalized........ $1,420 $207 $1,383
Less: Amortization
(included in Research and
Development expense)....... (960) (1,013) (931)
West Coast restructuring
write-down to net
realizable value........... (1,991)
Net (decrease) increase in
software development costs. $460 ($806) ($1,539)
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
December 31,
1996 1995
Accounts payable....... $ 7,500 $2,818
Compensation (including
pension liability)..... 3,644 3,136
Other accrued items.... 3,459 2,003
Income taxes payable... 1,225 163
$15,828 $8,120
The carrying amounts of accounts payable and accrued expenses
approximate their fair values.
10. LONG-TERM DEBT
Long term debt consists of the following (in thousands):
December 31,
1996 1995
Term loan, maturing April 16, 2000(a) $6,500
Revolving credit facility, maturing
March 28, 1999(a) 2,730
Revolving credit facility, maturing
April 27, 1997(b) $4,741
Commercial mortgage term loan,
maturing March 28, 2010(c) 2,097
Promissory notes, payable
on or before April 15, 1998(d) 5,917
Trade finance facility, maturing
December 31, 1996
replaced with debt maturing
December 31, 1997(e) 1,209
Overdraft facility, maturing
December 31, 1996
replaced with debt maturing
December 31, 1997(f) 1,790
20,243 4,741
Less amounts due in one year 5,080
$15,163 $4,741
(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.
Additionally, an over-advance is available above the borrowing formula
in an amount not to exceed $3 million. Interest on the revolving credit
facility is equal to adjusted LIBOR plus 175 basis points or prime
(8.25% at December 31, 1996) and is payable monthly. The term loan is
payable in quarterly installments of $500,000, commencing June 1, 1996.
Interest on the term loan is equal to adjusted LIBOR plus 200 basis
points or prime 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.
(b) At December 31, 1995, the Company had $4.7 million outstanding with
a financial institution under a secured revolving credit facility.
Interest was payable monthly at the prime rate (8.5% at December 31,
1995) plus 2% per annum. The facility was due to expire on April 27,
1997, but was replaced by the banking facility described in (a) above
in conjunction with the financing of the acquisition of Pro-Bel.
(c) Pro-Bel has a commercial mortgage term loan with a bank. The loan
is secured by a building and property located in the United Kingdom.
Interest is equal to LIBOR (6% at December 31, 1996) plus 2%. The loan
(including interest) is payable in quarterly installments of 80,600
pounds sterling ($136,000, converted at the December 31, 1996 exchange
rate).
(d) On April 12, 1996, the Company issued promissory notes to the
shareholders of Pro-Bel for 3.5 million pounds sterling ($5,919,000,
converted at the December 31, 1996 exchange rate) in conjunction with
the acquisition (See Note 2). The promissory notes are secured by an
irrevocable letter of credit from a bank. The amount of this
irrevocable letter of credit is included as an outstanding borrowing in
the formula used to calculate borrowing availability for the facilities
described in (a) above. Interest through April 15, 1997 is equal to
LIBOR as of April 15, 1996 (6.46%) and is payable quarterly. Interest
through April 15, 1998 is equal to LIBOR as of April 15, 1997. The
notes are due on or before April 15, 1998 and are subordinated to any
obligations to a bank or financial institution currently existing or
subsequently entered into. The notes can be prepaid without penalty
subsequent to November 1, 1996.
(e) On February 1, 1996, Pro-Bel entered into an agreement with a bank
to obtain a trade finance facility of 750,000 pounds sterling
($1,267,000, converted at the December 31, 1996 exchange rate). The
facility is secured by Pro-Bel's accounts receivable. Interest is equal
to the bank's base rate plus 2% (8% at December 31, 1996) on advances
against accounts receivable in pounds sterling and equal to the Barclays
Bank PLC currency call loan rate plus 2% (8% at December 31, 1996) on
advances against foreign accounts receivable. Interest is payable
quarterly, in arrears.
(f) On February 1, 1996, Pro-Bel entered into an agreement with a bank
to obtain an overdraft facility of 750,000 pounds sterling ($1,276,000
converted at the December 31, 1996 exchange rate). Interest is equal
to the bank's base rate plus 2.5% (8.5% at December 31, 1996) and is
payable quarterly commencing in March 1996. The facility has a sublimit
for overdraft on Pro-Bel's wholly owned subsidiary, Trilogy Broadcast
Limited, of 160,000 pounds sterling ($270,000, converted at the December
31, 1996 exchange rate). This facility is payable upon written demand
by the bank and any undrawn portion may be cancelled by the bank at any
time.
