-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KjFwdX9BXFhJar0xNuSnUIKvr1uHOGt5n5jSfczRB4xoN1BUMNJpDiLoZ5S+uCVm jQEgFRZ6VkPK30zyXubhTA== 0000020232-99-000010.txt : 19990331 0000020232-99-000010.hdr.sgml : 19990331 ACCESSION NUMBER: 0000020232-99-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHYRON CORP CENTRAL INDEX KEY: 0000020232 STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861] IRS NUMBER: 112117385 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-05110 FILM NUMBER: 99578105 BUSINESS ADDRESS: STREET 1: 5 HUB DR CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5168452000 MAIL ADDRESS: STREET 1: 5 HUB DRIVE CITY: MELVILLE STATE: NY ZIP: 11747 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER EXCHANGE INC DATE OF NAME CHANGE: 19760114 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Commission File Number 1-9014 CHYRON CORPORATION (Exact name of registrant as specified in its charger) New York (State or other jurisdiction of incorporation or organization) 11-2117385 (I.R.S. Employer Identification No.) 5 Hub Drive, Melville, New York (Address of principal executive offices) 11747 (Zip Code) Registrant's telephone number, including area code (516) 845-2000 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.01 (Title of Class) New York Stock Exchange (Name of exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) The aggregate market value of voting stock held by non-affiliates of the Company on March 10, 1999 was $26,124,963. The number of shares outstanding of the issuer's common stock, par value $.01 per share, on March 10, 1999 was 32,058,026. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the Annual Meeting of Shareholders to be held May 12, 1999 are incorporated by reference into Part III. Exhibit index is located on page 48 This document consists of 52 pages From time to time, including in this Annual Report on Form 10-K, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, changes in the industry, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include, without limitation, the following: product concentration in a mature market, dependence on the emerging digital market and the industry's transition to DTV and HDTV, consumer acceptance of DTV and HDTV, resistance within the broadcast or cable industry to implement DTV and HDTV technology, rapid technological changes, new technologies that could render certain Chyron products to be obsolete, a highly competitive environment, competitors with significantly greater financial resources, new product introductions by competitors, seasonality, fluctuations in quarterly operating results, ability to maintain adequate levels of working capital, expansion into new markets and the Company's ability to successfully implement its acquisition and strategic alliance strategy. PART I ITEM 1. BUSINESS General Information Regarding the Company Chyron Corporation ("Chyron" or the "Company") was incorporated under the laws of the State of New York on April 8, 1966 under the name The Computer Exchange, Inc., which was changed to the present name on November 28, 1975. On April 12, 1996, Chyron acquired Pro-Bel Limited ("Pro-Bel"). The Company's principal executive offices are located at 5 Hub Drive, Melville, New York 11747 and its telephone number is (516) 845-2000. Its executive offices in the United Kingdom are located at Danehill, Lower Earley, Reading, Berkshire RG6 4PB and its telephone number is 44-118-986-6123. The Company develops, manufactures, markets and supports a broad range of equipment, software and systems that facilitate the production and enhance the presentation of live and pre-recorded video, audio and other data. The Company's products enable users to (i) create and manipulate text, logos and other graphic images using special effects such as 3D transforming, compositing and painting; (ii) manage, monitor and distribute video, audio and other data signals; and (iii) control edit processes and automate broadcast equipment. The worldwide market for equipment, software and systems used in the production and presentation of video and audio content encompasses major television networks, cable television broadcasters, direct to home satellite program distributors, production companies and post- production houses, as well as organizations and individuals creating materials such as corporate and specialized video and audio presentations. Industry Transition to High Definition Television In October 1996, the Federal Communications Commission ("FCC") adopted a rule that requires broadcasters to utilize digital advanced television transmission. This ruling requires broadcasters to adopt one of eighteen formats deemed acceptable as broadcast standards for digital television ("DTV"), as opposed to the current analog equipment, and sets a timetable for the adoption of DTV, specifically High Definition Television ("HDTV"), broadcast by the year 2006. This decision has set in motion the evaluation of which digital transmission formats are acceptable and will be used for replacing the current analog National Television Standards Committee ("NTSC") standards for broadcasting, news, entertainment and other program sources. Today, broadcasters are examining the performance of each of these formats, as well as their technical requirements. By the year 2006, all the current analog NTSC equipment will have to be upgraded or replaced as broadcasters discontinue their analog NTSC broadcasts in order to comply with the recent FCC ruling. The method and timing of broadcasters' conversion to digital television is very important to the future profitability of Chyron. As an equipment manufacturer, Chyron plans to provide broadcasters with innovative DTV and HDTV equipment. Management views this industry transition as a great opportunity. However, broadcasters' failure to convert on a timely basis could have a negative impact on the future financial condition of the Company. Products The Company offers a broad range of products that address the needs of the video and audio production, post-production and distribution markets. The Company's line of high performance graphics systems are used by many of the world's leading broadcast stations to display news flashes, election results, sports scores, stock market quotations, programming notes and weather information. The Company's signal management systems interconnect video, audio and data signals to and from equipment within a studio's control room or edit suite, as well as to and from signal transmission sites. The Company's line of control and automation systems are used to automate the steps used in the management, editing and distribution of video and audio content. Graphic Systems Duet and Duet HD: Duet/Duet HD is a real-time 2D/3D serial digital video graphics processing platform that integrates open standards, a Windows NT front end, and provides real-time performance for a variety of televison graphics applications. Configurable as digital standard definition or digital HDTV, it is the most significant new graphics product introduction from Chyron since the iNFiNiT! nine years ago, representing the next generation of video graphics engines. Currently shipped with Lyric graphics composition application, Duet HD offers the first ever serial digital high definition character generator capability. Duet addresses the requirements of state-of-the-art installations, bringing together the proprietary operating system necessary to execute broadcast quality graphics and the Windows NT interface, which is increasingly becoming the standard in broadcast and production facilities. Extending the reach of Duet, CAL (Chyron Abstraction Layer) allows third party software developers to use standard Open GL code to create custom applications, making Duet as accessible for software product development as a personal computer. iNFiNiT! Family of Graphics and Character Generators: Chyron's family of iNFiNiT! products has long been the gold standard for broadcast quality character generators. Largely due to the iNFiNiT! family line, Chyron believes that it has a 60-70% share of the installed base of the high-end broadcast character generator market in the U.S. The flagship iNFiNiT! is a dual-user graphics workstation with one to three output channels, each with a dedicated key signal. MAX!> is a single-user graphics system with one or two separate video and key channels. MAXINE! is a single channel/single-user character generator. MAX!> and MAXINE! have similar feature sets and effective resolution as the iNFiNiT!. All systems can be configured with analog or digital outputs. In September 1996, the Company introduced WiNFiNiT!, an optional PC-based graphical user interface which utilizes the Microsoft Windows 95 or Windows NT operating systems. In 1998, CLYPS, a live video/key capture/playback system, was launched. Files are stored in JPEG format on a SCSI express drive, eliminating the need for external playback devices. Also introduced in 1998 were Message Compose version 10.00 and MAX!> Dual Preview Output. Other options include Transform animation, Intelligent Interface remote control, iNFiNiT! Third Channel Output option, MAXINE! Preview, IMAGESTOR! still store and various paint and composition packages. Chyron Aprisa Still Store Systems: The Chyron Aprisa 100 is a Windows NT based family of still and clip store systems. Providing sophisticated database functions, the Chyron Aprisa 100 allows play list creation and playback with effects, search, sort and editing. Options include the Aprisa 200 Digital Disk Recorder and the Aprisa 300 Video Replay System (advanced playback capability). Compact Graphics and Character Generators: The Company's compact character generators, sold under the CODI and PC-CODI names, provide real-time text, titling and logo generation which are used for broadcasting time, temperature, weather warnings, sports statistics, scoreboards, news updates and financial information. CODI products may operate through touch screens for real-time on-screen drawing. They can work with standard computer platforms regardless of operating system or system performance. Liberty Paint and Animation: Chyron's Liberty family of paint and animation tools provides resolution-independent, non-linear, digital image processing for creating, editing and compositing special visual effects in an on-line, real-time environment. Liberty was used to create award-winning CNN graphics and special effects in major feature films, including Batman and Robin, Independence Day, Casino, Broken Arrow and Godzilla. Liberty products operate on various Silicon Graphics workstations as well as the Windows NT platform, and support all popular file formats. Liberty offers a menu of video graphic creation tools, such as painting, compositing, morphing, titling, 3D transforming, layering, coloring, cycle animation, rotoscoping and cell animation. In 1998, three new versions of Liberty were introduced: Liberty 6.5, running on the SGI platform; Liberty NT, running on the Windows NT platform, providing Liberty graphics power previously available only on more expensive SGI workstations; and Liberty HDTV, a full- featured serial digital high definition graphics and animation system. Media Management - Signal Management Systems Pro-Bel Routing Switchers and Controllers: Under the Pro-Bel name, the Company provides a complete range of control solutions for matrix systems which process and distribute multimedia signals. XD: The new XD series of digital routing switchers are large-scale routing systems that can produce high-performance signal distribution across a wide spectrum of applications. 16 x 16 HDTV Router: It provides a 16 x 16 HDTV router in 3RU and 1.485 Gb/s SMPTE 292M compatibility. This product may operate as a standalone router or as part of a larger routing system under Pro-Bel control. Freeway: Mid-range routing switcher which is designed for facilities in the process of converting from analog to digital operations. Gemini: 16 x 2 compact multi-format routers designed for monitor switching and similar applications. It also operates as a standalone router or integrates with Pro-Bel control systems. System 3 and Procion Controllers: System 3 provides a push button control panel which can utilize simple signal matrix solutions and multi-matrix installations with integrated tie-line management. Procion offers a range of IBM PC/Windows touch screen control systems which are easy to use and configure. System 3 and Procion can be integrated with each other and with Pro-Bel routing systems for maximum flexibility. Digital Master Control Switchers - TX 320 and TX 310: Compact and cost effective, these switchers process serial digital video and digital analog or embedded audio inputs. For sophisticated transitions, an optional 3D DVE may be added. TX Series master control switchers provide unique built-in integration with Pro-Bel Compass/Sextant automation and maximum flexibility, where one panel can control many channels, or a number of panels can share channels. HDTV channels for the TX series will be released in the first half of 1999. Media Management - Control and Automation Systems Asset Management - MAPP: Pro-Bel has developed a suite of products which are designed to process video, audio and related data signals, integrating with Pro-Bel automation for signal playout. MAPP is a Windows based, video server management and control system. MAPP provides facilities the ability to record, track, cache and replay broadcast material according to a user- defined schedule. MAPP easily interfaces with disk based video servers manufactured by many different vendors. New MAPP products introduced in 1998: Pro-Bel MAPP WAN Manager: A first from Pro-Bel, providing automatic transport of video server media between remote sites via Wide Area Networks. Pro-Bel MAPP Media Browse Acquisition/WAN Manager: Provides a simple method to transfer the media from high bandwidth to low bandwidth server environments, across standard WANs, for cost effective remote media browsing and review applications. Pro-Bel MAPP Version 5: New NT platform for MAPP Asset Management software. MAPP tracks every storage device and item of material within the broadcast operation. Database is available over a standard computer network with multiple workstations. Multiple users enter, direct, monitor and control each item and prepare it for manual or automated playout. Pro-Bel MAPPEX (MAPP Exchange Interface): Provides interface to MIS systems. Used primarily for tracking commercial airings for subsequent billing to advertisers. Automation Compass and Sextant: Each provides comprehensive station automation for single and multi-channel operations, with Compass controlling a larger number of devices including large cart machines. Sextant can be upgraded to Compass functionality. Unique real-time hardware platform with redundant controllers and power supplies provides the ultimate in reliability. Users edit schedules and interface to traffic systems via standard NT workstations that provide familiar and intuitive operation. Extensive use of icons and graphical techniques provide readable schedules with at-a-glance status. Marketing and Sales The Company markets its products and systems to traditional broadcast, production and post-production facilities, government agencies, educational institutions and telecommunications and corporate customers. In order to maintain and increase awareness of its products, the Company displays its products at the major domestic and international trade shows of the broadcast and computer graphics industries. In the United States, the Company exhibits at the National Association of Broadcasters (NAB) and SMPTE conventions. It also exhibits at the International Broadcasters Convention (IBC) in Europe. The Company uses direct-mail campaigns and places advertisements in broadcast, post-production and computer industry publications. Sales of the Company's products in the United States and the United Kingdom are made through Company direct sales personnel, dealers, independent representatives, systems integrators and OEMs. Direct sales, marketing and product specialists serving the domestic markets act as links between the customer and the Company's development teams. Sales of the Company's products outside of the United States and United Kingdom are made through dealers and sales representatives covering specific territories. The Company maintains sales offices in Hong Kong, China and in Paris, France in an effort to increase foreign sales. In some territories, dealers sell products from all of the Company's product categories; in other territories, dealers handle only specific products. Service, Support and Training The Company offers comprehensive technical service, support and training to its customers through 24 hours per day, seven days per week access to trained service and support professionals. Training courses are available through the Company and range in length from a few days to a few weeks and consist of a mix of classroom discussions and hands-on training. The Company offers training courses for many of its products at its Melville (New York) headquarters and its Reading (United Kingdom) and Atlanta (Georgia) centers. The Company also conducts on-site training. Installation assistance, hardware and software maintenance contracts and spare parts are made available by the Company. The Company believes support contracts and a responsive spare parts supply service facilitate customer satisfaction. Service is provided both domestically and internationally by the Company or its appointed dealers and representatives. The Company also provides sales and service support to its dealers from time to time. The Company provides warranties on all of its products ranging from ninety days to five years. Research and Development The Company's research and product development, conducted in Melville, New York, Reading, United Kingdom and Cupertino, California, is focused on the continued enhancement of its existing products and the development of new ones. Product development efforts include both graphic products and routers and switchers which will comply with the FCC ruling of October 1996. This ruling will affect the broadcast industry across the next decade and beyond, specifically the adoption of digital television, and more specifically HDTV television. Historically, the Company has focused its efforts toward the development of complete systems rather than of either hardware or software standing alone. A strategic engineering group evaluates hardware and software technologies. Currently, engineering efforts include software stand alone products and hardware with software products that address the FCC ruling described above. During 1998, 1997 and 1996, the Company expensed approximately $9.5 million, $6.8 million and $5.3 million, respectively, for research and development. Such amounts were net of amounts capitalized with respect to software development costs incurred in connection with the development of new products and the modification and enhancement of existing products. Manufacturing The Company has final assembly and system integration operations located in Melville and Reading. The Company primarily uses third-party vendors to manufacture and supply all of the hardware components and sub-assemblies utilized in the Company's graphics systems and relies upon a combination of third-party vendors and internal manufacturing for components and sub- assemblies utilized in the Company's signal management systems. The Company designs many of its system components to its own specifications, including metal and electronic parts and components, circuit boards and certain sub- assemblies. It assembles such items and standard parts, together with internally-developed software, to create final products. The Company then performs testing and quality inspections of each product. Competition The markets for graphics imaging, editing and animation systems, signal routing systems and media storage systems are highly competitive and are characterized by rapid technological change and evolving industry standards. Rapid obsolescence of products, frequent development of new products and significant price erosion are all features of the industry in which the Company operates. The FCC's recent ruling requiring broadcasters to utilize DTV transmission beginning in 1998 will require large future capital expenditures by the broadcast industry. Management recognizes this as an opportunity for the Company in the market place, but, as a result, the Company also anticipates increased competition from both existing companies and new market entrants. The Company is currently aware of several major and a number of smaller competitors. In the graphics area, the Company believes its primary competitors are Aston Electronic Designs Limited, Dynatech Corporation, Pinnacle Systems Inc., Quantel Inc. and Accom. In the signal management area, the Company believes its primary competitors are Dynatech Corporation, Leitch Incorporated, Philips Electronics N.V., Sony Corporation and Tektronix Inc. In the control and automation area, the Company believes its primary competitors are Drake, Louth Automation, Philips Electronics N.V., Sony Corporation and Tektronix, Inc. Many of these companies have significantly greater financial, technical, manufacturing and marketing resources than the Company. In addition, certain product categories and market segments, on a region-by-region basis, in which the Company does or may compete, are dominated by certain vendors. Employees As of December 31, 1998, the Company employed 414 persons on a full-time basis, including 74 in sales and marketing, 133 in manufacturing and testing, 50 in customer support, service and training, 59 in finance and administration and 98 in research and development. None of these employees is represented by a labor union. Patents and Proprietary Rights The Company's success depends upon its ability to protect its proprietary software technology and operate without infringing the rights of others. It relies on a combination of patent, trademark and trade secret laws to establish and protect its proprietary rights in its technology. The names Chyron, Scribe, Chyron Scribe, Chyron Scribe Junior, Chyron SuperScribe, iNFiNiT!, MAX!