-----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, JdGXXNFB81fd2epx9MpgW5g0Z1Q8QeZVjq8/ILvz7fE4iq8ZooGjLKrKHJtmZL6R pWpfpwNb2KSnsByt1hzn7A== 0000020232-97-000016.txt : 19971113 0000020232-97-000016.hdr.sgml : 19971113 ACCESSION NUMBER: 0000020232-97-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NYSE 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-Q SEC ACT: SEC FILE NUMBER: 000-05110 FILM NUMBER: 97715112 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-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 1997 Commission File Number 1-9014 CHYRON CORPORATION (Exact name of registrant as specified in its charter) New York (State or other jurisdiction of incorporation or organization) 11-2117385 (I.R.S. Employer Identification No.) 5 Hub Drive, Melville, New York (Address of principal executive offices) 11747 (Zip Code) Registrant's telephone number, including area code (516) 845-2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by a check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock $.01 Par Value - 32,605,706 as of November 7, 1997 This document consists of 14 pages CHYRON CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (In thousands except per share amounts) (Unaudited) 1997 1996 Net sales $23,523 $20,632 Cost of products sold 12,586 9,817 Gross profit 10,937 10,815 Operating expenses: Selling, general and administrative 6,901 5,890 Research and development 1,655 1,452 Total operating expenses 8,556 7,342 Operating income 2,381 3,473 Interest and other expense, net 411 450 Income before provision of income taxes 1,970 3,023 Income taxes/equivalent provision 734 1,189 Net income $ 1,236 $ 1,834 Net income per common share $ .04 $ .06 Weighted average number of common and common equivalent shares outstanding 32,583 32,917 See Notes to the Consolidated Financial Statements CHYRON CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (In thousands except per share amounts) (Unaudited) 1997 1996 Net sales $63,621 $56,889 Cost of products sold 34,617 26,887 Gross profit 29,004 30,002 Operating expenses: Selling, general and administrative 21,606 16,351 Research and development 5,106 3,751 Non-recurring charges 3,082 Total operating expenses 29,794 20,102 Operating (loss) income (790) 9,900 Interest and other expense, net 1,175 872 (Loss) income before provision for income taxes (1,965) 9,028 Income taxes/equivalent (benefit) provision (573) 3,405 Net (loss) income (1,392) 5,623 Retained earnings - beginning of period 9,997 1,343 Retained earnings - end of period $ 8,605 $ 6,966 Net (loss) income per common share $ (.04) $ .18 Weighted average number of common and common equivalent shares outstanding 32,516 32,186 See Notes to the Consolidated Financial Statements CHYRON CORPORATION CONSOLIDATED BALANCE SHEET (In thousands except share amounts) (Unaudited) ASSETS September 30, December 31, 1997 1996 Current assets: Cash and cash equivalents $ 5,775 $ 5,623 Accounts and notes receivable 22,033 25,237 Inventories 25,111 23,502 Prepaid expenses 2,163 865 Deferred tax asset 7,588 6,015 Other 3,003 2,826 Total current assets 65,673 63,000 Property and equipment 12,396 12,701 Excess of cost over net tangible assets acquired 6,336 6,439 Investment in RT-SET 2,161 2,161 Software development costs 4,477 2,176 Deferred tax asset 4,911 4,709 Other 229 217 TOTAL ASSETS $96,183 $91,403 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts Payable and accrued expenses $20,223 $15,828 Current portion of long-term debt 13,854 5,080 Capital lease obligations 227 225 Total current liabilities 34,304 21,133 Long-term debt 8,008 15,163 Capital lease obligations 32 118 Other 744 1,043 Total liabilities 43,088 37,457 Commitments and contingencies Shareholders' equity: Preferred stock; par value without designation Authorized - 1,000,000 shares, Issued - none Common stock; par value $.01 Authorized - 150,000,000 shares Issued and outstanding - 32,588,485 shares at September 30, 1997 32,384,635 shares at December 31, 1996 326 324 Additional paid-in capital 43,933 43,124 Retained earnings 8,605 9,997 Cumulative translation adjustment 231 501 Total shareholders' equity 53,095 53,946 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $96,183 $91,403 See Notes to the Consolidated Financial Statements CHYRON CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (In thousands) (Unaudited) 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net (loss)/income $(1,392) $2,623 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Non-recurring charges 1,801 Depreciation and amortization 2,925 2,001 (Recognition) utilization of deferred tax asset (1,778) 688 Changes in operating assets and liabilities: Accounts and trade notes receivable 2,933 914 Inventories (2,897) (4,748) Prepaid expenses (1,312) (48) Other assets (190) Accounts payable and accrued expenses 3,939 (2,020) Management fee payable (1,000) Other liabilities (286) (59) Net cash provided by operating activities 3,743 1,351 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of Axis Holding Incorporated (413) Acquisition of Pro-Bel, Ltd. (7,226) AcquisitionS of property and equipment (1,588) (1,358) Capitalized software development (1,583) (705) Other (608) Net cash used in investing activities (3,584) (9,897) CASH FLOWS FROM FINANCING