In January 1997, Pro-Bel entered into an agreement with Barclays Bank
PLC whereby Barclays agreed to provide an overdraft facility of up to
3.0 million pounds sterling through December 31, 1997 to Pro-Bel and its
subsidiaries. The overdraft facility provides for interest at 1.5% per
annum over the bank's base rate. Interest is payable quarterly, in
arrears. This facility replaces the trade finance facility of up to
750,000 pounds sterling and the overdraft facility of up to 750,000
pounds sterling in place at December 31, 1996. The maturity dates of
such facilities were extended by the lenders to coincide with the new
Barclays agreement. All monies under the facility are repayable upon
written demand and are secured by accounts receivable.
Aggregate maturities of long term debt in the next five years are as
follows (in thousands):
The carrying amounts of long-term debt instruments approximate their
fair values.
1997........ $5,080
1998........ 7,437
1999........ 4,826
2000........ 607
2001........ 115
Net interest expense was $1,402,000, $536,000 and $525,000 in 1996, 1995
and 1994.
11. CONVERTIBLE SUBORDINATED NOTES PAYABLE
In 1991, the Company issued to Pesa 4-year Convertible Subordinated
Notes in the principal amount of $5.0 million maturing on January 31,
1996 and bearing interest (payable annually in arrears) at the prime
rate, adjusted annually each December. The Notes were convertible into
8,333,333 shares of common stock of the Company at a conversion rate of
$.60 cents per share. As of December 31, 1996, all of the Notes had
been converted into shares of common stock of the Company.
12. LONG-TERM INCENTIVE PLAN
In May 1995, the Company's shareholders approved the Chyron Corporation
Long-Term Incentive Plan ("the Plan"). The Plan allows for a maximum
of 1,666,666 shares of common stock to be available with respect to the
grant of awards under the Plan; any or all of such common stock may be
granted for awards of Incentive Stock Options.
On July 25, 1995, November 21, 1995 and September 18, 1996 the Board of
Directors granted Incentive Stock Options for the purchase of 991,666,
50,000, and 425,000 shares, respectively, to certain employees; the
exercise price per option share is $4.875, $5.625, and $12.75,
respectively, the quoted closing market prices at the dates of grant.
The Incentive Stock Options granted on September 18, 1996 have been
cancelled and reissued as of March 7, 1997. Additionally, on July 31,
1995, November 21, 1995, February 22, 1996, July 31, 1996 and September
18, 1996, the non-employee members of the Board of Directors received
Non-Incentive Stock Options for the purchase of 26,666, 3,333, 6,666,
20,000 and 3,333 shares, respectively, at exercise prices of $5.625,
$5.625, $9.375, $16.125 and $12.75, respectively, the quoted closing
market prices at the dates of grant. Subsequent to the grant dates,
86,000 Incentive Stock Options were forfeited. The options to employees
vest over three years at 33 1/3% per annum and expire five years after
the grant date. Options granted to directors vest immediately.
If the Company had elected to recognize compensation expense based upon
the fair value at the grant date for awards under these plans consistent
with the methodology prescribed by SFAS 123, the Company's net income
and net income per share would be reduced to the pro forma amounts
indicated below:
1996 1995
Net Income (in thousands):
As reported $8,654 $7,476
Pro forma $7,560 $7,125
Earnings per common share:
As reported $.27 $.25
Pro forma $.23 $.24
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 both 1996 and 1995: dividend yield of 0; expected
volatility of 50% and expected life of 4 years. The weighted average
risk free interest rates for 1996 and 1995 were 6.54% and 6.11%,
respectively. The weighted average fair values of options granted
during 1996 and 1995, for which the exercise price equaled the market
price on the grant dates, were $12.849 and $4.936 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 the
expected price volatility. Because the Company's employees' 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 managements' opinion,
the existing models do not necessarily provide a reliable single measure
of the fair value of employee stock options.