>, MAXINE!, CODI, I2, Chyron Care, Intelligent Interface, Intelligent Interface (I2), CMX, CMX AEGIS, CMX OMNI, Aurora, Liberty and Liberty Aurora and Design are registered trademarks of the Company. The Company also has rights in trademarks and service marks which are not federally registered. The Company does not have registered copyrights on any of its intellectual property. Government Regulations The telecommunications and television industries are subject to extensive regulation in the United States and other countries. For example, The United States Federal Communications Commission has issued regulations relating to shielding requirements for electromagnetic interface in electronic equipment. The Company's products are in compliance with these regulations. Furthermore, television operators are subject to extensive government regulation by the FCC and other federal and state regulatory agencies. ITEM 2. PROPERTIES The executive offices and principal office of the Company and its graphics business are located in Melville, New York pursuant to a lease that expires on June 30, 2004. This facility consists of approximately 47,000 square feet and is used for manufacturing, research and development, marketing and the executive offices. The Company also leases approximately 7,000 square feet in Cupertino, California and 4,300 square feet in Torrance, California for research and development, which expire on December 31, 2002 and November 30, 2000, respectively. The Company also maintains sales offices in Atlanta and Dunwoody, Georgia of 1,000 and 2,700 square feet, respectively, and in Hong Kong of 2,000 square feet pursuant to leases which expire on January 31, 2001, November 30, 2002 and April 26, 2001, respectively. In the United Kingdom, the Company's executive office is located in Reading, United Kingdom where it owns a facility of approximately 19,000 square feet. This facility is used for manufacturing, research and development and marketing. The Company occupies additional facilities in the United Kingdom in Reading and Andover, used primarily for research and development and manufacturing, which total approximately 28,000 square feet pursuant to leases which expire from December 25, 2012 through September 29, 2020. The Company currently utilizes 90% to 100% of the space of all of its facilities. Management currently believes that each facility is suitable for its existing operations and does not foresee the need for any significant expansion of its current facilities. ITEM 3. LEGAL PROCEEDINGS The Company from time to time is involved in routine legal matters incidental to its business. In the opinion of management, the ultimate resolution of such matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the year ended December 31, 1998, there were no matters submitted to a vote of the Chyron shareholders through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDERS MATTERS Chyron's common stock is traded on the New York Stock Exchange ("NYSE") under the ticker symbol "CHY". The approximate number of holders of record of the Company's common stock at March 10, 1999 was 5,557. The following table sets forth the high and low reported sales price for the common stock adjusted to reflect the one-for-three reverse stock split which occurred in February 1997. Price Range of Common Stock High Low Year Ended December 31, 1998 Fourth quarter $3.000 $1.250 Third quarter 3.625 1.625 Second quarter 4.938 3.125 First quarter 4.813 3.125 Year Ended December 31, 1997 Fourth quarter $6.125 $4.125 Third quarter 5.500 4.063 Second quarter 5.875 3.750 First quarter 9.375 4.875 On March 10, 1999, the closing price of the Company's common stock as reported on the NYSE was $1.938. The Company has not declared or paid any cash dividend since November 27, 1989. The Company currently plans to retain its future earnings, if any, for use in the operation and expansion of its business and does not anticipate paying cash dividends on the common stock in the foreseeable future. In connection with the Company's term loan and revolving credit facility, the Company is prohibited from paying dividends in excess of 25% of its net income for the then current fiscal year. In December 1998, the Company sold $1.1 million aggregate principal amount of 8% Subordinated Convertible Debentures (the "1998 Debentures"), due December 31, 2003, to certain persons and entities, including certain directors, affiliates and shareholders of the Company. The debentures are convertible, at any time, at the option of the holders thereof, into Common Stock of the Company at a conversion price of $2.466 per share (which is equal to 120% of the average of the closing selling prices of the Common Stock for the 90 trading days immediately preceding the issue date of the debentures). The debentures may be redeemed by the Company at any time after December 31, 1999 for a price equal to the principal and accrued but unpaid interest on the debentures at the redemption date. Subject to certain restrictions, the debentures are exchangeable, at the option of the holders thereof, for a like principal amount of any series of convertible subordinated debentures which the Company may issue pursuant to a private placement, through a placement agent, within 180 days of the issue date of the debentures. The net proceeds from the sale of the debentures were used for general working capital purposes. The sales of the debentures were made in reliance upon the exemption from the registration provisions of the Securities Act of 1933, as amended, afforded by Section 4(2) thereof and/or Regulation D promulgated thereunder, as a transaction by an issuer not involving a public offering. To the best of the Company's knowledge, the purchasers of the debentures acquired them for their own accounts, and not with a view to any distribution thereof. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected data regarding the Company's operating results and financial position. The data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto, all of which are contained in this Annual Report on Form 10- K. SUMMARY FINANCIAL DATA (In thousands, except per share amounts) Year Ended December 31, 1998 1997 1996(1) 1995 1994 Statement of Operations Data: Net sales $83,710 $86,774 $82,608 $53,971 $42,762 Gross profit 39,460 39,830 42,667 31,225 23,850 Operating expenses: Selling, general and administrative 31,420 29,662 22,349 17,066 14,301 Research and development 9,537 6,822 5,253 4,105 4,163 Non-recurring charges 3,979 3,082 Management fee 2,911 1,139 West Coast restructuring charge (recapture) (1,339) 12,716 Total operating expenses 44,936 39,566 27,602 22,743 32,319 Operating income (loss) (5,476) 264 15,065 8,482 (8,469) Gain on sale of Trilogy Ltd. 1,194 Interest and other expense, net (1,786) (1,242) (1,666) (536) ( 525) Net (loss) income (4,447) (760) 8,654 7,476 (8,994) Net (loss) income per common share (2) (3)- Basic $ (.14) $ (.02) $ .27 $ .26 $ (.31) Diluted $ (.14) $ (.02) $ .27 $ .25 $ (.31) Weighted average number of common shares outstanding (2) (3) - Basic 32,058 32,538 31,825 29,379 28,962 Diluted 32,058 32,538 32,327 30,382 28,962 As of December 31, 1998 1997 1996(1) 1995 1994 Balance Sheet Data: Cash and cash equivalents $1,585 $2,968 $4,555 $5,012 $1,555 Working capital 30,036 38,955 45,362 28,221 12,103 Total assets 83,116 94,080 91,403 44,332 28,644 Long-term obligations 17,315 21,959 21,226 4,911 4,829 Shareholders' equity 49,770 53,962 53,946 29,983 13,776 (1) Includes the operations of Pro-Bel since its acquisition on April 12, 1996. (2) Adjusted to reflect the reverse stock split effected on February 7, 1997. (3) Adjusted to reflect FASB Statement No. 128, "Earnings Per Share". ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company develops, manufactures, markets and supports a broad range of equipment, software and systems that facilitate the production and enhance the presentation of live and pre-recorded video, audio and other data. In the fourth quarter of 1998 the Company delivered the first Duet HD systems, featuring Lyric software, to major broadcast and production facilities. Duet HD is a real-time, HDTV video graphics processing platform that integrates open standards, a Windows NT front-end, and provides real-time performance for a variety of television graphics applications. Chyron's family of iNFiNiT! products continues to be the standard for broadcast quality character generators. These products superimpose text, logos and other graphics onto a primary video image or create an independent image to be televised by itself. The Company expects that revenue from its current graphics and character generator systems will continue to constitute a substantial percentage of its net sales for at least the near future. The Company's Pro-Bel signal management systems interconnect video, audio and data signals to and from equipment within a studio's control room or edit suite, as well as to and from signal transmission sites. The Company's current business strategy includes the following key elements: (i) position itself as a lead vendor in providing DTV and HDTV equipment to broadcasters as they make their transition to digital television in response to the recent FCC ruling; (ii) maintain and enhance its leadership position in current markets; (iii) provide upgrades to existing equipment; (iv) cross sell products to its existing customers; (v) address low-end and emerging markets; (vi) expand its global presence; (vii) pursue strategic acquisitions and alliances; and (viii) utilize open platforms. The Company intends to continue to serve its worldwide customer base by introducing products which address the requirements to improve the production and presentation of video, audio and other data. The Company also intends to continue to upgrade its current high performance systems, invest in the development of new options and enhancements for its products and provide complete system solutions to its customers. In 1997, as a result of the FCC's announcement on its position for HDTV, the Company took steps to position itself for the transition to HDTV. In connection therewith, the Company recorded a non-recurring charge of $2.4 million for costs related to repositioning the Company to address the domestic television market's need for high definition and multichannel standard definition digital equipment that complies with the FCC ruling. The Company also appointed a new Chief Executive Officer. Non-recurring Charges During the second quarter of 1998, as a result of continued poor operating results and the inability of the Company's Concerto Division to meet revenue and operating targets, management determined that it would be in the Company's best interest to implement a restructuring plan and refocus on its core business of graphics, routing and automation products for the television broadcast, cable and post production industries. Such restructuring plan involved the disposal of the Concerto and Trilogy Divisions, the modification of its investment in Real-Time Synthesized Entertainment Technology, Ltd. ("RT-SET") and the reorganization of the Company's core product sales force to be complementary to its new sales and marketing strategy. As a result, the Company recorded a $3,979,000 charge to operations during the second quarter of 1998. Such charge resulted from a write-down of assets to estimated net realizable value, employee severance and costs to reorganize the Company's sales functions as a result of such restructuring plans. Additional amounts were accrued for litigation and other costs. Sale of Trilogy On August 19, 1998, the Company completed the sale of Trilogy Broadcast Limited ("Trilogy"), a wholly-owned subsidiary of Pro-Bel, to the management of Trilogy. This transaction resulted in an overall gain of approximately $1.2 million. Acquisition of Axis On March 31, 1997, the Company acquired Axis Holdings Incorporated ("Axis"), located in Los Angeles, California, for an aggregate cost of $1.83 million. Axis developed professional video and audio software specifically for use on the Microsoft Windows NT Operating System. The acquisition of Axis was accounted for as a purchase; therefore, the cost was allocated to the net tangible assets and software development costs acquired based on their estimated fair values. During the second quarter of 1998, as a result of this division's inability to meet revenue and operating targets, this division was discontinued and all related software development costs, totaling $2.3 million, were written off. Acquisition of Pro-Bel On April 12, 1996, the Company acquired Pro-Bel, located in Reading, United Kingdom, for an aggregate price of $19.1 million. Pro-Bel develops, manufactures and markets signal management systems and control and automation systems. The acquisition of Pro-Bel was accounted for as a purchase. Accordingly, the cost was allocated to the net tangible assets acquired based upon their estimated fair values. The excess of cost over the estimated fair values of the net tangible assets acquired amounted to $6.9 million, which is being amortized over 12 years using the straight-line method. Investment in RT-SET On February 29, 1996, the Company purchased a 19% interest in RT-SET, which develops, markets and sells real time virtual studio set software and proprietary communications hardware and is located in Israel. The Company purchased shares of RT-SET convertible preferred stock in exchange for 800,000 restricted shares of Company common stock. In accordance with the purchase agreement, the 800,000 shares of common stock were to be held in escrow and released in two tranches, subject to certain conditions. One- third of such shares was released from escrow in June 1996. On May 26, 1998, the Company entered into a Modification Agreement with RT-SET whereby RT-SET returned to the company 533,334 shares of Chyron common stock previously issued and held in escrow and Chyron agreed to convert all of its shares of RT-SET preferred stock into RT-SET common shares with an equivalent value of $2,161,000. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Net Sales. Net sales decreased 3.6% to $83.7 million in 1998 from $86.8 million in 1997. The decrease was a result of lower international sales, primarily in the UK and Asia, and the loss of revenues resulting from the sale in August 1998 of the Company's Trilogy division which represented $2.4 million of the decline. The decrease was offset by an increase in sales of Chyron graphics products and Pro-Bel products in the U.S. by $10 million. The Company's net sales consisted of product sales, upgrades and enhancements and rental income, as well as customer service revenue. Gross Profit. Gross profit decreased to $39.5 million in 1998 from $39.8 million in 1997. Gross margin as a percentage of net sales increased to 47.1% in 1998 from 45.9% in 1997. The increase in gross margin as a percentage of net sales was the result of improved margins on the sales of the Company's core products offset by greater than anticipated costs on one large customer contract. Customer service costs were included in selling, general and administrative expenses and were not material. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("S,G&A") increased 6% to $31.4 million in 1998 from $29.7 million in 1997. As a percentage of net sales, S,G&A expenses increased to 37.5% in 1998 from 34.2% in 1997. The growth in overall S,G&A expenses was directly related to the continued efforts to improve customer service and to focus on sales and marketing initiatives, specifically directed at supporting and growing the Pro-Bel product lines in America and the establishment of the sales office in France. Offsetting this growth was the benefit of reduced S,G&A expenses related to the sale of Trilogy. Research and Development Expenses. Research and development expenses ("R&D") increased 40% to $9.5 million in 1998 from $6.8 million in 1997. Increases in R&D occurred as the Company has focused its attention on new product development related to the digital and HDTV markets. Non-recurring Charges. During the second quarter of 1998, management determined that it would be in the Company's best interest to implement a restructuring plan and refocus its efforts on its core products of graphics, routing and automation for the television broadcast, cable and post production industries. This product line restructuring included the sale of Trilogy, the modification of the Company's investment in RT-SET, the reorganization of Chyron's sales and marketing organization and the disposition of the Concerto Division. As a result, the Company recorded restructuring and other non-recurring charges of $3,979,000 during fiscal 1998. The restructuring charge included the write-down of Concerto assets, accrued severance, legal costs and costs of disposition of such division totaling $2.9 million. Other non-recurring charges totaled $1.1 million and related to management's initiative to refocus on the Company's core products. Included in other non-recurring charges were costs related to the sales reorganization, accrued severance of $245,000 and other miscellaneous costs of $315,000, all of which will require cash outlays. Additional accruals have been made for litigation and other legal costs. Cash outlays related to the non-recurring charges total $1.7 million, of which $1.0 million was incurred by December 31, 1998. Gain on Sale of Trilogy. In conjunction with the Company's decision to refocus its efforts on core products, the Company sold its Trilogy division, a wholly-owned subsidiary of Pro-Bel, to the management of Trilogy. This transaction was completed in August 1998 and resulted in an overall gain of approximately $1.2 million. Interest and Other Expense, Net. Interest and other expense, net, increased 43.8% to $1.8 million in 1998 from $1.3 million in 1997. Included in interest and other expense, net, were gains and losses resulting from foreign exchange transactions. In fiscal 1998 an overall foreign exchange loss of $308,000 was recognized, as opposed to a $423,000 gain recognized in 1997. This was due primarily to the rate differential between U.S. Dollars and British Pounds Sterling ("BPS") and the increased level in value and number of transactions in such currencies. This increase was offset by a decrease in interest expense due to lower average borrowings in 1998 as compared to 1997, as well as slightly lower interest rates. Income Taxes/Equivalent (Benefit) Provision. The Company recognized a $1.6 million tax benefit for the twelve months ended December 31, 1998 compared to $0.2 million for 1997. The Company's effective tax benefit rate was 26.7% in 1998 as compared to 22.3% in 1997. The primary difference resulted from the effects of foreign income taxed at lower rates. Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Net Sales. Net sales increased 5.0% to $86.8 million in 1997 from $82.6 million in 1996. The increase was attributable to an increase in Pro-Bel product sales of 73% offset by a decrease in the Chyron Graphics line of 27%. The Pro-Bel increase was due to a combination of: (i) an increase in sales of the Pro-Bel product in the U.S. market; (ii) the fact that 1997 amounts represented twelve months of revenue, while 1996 represented revenue from the purchase date, April 12, 1996, through December 31, 1996 and (iii) increases in Pro-Bel sales in the European and other non-U.S. markets. Chyron sales declined mainly due to customers opting to fill their graphic needs with the Company's lower-end Chyron products based on the FCC ruling requiring broadcasters to utilize digital advanced television transmission beginning in 1998. Gross Profit. Gross profit decreased to $39.8 million in 1997 from $42.7 million in 1996. Gross margin as a percentage of net sales decreased to 45.9% in 1997 from 51.6% in 1996. This decrease was caused by increases in Pro-Bel sales for the year, which have historically lower margins than the Chyron lines, as well as decreases in the Chyron margin as a result of a shift in product mix from high-end products to lower-end products as described above. Customer service costs were included in S,G&A and were not material. Selling, General and Administrative Expenses. S,G&A increased 32.7% to $29.7 million in 1997 from $22.3 million in 1996. As a percentage of net sales, S,G&A increased to 34.2% in 1997 from 27.1% in 1996. The increase was due mainly to the inclusion of Pro-Bel expenses for twelve months in 1997, while 1996 only included nine months of expenses. Additional increases were due to an overall increase in sales volume and increases in headcount at both Chyron and Pro-Bel. Research and Development Expenses. R&D increased 29.9% to $6.8 million in 1997 from $5.3 million in 1996. This increase was mainly due to the inclusion of Pro-Bel's expenditures for a full twelve month period in 1997. Additional increases in R&D occurred as the Company focused its attention on new product development to address the FCC ruling described above as well as the development of the "Concerto" product line of Axis, which was acquired on March 31, 1997. These increases were offset by net capitalized software costs (exclusive of the $1.7 million of the cost of Axis capitalized) which increased approximately $1.0 million for the twelve months ended December 31, 1997 versus the same period in 1996. Non-recurring Charges. During the first half of 1997, the Company incurred non-recurring charges of $3.1 million. Of these total charges, $675,000 related to the Company's planned secondary offering of common stock which was terminated due to the market valuation of the stock. The remainder, approximately $2.4 million, related to a repositioning by the Company to address the domestic television market's need for high definition and multichannel standard definition digital equipment that complies with FCC rulings. The components of this charge included a write-down of inventory related to product lines which were discontinued as a result of a new marketing positioning strategy, severance expense related to a staff reduction, the write-off of software development projects related to products not within the new strategy, the consolidation of certain Chyron offices, the settlement of litigation and the write-off of costs related to a potential acquisition that was abandoned due to the new strategy. Interest and Other Expense, Net. Interest and other expense, net, decreased 25.5% to $1.3 million in 1997 from $1.7 million in 1996. The decrease was due to the fact that in 1997 a foreign transaction gain of $423,000 was recognized, as opposed to a $264,000 loss recognized in 1996. This was due to the increase in the foreign exchange rate for BPS over the respective periods and the increased intercompany transactions between Chyron and Pro- Bel. This decrease was offset by increases in interest expense due to increases in average borrowings and interest rates over the comparable twelve month periods. Income Taxes/Equivalent (Benefit) Provision. The Company recognized a $218,000 tax benefit for the twelve months ended December 31, 1997 compared to an income tax provision of $4.7 million for 1996. The tax benefit was primarily attributable to a pre-tax loss of $978,000 while the provision was based on pre-tax income of $13.4 million. Liquidity and Capital Resources At December 31, 1998, the Company had cash on hand of $1.6 million and working capital of $30.0 million. The Company generated $6.8 million in cash from operations during the year ended December 31, 1998 as compared to $4.0 million in 1997. The improvement in cash flows from operations was principally due to improved collections of accounts receivable and the timing of certain customer down payments and reductions in inventory levels primarily as a result of subcontracting inventory assemblies in lieu of manufacturing and applying "just in time" methodologies. The Company also received $2.7 million in gross proceeds from the sale of Trilogy. These funds were used to pay down a portion of the Company's term loan. During December 1998, Chyron issued $1.1 million of 1998 Debentures and is in the process of raising up to $10 million of additional long-term convertible debt to fund continued research and development and reduce the Company's reliance on bank debt. There can be no assurance that the Company will be successful in its effort to raise such additional funds. The debentures will not be registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. Chyron's management believes that now is a good time to position the Company for selective acquisitions as the broadcast industry consolidates, and that strengthening Chyron's balance sheet will facilitate that strategy. There can be no assurance that the Company will be successful in making any acquisitions. In addition, if the Company does make acquisitions, there can be no assurance that such acquisitions will improve the financial condition of the Company. In connection with the acquisition of Axis, the Company issued promissory notes to the shareholders of Axis for $667,000. The first installment of the notes was paid on March 31, 1998 and the second installment of $417,000 is due March 31, 1999. To finance the acquisition of Pro-Bel, the Company incurred additional debt of $7.2 million, used cash on hand of $6.9 million and issued promissory notes for 3.5 million BPS ($5.3 million at the exchange rate at date of acquisition). The promissory notes were paid on April 15, 1998. Pro-Bel has an overdraft facility with a bank that is renewed on an annual basis. The current facility extends through December 31, 1999 and provides for an overall borrowing capability of 3.0 million BPS. Total borrowings are limited to amounts computed under a formula for eligible accounts receivable. It is currently the Company's intention to refinance this facility prior to its expiration date. The Company is in the process of renegotiating its revolving credit facility with its lender. The Company believes that it will be able to come to terms on a new long-term facility before its expiration on March 28, 1999. At December 31, 1998, the Company had operating and capital lease commitments totaling $11.3 million and $1.0 million, respectively, of which $1.3 million and $.5 million, respectively, is payable within one year. Such lease commitments were for equipment, factory and office space and are expected to be paid out of operating cash flows of the Company. Impact of Inflation and Changing Prices Although the Company cannot accurately determine the precise effect of inflation, the Company has experienced increased costs of materials, supplies, salaries and benefits and increased general and administrative expenses. The Company attempts to pass on increased costs and expenses by developing more useful and cost effective products for its customers that can be sold at more favorable profit margins. Industry Transition to High Definition Television As discussed above, in October 1996, the FCC adopted a new digital television standard. Conversion to the new standard will produce a potentially great opportunity to companies involved in the broadcast industry and related business; however, this change has caused uncertainty, hesitation and confusion for broadcasters and other customers in their decisions on capital spending. The delay in capital spending by broadcasters has affected the level of the Company's sales. The method and timing of broadcasters' conversion to digital television is very important to the future profitability of the Company. The Year 2000 The Company has taken actions to ensure that its products, internal systems and procedures are Year 2000 compliant. To this end, the Company has established a proactive plan to assess the Year 2000 impact in order to minimize any interruption of its operations or its ability to serve its customers. The Company has also established a Year 2000 Committee whose members include senior management and functional area leaders. The Company has structured its plan to address internal systems, infrastructure, facilities, suppliers and vendors as well as products and services. In this regard, the Company has completed the assessment of its critical internal information technology (IT) and non-IT systems and has not found any significant readiness problems with respect to such internal systems and procedures. The Company has also completed its product review and is engaged in remediation efforts, where appropriate, including upgrading and retirement of systems and components. The Company believes the remediation efforts required are not significant and will be completed by June 1, 1999. All products being shipped currently have been extensively tested and found to be compliant. The Company is in the process of assessing Year 2000 readiness of its critical suppliers by means of surveys and visits. These assessments will be completed during the first half of 1999 and contingency plans will be prepared, as needed, during the second half of the year. The Company is utilizing internal resources in its efforts and the associated costs are being expensed as incurred. Total costs are expected to be less than $500,000. The Company is taking what it considers to be reasonable steps to prevent major interruptions in its business due to Year 2000 issues. The inability of the Company or significant third parties to adequately address Year 2000 issues could cause inefficiencies in the Company's business operations. At this time, the Company has not encountered any Year 2000 issues which it believes could have a material adverse effect on its business or current products. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements Financial Statements: Report of Independent Auditors - PricewaterhouseCoopers LLP - page 21 Consolidated Balance Sheets at December 31, 1998 and 1997 - page 22 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996 - page 23 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 - page 24 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1998, 1997 and 1996 - page 25 Notes to the Consolidated Financial Statements - page 26-45 Financial Statement Schedules: II - Valuation and Qualifying Accounts - page 51 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Chyron Corporation In our opinion, the consolidated financial statements listed in the index appearing under Items 14(a)(1) and (2) on page 47 present fairly, in all material respects, the financial position of Chyron Corporation and its subsidiaries at December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP New York, New York February 2, 1999 CHYRON CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) December 31, Assets 1998 1997 Current assets: Cash and cash equivalents $ 1,585 $ 2,968 Accounts receivable, net 18,396 21,125 Inventories, net 19,378 26,540 Deferred tax assets 4,726 4,301 Prepaid expenses and other current assets 1,982 2,180 Total current assets 46,067 57,114 Property and equipment 12,545 12,373 Excess of purchase price over net tangible assets acquired 5,104 6,779 Investments 2,286 2,161 Software development costs 4,458 5,224 Deferred tax assets 8,343 7,070 Other assets 4,313 3,359 TOTAL ASSETS $83,116 $94,080 Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued expenses $14,136 $15,491 Current portion of long-term debt 1,512 2,318 Capital lease obligations 383 350 Total current liabilities 16,031 18,159 Long-term debt 13,486 17,774 Capital lease obligations 515 317 Pension and other liabilities 3,314 3,868 Total liabilities 33,346 40,118 Commitments and contingencies Shareholders' equity: Preferred stock, par value without designation Authorized - 1,000,000 shares, Issued - none Common stock, par value $.01 Authorized - 150,000,000 shares, Issued and outstanding - 32,058,020 and 32,591,705 at 1998 and 1997, respectively 321 326 Additional paid-in capital 44,021 44,016 Retained earnings 4,790 9,237 Accumulated other comprehensive income 638 383 Total shareholders' equity 49,770 53,962 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $83,116 $94,080 See Notes to Consolidated Financial Statements CHYRON CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31, 1998 1997 1996 Net sales $83,710 $86,774 $82,608 Cost of products sold 44,250 46,944 39,941 Gross profit 39,460 39,830 42,667 Operating expenses: Selling, general and administrative 31,420 29,662 22,349 Research and development 9,537 6,822 5,253 Non-recurring charges 3,979 3,082 Total operating expenses 44,936 39,566 27,602 Operating (loss) income (5,476) 264 15,065 Gain on sale of Trilogy Broadcast Limited 1,194 Interest and other expense, net (1,786) (1,242) (1,666) (Loss) income before provision for income taxes (6,068) (978) 13,399 Benefit (provision) for income taxes 1,621 218 (4,745) Net (loss) income $(4,447) $(760) $8,654 Net (loss) income per common share - basic and diluted $ (.14) $(.02) $ .27 Weighted average shares used in computing net (loss) income per common share: Basic 32,058 32,538 31,825 Diluted 32,058 32,538 32,327 See Notes to Consolidated Financial Statements CHYRON CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $(4,447) $(760) $8,654 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Gain on sale of Trilogy Broadcast Limited (1,194) Restructuring and other non-recurring charges 3,019 890 Depreciation and amortization 4,719 4,137 3,120 (Benefit) provision for deferred income taxes (1,102) (1,241) 2,335 Changes in operating assets and liabilities: Accounts receivable 2,071 3,851 (3,505) Inventories 5,196 (3,575) (3,303) Prepaid expenses and other assets (293) (1,638) (581) Accounts payable and accrued expenses (644) 1,382 (2,865) Other liabilities (556) 936 (1,000) Net cash provided by operating activities 6,769 3,982 2,855 CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions (413) (7,191) Gross proceeds from sale of Trilogy Broadcast Limited 2,746 Acquisition of property and equipment (2,323) (1,621) (1,802) Capitalized software development (3,181) (2,678) (1,268) Other 52 Net cash used in investing activities (2,758) (4,712) (10,209) CASH FLOWS FROM FINANCING ACTIVITIES: Payments of term loan (3,500) (2,000) (1,500) Borrowings from (payments of) revolving credit agreement, net (2,691) 1,374 (4,144) Proceeds from issuance of convertible debentures 1,133 Payments of capital lease obligations (338) (290) (262) Net proceeds from new credit facility 11,976 Proceeds from exercise of stock options and common stock purchase warrants, net 108 791 Other (52) Net cash (used in) provided by financing activities (5,396) (860) 6,861 Effect of foreign currency rate fluctuations on cash and cash equivalents 2 3 36 Change in cash and cash equivalents (1,383) (1,587) (457) Cash and cash equivalents at beginning of year 2,968 4,555 5,012 Cash and cash equivalents at end of year $1,585 $2,968 $4,555 SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $1,126 $1,348 $1,636 Income taxes paid $ 391 $ 697 $2,920 See Notes to Consolidated Financial Statements CHYRON CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands) Accumulated Additional Other Paid-In Retained Comprehensive Shares Amount Capital Earnings Income Total Balance at January 1, 1996 30,024 $ 300 $28,340 $1,343 $29,983 Net income 8,654 8,654 Cumulative translation adjustment $501 501 Total comprehensive income (loss) 9,155 Exercise of warrants 398 4 235 239 Exercise of stock options 114 1 551 552 Issuance of stock in connection with acquisition of Pro-Bel Ltd 1,049 11 6,857 6,868 Issuance of stock in connection with investment in RT-SET 800 8 1,942 1,950 Income tax equivalent benefit from reduction of deferred tax asset valuation allowance 5,199 5,199 Balance at December 31, 1996 32,385 324 43,124 9,997 501 53,946 Net loss (760) (760) Cumulative translation adjustment (118) (118) Total comprehensive income (loss) (878) Exercise of stock options 22 108 108 Issuance of stock in connection with acquisition of Axis Holdings 174 2 748 750 Issuance of stock in connection with a litigation settlement 25 88 88 Payment of truncated shares as a result of reverse stock split (15) (52) (52) Balance at December 31, 1997 32,591 326 44,016 9,237 383 53,962 Net loss (4,447) (4,447) Cumulative translation adjustment 255 255 Total comprehensive income (loss) (4,192) Contingent shares canceled (533) (5) 5 Balance at December 31, 1998 32,058 $ 321 $44,021 $4,790 $ 638 $49,770 CHYRON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Chyron Corporation and its wholly-owned subsidiaries ("Chyron" or the "Company") develop, manufacture, market and support a broad range of equipment, software and systems, including paint and animation systems, character generators, signal distribution systems, master control switchers and broadcast automation and media management packages. The worldwide market for equipment, software and systems used in the production and presentation of video and audio content encompasses major television networks, cable television broadcasters, direct to home satellite program distributors, production companies and post-production houses, as well as organizations and individuals creating materials such as corporate and specialized video and audio presentations. Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany amounts have been eliminated. Investments in affiliates of less than 20% are stated at cost. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, costs and expenses during the periods presented. Actual results could differ from those estimates. Restatement and Reclassification On January 24, 1997, the Company's shareholders ratified a one-for-three reverse stock split which was effected on February 7, 1997. (Loss)/income per share, weighted average shares used in computing net (loss)/income per common share, common stock issued and outstanding, additional paid-in- capital and all other common stock transactions presented in these consolidated financial statements have been restated to reflect the one-for- three reverse stock split. In addition, certain prior year amounts have been reclassified to conform to the current year presentation. Cash and Cash Equivalents Cash includes cash on deposit and amounts invested in a highly liquid money market fund. Cash equivalents consist of short term investments with original maturities of three months or less. The carrying amount of cash and cash equivalents approximates their fair value. Inventories Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out method. The need for inventory obsolescence provisions is evaluated by the Company and, when appropriate, provisions for technological obsolescence, non-profitability of related product lines and excess quantities on hand are made. Property, Equipment and Depreciation Property and equipment are stated at cost. Depreciation and amortization are provided on the straight line method over the following estimated useful lives: Building 35 years Machinery and equipment 3-10 years Furniture and fixtures 5-10 years Leasehold improvements Shorter of the life of improvement or remaining life of the lease Excess of Cost over Net Tangible Assets Acquired The Company continually evaluates whether changes have occurred that would require revision of the remaining estimated useful life of the assigned excess of cost over the value of net tangible assets acquired (goodwill) or its carrying amount. In making such determinations, the Company evaluates undiscounted cash flows of the underlying business which gave rise to such amount. As of December 31, 1998, all of the Company's goodwill relates to the 1996 acquisition of Pro-Bel Limited. Costs in excess of net assets are being amortized over 12 years using the straight line method. Amortization in 1998, 1997 and 1996 amounted to $577,000, $603,000 and $487,000, respectively. Software Development Costs Certain software development costs are capitalized when incurred. Capitalization of software development costs begins upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs is continually monitored by management with respect to anticipated future revenues and estimated economic life. Amortization of capitalized software development costs is provided on a product-by-product basis using the straight line method over each product's estimated economic life, which ranges from 3-5 years. Impairment of Long-Lived Assets The Company continually evaluates whether changes have occurred that would require revisions to the carrying amounts of its long-lived assets. In making such determination, the Company reassesses market value, assesses recoverability and replacement values and evaluates undiscounted cash flows of the underlying business. Currently, management does not believe any of its long-lived assets are impaired. Revenue Recognition Net sales, which include revenue derived from product sales and upgrades, as well as service revenue, are recorded upon shipment of product or performance of service. Customer service costs are included in selling, general and administrative expenses and are not material. Revenues and costs associated with long-term (generally six months or longer) contracts are recognized on the percentage-of-completion method. Revisions in profit estimates are reflected in the period in which the facts that give rise to the revision become known. Provisions for anticipated losses are charged to earnings when identified. Income Taxes The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under SFAS 109, deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end. Foreign Currencies Assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars at the current rate of exchange, while revenues and expenses are translated at the average exchange rate during the year. Adjustments from translating foreign subsidiaries' financial statements are reported as a separate component of stockholders' equity. Transaction gains or losses are included in interest and other expenses. Net (Loss) Income Per Share In 1997, the Company adopted the Financial Accounting Standards Board Statement No. 128, "Earnings Per Share." All amounts prior to 1997 have been restated to reflect this statement. Basic net (loss)/income per common share is computed based on the weighted average number of common shares outstanding during the year. Diluted net (loss) income per common share is computed based on the weighted average number of common shares outstanding during the year plus, when dilutive, additional shares issuable upon the assumed exercise of outstanding common stock equivalents. Incremental shares of nil in 1998 and 1997 and 502,000 in 1996, respectively, were used in the calculation of diluted net (loss) income per share. For 1998 and 1997 outstanding common stock options of 2,765,304 and 2,458,423, respectively, were not included in the computation of diluted net (loss) income per common share because their effect would have been anti-dilutive. For 1996 outstanding stock options of 396,302 were not included in the computation of diluted net income per share because the exercise price was greater than the average market price of the common stock. Stock-Based Compensation Plans The Company accounts for stock based compensation awards pursuant to Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and its related interpretations which prescribe the use of the intrinsic value based method. Accordingly, no compensation cost has been recognized for its fixed stock option plans. However, the Company has adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation." Segment Information In 1998, the Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise and Related Information. SFAS 131 replaces the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. SFAS 131 also requires disclosures about products and services, geographic areas, and major customers. Comprehensive Income Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." Total comprehensive income and the components of accumulated other comprehensive income are presented in the Consolidated Statements of Shareholders' Equity. Software Revenue Recognition In the first quarter of 1998, the Company adopted AICPA Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition." This SOP provides guidance on when revenue should be recognized for licensing, selling, leasing, or otherwise marketing computer software. The adoption of SOP 97-2 did not have a material effect on the results of operations of the Company for the year ended December 31, 1998. 2. ACQUISITIONS Pro-Bel Limited On April 12, 1996, the Company acquired Pro-Bel Limited ("Pro-Bel") in exchange for $6.9 million in cash, 3.5 million British Pounds Sterling ("BPS") in notes ($5.3 million at the exchange rate on date of acquisition) and 1,048,735 shares of restricted Chyron common stock valued at $6.9 million. The acquisition of Pro-Bel was accounted for as a purchase. Accordingly, the cost of the acquisition was allocated to the net assets acquired based upon their estimated fair values. The following summary financial data includes the proforma operating results of the Company and Pro-Bel for the year ended December 31, 1996, assuming the acquisition of Pro-Bel had been made as of January 1, 1996 (in thousands, except per share amounts). Net sales $92,974 Net income 8,633 Net income per share .27 These pro forma results have been prepared for comparative purposes only and include adjustments as a result of applying purchase accounting and the conversion to generally accepted accounting principles in the United States. The pro forma financial information is not necessarily indicative of the operating results that would have occurred if the acquisition had taken place on the aforementioned dates or of future results of operations of the consolidated entities. Axis Holdings Incorporated On March 31, 1997, the Company acquired Axis Holdings Incorporated ("Axis") located in Los Angeles, California. Axis developed professional video and audio software specifically for use on the Microsoft Windows NT Operating System. The purchase price consisted of $413,000 in cash, $667,000 in notes (bearing interest at 6%) and 173,913 restricted shares of Chyron common stock valued at $750,000. The first installment of the notes was paid on March 31, 1998 and the final installment of $417,000 is due on March 31, 1999. The acquisition was accounted for as a purchase. Accordingly, the costs of the acquisition were allocated to the net assets acquired based on their estimated fair values. The majority of the purchase price was capitalized as software development costs. During the second quarter of 1998, as a result of this division's inability to meet revenue and operating targets, this division, Concerto, was discontinued and all related software development costs were written off. See Note 3 to Consolidated Financial Statements. 