Transactions involving stock options are summarized as follows:
Weighted Average
Stock Options Exercise Price of
Outstanding Options Outstanding
Balance, January 1, 1995
Granted 984,999 $4.936
Exercised
Balance, December 31, 1995 984,999 4.936
Granted 454,999 7.436
Exercised (113,018) 7.652
Balance, December 31, 1996 $1,326,980 $7.652
The following table summarizes information concerning currently
outstanding and exercisable stock options:
Weighted
Outstanding Average Exercisable
Exercise at December Contractual at December
Price 31, 1996 Life 31, 1996
$ 4.875 795,314 3.6 years 265,104
5.625 76,667 3.8 years 43,334
9.375 6,666 4.2 years 6,666
16.125 20,000 4.6 years 20,000
12.750 428,334 4.8 years 3,333
13. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
1996 1995 1994
Current:
Federal.................. $1,308 $ $
State.................... 629 50
Foreign.................. 473
Tax equivalent provision. 420
2,410 470
Deferred:
Federal.................. 2,664
State.................... (150)
Foreign.................. (39)
Tax equivalent provision
Release of valuation
reserve.................. (140)
2,335
Total...................... $4,745 $470 $
The effective income tax rate differed from the Federal statutory rate
as follows (in thousands):
1996 1995 1994
Amount % Amount % Amount %
Federal income tax
provision (benefit)
at statutory rate..... $4,689 35.0 $2,702 34.0 ($3,058) (34.0)
State income taxes,
net of federal tax
benefit............... 409 3.0 33 .4
Permanent differences. 36 .3
Benefit from post
reorganization
temporary differences
on tax equivalent
provision............. (140) (1.1) (1,351) (17.0)
Foreign income tax
benefit............... 8 .1
Benefit of lower tax
rates on U.S. Federal
Provision............. (121) (.9)
Effect of valuation
allowance of deferred
tax assets............ (150) (1.1) (940) (11.8) 3,058 34.0
Other, net............ 14 .1 26 .3
$4,745 35.4 $ 470 5.9 $
The Company has deferred tax assets and deferred tax liabilities as
presented in the table below. The net deferred tax assets were subject
to a valuation allowance, which was $nil and $5.4 million at December
31, 1996 and 1995, respectively. This valuation allowance is primarily
attributable to pre-Chapter 11 reorganization net operating loss
carryforwards and pre-Chapter 11 reorganization deductible temporary
differences. As a result of current and projected future profitability,
the allowance was partially reduced in 1995 and eliminated in 1996.
Deferred tax assets (deductible temporary differences) prior to the
allocation of the valuation allowance consisted of the following (in
thousands):
December 31,
1996 1995
Post-reorganization net operating
loss carryforward.............. $ 276 $ 280
Pre-reorganization net operating
loss carryforward.............. 4,631 7,250
Pre-reorganization deductible
temporary differences.......... 4,555 4,555
Restructuring reserve............ 55
Other............................ 2,030 2,000
Total deferred tax assets...... $11,492 $14,140
Deferred tax liabilities (taxable temporary differences) consisted of
the following (in thousands):
December 31,
1996 1995
Pre-reorganization taxable
temporary differences.......... $ 85 $ 85
Software development costs....... 683 585
Other............................ 210
Total deferred tax liabilities. $768 $880
At December 31, 1996, the Company had net operating loss carryforwards
("NOL") of approximately $15.0 million for tax purposes. Under U.S.
income tax rules, the utilization of the NOL is subject to annual
limitations as a result of the changes in control of the Company at
December 27, 1991 and July 25, 1995. However, despite these
restrictions, the Company expects to fully utilize all of its remaining
NOL prior to 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 held by the U.S. Pension Plan at December 31,
1996 include government securities, corporate bonds and mutual funds.
The net periodic pension cost and its components are as follows (in
thousands):
1996 1995 1994
Service cost...................... $414 $383 $437
Interest cost on projected benefit
obligation...................... 267 292 312
Actual return on plan assets...... (206) (227) (269)
Net amortization.................. (43) (15)
Net periodic pension cost......... $432 $433 $480
A reconciliation of the funded status of the U.S. Pension Plan to the
amounts included in the Company's balance sheet is as follows (in
thousands):
December 31,
1996 1995 1994
Accumulated pension benefit obligation:
Vested................................. $2,234 $2,265 $2,431
Non-vested............................. 29 79 63
Total.................................. $2,263 $2,344 $2,494
Projected benefit obligation........... $3,803 $4,138 $4,532
Plan assets at fair value.............. 2,709 2,609 3,352
projected benefit obligation in excess
of assets............................ 1,094 1,529 1,180
Less items not yet recognized in net
periodic pension cost:
Unrecognized net gain (loss) from past
experience and changes in
assumptions.......................... 841 49 (35)
Pension liability...................... $1,935 $1,578 $1,145
In each year presented, the expected long-term rate of return on U.S.
Pension Plan assets was 9%. The weighted average discount rates used
to determine the accumulated benefit obligation was 8.0% in 1996, 7.5%
in 1995 and 8.0% in 1994. The rate of compensation increase used was
5% for all years presented.