3. NON-RECURRING CHARGES During the second quarter of 1998, management determined that it would be in the Company's best interest to implement a restructuring plan and refocus its efforts on its core products of graphics, routing and automation for the television broadcast, cable and post production industries. This product line restructuring resulted in the sale of Trilogy Broadcast Limited ("Trilogy"), a wholly-owned subsidiary of Pro-Bel Limited; the modification of the Company's investment in Real Time Synthesized Entertainment Technology, Ltd. ("RT-SET"); the reorganization of Chyron's sales and marketing organizations; and the planned disposition of the Concerto Division. As a result, the Company recorded restructuring and other non- recurring charges of $3,979,000. The restructuring charge includes the write-down of Concerto assets, accrued severance, legal costs and costs of disposition of such division totaling $2.9 million. Other non-recurring charges relate to management's initiative to refocus on the Company's core products and total $1.1 million. Included in other non-recurring charges are costs related to the sales reorganization, accrued severance of $245,000 and other miscellaneous costs of $315,000, all of which will require cash outlays. Additional accruals have been made for litigation and other legal costs. As of December 31, 1998 cash outlays of $960,000 have been made. The specific components of this non-recurring charge are as follows (in thousands): Non-cash charges: Write-down of Concerto assets to net realizable value $2,300 Cash outlays: Accrued severance 645 Accrued litigation and other legal costs 500 Loss on lease commitment 120 Other 414 $3,979 During the first six months of 1997, non-recurring charges totaling $3.1 million were incurred by the Company. A non-recurring charge of $675,000 incurred in the first quarter of 1997 was attributable to the Company's planned secondary offering of common stock, which was terminated due to the change in the market valuation of the stock. During the second quarter of 1997, in an effort to position Chyron to meet the domestic television market's need for high definition and multichannel standard definition equipment that comply with the 1996 FCC rulings described above, the Company underwent a repositioning which, together with several other items, resulted in non-recurring charges totaling $2,407,000. Included in this charge was a write-down of inventory related to product lines which have been discontinued as a result of a new market positioning strategy, severance expense related to staff reductions, the write-off of software development projects related to products not within the new strategy, the consolidation of certain Chyron offices, the settlement of litigation and the write-off of costs related to a potential acquisition that was abandoned due to the new strategy. The specific components of the non-recurring charge are as follows (in thousands): Non-cash charges: Write-down of inventory $ 700 Write-off of software development costs 205 Litigation settlement - issuance of Chyron common stock 88 Total non-cash charges 993 Cash outlays: Secondary offering termination 675 Severance 825 Write-off of acquisition costs 200 Litigation settlement 100 Other 289 Total $3,082 Cash outlays related to the non-recurring charges total $2.1 million, of which $1.6 million was made by December 31, 1997. As of December 31, 1998 all cash outlays have been made. 4. INVESTMENT IN RT-SET On February 29, 1996, the Company effectively purchased an option to acquire a 19% interest in RT-SET, located in Tel Aviv, Israel. RT-SET develops, markets and sells real time virtual studio set software and proprietary communications hardware that operate on Silicon Graphics systems. In form, Chyron purchased shares of RT-SET convertible preferred stock, which were convertible into RT-SET common stock, in exchange for 800,000 shares of Chyron restricted common stock. In accordance with the purchase agreement, the 800,000 shares of Chyron common stock were to be held in escrow and released in tranches of one-third and two-thirds, subject to certain conditions. During 1996, the first of these conditions was met, which resulted in the release of 266,666 shares of Chyron restricted common stock to RT-SET. In addition, Chyron was granted certain call option rights which, if exercised, would result in the Company owning up to a 51% interest in RT-SET. On May 26, 1998 the Company entered into a Modification Agreement with RT- SET whereby: (1) Chyron forfeited its call option rights, (2) RT-SET returned the 533,334 shares of Chyron common stock, previously issued and held in escrow, to the Company, and (3) Chyron agreed to convert all of its shares of RT-SET preferred stock into RT-SET common shares at no less than the equivalent value of $2,161,000. In October 1998, RT-SET completed a private placement and such shares of RT-SET preferred stock were converted into the equivalent value of common shares representing a 6% interest. 5. SALE OF TRILOGY BROADCAST LIMITED On August 19, 1998, the Company completed the sale of Trilogy, a wholly- owned subsidiary of Pro-Bel, to its management. The Company received gross proceeds of 2.0 million BPS ($2.7 million at the exchange rate at closing), an interest bearing note for 300,000 BPS ($502,500 at December 31, 1998) due August 2003 with interest payable quarterly at LIBOR and a 19% interest in the new company that results from this transaction. This transaction resulted in an overall gain of approximately $1.2 million. As a result of this sale, the Company's assets and liabilities decreased by approximately $2.9 million and $800,000, respectively. For the year ended December 31, 1998, Trilogy contributed sales, gross profit and operating income of $2.9 million, $1.6 million and $20,000, respectively. 6. ACCOUNTS RECEIVABLE Accounts receivable are stated net of an allowance for doubtful accounts of $3,881,000 and $3,124,000 at December 31, 1998 and 1997, respectively. The provision for doubtful accounts amounted to $1,176,000, $533,000 and nil for 1998, 1997 and 1996, respectively. Accounts receivable are principally due from customers in, and dealers serving, the broadcast video industry and non-broadcast display markets. At December 31, 1998 and 1997, receivables included approximately $8.6 million and $13.6 million, respectively, due from foreign customers. Accounts receivable include costs and estimated earnings in excess of billings on uncompleted contracts accounted for on the percentage of completion method of approximately $2.3 million at December 31, 1998. Such amount represents revenue recognized on a long-term contract that has not been billed pursuant to contract terms. The Company periodically evaluates the credit worthiness of its customers and determines whether collateral (in the form of letters of credit or liens on equipment sold) should be taken or whether reduced credit limits are necessary. Credit losses have consistently been within management's expectations. The carrying amounts of accounts receivable approximate their fair values. 7. INVENTORIES Inventories consist of the following (in thousands): December 31, 1998 1997 Finished goods $7,266 $12,346 Work-in-progress 3,048 9,303 Raw material 9,064 4,891 $19,378 $26,540 8. PROPERTY AND EQUIPMENT Property and equipment consist of the following (in thousands): December 31, 1998 1997 Land $ 819 $ 798 Building 1,777 1,619 Machinery and equipment 16,706 14,019 Furniture and fixtures 2,626 2,287 Leasehold improvements 699 727 22,627 19,450 Less: Accumulated depreciation and amortization 10,082 7,077 $12,545 $12,373 Machinery and equipment at December 31, 1998 and 1997 includes $1,556,000 and $1,045,000, respectively, of assets held under capital lease obligations. Accumulated depreciation and amortization at December 31, 1998 and 1997 includes $968,000 and $516,000, respectively, attributable to assets held under capital lease obligations. Depreciation expense, which includes amortization of assets under capital lease, was $2,495,000, $2,362,000 and $1,671,000 in 1998, 1997 and 1996, respectively. 9. SOFTWARE DEVELOPMENT COSTS The following amounts were capitalized, amortized and written off (in thousands): 1998 1997 1996 Amounts capitalized $3,181 $4,425 $1,420 Less: Amortization (included in research and development expense) (1,647) (1,172) (960) Non-recurring charge-write-down to net realizable value (2,300) (205) Net increase (decrease) in software development costs $ (766) $3,048 $ 460 Capitalized amounts for 1997 include $1.7 million arising from the purchase of Axis. Accumulated amortization at December 31, 1998 and 1997 was $4,186,000 and $4,554,000, respectively. 10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following (in thousands): December 31, 1998 1997 Accounts payable $ 7,554 $7,948 Compensation 1,630 1,898 Income taxes payable 257 486 Other accrued items 4,695 5,159 $14,136 $15,491 11. LONG-TERM DEBT Long term debt consists of the following (in thousands): December 31, 1998 1997 Term loan, maturing April 16, 2000 (a) $1,000 $4,500 Revolving credit facility, expiring March 28, 1999 (a) 7,693 2,730 Commercial mortgage term loan, maturing March 28, 2010 (b) 1,909 1,965 Promissory notes, payable on or before April 15, 1998 (c) 5,766 Trade finance facility, expiring December 31, 1998 (d) 2,846 4,464 Promissory notes, payable on March 31, 1999 (e) 417 667 Convertible debentures, maturing December 31, 2003 (f) 1,133 14,998 20,092 Less amounts due in one year 1,512 2,318 $13,486 $17,774 (a) On March 28, 1996 and April 16, 1996, the Company entered into agreements with a bank to obtain a revolving credit facility of $10 million and a term loan of $8 million, respectively. The entire facility is secured by Chyron's accounts receivable and inventory and the common stock of Pro- Bel. Borrowings are limited to amounts computed under a formula for eligible accounts receivable and inventory. Interest on the revolving credit facility is equal to adjusted LIBOR plus 175 basis points or prime (7.4% at December 31, 1998) and is payable monthly. The term loan is payable in quarterly installments of $500,000, commencing June 1, 1996. Interest on the term loan is equal to adjusted LIBOR plus 200 basis points or prime and is payable monthly. The Company must pay a commitment fee equal to 1/4 of 1% per annum on the average daily unused portion of the credit facility. The commitment fee is payable on the last day of each quarter commencing June 30, 1996. This agreement contains, among other provisions, requirements for maintaining defined levels of net worth, leverage, capital expenditures, lease payments and various financial ratios. The Company is prohibited by the agreement from paying cash dividends in excess of 25% of its net income for the then current fiscal year. As of December 31, 1998, the Company was in violation of certain financial covenants under these agreements for which it has obtained waivers. The Company is in the process of renegotiating its revolving credit facility with its lender. The Company believes that it will be able to come to terms on a new long-term facility before its expiration on March 28, 1999. (b) Pro-Bel has a commercial mortgage term loan with a bank. The loan is secured by a building and property located in the United Kingdom. Interest is equal to LIBOR plus 2% (7.6% at December 31, 1998) . The loan is payable in quarterly installments of 80,600 BPS ($135,000, converted at the December 31, 1998 exchange rate) plus interest. (c) On April 12, 1996, the Company issued promissory notes to the shareholders of Pro-Bel for 3.5 million BPS ($5,766,000, at the December 31, 1997 exchange rate) in conjunction with the acquisition. The promissory notes were secured and paid by an irrevocable letter of credit from a bank. The amount of this irrevocable letter of credit was drawn against the revolving credit facility described in (a) above. Interest from April 16, 1997 through April 15, 1998 was equal to LIBOR as of April 15, 1997 (7.03%) and was payable quarterly. Interest through April 15, 1997 was equal to LIBOR as of April 15, 1996 (6.46%) and was payable quarterly. The notes were subordinated to any obligations to a bank or financial institution currently existing or subsequently entered into. As of April 15, 1998 the notes were paid in full. (d) Pro-Bel has an agreement with a bank for an overdraft facility that has been renewed on an annual basis. This agreement, as renewed, provides for an annual overdraft facility of 3 million BPS, 4 million BPS and 3 million BPS for the years ended December 31, 1997, 1998 and 1999, respectively. Total borrowings are limited to amounts computed under a formula for eligible accounts receivable. Interest is equal to the bank's base rate plus 1.5% (7.75% at December 31, 1998) and is payable quarterly. It is currently the Company's intention to refinance this facility prior to its expiration date. (e) On March 31, 1997, the Company issued promissory notes to the shareholders of Axis for $667,000 in conjunction with the acquisition. The promissory notes are due in installments with the final payment of $417,000 due March 31, 1999. Interest is payable with the installments, at a rate of 6% per annum. (f) During December 1998, the Company issued $1,133,000 of 8% Subordinated Convertible Debentures to certain persons and entities, including certain directors, affiliates and shareholders of the Company. The debentures are due December 31, 2003. The debentures are convertible into the Company's common stock at a price of $2.466 per share which was equal to 120% of the average of the closing selling price of the common stock for the 90 trading days immediately preceding their issue date. The Company may redeem the debentures at any time commencing on December 31, 1999 for the principal plus accrued and unpaid interest to the redemption date. Subject to certain restrictions, the debentures are exchangeable, at the option of the holders thereof, for a like principal amount of any series of convertible subordinated debentures which the Company may issue pursuant to a private placement, through a placement agent, within 180 days of the issue date of the debentures. The net proceeds from the offering were used for general working capital purposes. Aggregate maturities of long term debt are as follows (in thousands): 1999 $ 1,512 2000 10,634 2001 95 2002 95 2003 1,228 2004 1,434 The carrying amounts of long-term debt instruments approximate their fair values. Net interest expense was $1,479,000, $1,665,000 and $1,402,000 in 1998, 1997 and 1996, respectively. 12. LONG-TERM INCENTIVE PLAN In May 1995, the Company's shareholders approved the Chyron Corporation Long-Term Incentive Plan ("the Plan"). The Plan, as amended in May 1997, allows for a maximum of 3,000,000 shares of common stock to be available with respect to the grant of awards under the Plan. The Plan allows for the award of incentive and non-incentive options to employees and non-incentive options to non-employee members of the Company's Board of Directors. Options issued to employees other than the Company's Chief Executive Officer ("CEO") and another officer vest over a three year period. Certain options issued to the CEO and the other officer vest one third at issuance, with the remaining two thirds vesting over two years. Additional options issued to the CEO vest based on the earlier of the attainment of specified criteria or December 15, 2003. Options issued to non-employee members of the Company's Board of Directors vest immediately. All options have a term of ten years. In December 1998, the Company offered all option holders who were current employees of the Company the opportunity to exchange certain of their existing options for new options. As a result, options to purchase shares of Common Stock were granted with the following terms: (a) fifty percent of such new stock options were granted with an exercise price of $2.125 and shall vest in equal installments over three years; and (b) the remaining fifty percent of such new stock options were granted with the same exercise price; all of such stock options shall vest in their entirety on December 15, 2003; provided, however, that such options shall vest earlier upon the attainment of certain Company performance criteria related to earnings per share. Transactions involving stock options are summarized as follows: Stock Options Range of Option Outstanding Price per Share Balance, January 1, 1996 1,071,665 $4.875 - $5.625 Granted 468,332 $9.375 - $16.125 Exercised (113,018) $4.875 - $5.625 Canceled (86,666) $4.875 Balance, December 31, 1996 1,340,313 $4.875 - $16.125 Granted 1,767,498 $4.25 - $5.875 Exercised (22,220) $4.875 Canceled (627,168) $9.00 - $12.75 Balance, December 31, 1997 2,458,423 $4.25 - $16.125 Granted 2,227,070 $2.00 - $4.00 Canceled (1,920,189) $3.938 - $5.875 Balance, December 31, 1998 2,765,304 $2.00 - $16.125 The following table summarizes information concerning currently outstanding and exercisable stock options: Exercise Outstanding at Weighted Average Exercisable at Price December 31, 1998 Contractual Life December 31, 1998 $4.875 368,558 1.56 years 368,558 16.125 23,331 1.58 years 23,331 5.625 26,664 1.58 years 26,664 12.750 3,333 1.71 years 3,333 9.375 6,666 2.14 years 6,666 4.500 23,331 2.58 years 23,331 5.875 37,223 3.17 years 12,406 2.000 730,000 5.42 years 5.375 98,389 8.81 years 32,764 4.000 4,500 9.09 years 3.750 30,000 9.16 years 30,000 3.938 2,000 9.34 years 3.063 23,000 9.54 years 2.500 30,000 9.56 years 30,000 2.125 1,358,309 9.93 years 82,500 2,765,304 639,553 If the Company had elected to recognize compensation expense based upon the fair values at the grant date for awards under this plan consistent with the methodology prescribed by SFAS No. 123, "Accounting for Stock Based Compensation", the Company's net (loss) income and net (loss) income per share would be reduced to the pro forma amounts indicated below: 1998 1997 1996 Net (loss) income (in thousands): As reported $(4,447) $(760) $8,654 Pro forma (6,401) (2,866) 7,560 Net (loss) income per common share: As reported $(.14) $(.02) $.27 Pro forma (.20) (.09) .23 These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period for purposes of future pro forma disclosures, and additional options may be granted in future years. The fair value of these options was estimated at the date of grant using the Black-Scholes option- pricing model with the following weighted average assumptions for 1998, 1997 and 1996: dividend yield of 0; expected volatility of 50% and expected life of 4-5 years in 1998 and 4 years in 1997 and 1996. The weighted average risk free interest rates for 1998, 1997 and 1996 were 4.20%, 6.19% and 6.54%, respectively. The weighted average fair values of options granted during 1998, 1997 and 1996, for which the exercise price equaled the market price on the grant dates, were $2.07, $5.254 and $12.87 per option, respectively. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including expected price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of employee stock options. 13. INCOME TAXES The (benefit) provision for income taxes consists of the following (in thousands): 1998 1997 1996 Current: Federal and State $(65) $(607) $1,937 Foreign 142 1,036 473 77 429 2,410 Deferred: Federal and State (1,777) (647) 2,514 Foreign 79 (39) Valuation reserve (140) (1,698) (647) 2,335 Total (benefit) provision $(1,621) $ (218) $4,745 The effective income tax rate differed from the Federal statutory rate as follows (in thousands): 1998 1997 1996 Amount % Amount % Amount % Federal income tax (benefit) provision at statutory rate $(2,063) (34.0) $(333) (34.0) $4,689 35.0 State income taxes, net of federal tax benefit 16 0.3 3 0.3 409 3.0 Permanent differences 44 0.7 35 3.6 36 .3 Benefit from post reorganization temporary differences on tax equivalent provision (140) (1.1) Foreign income tax provision 406 6.7 8 .1 Provision (benefit) of lower tax rates on U.S. federal provision (130) (2.1) 169 17.2 (121) (.9) Effect of valuation allowance of deferred tax assets (150) (1.1) Other, net 106 1.7 (92) (9.4) 14 .1 $(1,621) (26.7) $(218) (22.3) $4,745 35.4 The components of the Company's deferred tax assets and deferred tax liabilities are presented in the tables below. December 31, 1998 1997 Post-reorganization net operating loss carryforward $5,094 $3,433 Pre-reorganization net operating loss carryforward 4,631 4,631 Pre-reorganization deductible temporary differences 3,067 3,067 Other 1,691 1,976 Total deferred tax assets $14,483 $13,107 Pre-reorganization taxable temporary differences $ 83 $85 Software development costs 1,331 913 Other 738 Total deferred tax liabilities $1,414 $1,736 At December 31, 1998, the Company had net operating loss carryforwards ("NOLs") of approximately $28.6 million expiring beginning with the year 2000 through 2018. In connection with the Company's emergence in 1991 from its reorganization under Chapter 11 of the U.S. Bankruptcy Code, the benefit of the Company's pre-reorganization NOLs were not reflected in net income, but rather recorded as an increase to paid-in capital. In addition, such NOLs ($13.6 million) are subject to annual limitations under U.S. income tax rules as a result of the changes in control of the Company. Current accounting standards require that deferred income taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their bases for financial reporting purposes. In addition, future tax benefits, such as NOLs, are required to be recognized to the extent that realization of such benefits is more likely than not. A valuation allowance is established for those benefits that do not meet the more likely than not criteria. Management believes that it is more likely than not that the Company will generate taxable income sufficient to realize the tax benefit associated with future deductible temporary differences and NOL carryforwards prior to their expiration. 