The Company's U.K. subsidiary, 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 the U.K. Rules and
Regulations. The assets held by the U.K. Pension Plan at December 31,
1996 include cash equivalents and free hold properties.
The net periodic pension cost of the U.K. Pension Plan for the period
since the acquisition of Pro-Bel (April 12, 1996) through December 31,
1996 and its components under the provisions of SFAS No. 87 are as
follows (in thousands):
Service cost-benefit earned during the period $303
Interest cost on projected benefit obligation 285
Actual return on plan assets (457)
Net amortization 0
Net periodic pension cost $131
A reconciliation of the funded status of the U.K. Pension Plan to the
amounts included in the Company's balance sheet as of December 31, 1996
is as follows (in thousands):
December 31,
1996
Accumulated pension benefit obligation:
Vested $4,867
Non-vested
Total $4,867
Projected benefit obligation $5,739
Plan assets at fair value 7,005
Plan assets at fair value in excess of
projected benefit obligation 1,266
Items not yet recognized in net
periodic pension cost:
Unrecognized net gain from past
experience and changes in assumptions 141
Pension asset $1,407
The expected long-term rate of return on the U.K. Pension Plan assets
was 9%. The weighted average discount rate used to determine the
accumulated benefit obligation was 8% and the rate of compensation
increase used was 5.50% for the period presented.
In 1994, Chyron Corporation adopted a 401(k) Plan exclusively for the
benefit of participants and their beneficiaries. All employees of the
Company are eligible to participate in the 401(k) Plan except non-
resident aliens and employees who are members of a union who bargain
separately for retirement benefits during negotiations. An employee may
elect to contribute a percentage of his or her current compensation to
the 401(k) Plan, subject to a maximum of 20% of compensation or the
Internal Revenue Service annual contribution limit ($9,500 in 1996 and
$9,240 in 1995), whichever is less. Total compensation that can be
considered for contribution purposes is limited to $150,000.
The Company can elect to make a contribution to the 401(k) Plan on
behalf of those participants who have made salary deferral
contributions. During 1996 and 1995, the Company contributed $51,000
and $29,000, respectively to the 401(k) Plan.
15. COMMITMENTS AND CONTINGENCIES
At December 31, 1996, the Company was obligated under operating and
capital leases covering facility space and equipment as follows (in
thousands):
Operating Capital
1997................ $ 1,030 $247
1998................ 890 85
1999................ 885 44
2000................ 880
2001................ 864
2002 and thereafter. 8,173
$12,722 $376
The operating leases contain provisions for maintenance and escalations
for real estate taxes. Total rent expense was $826,000, $496,000, and
$530,000 for 1996, 1995 and 1994, respectively. The cumulative imputed
interest in the capital lease obligation was $33,000 at December 31,
1996.
The Company is a party to Percival Hudgins & Company, Inc. v. Chyron
Corporation v. John Percival, pending in the United States District
Court, North District of Georgia (Atlanta). This is a breach of
contract action for an alleged success fee in connection with the sale
of common stock by Pesa and Sepa (See Note 4). Plaintiff alleges that
such transaction was subject to the terms of its engagement letter with
the Company. Plaintiff seeks damages of approximately $600,000 together
with counsel fees. The Company has answered, denying all material
allegations, and has asserted a third party claim against plaintiff's
principal, alleging that he, as a director of the Company while his
investment banking firm was engaged by the Company, breached his
fiduciary duties to the Company and is liable for any amounts that might
be awarded to plaintiff, together with counsel fees. Plaintiff has
recently amended the complaint to add a claim for quantum meruit.
Discovery is continuing.
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
Sepa, prior to the change in control discussed in Note 4, was the
beneficial owner of 24,471,570 shares of Chyron common stock.
Consequent to such ownership, Sepa had an amended and restated
management agreement with Chyron whereby Chyron agreed to pay
management fees to Sepa at 2.5% of consolidated revenues through
December 31, 1997. The management fees under this agreement were
subject to an annual limitation of $1.5 million. In July 1994, Chyron
took advantage of an option to prepay the management fee at a 25%
discount from the aggregate estimated yearly fees for the period July
1, 1994 through December 31, 1995, resulting in estimated aggregate
total savings of $486,000 in fees for the eighteen month period ending
December 31, 1995.
In December 1995, Chyron and Sepa agreed to terminate the Management
Agreement upon payment to Sepa of $2 million, which resulted in
aggregate savings for the Company of $1 million for the two year period
ending December 31, 1997. The $2 million was paid in equal installments
in December 1995 and January 1996.
The Company shared certain trade show and facility costs with Pesa and
Electronica. Such services amounted to $30,000 and $303,000 for 1995
and 1994, respectively, and were billed to these related parties under
a usage based allocation.
A member of the Board of Directors of the Company is a partner of a law
firm that rendered various legal services to the Company for which the
Company incurred costs of $861,000 and $273,000 during 1996 and 1995,
respectively.
17. WEST COAST RESTRUCTURING
During the third quarter of 1994, as the result of continuing
significant operating losses by the Company's West Coast Operations and
their inability to meet revenue and operating targets, management
implemented a restructuring plan to eliminate a substantial number of
the CMX and Aurora product lines and consolidate certain remaining
products into the Company's Graphics Operations, with only certain
product engineering capabilities remaining on the West Coast. As a
result, the Company recorded a $12.7 million charge to operations during
the third quarter of 1994, resulting from headcount reductions,
consolidation costs, write-downs of assets related to discontinued
product lines and accrual of estimated operating losses anticipated
during the disposition period. For 1995, operating losses of $1,707,000
related to the discontinued product lines were charged against the
reserve for West Coast restructuring.
During August 1995, the Company entered into an agreement to sublease
a portion of the office space for the West Coast Operations. The
subleasing served to decrease future rent commitments and, as a result,
the Company reversed $356,000 of the original $12.7 million charge to
account for the decrease in projected rent expense.
Additionally, during 1995, the Company sold certain inventory that had
been fully reserved for in the original $12.7 million charge. The
Company realized a gain of $380,000 related to this inventory.
During December 1995, the Company recaptured $603,000 of the original
restructuring charge as a result of lower than anticipated costs related
to the disposition period. As of December 31, 1995, the amount of the
Reserve for West Coast Restructuring of $158,000 represented future rent
commitments through 1997.
A summary of activity for 1995 related to the West Coast Restructuring
is presented below (in thousands):
Reserve for West Coast
West Coast Restructuring
Restructuring Recapture
Balance at January 1, 1995
Current year operating loss $2,824 $ 0
Sublease agreement 1,707
Realization on asset write-down 356 356
Recapture 380
Balance at December 31, 1995 603 603
$ 158 $1,339
18. SEGMENT INFORMATION
Chyron's business is organized under a group concept that coordinates
product development, marketing, advertising, distribution and
procurement. The Company has a multi-product approach for filling
customer requirements for equipment and systems used in video or film
productions. These products include graphics and character generation
systems video and audio, signal management systems and electronic paint
and animation systems and software. Customers for the Company's
products include broadcasters, video production and post-production
companies, cable television distributors and operators, industrial
users, governments and governmental agencies and domestic and
international dealers serving the video production and display
industries for non-broadcast and broadcast markets. As a result, the
Company operates as one business segment.
The Company's operations are located primarily in the United States and
Europe. Foreign operations prior to 1996 and interarea sales were not
significant. Net sales, operating profit and identifiable assets by
geographic areas consist of the following (in thousands):
December 31,
1996 1996
Net Operating Identifiable
Sales Profit Assets
United States $55,446 $12,764 $52,988
Europe 24,281 1,611 38,375
Other 2,881 690 40
Total $82,608 $15,065 $91,403
During 1996, 1995 and 1994, net export sales from the United States were
approximately $9,580,000, $7,511,000 and $6,623,000, respectively.
During 1996, foreign exchange losses of $264,000 are included in other
expenses.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During 1995, the Company dismissed Ernst & Young, LLP as its principal
accountants and retained Price Waterhouse LLP. On October 25, 1995, the
Company filed a Form 8-K related to the Change in the Registrant's
Certifying Public Accountants which is incorporated herein by reference.
PART III
Item 10 (Directors and Executive Officers of the Registrant), Item 11
(Executive Compensation), Item 12 (Security Ownership of Certain
Beneficial Owners and Management) and Item 13 (Certain Relationships and
Related Transactions) will be incorporated in the Company's Proxy
Statement to be filed within 90 days of December 31, 1996 and are
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements
The following Consolidated Financial Statements of Chyron Corporation
and subsidiaries are included in Part II, Item 8:
Report of Independent Auditors - Price Waterhouse, LLP - page 21
Report of Independent Auditors - Ernst & Young, LLP - page 22
Consolidated Balance Sheets at December 31, 1996 and 1995 - page 24
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 - page 25
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 - page 26
Consolidated Statements of Shareholder's Equity for the
Year Ended December 31, 1996, 1995 and 1994 - page 28
Notes to the Consolidated Financial Statements - page 29-53
(2) Financial Statement Schedules
The following Consolidated Financial Statement schedules of Chyron
Corporation and subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts for the Years
Ended December 31, 1996, 1995 and 1994 - page 64
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 not included in the Consolidated
Financial Statements or notes hereto.