14. BENEFIT PLANS Chyron Corporation has a domestic defined benefit pension plan (the "U.S. Pension Plan") covering substantially all U.S. employees meeting minimum eligibility requirements. Benefits paid to retirees are based upon age at retirement, years of credited service and average compensation. Pension expense is actuarially determined using the projected unit credit method. The Company's policy is to fund the minimum contributions required under the Employees Retirement Income Security Act. The assets of the U.S. Pension Plan at December 31, 1998 include government bonds, equities, mutual funds and cash and cash equivalents. Effective July 1, 1998, the Company amended its defined benefit plan for its U.S. operations. The amendment included a change in the determination of average annual compensation for the calculation of the defined pension benefit. In addition, the vesting period has decreased from 6 to 5 years of service. Benefit plan information for the U.S. Pension Plan is as follows (in thousands): 1998 1997 Reconciliation of benefit obligation Obligation at January 1 $4,502 $3,803 Service cost 425 444 Interest cost 285 294 Plan amendments (283) Actuarial (gain) loss (42) 412 Benefit payments (704) (451) Obligation at December 31 $4,183 $4,502 Reconciliation of fair value of plan assets Fair value of plan assets at January 1 $2,895 $2,709 Actual return on plan assets 301 277 Employer contributions 311 360 Benefit payments (704) (451) Fair value of plan assets at December 31 $2,803 $2,895 Funded Status Funded status at December 31 $(1,380) $(1,607) Unrecognized prior-service cost (512) (255) Unrecognized (gain) loss (261) (177) Net amount recognized $(2,153) $(2,039) 1998 1997 1996 Components of net periodic pension cost Service cost $ 424 $ 444 $ 414 Interest cost 285 294 267 Expected return on plan assets (248) (277) (206) Amortization of prior service cost (26) (18) (18) Amortization of net (gain) loss (11) 21 (25) Net periodic benefit cost $ 424 $ 464 $ 432 Weighted-average assumptions as of December 31 Discount rate 7.0% 7.5% 8.0% Expected return on plan assets 9.0% 9.0% 9.0% Rate of compensation increase 5.0% 5.0% 5.0% Pro-Bel has a non-contributory defined benefit pension plan (the "U.K. Pension Plan") covering all its permanent employees. Contributions are determined on the basis of valuations using the projected unit method. Pro-Bel's policy is to fund minimum contributions required pursuant to U.K. rules and regulations. The assets of the U.K. Pension Plan at December 31, 1998 include cash equivalents and land and a building. Benefit plan information for the U.K. Pension Plan is as follows (in thousands): 1998 1997 Reconciliation of benefit obligation Obligation at January 1 $7,505 $5,689 Service cost 706 560 Interest cost 576 455 Plan amendments 730 Actuarial (gain) loss (610) 818 Benefit payments (23) (17) Obligation at December 31 $8,884 $7,505 Reconciliation of fair value of plan assets Fair value of plan assets at January 1 $9,588 $6,944 Actual return on plan assets 190 428 Employer contributions 792 2,233 Benefit payments (23) (17) Fair value of plan assets at December 31 $10,547 $9,588 Funded status Funded status at December 31 $1,663 $2,083 Unrecognized prior-service cost 683 Unrecognized loss 1,170 1,186 Net amount recognized $3,516 $3,269 1998 1997 1996 Components of net periodic pension cost Service cost $ 706 $ 548 $ 303 Interest cost 576 446 285 Expected return on plan assets (799) (420) (457) Amortization of prior service cost 49 Amortization of net (gain) loss 15 (224) Net periodic pension cost $ 547 $ 350 $ 131 Weighted-average assumptions as of December 31 Discount rate 6.0% 7.0% 8.0% Expected return on plan assets 7.0% 8.0% 9.0% Rate of compensation increase 4.0% 5.0% 5.5% The Company has adopted a 401(k) Plan exclusively for the benefit of participants and their beneficiaries. All U.S. employees of Chyron Corporation are eligible to participate in the 401(k) Plan. Effective July 1, 1998, the Company amended its 401(k) Plan by increasing the matching contribution of the Company to 20% and changing its matching contributions from cash to Company common stock and the vesting period for the matching contribution to three years. An employee may elect to contribute a percentage of his or her current compensation to the 401(k) Plan, subject to a maximum of 20% of compensation or the Internal Revenue Service annual contribution limit ($10,000 in 1998 and $9,500 in 1997), whichever is less. Total compensation that can be considered for contribution purposes is limited to $160,000. Chyron Corporation can elect to make a contribution to the 401(k) Plan on behalf of those participants who have made salary deferral contributions. During 1998, 1997 and 1996, the Company contributed $97,000, $63,000 and $51,000, respectively, to the 401(k) Plan. 15. COMMITMENTS AND CONTINGENCIES At December 31, 1998, the Company was obligated under operating and capital leases covering facility space and equipment as follows (in thousands): Operating Capital 1999 $ 1,259 $ 498 2000 1,253 381 2001 1,115 120 2002 1,099 2003 835 2004 and thereafter 5,779 The operating leases contain provisions for escalations and for maintenance and real estate taxes. Total rent expense was $1,125,000, $965,000 and $826,000 for 1998, 1997 and 1996, respectively. The cumulative imputed interest in the capital lease obligation was $103,000 at December 31, 1998. The Company from time to time is involved in routine legal matters incidental to its business. In the opinion of management, the ultimate resolution of such matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity. 16. RELATED PARTY TRANSACTIONS The secretary of the Company, a non-executive position, and an individual who held a board seat through May 1997 are affiliated with a law firm that rendered various legal services to the Company for which the Company incurred costs of $248,000, $783,000 and $861,000 during 1998, 1997 and 1996, respectively. 17. SEGMENT INFORMATION In 1998, the Company adopted SFAS 131. Prior period segment information has been restated to conform to the requirements of this statement. Chyron's businesses are organized, managed and internally reported as two segments. The segments, which are based on differences in products and technologies, are Graphics Products and Media Management Systems. The accounting policies of the segments are the same as those described in the "Summary of Significant Accounting Policies." The Company is an integrated organization characterized by interdivisional cooperation, cost allocations and inventory transfers. Therefore, management does not represent that these segments, if operated independently, would report the financial information shown below. Business Segment Information (In thousands) Media Graphics**Management* Net sales 1998 $38,447 $45,263 1997 40,716 46,058 1996 55,888 26,720 Operating income (loss) 1998 $(4,165) $(1,311) 1997 (2,884) 3,148 1996 13,985 1,080 Identifiable assets 1998 $44,481 $38,635 1997 49,500 44,580 1996 52,007 39,396 Depreciation and amortization 1998 $ 2,548 $ 2,171 1997 2,193 1,944 1996 1,778 1,342 Geographic Areas (In thousands) United States** Europe* Other Net sales 1998 $45,954 $33,640 $4,116 1997 35,901 40,745 10,128 1996 55,446 24,281 2,881 Operating income (loss) 1998 $(4,055) $(1,187) $ (234) 1997 (2,817) 3,157 (76) 1996 12,764 1,611 690 Identifiable assets 1998 $48,512 $34,539 $ 65 1997 51,160 42,860 60 1996 52,988 38,375 40 * Includes amount related to Pro-Bel subsequent to its acquisition on April 12, 1996. ** Operating income includes non-recurring charges in 1998 and 1997 of $3,979 and $3,082, respectively. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III In connection with the Annual Meeting of Shareholders of the Company, the Company intends to furnish Shareholders with proxy material which sets forth the information required by Items 10, 11, 12 and 13 of this Part III. Copies of such material will be duly filed with the U.S. Securities and Exchange Commission pursuant to Rule 14a-(6)/(c) promulgated under the Securities Exchange Act of 1934, as amended, not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Financial Statements See index to Consolidated Financial Statements on page 20. (2) Financial Statement Schedules The following Consolidated Financial Statement schedule of Chyron Corporation and subsidiaries is included in Item 14(d) found on page 51: Schedule II - Valuation and Qualifying Accounts for the Years Ended December 31, 1998, 1997 and 1996. All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required or because the required information is not material or is included in the Consolidated Financial Statements or notes thereto. (3) Financial Statement Exhibits See list of exhibits to the Financial Statements in Section (c) below: (b) Reports on Form 8-K None Note (c) Exhibits 3. Articles of Incorporation and By-Laws. (a) Restated Certificate of Incorporation of Chyron Corporation (1) (b) Amended and Restated By-Laws of Chyron Corporation, adopted October 28, 1998 (8) (c) Amendment of Certificate of Incorporation of Chyron Corporation, adopted January 24, 1997 (5) 4. Instruments defining rights of security holders, including debentures. (a) Registration Rights Agreement, dated December 27, 1991, between Chyron Corporation and Pesa, Inc. (2) (b) Registration Rights Agreement dated July 25, 1995 by and between Chyron Corporation and CC Acquisition Company A, L.L.C., CC Acquisition Company B, L.L.C., WPG Corporate Development Associates, IV, L.P., WPG Corporate Development Associates IV (Overseas), L.P., WPG Enterprise Fund II, L.P., Weiss, Peck & Greer Venture Associates, III, L.P., Westpool Investment Trust PLC, Lion Investment Limited, Charles Diker, Mint House Nominees Limited, Pine Street Ventures, L.L.C., Isaac Hersly, Alan I. Annex, Ilan Kaufthal, Z Four Partners L.L.C. and A.J.L. Beare (4) (c) 8% Subordinated Convertible Debenture Due December 31, 2003 (8) (d) Subscription Agreement and Investment Representation for the purchase of the 8% Subordinated Convertible Debenture Due December 31, 2003 (8) 10. Material Contracts. (a) Distribution and License Agreement, dated September 22, 1994, between Chyron Corporation and Comunicacion Integral Consultores, S.L. (3) (b) Termination Agreement, dated November 6, 1995, between Chyron Corporation and Comunicacion Integral Consultores, S.L. (4) (c) Loan Agreement between Chyron Corporation and NatWest Bank N.A. (currently known as Fleet Bank), dated March 28, 1996 (5) (d) Loan Agreement between Pro-Bel Limited and Barclays Bank, PLC dated December 19, 1996 effective January 1997 (5) (e) Indemnification Agreement between Chyron Corporation and Roi Agneta dated November 19, 1996 (5) (f) Indemnification Agreement between Chyron Corporation and James Coppersmith dated November 19, 1996 (5) (g) Indemnification Agreement between Chyron Corporation and Daniel DeWolf dated November 19, 1996 (5) (h) Indemnification Agreement between Chyron Corporation and Charles M. Diker dated November 19, 1996 (5) (i) Indemnification Agreement between Chyron Corporation and Donald P. Greenberg dated November 19, 1996 (5) (j) Indemnification Agreement between Chyron Corporation and Ray Hartman dated November 19, 1996 (5) (k) Indemnification Agreement between Chyron Corporation and Roger Henderson dated November 19, 1996 (5) (l) Indemnification Agreement between Chyron Corporation and Alan J. Hirschfield dated November 19, 1996 (5) (m) Indemnification Agreement between Chyron Corporation and Patricia Lampe dated November 19, 1996 (5) (n) Indemnification Agreement between Chyron Corporation and Wesley W. Lang, Jr. dated November 19, 1996 (5) (o) Indemnification Agreement between Chyron Corporation and Eugene M. Weber dated November 19, 1996 (5) (p) Indemnification Agreement between Chyron Corporation and Michael Wellesley-Wesley dated November 19, 1996 (5) (q) Employment Agreement between Chyron Corporation and Edward Grebow dated June 5, 1997 (6) (r) Indemnification Agreement between Chyron Corporation and Edward Grebow dated June 5, 1997 (7) 23. Consents and experts of counsel. (a) Consent of PricewaterhouseCoopers dated March 30, 1999 (8) (1) Incorporated herein in its entirety by reference to the Annual Report for the Fiscal Year Ended June 30, 1991 on Form 10-K dated January 31, 1992. (2) Incorporated herein in its entirety by reference to the report on Form 8-K dated December 27, 1991. (3) Incorporated herein in its entirety by reference to the Annual Report for the fiscal year ended December 31, 1994 on Form 10-K dated March 24, 1995. (4) Incorporated herein in its entirety by reference to the Annual Report for the fiscal year ended December 31, 1995 on Form 10-K dated March 14, 1996. (5) Incorporated herein in its entirety by reference to the Annual Report for the fiscal year ended December 31, 1996 on Form 10-K dated March 20, 1997. (6) Incorporated herein in its entirety by reference to the Form 10-Q for the quarter ended June 30, 1997 dated August 12, 1997. (7) Incorporated herein in its entirety by reference to the Annual Report for the fiscal year ended December 31, 1997 on Form 10-K dated March 16, 1998. (8) Incorporated herein in this Annual Report for the fiscal year ended December 31, 1998 on Form 10-K dated March 30, 1999. d) Financial Statement Schedules Schedule II CHYRON CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (In thousands) Column A Column B Column C Column D Column E Balance at Charged to Balance at Beginning Costs and End of Description of Period Expenses Deductions Period Reserves and allowances deducted from asset accounts: YEAR ENDED DECEMBER 31, 1998 Allowance for doubtful accounts $3,124 $1,176 $ 419 $3,881 Inventory reserves 8,162 2,996 1,092 10,066 YEAR ENDED DECEMBER 31,1997 Allowance for doubtful accounts 2,850 533 259 3,124 Inventory reserves 12,041 1,887 5,766 8,162 YEAR ENDED DECEMBER 31, 1996 Allowance for doubtful accounts 3,134 284 2,850 Inventory reserves 12,233 192 12,041 Deferred tax assets valuation allowance 5,400 5,400 0 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHYRON CORPORATION /s/ Edward Grebow Edward Grebow President and Chief Executive Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below on March 30, 1999, by the following persons on behalf of the registrant and in the capacities on the date indicated. /s/ Michael Wellesley-Wesley (Michael Wellesley-Wesley) Chairman of the Board of Directors /s/ Charles Diker (Charles Diker) Director /s/ Joseph Flaherty (Joseph Flaherty) Director /s/ Edward Grebow (Edward Grebow) President, Chief Executive Officer and Director /s/ Donald Greenberg (Donald Greenberg) Director /s/ Roger Henderson (Roger Henderson) Director /s/ Alan Hirschfield (Alan Hirschfield) Director /s/ Dawn Johnston Dawn Johnston Chief Financial Officer /s/ Wesley Lang (Wesley Lang) Director /s/ Eugene Weber (Eugene Weber) Director EX-27 2
5 This schedule contains summary financial information extracted from the December 31,1998 company's consolidated financial statements and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1998 DEC-31-1998 1,585 0 22,277 3,881 19,378 46,067 22,627 10,082 83,116 16,031 0 0 0 321 49,449 83,116 83,710 83,710 44,250 44,250 44,936 0 1,786 (6,068) (1,621) (4,447) 0 0 0 (4,447) (.14) (.14)
EX-3 3 AMENDED AND RESTATED BY-LAWS of CHYRON CORPORATION Amended as of October 28, 1998 ARTICLE I Shareholders Section 1. Annual Meeting. A meeting of shareholders of the Corporation shall be held annually at the principal office of the Corporation in the State of New York, at 10:00 A.M. on the first Tuesday in November, or at such other place within or without the State of New York, at such other time and on such date as may from time to time be fixed by the Board of Directors, for the election of directors and for the transaction of such other business as may come before the meeting. Section 2. Special Meetings. Special meetings of shareholders of the Corporation may be called by the Board of Directors or the Chairman, and shall be called by the Secretary upon the written request of shareholders of record holding at least a majority in number of the issued and outstanding shares of the Corporation entitled to vote at such meeting. Special meetings shall be held at such place within or without the State of New York, at such time and on such date as shall be specified in the call thereof. At any special meeting, only such business may be transacted which is related to the purpose or purposes set forth in the notice of such special meeting. Section 3. Notice of Meetings. Written notice of each meeting of shareholders stating the place, date and hour thereof and, unless it is an annual meeting, the purpose or purposes for which the meeting is called and that it is being issued by or at the direction of the person or persons calling the meeting, shall be given personally or by mail, not less than ten nor more than fifty days before the date of such meeting, to each shareholder entitled to vote at such meeting. If mailed, such notice is given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at his or her address as it appears on the record of shareholders or, if he or she shall have filed with the Secretary a written request that notices to him or her be mailed to some other address, then directed to him or her at such other address. If, at any meeting, action is proposed to be taken which would, if taken, entitle shareholders fulfilling the requirements of Section 623 of the Business Corporation Law to receive payment for their shares, the notice of such meeting shall include a statement of that purpose and to that effect. Section 4. Waiver of Notice. Notice of any meeting of shareholders need not be given to any shareholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him or her. Section 5. Adjournment. When any meeting of shareholders is adjourned to another time or place, it should not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. However, if after such adjournment the Board of Directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record on the new record date entitled to vote at such meeting. Section 6. Quorum. Except as otherwise provided by law, the holders of a majority of the shares entitled to vote at any meeting of shareholders, shall constitute a quorum thereat for the transaction of any business. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders. The shareholders present may adjourn a meeting despite the absence of a quorum. Section 7. Proxies. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for him or her by proxy. Every proxy must be signed by the shareholder or his or her attorney-in-fact. No proxy shall be valid after the expiration of eleven months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it, except as otherwise provided by law. Section 8. Voting. Every shareholder of record shall be entitled at every meeting of shareholders to one vote for every share standing in his or her name on the record of shareholders. Directors shall, except as otherwise required by law, be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in such election. Whenever any corporate action, other than the election of directors, is to be taken by vote of the shareholders, it shall, except as otherwise required by law, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. Section 9. Action Without a Meeting. Any action required or permitted to be taken by shareholders by vote may be taken without a meeting on written consent, setting forth the action so taken, signed by the holders of all outstanding shares entitled to vote thereon. Section 10. Record Date. The Board of Directors may fix, in advance, a date, which date shall not be more than fifty nor less than ten days before the date of any meeting of shareholders nor more than fifty days prior to any other action, as the record date for the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made as provided herein, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting. ARTICLE II Directors Section 1. Number and Qualifications. The number of directors constituting the entire Board of Directors shall be three or such other number, but not more than ten nor less than three, as a majority of the entire Board of Directors may from time to time determine, except that where all the shares of the Corporation are owned beneficially and of record by less than three shareholders, the number of directors may be less than three but not less than the number of shareholders. Directors need not be shareholders of the Corporation. Each of the directors shall be at least eighteen years of age. Section 2. Election and Term of Office. At each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting of shareholders. Each director shall hold office until the expiration of such term, and until his or her successor has been elected and qualified, unless he or she sooner die, resign or be removed. Section 3. Meetings. A meeting of the Board of Directors shall be held for the election of officers and for the transaction of such other business as may properly come before such meeting as soon as practicable after the annual meeting of shareholders. Other regular meetings of the Board of Directors may be held at such times as the Board of Directors may from time to time determine. Special meetings of the Board of Directors may be called at any time by the Chairman or by a majority of the directors then in office. Meetings of the Board of Directors shall be held at the principal office of the Corporation in the State of New York or at such other place within or without the State of New York as may from time to time be fixed by the Board of Directors. Section 4. Notice of Meetings; Adjournment. No notice need be given of the first meeting of the Board of Directors after the annual meeting of shareholders or of any other regular meeting of the Board of Directors, provided the time and place of such meetings are fixed by the Board of Directors. Notice of each special meeting of the Board of Directors and of each regular meeting the time and place of which has not been fixed by the Board of Directors, specifying the place, date and time thereof, shall be given personally, by mail or telegraphed to each director at his or her address as such address appears upon the books of the Corporation at least two business days (Saturdays, Sundays and legal holidays not being considered business days for the purpose of these By-Laws) before the date of such meeting. Notice of any meeting need not be given to any director who submits a signed waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him or her. Notice of any directors' meeting or any waiver thereof need not state the purpose of the meeting. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. Notice of any adjournment of a meeting of the Board of Directors to another time or place shall be given to the directors who were not present at the time of the adjournment and, unless such time and place are announced at the meeting, to the other directors. Section 5. Quorum; Voting. At any meeting of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business or of any specified item of business. Except as otherwise required by law, the vote of a majority of the directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board of Directors. Section 6. Participation by Telephone. Any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. Section 7. Action Without a Meeting. Any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the Board of Directors or such committee shall be filed with the minutes of the proceedings of the Board of Directors or such committee. Section 8. Committees. The Board of Directors, by resolution adopted by a majority of the entire Board of Directors, may designate from among its members an Executive Committee and other committees, each consisting of three or more directors. Each such committee, to the extent provided in such resolution, shall have all the authority of the Board of Director, except that no such committee shall have authority as to the following matters: (a) the submission to shareholders of any action that needs shareholders' approval pursuant to law, (b) the filling of vacancies in the Board of Directors or in any committee, (c) the fixing of the compensation of the directors for serving on the Board of Directors or on any committee, (d) the amendment or repeal of these By-Laws, or the adoption of new By-Laws, or (e) the amendment or repeal of any resolution of the Board of Directors which by its terms shall not be so amendable or repealable. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member or members at any meeting of such committee. Each such committee shall serve at the pleasure of the Board of Directors. Section 9. Removal; Resignation. Any or all of the directors may be removed for cause or without cause by vote of the shareholders, and any of the directors may be removed for cause by action of the Board of Directors. Any director may resign at any time, such resignation to be made in writing and to take effect immediately or on any future date stated in such writing, without acceptance by the Corporation. Section 10. Vacancies. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board of Directors for any reason may be filled by vote of the Board of Directors or by vote of the shareholders. If any newly created directorship or vacancy is to be filled by vote of the Board of Directors and the number of directors then in office is less than a quorum, such newly created directorship or vacancy may be filled by vote of a majority of the directors then in office. A director elected to fill a vacancy, unless elected by the shareholders, shall hold office until the next meeting of shareholders at which the election of directors is in the regular order of business, and until his or her successor been elected and qualified, and any director elected by the shareholders to fill a vacancy shall hold office for the un- expired term of his or her predecessor unless, in either case, he or she shall sooner die, resign or be removed. ARTICLE III Officers Section 1. Election; Qualification. At the first meeting of the Board of Directors and as soon as practicable after each annual meeting of shareholders, the Board of Directors shall elect or appoint a Chairman of the Board, one or more Vice Chairman, a President, one or more Vice- Presidents, a Secretary and a Treasurer, and may elect or appoint at such time and from time to time such other officers as it may determine. No officer need be a director of the Corporation. Except as otherwise provided by law, one person may be elected or appointed to more than one office. When all of the issued and outstanding stock of the Corporation is owned by one person, such person may hold all or any combination of offices. Section 2. Term of Office; Vacancies. All officers shall be elected or appointed to hold office until the meeting of the Board of Directors following the next annual meeting of shareholders. Each officer shall hold office for such term, and until his or her successor has been elected or appointed and qualified unless he or she shall earlier resign, die, or be removed. Any vacancy occurring in any office, whether because of death, resignation or removal, with or without cause, or any other reason, shall be filled by the Board of Directors. Section 3. Removal; Resignation. Any officer may be removed by the Board of Directors with or without cause. Any officer may resign his or her office at any time, such resignation to be made in writing and to take effect immediately or on any future date stated in such writing, without acceptance by the Corporation. Section 4. Powers and Duties of the Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the Corporation and shall have the general charge of the business, affairs and property thereof, subject to the direction of the Board of Directors, and shall have general supervision over its officers and agents. He shall preside at all meetings of the shareholders and the Board of Directors. The Chairman of the Board shall have such other powers and shall perform such other duties as may from time to time be assigned to him or her by the Board of Directors. Section 5. Powers and duties of the Vice-Chairman. The Vice Chairman shall perform the duties of the Chairman of the Board in the absence or inability to act of the Chairman of the Board. The Vice Chairman shall have such powers and shall perform such duties as may from time to time be assigned to him or her by the Board of Directors. Section 6. Powers and Duties of the President. The President shall be the chief operating officer of the Corporation and shall have general charge and supervision of its business, affairs, administration and operations. The President shall from time to time make such reports concerning the Corporation as the Board of Directors may direct. The President shall preside at all meetings of shareholders and the Board of Directors in the absence of the Chairman of the Board and Vice Chairman. The President shall have such other powers and shall perform such other duties as may from time to time be assigned to him or her by the Board of Directors. Section 7. Powers and Duties of the Vice-Presidents. Each of the Vice- Presidents shall have such powers and shall perform such duties as may from time to time be assigned to him or her by the Board of Directors. Section 8. Powers and Duties of the Secretary. The Secretary shall record and keep the minutes of all meetings of shareholders and of the Board of Directors. The Secretary shall attend to the giving and serving of all notices by the Corporation. The Secretory shall be the custodian of, and shall make or cause to be made the proper entries in, the minute book of the Corporation and such books and records as the Board of Directors may direct. The Secretary shall be the custodian of the seal of the Corporation and shall affix or cause to be affixed such seal to such contracts, instruments and other documents as the Board of Directors may direct. The Secretary shall have such other powers and shall perform such other duties as may from time to time be assigned to him or her by the Board of Directors. Section 9. Powers and Duties of the Treasurer. The Treasurer shall be the custodian of all funds and securities of the Corporation. Whenever required by the Board of Directors, the Treasurer shall render a statement of the Corporation's cash and other accounts, and shall cause to be entered regularly in the proper books and records of the Corporation to be kept for such purpose full and accurate accounts of the Corporation's receipts and disbursements. The Treasurer shall at all reasonable times exhibit the Corporation's books and accounts to any director of the Corporation upon application at the principal office of the Corporation during business hours. The Treasurer shall have such other powers and shall perform such other duties as may from time to time be assigned to him or her by the Board of Directors. Section 10. Delegation. In the event of the absence of any officer of the Corporation or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may at any time and from time to time delegate all or any part of the powers or duties of any officer to any other officer or officers or to any director or directors. ARTICLE IV Shares The shares of the Corporation shall be represented by certificates signed by the Chairman of the Board, Vice Chairman or the President and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof. Each certificate representing shares shall state upon the face thereof (a) that the Corporation is formed under the laws of the State of New York, (b) the name of the person or persons to whom it is issued, (c) the number and class of shares which such certificate represents and (d) the designation of the series, if any, which such certificate represents. ARTICLE V Execution of Documents All contracts, instruments, agreements, bills payable, notes, checks, drafts, warrants or other obligations of the Corporation shall be made in the name of the Corporation and shall be signed by such officer or officers as the Board of Directors may from time to time designate. ARTICLE VI Seal The seal of the Corporation shall contain the name of the Corporation, the words "Corporate Seal," the year of its organization, and the words "New York." ARTICLE VII Indemnification of Directors, Officers, Employees and Agents Any director, officer, employee, or agent of the Corporation made or threatened to be made a party to an action or proceeding, whether civil, criminal, administrative, or investigative, and whether or not the claim asserted against such person is based on matters which antedate the adoption of this Article VII, by reason of the fact that he, his testator, or his intestate then, is, or was a director, officer, employee, or agent of the Corporation, or then serves or has served any other entity in any capacity at the request of the Corporation, shall be indemnified by the Corporation against any and all expenses (including reasonable attorneys' fees and expenses), costs, judgments, and fines, and any amounts paid in settlement of a claim to the full extent that officers and directors are permitted to be indemnified by the laws of the State of New York at the time such expenses, costs, judgments, fines, and amounts are paid, or at the time the acts or omissions complained of occurred, whichever give the greater protection. ARTICLE VIII Fiscal Year The fiscal year of the Corporation shall be determined by resolution of the Board of Directors. ARTICLE IX Amendment of By-Laws Except as otherwise provided by law, these By-Laws may be amended or repealed, and any new By-Law may be adopted, by vote of the holders of the Shares at the time entitled to vote in the election of any directors or by a majority of the entire Board of Directors, but any by-law adopted by the Board of Directors may be amended or repealed by the shareholders entitled to vote thereon as herein provided. EX-4 4 8% SUBORDINATED CONVERTIBLE DEBENTURE DUE DECEMBER 31, 2003 CHYRON CORPORATION THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THIS CERTIFICATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT REGISTRATION UNDER THE ACT. Melville, New York $ No. December 31, 1998 FOR VALUE RECEIVED, the undersigned, CHYRON CORPORATION, a New York corporation (the "Company"), hereby promises to pay to or its permitted assigns (the "Holder") the principal sum of Dollars ($ ), together with interest thereon at the rate provided herein, and payable on the terms set forth below. This Debenture is one of an issue of Debentures of the Company designated as its 8% Subordinated Convertible Debentures Due December 31, 2003 (the "Debentures"). SECTION 1. INTEREST; PAYMENT OF INTEREST AND PRINCIPAL. 1.1 Interest. This Debenture shall bear interest on the outstanding principal amount from the date hereof (the "Issue Date"), until this Debenture is converted, exchanged, redeemed or paid in full, at an annual rate of 8% (computed on the basis of a 365-day year) (the "Interest Rate"). Interest on this Debenture shall be payable quarterly or the first day of each April, July, October, and January commencing April 1, 1999, or upon conversion, exchange, redemption or at maturity of this Debenture, whichever occurs first. 1.2 Principal. The principal on this Debenture shall be paid upon maturity of this Debenture, unless it has been converted, exchanged, or redeemed in accordance with its terms prior thereto. 1.3 Maturity. All principal and unpaid interest on this Debenture shall be due on December 31, 2003 (the "Maturity Date"). 1.4 Manner of Payment. All payments of principal and interest shall be made in lawful money of the United States of America at the time of any such payment either by wire transfer to the account designated by the Holder for such purpose or by check mailed to the Holder at the address shown in the register maintained by the Company for such purpose, at the option of the Holder. 1.5 Subordination. (a) Upon any distribution of assets of the Company in connection with any dissolution, winding-up or liquidation of the Company (whether or not in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors) or any other marshaling of the assets and liabilities of the Company or upon the reorganization of the Company, the holders of Senior Indebtedness (as hereinafter defined) shall first be entitled to receive payment in full in money or money's worth, in accordance with the terms of such Senior Indebtedness, of all sums due in respect thereto, before the Holder shall be entitled to receive from the Company any payment hereunder and, upon such dissolution, winding-up, liquidation, marshaling of assets or reorganization, any payment from the Company to which the Holder would otherwise be entitled, except for the provisions hereof, shall be made by the person making such payment or distribution, whether an officer of the Company, an assignee, a trustee in bankruptcy, debtor in possession, a receiver or liquidating trustee or otherwise (which person is hereby directed to make payment) to the holders of Senior Indebtedness to the extent necessary to pay in full in money or money's worth all Senior Indebtedness remaining unpaid after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness, and to the full extent necessary for that purpose, the Holder hereby assigns to the holders of Senior Indebtedness all of the Holder's rights to any payments or distributions to which the Holder otherwise would be entitled from the Company. (b) For purposes of this Debenture, the term "Senior Indebtedness" shall mean Indebtedness (as hereinafter defined) of the Company whether outstanding on the Issue of this Debenture or thereafter created, incurred, assumed or guaranteed (including, without limitation, interest that accrues on or after the filing of a petition in bankruptcy or for reorganization, if a claim for post-petition interest is allowed in such proceeding), except for: (i) any Indebtedness outstanding after the date of this Debenture as to which, by the express terms of the instrument creating or evidencing the same, it is provided that such Indebtedness is not senior or superior in right of payment to the Debentures, (ii) the Debentures, (iii) any Indebtedness of the Company owed to any Subsidiary or to any Affiliate of the Company, (iv) Indebtedness incurred in connection with the purchase of goods, assets, materials or services in the ordinary course of business or representing amounts recorded as accounts payable, trade payables or other current liabilities on the books of the Company (other than the current portion of any long-term Indebtedness of the Company that but for this clause (iv) would constitute Senior Indebtedness), and (v) any Indebtedness of or amount owed by the Company to employees for services rendered to the Company. (c) "Indebtedness" is defined as, with respect to any person, any of the following (without duplication): (i) the principal of, premium, if any, and interest on and all other amounts owing with respect to any indebtedness (including any such indebtedness representing any deferred payment obligation for the payment of the purchase price of property or assets) of such person for money borrowed or evidenced by bonds, indentures, debentures or similar obligations, including any guaranty by such person of any indebtedness for money borrowed of any other person, whether any such indebtedness or guaranty is outstanding on the date of this Debenture or is thereafter created, assumed or incurred, (ii) the principal of, premium, if any, and interest on and all other amounts owing with respect to any indebtedness for money borrowed, incurred, assumed or guaranteed by such person in connection with the acquisition by it or any of its subsidiaries of any other businesses, properties or other assets, (iii) lease obligations which such person capitalizes in accordance with generally accepted accounting principles and (iv) any amounts payable by such person under or in respect of any interest rate exchange agreement, interest rate swap agreement or other similar agreement entered into in respect of all or any portion of the above. (d) "Subsidiary" or "Subsidiaries" shall mean any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest and in which such ownership interest entitles the Company to elect a majority of the Board of Directors or similar governing body. (e) "Affiliate" shall have the meaning set forth in Rule 144 promulgated under the Securities Act of 1933, as amended. (f) Moreover, should it become necessary in any bankruptcy or other proceedings or in connection with any assignment for the benefit of the Company's creditors or the execution by the Company of any other creditor's agreement, or the dissolution of or the winding up of the Company's business, for the Holder to file one or more claims against the Company on account of or arising hereunder, the Holder will file such claim or claims and will assign to the holders of Senior Indebtedness the Holder's rights thereunder. If for any reason the Holder does not file such claim or claims, any holder of Senior Indebtedness shall have the right as the Holder's agent and attorney-in-fact, to sign and file such proof of claim in the Holder's name, or in the discretion of such holder of Senior Indebtedness, to assign the claim to and to file proof thereof in the name of the holders of Senior Indebtedness or their nominee. (g) If, notwithstanding anything herein to the contrary, upon any such dissolution, winding-up, liquidation, marshaling of assets or reorganization, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or security shall be received by the Holder before all Senior Indebtedness is paid in full in money or money's worth, such payment or distribution shall be held in trust by the Holder and, immediately upon notice to such effect from any holder of Senior Indebtedness, turned over by the Holder for payment on all Senior Indebtedness remaining until all such Senior Indebtedness shall have been paid in full in money or money's worth, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. (h) Neither the payments or distributions to the holders of Senior Indebtedness to which the Holder would be entitled except for the provisions hereof, nor the payment to the holders of Senior Indebtedness from the Holder pursuant to the provisions hereof, shall be deemed, as between the Company, its creditors (other than the holders of Senior Indebtedness) and the Holder, a payment by the Company to or on account of the Holder; it being understood that the provisions hereof are intended solely for the purposes of defining relative rights of the Holder on the one hand, and the holders of Senior Indebtedness on the other hand; and, except as otherwise expressly set forth herein, nothing contained herein is intended to or shall abrogate the obligations of the Company to pay the Holder or to affect the relative rights of the Holder and the creditors of the Company other than the holders of Senior Indebtedness. (i) Until there shall occur a default under Senior Indebtedness (which shall include the occurrence of any event or existence of any circumstances as a result of which any amount is due and payable under any guarantee thereof), the Holder shall be entitled to receive and retain any payment of principal or interest made by the Company in respect of its obligations under this Debenture. In the event of and during the continuance of any such default, no payment of the principal of or interest on the Debenture shall be made by the Company or, to the extent made by the Company, retained by Holder. Specifically, except with the written consent of the holder or holders of all of the then-outstanding principal amount of Senior Indebtedness, the Holder may take no action against the Company to enforce payment of this Debenture (i) unless and until the holders of Senior Indebtedness shall have received payment in full of all principal and interest on such Senior Indebtedness, and/or (ii) for so long as there is any obligation, absolute or contingent, under any guarantee of such Senior Indebtedness; provided, however, that nothing herein shall be deemed to affect the time at which an event of default occurs under the terms of the documents evidencing Senior Indebtedness. (j) The Holder shall have no right of subrogation until such Senior Indebtedness has been paid in full. The subordination shall be effective notwithstanding the presence or absence of security granted to the holder of Senior Indebtedness with respect to its enforcement of any rights against the Company or against any security, or the intentional or unintentional release, waiver or compromise of any such claim. 