(3) Financial Statement Exhibits
See list of exhibits to the Financial Statements in Section (c) below:
(b) Reports on Form 8-K
1. Form 8-K was filed on October 25, 1995 for the Change in the
Registrant's Certifying Public Accountant **********
2. Form 8-K was filed on April 26, 1996 for the acquisition of Pro-Bel,
Limited ***********
3. Form 8-K was filed on March 14, 1996 for the acquisition of RT-SET,
Limited ************
4. Form 8-K/A was filed on June 21, 1996 which amended the Form 8-K
filed on April 26, 1996 to include the financial exhibits related to the
acquisition of Pro-Bel Limited - *************
(c) Exhibits
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession.
(a) First Amended Disclosure Statement pursuant to Section 1125
of the Bankruptcy Code, dated October 28, 1991 (with First Amended
Plan of Reorganization under Chapter 11 of the Bankruptcy Code
attached as Exhibit A thereto) - ***
3. Articles of Incorporation and By-Laws.
(a) Restated Certificate of Incorporation of Chyron Corporation - **
(b) Amended and Restated By-Laws of Chyron Corporation,
adopted February 17, 1995 - *********
(c) Amendment of Certificate of Incorporation of Chyron Corporation,
adopted January 24, 1997 - page 225
4.Instruments defining rights of security holders, including
debentures.
(a) Warrant Agreement, dated January 3, 1992, between Chyron
Corporation and American Stock Transfer & Trust Company, as
warrant agent, incorporating the form of warrant certificate as
Exhibit A thereto - **
(b) Convertible Note Purchase Agreement, dated as of December 27,
1991, between Chyron Corporation and Pesa, Inc., incorporating the
form of convertible note as Exhibit 1 thereto - ***
(c) Registration Rights Agreement, dated December 27, 1991,
between Chyron Corporation and Pesa, Inc. - ***
(d) 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.
**************
10. Material Contracts.
(a) Assignment and Assumption, dated July 1, 1994, effective
July 1, 1994, of Management Agreement dated December 27,
1991 and Amended March 10, 1992, between Chyron Corporation
and Pesa, Inc. to Sepa Technologies Ltd., Co. - *********
(b) Amended and Restated Management Agreement, dated August 8,
1994, by and between Chyron Corporation and Sepa Technologies
Ltd., Co. - *********
(c) Distribution and License Agreement, dated September 22, 1994,
between Chyron Corporation and Comunicacion Integral Consultores,
S.L. - *********
(d) Termination Agreement, dated November 6, 1995, between
Chyron Corporation and Comunicacion Integral Consultores,
S.L. - **************
(e) Termination Agreement, dated December 12, 1995, between
Chyron Corporation and Sepa Technologies Ltd., Co. - **************
(f) Amendment, dated March 10, 1992, to Management Agreement
dated December 27, 1991, between Chyron Corporation and Pesa
Electronica, S.A. - *
(g) Assignment, dated March 10, 1992, of Management Agreement,
dated December 27, 1991, and Amendment March 10, 1992,
between Chyron Corporation and Pesa Electronica, S.A., to Pesa,
Inc. - *
(h) Amendment, dated January 31, 1994, effective December 28,
1993, to Management Agreement dated December 27, 1991 and
Amendment March 10, 1992 between Chyron Corporation and Pesa,
Inc. - ********
(i) Revolving Credit Agreement, dated December 27, 1991, between
Chyron Corporation and Extebank - **
(j) Management Agreement, dated as of December 27, 1991, between
Chyron Corporation and Pesa Electronica, S.A. - **
(k) Amendment, dated September 19, 1988, to Employment
Agreement, dated September 1, 1987, between Chyron Corporation
and Isaac Hersly (previously filed as Exhibit 8 to current report on
Form 10-Q dated November 6, 1987 and incorporated herein in its
entirety by reference thereto) - **
(l) Amendment, dated October 25, 1987, to Employment Agreement,
dated September 1, 1987, between Chyron Corporation and Isaac
Hersly, as amended - **
(m) Amendment, dated October 21, 1991, to Employment Agreement,
dated September 1, 1987, between Chyron Corporation and Isaac
Hersly, as amended - **
(n) Amendment, dated February 23, 1994, to Employment Agreement,
dated September 1, 1987, between Chyron Corporation and Isaac
Hersly, as amended - ********
(o) Resignation Agreement, dated July 12, 1994, between Chyron
Corporation and John A. Poserina - *******
(p) Amendment, dated September 19, 1988, to Employment
Agreement dated September 1, 1987, between Chyron Corporation
and John A. Poserina (previously filed as Exhibit 7 to current
report on Form 10-K dated November 6, 1987 and incorporated
herein in its entirety by reference hereto) - **
(q) Amendment, dated October 25, 1989, to Employment Agreement,
dated September 1, 1987, between Chyron Corporation and John A.
Poserina, as amended - **
(r) Amendment, dated October 21, 1991, to Employment Agreement,
dated September 1, 1987, between Chyron Corporation and John A.
Poserina, as amended - **
(s) Amendment, dated September 19, 1988, to Employment
Agreement, dated September 1, 1987, between Chyron Corporation
and Paul J. Rozzini (previously filed as Exhibit 10 to current
report on Form 10-K dated November 6, 1987 and incorporated
herein in its entirety by reference thereto) - **
(t) Amendment, dated October 25, 1989, to Employment Agreement,
dated September 1, 1987, between Chyron Corporation and Paul J.
Rozzini, as amended - **
(u) Amendment, dated October 21, 1991, to Employment Agreement,
dated September 1, 1987, between Chyron Corporation and Paul J.
Rozzini, as amended - **
(v) Employment Agreement, dated March 10, 1993, between Chyron
Corporation and Paul M. Yarmolich - *****
(w) Employment Agreement, dated December 24, 1993, between
Chyron Corporation and Mark C. Gray - ******
(x) Employment Agreement, dated March 31, 1994, between Chyron
Corporation and Patrick A. Burns - *********
(y) Employment Agreement, dated October 19, 1994, effective
November 1, 1994, between Chyron Corporation and Peter J.
Lance - *********
(z) Employment Agreement, dated February 8, 1995, between
Chyron Corporation and James F. Duca - *********
(aa) Employment Agreement, dated February 7, 1995, between
Chyron Corporation and Patricia Arundell Lampe - *********
(bb) Employment Agreement, dated July 26, 1995, between
Chyron Corporation and Michael Wellesley-Wesley - **************
(cc) Severance Agreement, dated October 25, 1995, between
Chyron Corporation and Peter J. Lance - **************
(dd) License Agreement between Softimage, Inc. and Chyron
Corporation and Aurora Systems dated February 23, 1993 - ********
(ee) Distribution Agreement between Softimage, Inc. and Chyron
Corporation and Aurora Systems dated February 23, 1993 - ********
(ff) Research and Development, Updated and Support Agreement
between Softimage, Inc. and Chyron Corporation and Aurora
Systems dated February 23, 1993 - ********
(gg) Loan Agreement between Chyron Corporation and NatWest Bank
N.A. (currently known as Fleet Bank), dated March 28, 1996 - page 67
(hh) Loan Agreement between Pro-Bel Limited and Barclays Bank, PLC
dated December 19, 1996 effective January 1997 - page 102
(ii) Indemnification Agreement between Chyron Corporation and Roi
Agneta dated November 19, 1996 - page 128
(jj) Indemnification Agreement between Chyron Corporation and
Sheldon Camhy dated November 19, 1996 - page 135
(kk) Indemnification Agreement between Chyron Corporation and James
Coppersmith dated November 19, 1996 - page 142
(ll) Indemnification Agreement between Chyron Corporation and
Daniel DeWolf dated November 19, 1996 - page 149
(oo) Indemnification Agreement between Chyron Corporation and
Charles M. Diker dated November 19, 1996 - page 156
(pp) Indemnification Agreement between Chyron Corporation and
Donald P. Greenberg dated November 19, 1996 - page 163
(qq) Indemnification Agreement between Chyron Corporation and
Ray Hartman dated November 19, 1996 - page 170
(rr) Indemnification Agreement between Chyron Corporation and
Roger Henderson dated November 19, 1996 - page 177
(ss) Indemnification Agreement between Chyron Corporation and
Isaac Hersly dated November 19, 1996 - page 184
(tt) Indemnification Agreement between Chyron Corporation and
Alan J. Hirschfield dated November 19, 1996 - page 191
(uu) Indemnification Agreement between Chyron Corporation and
Patricia Lampe dated November 19, 1996 - page 198
(vv) Indemnification Agreement between Chyron Corporation and
Wesley W. Lang, Jr. dated November 19, 1996 - page 205
(ww) Indemnification Agreement between Chyron Corporation and
Eugene M. Weber dated November 19, 1996 - page 212
(xx) Indemnification Agreement between Chyron Corporation and
Michael Wellesley-Wesley dated November 19, 1996 - page 219
*
Incorporated herein in its entirety by reference to the Transition
Report for the Period July 1, 1991 to December 31, 1991 on Form 10-K
dated March 30, 1992.