1.6 Priority. The Debentures shall be equal to, or pari passu with, the Private Placement Debentures, as defined herein, with respect to any distribution of assets of the Company in connection with any dissolution, winding-up or liquidation of the Company. SECTION 2 EVENTS OF DEFAULT 2.1 Nature of Events. An "Event of Default" shall exist if any of the following occurs and is continuing: (a) Failure to pay interest on this Debenture on or before the date such payment is due and such failure to pay remains uncured for a period of 10 days after such date (whether or not such payment is prohibited by Section 1.5); (b) Failure to pay principal on this Debenture on or before the date such payment is due (whether or not such payment is prohibited by Section 1.5); (c) Failure to perform or observe any other covenant or agreement of the Company contained in this Debenture which remains uncured for the period and after the notice specified below and the holders of more than 50% in principal amount of the Debentures then outstanding notify the Company of the default and the Company does not cure the default within 45 days after receipt of the notice, which notice must specify the default, demand that it be remedied and the state that the notice is a "Notice of Default;" (d) A custodian, receiver, liquidator or trustee of the Company, or of any of its property, is appointed or takes possession and such appointment or possession remains in effect for more than 60 days; or the Company is adjudicated bankrupt or insolvent; or an order for relief is entered under the Federal Bankruptcy Code against the Company; or any of the property of the Company is sequestered by court order and the order remains in effect for more than 60 days; or an involuntary petition is filed against the Company under any bankruptcy, reorganization, arrangement, insolvency, readjustment of indebtedness, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect, and is not dismissed within 60 days after filing; (e) The Company files a petition in voluntary bankruptcy or seeking relief under any provision of any bankruptcy, reorganization, arrangement, insolvency, readjustment of indebtedness, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect, or consents to the filing of any petition against it under any such law; or (f) The Company makes an assignment for the benefit of its creditors, or generally fails to pay its obligations as they become due, or consents to the appointment of or taking possession by a custodian, receiver, liquidator or trustee of the Company or all or any substantial part of its property; or 2.2 Default Remedies. (a) In case an Event of Default (other than an Event of Default described in paragraphs (d), (e) and (f)) has occurred and is continuing, the holders of Debentures, by notice to the Company from the holders of more than 50% of the principal amount of the Debentures then outstanding, may declare the principal of the Debentures, plus accrued interest, to be immediately due and payable, and upon any such declaration such principal and accrued interest shall become due and payable immediately. In case an Event of Default described in paragraphs (d), (e) and (f) occurs, such amounts will become due and payable without any declaration or any act on the part of the holders of the Debentures. Such declaration of acceleration may be rescinded and past defaults may be waived by the holders of at least 50% of the principal amount of the Debentures then outstanding as provided herein. (b) No course of dealing or delay or failure on the part of the Holder to exercise any right under this Section 2.2 shall operate as a waiver of such right or otherwise prejudice such Holder's rights, powers and remedies. The Company will pay or reimburse the Holder, to the extent permitted by law, for all costs and expenses, including but not limited to reasonable attorneys' fees, incurred by it in collecting any sums due on this Debenture or in otherwise enforcing any of its rights. (c) The holders of more than 50% in principal amount of the outstanding Debentures may on behalf of the holders of all Debentures waive certain past defaults, except a default in payment of principal of or interest on any Debenture, or in respect of certain provisions of the Debentures which cannot be modified or amended without the consent of the holder of each outstanding Debenture affected thereby in accordance with Section 6.5. SECTION 3. CONVERSION 3.1 Conversion Privilege. Subject to and upon compliance with the provisions of this Section 3, at the option of the Holder, this Debenture or any portion of the principal amount thereof, may, at any time and from time to time, be converted into fully paid and nonassessable whole shares of Common Stock of the Company, at the Conversion Price (as defined herein) in effect at the date of such conversion. 3.2 Manner of Exercise of Conversion Privilege. To exercise the conversion privilege, the Holder shall surrender this Debenture, together with a written conversion notice, in the form attached hereto, to the Company at its principal office. This Debenture or portion thereof shall be deemed to have been converted immediately prior to the close of business on the date of receipt of such Debenture and notice by the Company, even if the Company's stock transfer books are on that date closed, and the Holder, or the nominee or nominees of such Holder, shall be treated for all purposes as the record holder of the shares of Common Stock deliverable upon such conversion as of the close of business on such date. Promptly after receipt by the Company of this Debenture and proper notice, the Company shall issue and deliver, at its expense, to the Holder, or to the nominee or nominees of such Holder, a certificate or certificates for the number of shares of its Common Stock due on such conversion. Interest shall accrue on the unpaid principal amount of this Debenture converted to the date of conversion, and the Company shall pay such interest at the time of conversion; provided, however, that in the case of a conversion of only a portion of the outstanding principal amount of this Debenture, the Company shall execute and deliver to the Holder (or its nominee or nominees), at the expense of the Company, a replacement Debenture in a principal amount equal to and in exchange for the unconverted portion of such Debenture and dated and bearing interest from the date to which interest has been paid on such Debenture or dated the date of such Debenture if no interest has been paid thereon. 3.3 Fractional Shares. No fractional shares of Common Stock shall be issued, at any time, upon conversion of this Debenture. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of this Debenture, the Company shall pay a cash adjustment in respect of such fractional interest (in accordance with the Conversion Price, as defined herein, then in effect). The Holder, by its acceptance thereof, expressly waives any right to receive any fractional share upon conversion of this Debenture. 3.4 Conversion Price. The conversion price (the "Conversion Price") at which Common Stock shall be issuable upon the conversion of this Debenture shall initially be $2.466 (which amount is 120% of the average of the closing prices of the Common Stock, as such prices were reported by the New York Stock Exchange, for the ninety (90) trading days immediately preceding the initial Issue Date) in principal amount of this Debenture for each share of Common Stock; provided, however, that the Conversion Price and the conversion terms shall be subject to adjustment as follows: (a) In the event the Company should at any time or from time to time after the Issue Date, fix a record date for the effectuation of a forward split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents"), without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of this Debenture shall be increased in equal proportion to such increase of outstanding shares of Common Stock. (b) If the number of shares of Common Stock outstanding at any time after the Issue Date is decreased by a combination of the outstanding shares of Common Stock, then following the record date of such combination, the Conversion Price shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of this Debenture shall be decreased in equal proportion to such decrease in outstanding shares of Common Stock. 3.5 Other Distributions. In the event the Company shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Company or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 3.4(a), then, in each such case for the purpose of this Section 3.5, the Holder, upon conversion of this Debenture, shall be entitled to a proportionate share of any such distribution as though it were the holder of the number of shares of Common Stock of the Company into which this Debenture was then convertible as of the record date fixed for the determination of the holders of Common Stock of the Company entitled to receive such distribution. 3.6 Fundamental Change. In the event that the Company shall be a party to (i) any recapitalization or reclassification of the Common Stock (other than a change in par value or as a result of a subdivision or combination of the Common Stock); (ii) any consolidation or merger of the Company with or into another corporation as a result of which holders of Common Stock shall be entitled to receive securities or other property or assets (including cash) with respect to or in exchange for Common Stock (other than a merger which does not result in a reclassification, conversion, exchange or cancellation of the outstanding Common Stock); (iii) any sale or transfer of all or substantially all of the assets of the Company; or (iv) any compulsory share exchange, pursuant to any of which holders of Common Stock shall be entitled to receive other securities, cash or other property (each, a "Fundamental Change"), then appropriate provision shall be made so that the holder of each Debenture then outstanding shall have the right thereafter to convert such Debentures only into the kind and amount of the securities, cash or other property that would have been receivable upon such Fundamental Change by a holder of the number of shares of Common Stock issuable upon conversion of such Debenture immediately prior to such Fundamental Change at the Conversion Price (subject to adjustment pursuant to Section 3.4). 3.7 No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Holder of this Debenture against impairment. 3.8 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 3, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of the Holder, furnish or cause to be furnished to such Holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the then outstanding principal amount of this Debenture. 3.9 Notices of Record Date. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock or any class of any other securities or property, or to receive any other right, the Company shall mail to the Holder, at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. 3.10 Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the aggregate principal amount of the Debentures such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of the then outstanding aggregate principal amount of the Debentures; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the then outstanding aggregate principal amount of the Debentures, in addition to such other remedies as shall be available to the Holder, the Company will promptly take all reasonable corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. SECTION 4. REDEMPTION 4.1 Call Provision. This Debenture may be redeemed by the Company at any time or from time to time commencing one year from the Issue Date, at the Company's option, in whole or in part, upon written notice to the registered Holder hereof at their last registered address, for the principal of this Debenture, plus accrued and unpaid interest to the redemption date. Notice of redemption having been given as provided in Section 4.2, the Debentures to be redeemed, shall, on the redemption date, become due and payable at the redemption price therein specified, and from and after such date (unless the Company shall default in the payment of the redemption price and any accrued but unpaid interest) such Debentures shall cease to bear interest and the Company shall have no further obligation under such Debentures. 4.2 Notice of Redemption. Notice of redemption shall be given, in accordance with Section 5.4 hereof, not less than fifteen (15) nor more than forty-five (45) days prior to the redemption date, to each registered Holder of Debentures to be redeemed, at such Holder's address in the register maintained by the Company. All notices of redemption shall state: (a) the redemption date, (b) the redemption price, (c) if less than all the outstanding Debentures are to be redeemed, the principal amounts of the Debentures to be redeemed, (d) that on the redemption date the redemption price will become due and payable upon each Debenture (or portion thereof) to be redeemed and that interest thereon will cease to accrue on and after such said date, (e) the Conversion Price, the date on which the right to convert the principal of the Debentures to be redeemed will terminate and the manner in which such Debentures may be surrendered for conversion, and (f) the manner in which the Debentures are to be surrendered for payment of the redemption price. 4.3 Deposit of Redemption Price. On or prior to any redemption date, the Company shall segregate and hold in trust an amount of money sufficient to pay the redemption price of, and accrued but unpaid interest on, all Debentures to be redeemed on that date other than any Debentures called for redemption on that date which have been converted prior to the date of such deposit. If any Debenture called for redemption is converted, any money so segregated and held in trust for redemption of such Debenture(s) shall be discharged from such trust. 4.4 Debentures Redeemed in Part. Any Debenture which is to be redeemed only in part shall be surrendered to the Company at its principal office. In such instance, the Company shall execute and deliver to the Holder (or its nominee(s)), at the expense of the Company, a replacement Debenture in a principal amount equal to and in exchange for the unredeemed portion of such Debenture. SECTION 5. EXCHANGE 5.1 Exchange Privilege. Subject to and upon compliance with the provisions of this Section 5, at the sole option of the Holder, this Debenture, in whole but not in part, may be, subject to Section 5.3 hereof, exchanged for a like principal amount of any series of convertible subordinated debentures which the Company may issue pursuant to a private placement, through a placement agent, within 180 days from the Issue Date (the "Private Placement Debentures"). 5.2 Manner of Exercise of Exchange Privilege. The Company shall notify each Holder of its intent to issue the Private Placement Debentures by giving written notice at least 15 days prior to the issue date of the Private Placement Debentures. If the Holder intends to exchange this Debenture then it shall surrender this Debenture, together with a written exchange notice in the form attached hereto, to the Company at its principal office within ten (10) days from the date of the Company's notice. This Debenture shall be deemed to have been exchanged immediately into the Private Placement Debenture on the first date of issue of such debenture. Promptly after receipt by the Company of this Debenture and proper notice, the Company shall issue and deliver, at its expense, to the Holder, a certificate representing the Private Placement Debenture for which this Debenture was exchanged. Interest shall accrue on the unpaid principal amount of this Debenture to the date immediately prior to the issuance of the Private Placement Debenture, and the Company shall pay such interest at the time of exchange. 5.3 Limitation of Exchange. (a) In the event that the exchange would, in the sole discretion of the Company, result in the Company being required to obtain shareholder approval of the transaction under which this Debenture is issued or the Private Placement Debenture transaction under the rules of the New York Stock Exchange, then the Holder's ability to exchange this Debenture shall be limited to such amount, if any (as determined solely by the Company), which would not result in the Company being required to obtain shareholder approval of such transaction. In the case of an exchange of only a portion of the outstanding principal amount of this Debenture (pursuant to this Section 5.3(a)), the Company shall execute and deliver to the Holder, at the expense of the Company, a replacement Debenture in a principal amount equal to and in exchange for the unexchanged portion of this Debenture. In no event shall the Company be obligated to exchange this Debenture for a debenture which would cause the Company to be required to obtain shareholder approval. (b) In the event that the Private Placement Debenture transaction is consummated, in the sole discretion of the Company, pursuant to a exemption under the Act for which the Holder hereof does not qualify, or, in the sole discretion of the Company, the Private Placement Debentures contain a term or condition which the Holder hereof does not qualify for, then, in exchange for this Debenture, the Holder hereof shall be entitled to receive a debenture as substantially similar to the Private Placement Debentures as practicable under the circumstances (as determined by the Company). By way of example, but not limitation, in the event that the Private Placement Debentures contain provisions, which make them eligible for the NASD PORTAL Market, and the Company, in its sole discretion, determines that the Holder hereof is not eligible for such provision or exemption, then the Holder shall be issued a debenture which does contain such provision but is otherwise identical in all other material respects to the Private Placement Debentures. In no event shall the Company be obligated to issue to the Holder hereof in exchange for this Debenture a debenture which, in the sole discretion of the Company (i) would cause Company to be ineligible to consummate the Private Placement Debenture transaction, or (ii) which contains a term or condition which the Holder hereof does not qualify for. SECTION 6. MISCELLANEOUS 6.1 Successors and Assigns. The terms and conditions of this Debenture shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Debenture, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Debenture, except as expressly provided in this Debenture. This Debenture may not be assigned by the Holder hereof without the written consent of the Company. 6.2 Governing Law. This Debenture shall be governed by, and construed under the laws of the State of New York as applied to agreements entered into and to be performed entirely within New York, without giving effect to the laws of such State governing conflicts of laws. 6.3 Headings. The titles and subtitles used in this Debenture are used for convenience only and are not to be considered in construing or interpreting this Debenture. 6.4 Notices. All notices, authorizations, demands or requests required or permitted to be delivered to any party in connection with this Debenture shall be in writing and shall be deemed to have been duly given if personally delivered, if sent by facsimile transmission (with receipt confirmed by automatic transmission report), if sent by a nationally- recognized overnight courier with charges prepaid, if sent by registered or certified mail, return receipt requested and postage prepaid (or by the most nearly comparable method if mailed from or to a location outside the United States), addressed as follows: If to the Company, to: Chyron Corporation 5 Hub Drive Melville, New York 11747 Attn: President Fax: (516) 845-5210 With copies (which copies shall not constitute notice) to: Camhy Karlinsky & Stein LLP 1740 Broadway New York, New York 10019 Attn: Robert S. Matlin, Esq. Fax: 212-977-8389 If to the Holder, to: the address shown in the register maintained by the Company for such purpose; or to such other address as the party to whom the notice is to be given may have furnished to the other party hereto in writing in accordance with the provisions of this Section 6.4. Any such notice or communication shall be deemed to have been received (i) in the case of personal delivery, on the date of such delivery, (ii) in the case of facsimile transmission (with receipt confirmed by automatic transmission report), on the date of such transmission, (iii) in the case of a nationally-recognized overnight courier, on the next business day after the date when delivered to such courier, and (iv) in the case of mailing (or by the most nearly comparable method if mailed from or to a location outside the United States), on the third business day following that on which the piece of mail containing such communication is posted; provided, however, that three additional business days shall be added to the time any notice or communication sent from or to a location outside the United States shall be deemed to have been received in (iii) or (iv) above. 6.5 Amendments and Waivers. Any term of this Debenture may be amended or supplemented and the observance of any term of this Debenture may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and at least a majority in principal amount of the outstanding Debentures; provided, however, that without the consent of each Holder of the Debentures affected, an amendment, waiver or supplement may not (i) extend the final maturity of any Debenture; (ii) reduce the principal amount of any Debenture; (iii) reduce the rate or extend the time of payment of any interest on any Debenture; (iv) impair or affect the right of any Holder of any Debenture to institute suit for the payment or conversion of any Debenture; (v) change the currency for payment of principal of, or interest on, any Debenture; or (vi) materially and adversely affect the right to convert the Debentures in accordance herewith; and further, provided, however, that an amendment, waiver or supplement may not reduce the percentage of Debentures, the consent of the Holders of which is required for any such supplemental indenture or waiver, without the consent of the Holders of all Debentures then outstanding. 6.6 Severability. If one or more provisions of this Debenture are held to be unenforceable under applicable law, such provision shall be excluded from this Debenture and the balance of this Debenture shall be interpreted as if such provision was so excluded and shall be enforceable in accordance with its terms. 6.7 Replacement of Debenture. If the Holder loses this Debenture, the Company shall issue an identical replacement Debenture to the Holder upon the Holder's delivery to the Company of a customary agreement to indemnify the Company for any losses resulting from issuance of the replacement Debenture. 6.8 Unsecured. This Debenture is an unsecured obligation of the Company. IN WITNESS WHEREOF, CHYRON CORPORATION has caused this Debenture to be dated, executed and issued on its behalf by its officer or officers thereto duly authorized. CHYRON CORPORATION Attest: By: /s/Daniel I. DeWolf By: /s/Dawn Johnston Name: Daniel I. DeWolf Name: Dawn Johnston Title: Secretary Title: Chief Financial Officer FORM OF NOTICE OF CONVERSION OF 8% SUBORDINATED CONVERTIBLE DEBENTURE OF CHYRON CORPORATION Chyron Corporation 5 Hub Drive Melville, New York 11747 Attention: President Dear Sir: I am the Holder of Chyron Corporation 8% Subordinated Convertible Debenture number (the "Debenture"). As of the date hereof, $ aggregate principal amount of the Debenture remains unconverted. I hereby give notice to Chyron Corporation (the "Company") of my desire and intent to convert $ aggregate principal amount of the Debenture into common stock, par value $.01 per share, of the Company in accordance with the provisions of Section 3 of the Debenture. Very truly yours, Date: Name: FORM OF NOTICE OF EXCHANGE OF 8% SUBORDINATED CONVERTIBLE DEBENTURE OF CHYRON CORPORATION Chyron Corporation 5 Hub Drive Melville, New York 11747 Attention: President Dear Sir: I am the Holder of Chyron Corporation 8% Subordinated Convertible Debenture number (the "Debenture"). I hereby give notice to Chyron Corporation (the "Company") of my desire and intent to exchange the Debenture into the Private Placement Debentures in accordance with the provisions of Section 5 of the Debenture. Very truly yours, Date: Name: EX-4 5 NAME OF SUBSCRIBER: To: CHYRON CORPORATION 5 HUB DRIVE MELVILLE, NEW YORK 11747 CHYRON CORPORATION SUBSCRIPTION AGREEMENT AND INVESTMENT REPRESENTATION SECTION 1. 1.1 Subscription. The undersigned, intending to be legally bound, hereby subscribes for and agrees to purchase the amount of 8% Subordinated Convertible Debentures (each a "Debenture") issued by Chyron Corporation, a New York corporation (the "Company"), indicated on page 10 hereof. Each Debenture shall be convertible at any time, at the option of the holder thereof, into shares of common stock, par value $0.01 per share, of the Company (the "Common Stock") in accordance with the terms set forth in the Form of Debenture, a copy of which is attached hereto as Exhibit A. 1.2 Purchase of Debentures. The undersigned understands and acknowledges that the purchase price to be remitted to the Company in exchange for the Debentures, if any, shall be one-thousand United Stated Dollars ($1,000) per Debenture. Payment for the Debenture(s) shall be made by certified check or wire transfer in accordance with the instructions of the Company, together with an executed copy of this Agreement and any other required documents. SECTION 2. 2.1 Acceptance or Rejection. (a) The undersigned understands and agrees that the Company reserves the right to reject this subscription for the Debenture(s) in whole or part in any order, if, in its reasonable judgment, it deems such action in the best interests of the Company, at any time prior to the applicable Closing (as defined herein), notwithstanding prior receipt by the undersigned of notice of acceptance of the undersigned's subscription. (b) The undersigned understands and agrees that subscriptions may be revoked provided that written notice of revocation is sent by certified or registered mail, return receipt requested, and is received by the Company at least two business days prior to the applicable Closing. (c) In the event of rejection of this subscription, or in the event the sale of the Debenture(s) subscribed for by the undersigned is not consummated by the Company for any reason (in which event this Subscription Agreement shall be deemed to be rejected), this Subscription Agreement and any other agreement entered into between the undersigned and the Company relating to this subscription shall thereafter have no force or effect and the Company shall promptly return or cause to be returned to the undersigned the purchase price remitted to the Company by the undersigned, without interest thereon or deduction therefrom. 2.2 Closing; Closing Date. The initial closing shall take place at the offices of the Company or such other place as determined by the Company, on such date as is set by the Company. The Company's acceptance of the undersigned's subscription shall be evidenced by the Company's execution of this Agreement and execution of the Debenture(s) subscribed for. Subsequent closings, if any, will be held at such times, and in such places, as are determined by the Company (each a "Closing"). At the Closing of the purchase and sale of the Debenture(s) subscribed to by the undersigned, the Company shall prepare for delivery to the undersigned the certificate(s) for the Debenture(s) to be issued and sold to the undersigned, duly registered in the undersigned's name against payment in full by the undersigned of the aggregate principal amount of the Debenture(s). SECTION 3 3.1 Investor Representations and Warranties. The undersigned hereby acknowledges, represents and warrants to, and agrees with, the Company and its affiliates as follows: (a) The undersigned is acquiring the Debenture(s) for his own account as principal, not as a nominee or agent, for investment purposes only, and not with a view to, or for, resale, distribution or fractionalization thereof in whole or in part. Further, the undersigned does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Debenture(s), or the Common Stock into which same may convert, for which the undersigned is subscribing. (b) The undersigned has full power and authority to enter into this Agreement, the execution and delivery of this Agreement has been duly authorized, if applicable, and this Agreement constitutes a valid and legally binding obligation of the undersigned. (c) The undersigned acknowledges his understanding that the offering and sale of the Debentures is intended to be exempt from registration under the Securities Act of 1933, as amended (the "Securities Act") by virtue of Section 4(2) of the Securities Act and the provisions of Regulation D promulgated thereunder ("Regulation D"). In furtherance thereof, the undersigned represents and warrants to and agrees with the Company and its affiliates as follows: (i) The undersigned realizes that the basis for the exemption may not be present if, notwithstanding such representations, the undersigned has in mind merely acquiring the Debenture(s) for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise. The undersigned does not have any such intention; (ii) The undersigned has the financial ability to bear the economic risk of his investment, has adequate means for providing for his current needs and personal contingencies and has no need for liquidity with respect to his investment in the Company; (iii) (insert name of Purchaser Representative: if none, so state) has acted as the undersigned's Purchaser Representative for purposes of the private placement exemption under the Securities Act. If the undersigned has appointed a Purchaser Representative (which term is used herein with the same meaning as given in Rule 501(h) of Regulation D), the undersigned has been advised by his Purchaser Representative as to the merits and risks of an investment in the Company in general and the suitability of an investment in the Debenture(s) for the undersigned in particular; and (iv) The undersigned (together with his Purchaser Representative(s), if any) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the prospective investment in the Debenture(s). If other than an individual, the undersigned also represents it has not been organized for the purpose of acquiring the Debenture(s). (d) The information in the Investor Questionnaire completed and executed by the undersigned (the "Investor Questionnaire") is accurate and true in all respects and the undersigned is an "accredited investor," as that term is defined in Rule 501 of Regulation D. (e) The undersigned and his Purchaser Representative(s), if any: (i) Have been furnished with copies of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and all Quarterly Reports on Form 10-Q filed thereafter to date, including all exhibits thereto, and any documents which may have been made available upon request for a reasonable period of time prior to the date hereof (collectively, the "Documents"). The undersigned or his Purchaser Representative(s) have carefully read the Documents and have relied solely (except as indicated in subsections (ii) and (iii) below) on the information contained in the Documents (including all exhibits thereto); (ii) Have been provided an opportunity for a reasonable period of time prior to the date hereof to obtain additional information concerning the offering of the Debentures, the Company and all other information to the extent the Company possesses such information or can acquire it without unreasonable effort or expense; (iii) Have been given the opportunity for a reasonable period of time prior to the date hereof to ask questions of, and receive answers from, the Company or its representatives concerning the terms and conditions of the offering of the Debentures and other matters pertaining to this investment, and have been given the opportunity for a reasonable period of time prior to the date hereof to obtain such additional information necessary to verify the accuracy of the information contained in the Documents or that which was otherwise provided in order for him to evaluate the merits and risks of purchase of the Debenture(s) to the extent the Company possesses such information or can acquire it without unreasonable effort or expense; (iv) Have not been furnished with any oral representation or oral information in connection with the offering of the Debentures which is not contained herein or in the Documents; and (v) Have determined that the Debenture(s) are a suitable investment for the undersigned and that at this time the undersigned could bear a complete loss of such investment. (f) The undersigned is not relying on the Company, or its affiliates with respect to economic considerations involved in this investment. The undersigned has relied on the advice of, or has consulted with only those persons, if any, named as Purchaser Representative(s) herein and in the Investor Questionnaire. Each Purchaser Representative is capable of evaluating the merits and risks of an investment in the Debentures and each Purchaser Representative has disclosed to the undersigned in writing (a copy of which is annexed to this Agreement) the specific details of any and all past, present or future relationships, actual or contemplated, between himself and the Company or any affiliate or subsidiary thereof. (g) The undersigned represents, warrants and agrees that he will not sell or otherwise transfer the Debenture(s), or the Common Stock into which the Debenture(s) may convert, without registration under the Securities Act or an exemption therefrom and fully understands and agrees that he must bear the economic risk of his purchase because, among other reasons, the Debenture(s), and the Common Stock into which the Debenture(s) may convert have not been registered under the Securities Act or under the securities laws of any state and, therefore, cannot be resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and under the applicable securities laws of such states or an exemption from such registration is available. In particular, the undersigned is aware that the Debenture(s) and Common Stock into which the Debenture(s) may convert are "restricted securities," as such term is defined in Rule 144 promulgated under the Securities Act ("Rule 144"), and they may not be sold pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The undersigned also understands that, except as otherwise provided herein, the Company is under no obligation to register the Debenture(s), or the Common Stock into which same may convert, on his behalf or to assist him in complying with any exemption from registration under the Securities Act or applicable state securities laws. The undersigned further understands that sales or transfers of the Debenture(s), or the Common Stock into which same may convert, are further restricted by state securities laws and the provisions of this Agreement. (h) No representations or warranties have been made to the undersigned by the Company, or any officer, employee, agent, affiliate or subsidiary of the Company, other than the representations of the Company contained herein, and in subscribing for the Debentures the undersigned is not relying upon any representations other than those contained herein. (i) Any information which the undersigned has heretofore furnished to the Company with respect to his financial position and business experience is correct and complete as of the date of this Agreement and if there should be any material change in such information he will immediately furnish such revised or corrected information to the Company. (j) The undersigned understands and agrees that the certificates for the Debenture(s), or the Common Stock into which same may convert, shall bear, substantially, the following legend until (i) such securities shall have been registered under the Securities Act and effectively been disposed of in accordance with a registration statement that has been declared effective; or (ii) in the opinion of counsel for the Company such securities be may sold without registration under the Securities Act as well as any applicable "Blue Sky" or state securities laws: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THIS CERTIFICATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT REGISTRATION UNDER THE ACT." (k) The undersigned understands that an investment in the Debentures is a speculative investment which involves a high degree of risk and the potential loss of his entire investment. (l) The undersigned's overall commitment to investments which are not readily marketable is not disproportionate to the undersigned's net worth, and an investment in the Debentures will not cause such overall commitment to become excessive. (m) The undersigned: (A) is not (i) a director, officer, or substantial security holder of the Company (a "Related Party"), (ii) a subsidiary, affiliate or other closely-related person of a Related Person, or (iii) any company or entity in which a Related Party has a has a substantial direct or indirect interest; or (B) represents, warrants and agrees that he shall not subscribe for or purchase Debentures, which upon conversion as provided in the Debenture(s), shall represent more than one percent (1%) of the shares of Common Stock outstanding prior to the sale of the Debentures. (n) The foregoing representations, warranties and agreements shall survive the Closing. SECTION 4. 4.1 Registration Rights. (a) The Company represents and warrants that it will use its best efforts to file a registration statement with the United States Securities and Exchange Commission (the "SEC"), relating to the shares of Common Stock underlying the Debentures (the "Registrable Securities"), within 120 days after the final Closing. In addition, the Company further represents and warrants that it will (i) use its best efforts to have such registration statement declared effective by the SEC in a timely manner, and (ii) maintain the effectiveness of the registration statement for a period of at lest two years from the initial effective date. The Company shall not be obligated to effect more than one registration under this Section 4.1(a). Assuming such registration statement is declared effective by the SEC, holders shall have no further registration right pursuant to this Section 4.1(a). (b) The Company has agreed that the all expenses incurred with a registration statement pursuant to this Section 4 (exclusive of underwriting discounts and marketing expenses), including without limitation all federal and "blue sky" registration and qualification fees, printer's and accounting fees, shall be borne by the Company. SECTION 5. 5.1 Indemnification of the Company. (a) The undersigned agrees to indemnify and hold harmless the Company, its officers and directors, employees, agents and affiliates and each other person, if any, who controls any thereof, against any loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any litigation commenced or threatened or any claim whatsoever) arising out of or based upon any false representation or warranty or breach or failure by the undersigned to comply with any covenant or agreement made by the undersigned herein or in any other document furnished by the undersigned to any of the foregoing in connection with this transaction. (b) In addition to the indemnity in Section 5.1(a) above, the holder(s) of the Registrable Securities to be sold pursuant to a registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, its officers, directors and agents and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising from written information furnished by or on behalf of such Holders, or their successors or assigns, for specific inclusion in such registration statement; provided, however, that each holder shall be liable under this Section 5.1(b) only up to and including the principal amount of the Debenture(s) purchased by such holder. 5.2 Indemnification of Holders of Registrable Securities. In connection with any registration statement filed pursuant to Section 4.1(a) hereof, the Company agrees to indemnify, to the fullest extent permitted by law, each holder of Registrable Securities, its officers, directors and agents and each person who controls such holder of Registrable Securities against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of material fact contained in such registration statement or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein, in the light of the circumstances under which they made, not misleading. 5.3 Modification. Neither this Agreement nor any provisions hereof shall be modified, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 5.4 Notices. All notices, authorizations, demands or requests required or permitted to be delivered to any party in connection with this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered, if sent by facsimile transmission (with receipt confirmed by automatic transmission report), if sent by a nationally- recognized overnight courier with charges prepaid, if sent by registered or certified mail, return receipt requested and postage prepaid (or by the most nearly comparable method if mailed from or to a location outside the United States), or addressed as follows: If to the Company, to: Chyron Corporation 5 Hub Drive Melville, New York 11747 Attn: President Fax: (516) 845-5210 With copies (which copies shall not constitute notice) to: Camhy Karlinsky & Stein LLP 1740 Broadway New York, New York 10019 Attn: Robert S. Matlin, Esq. Fax: 212-977-8389 If to the undersigned, to: the address shown on page 11 or 12 hereof; or to such other address as the party to whom the notice is to be given may have furnished to the other party hereto in writing in accordance with the provisions of this Section 5.4. Any such notice or communication shall be deemed to have been received (i) in the case of personal delivery, on the date of such delivery, (ii) in the case of facsimile transmission (with receipt confirmed by automatic transmission report), on the date of such transmission, (iii) in the case of a nationally-recognized overnight courier, on the next business day after the date when delivered to such courier, and (iv) in the case of mailing (or by the most nearly comparable method if mailed from or to a location outside the United States), on the third business day following that on which the piece of mail containing such communication is posted; provided, however, that three additional business days shall be added to the time any notice or communication sent from or to a location outside the United States shall be deemed to have been received in (iii) or (iv) above. 5.5 Counterparts. This Agreement may be executed through the use of separate signature pages or in any number of counterparts (and by facsimile signature), and each of such counterparts shall, for all purposes, constitute one agreement binding on all parties, notwithstanding that all parties are not signatories to the same counterpart. 5.6 Binding Effect. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and assigns. If the undersigned is more than one person, the obligation of the undersigned shall be joint and several and the agreements, representations, warranties and acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and his heirs, executors, administrators and successors. 5.7 Entire Agreement. This Agreement and the documents referenced herein contain the entire agreement of the parties and there are no representations, covenants or other agreements except as stated or referred to herein and therein. 5.8 Assignability. This Agreement is not transferable or assignable by the undersigned. 5.9 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of law principles of such State. 5.10 Pronouns. The use herein of the masculine pronouns "he", "him" or "his" or similar terms shall be deemed to include the feminine and neuter genders as well and the use herein of the singular pronoun shall be deemed to include the plural as well. ALL SUBSCRIBERS MUST COMPLETE THIS PAGE IN WITNESS WHEREOF, the undersigned has executed this Agreement on the day of December, 1998. X $1,000 Per Debenture = $ Debentures Subscribed For Purchase Price Manner in which Title is to be held (Please Check One): 1. Individual 2. Joint Tenants with Right of Survivorship 3. Community Property 4. Tenants in Common 5. Corporation/Partnership/Limited Liability Company 6. IRA 7. Trust/Estate/Pension or Profit Sharing Plan Date Opened: 8. As a Custodian for: Under the Uniform Gift to Minors Act of the State of: 9. Married with Separate Property 10. Keogh 11. Tenants by the Entirety IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN. INDIVIDUAL SUBSCRIBES MUST COMPLETE PAGE 11. SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGE 12. EXECUTION BY NATURAL PERSONS Exact Name in Which Title is to be Held Name: (Please Print) Residence: Number and Street City, State and Zip Code Social Security Number (Signature) Name of Additional Purchaser: (Please Print) Address of Additional Purchaser: Number and Street City, State and Zip Code Social Security Number (Signature) ACCEPTED this day of December, 1998 on behalf of the Company. BY:/s/Edward Grebow Name: Edward Grebow Title: President and Chief Executive Officer EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY (Corporation, Partnership, Trust, LLC, Etc.) Name of Entity (Please Print) Date of Incorporation or Organization: State of Principal Offices: Federal Taxpayer Identification Number: BY: Name: Title: [seal] Attest: (If Entity is a Corporation) Address: ACCEPTED this ______ day of December, 1998 on behalf of the Company. BY:/s/Edward Grebow Name: Edward Grebow Title: President and Chief Executive Officer EX-23 6 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-50927) of our report dated February 2, 1999, relating to the financial statements of Chyron Corporation, appearing on page 21 of this Annual Report on Form 10-K dated March 30, 1999. /s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP New York, New York March 30, 1999 -----END PRIVACY-ENHANCED MESSAGE-----