**
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.
***
Incorporated herein in its entirety by reference to the report on Form
8-K dated December 27, 1991.
****
Incorporated herein in its entirety by reference to the report on Form
8-K dated March 12, 1993.
*****
Incorporated herein in its entirety by reference to the report on Form
8-K dated May 10, 1993.
******
Incorporated herein in its entirety by reference to the report on Form
8-K dated January 19, 1994.
*******
Incorporated herein in its entirety by reference to the report on Form
8-K dated July 22, 1994.
********
Incorporated herein in its entirety by reference to the Annual Report
for the fiscal year ended December 31, 1993 on Form 10-K dated March 30,
1994.
*********
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.
**********
Incorporated herein in its entirety by reference to the report on Form
8-K dated October 25, 1995.
***********
Incorporated herein in its entirety by reference to the report on Form
8-K dated April 26, 1996.
************
Incorporated herein in its entirety by reference to the report on Form
8-K dated March 14, 1996.
*************
Incorporated herein in its entirety by reference to the report on Form
8-K/A dated June 21, 1996.
**************
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.
d) Financial Statement Schedule
Schedule II
CHYRON CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Column A Col B Col C Col D Col E
Balance
at Additions Balance
Begin- Changes to at
ning Costs End
of and Other Deduc- of
Description Period Expenses Accounts tions Period
Reserves and allowances
deducted from asset accounts:
YEAR ENDED DECEMBER 31, 1996
Uncollectible amounts....... $ 3,134 $ $ $ 284 $ 2,850
Inventory reserves.......... 12,233 192 12,041
Deferred tax assets......... 5,400 5,400 0
$20,767 $ $ $ 5,876 $14,891
YEAR ENDED DECEMBER 31, 1995
Uncollectible amounts....... $ 2,204 $ 745 $ 185 $ $ 3,134
Inventory reserves.......... 12,515 1,153 1,435 12,233
Deferred tax assets......... 14,500 9,100 5,400
$29,219 $1,898 $ 185 $10,535 $20,767
YEAR ENDED DECEMBER 31, 1994
Uncollectible amounts....... $ 2,624 $2,333 $ $ 2,753 $ 2,204
Inventory reserves.......... 10,293 5,300 430 3,508 12,515
Deferred tax assets......... 11,500 3,100 100 14,500
$24,417 $7,633 $3,530 $ 6,361 $29,219
UNDERTAKING
The Company undertakes to provide without charge to each shareholder
entitled to notice of and to vote at the Annual Meeting of Shareholders,
to be held May 14, 1997, at which directors are to be elected, upon the
written request of any such shareholder, a copy of the Company's Annual
Report on Form 10-K, for the year ended December 31, 1996, required to
be filed with the Securities and Exchange Commission, including the
financial statements and the schedules thereto. The Company does not
undertake to furnish without charge copies of all exhibits to its Form
10-K, but will furnish any exhibit upon the payment of twenty ($.20)
cents per page or a minimum charge of $5.00. Such written requests
should be directed to Ms. Judy Mauro, Director of Corporate
Communications, Chyron Corporation, 5 Hub Drive, Melville, New York
11747. Each such request must set forth a good faith representation
that as of March 26, 1997 the person making the request was a beneficial
owner of securities entitled to vote at the Annual Meeting of
Shareholders.
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/ Michael Wellesley-Wesley
Michael Wellesley-Wesley
Chairman of the Board of Directors
and Chief Executive officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities on the date indicated.
/s/ Sheldon Camhy Director March 19, 1997
(Sheldon Camhy)
/s/ S. James Coppersmith Director March 19, 1997
(S. James Coppersmith)
/s/ Charles Diker Director March 20, 1997
(Charles Diker)
/s/ Douglas Greenberg Director March 20, 1997
(Douglas Greenberg)
/s/ Raymond Hartman Director March 20, 1997
(Raymond Hartman)
/s/ Isaac Hersly Director March 20, 1997
(Isaac Hersly)
/s/ Alan Hirschfield Director March 20, 1997
(Alan Hirschfield)
/s/ Wesley Lang Director March 20, 1997
(Wesley Lang)
/s/ Eugene Weber Director March 20, 1997
(Eugene Weber)
/s/ Patricia Lampe Chief Financial
(Patricia Lampe) Officer March 20, 1997