ACTIVITIES Payment of capital lease obligations (80) (179) Payment of truncated shares as a result of reverse stock split (41) Proceeds from exercise of common stock purchase warrants, net 239 Proceeds from exercise of stock options 14 542 Payment of term loan (1,500) (1,000) Payments (borrowings) of revolving credit agreements, net 2,663 (4,644) Proceeds from credit facility, net 11,654 Net cash provided by financing activities 1,056 6,612 Effect of foreign currency rate fluctuations on cash and cash equivalents 5 Change in cash and cash equivalents 1,220 (1,934) Cash and cash equivalents at beginning of period 4,555 5,012 Cash and cash equivalents at end of period $5,775 $3,078 Noncash investing and financing activities: On March 31, 1997, the Company acquired the issued and outstanding shares of Axis Holding Incorporated. The consideration in addition to cash paid included the issuance of 173,913 of Chyron Corporation common stock valued at $750,000 and notes payable of $667,000. See Note 2 for further discussion. CHYRON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1996. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 2. INVESTMENT IN AXIS HOLDINGS INCORPORATED On March 31, 1997, the Company acquired 100% of the capital stock of Axis Holdings Incorporated ("Axis") located in Los Angeles, California. Axis develops software in professional video and audio tools created specifically for use on the Microsoft Windows NT Operating System. The purchase consisted of $413,000 in cash paid and professional fees, $667,000 in notes and 173,913 restricted shares of Chyron common stock valued at $750,000. As stated in the purchase agreement, the principal portion of the note is to be paid in two successive annual installments. Installment payment amounts are contingent upon Axis achieving certain revenue targets. Installments of $350,000 and $317,000 are due on March 31, 1998 and March 31, 1999, respectively, provided that the targeted shipments of the primary product associated with the Axis division are realized on or before March 15, 1998. If the Company does not achieve its target the installment payment will be $250,000 and $417,000 due on March 31, 1998 and March 31, 1999, respectively. Interest is to be paid at the rate of 6% per year and is due with the annual installments. Additionally, payments equal to 20% of cumulative net profits, as defined, on the Axis product line, in excess of $1 million, will be payable to the sellers. The period for the calculation of cumulative net profits is March 31, 1997 through December 31, 1999. Payments due for each year will be made on or before April 30 of the next succeeding year. The acquisition was accounted for as a purchase in accordance with APB 16. Accordingly, the costs of the acquisition were allocated to the net assets acquired based on their estimated fair values. The majority of the purchase price was capitalized as software development costs and will be amortized over the estimated economic life of the products, commencing when each product is available for general release. 3. RESTATEMENT AND RECLASSIFICATION On January 24, 1997, the Company's shareholders ratified a one-for- three reverse stock split. Net income (loss) per share, weighted average number of common and common equivalent shares outstanding, common stock issued and outstanding, additional paid-in-capital and all other common stock transactions presented in these consolidated financial statements have been restated to reflect the one-for-three reverse stock split. In addition, certain prior year amounts have been reclassified to conform to current year presentation. 4. ACQUISITION OF PRO-BEL LIMITED On April 12, 1996, the Company completed the acquisition of the issued and outstanding shares of Pro-Bel Limited ("Pro-Bel"), located in the United Kingdom. Pro-Bel manufactures and distributes video signal and switching equipment and systems. The consideration consisted of $6.9 million in cash, $5.3 million in notes, and 3,146,205 shares of restricted Chyron common stock valued at $6.9 million. The acquisition of Pro-Bel was accounted for as a purchase. Accordingly, the purchase price was allocated to the net assets acquired based upon their estimated fair values. The excess of purchase price over the estimated fair value of net assets acquired amounted to $7,276,000, which is being amortized over 12 years using the straight line method. The accompanying consolidated statements of operations include the operating results of the Company and Pro-Bel since the date of the acquisition. Actual unaudited consolidated operating results for the nine months ended September 30, 1997 and proforma unaudited consolidated operating results for the nine months ended September 30,1996 assuming the acquisition had been made as of January 1, 1996, respectively, are summarized below (in thousands except per share amounts). Actual Performa September 30, September 30, 1997 1996 Net sales $63,621 $67,313 Net (loss) income $(1,392) $ 5,581 (Loss) earnings per share $ (.04) $ .18 These pro forma results have been prepared for comparative purposes only and include adjustments as a result of applying purchase accounting and conversion to generally accepted accounting principles in the United States, such as additional depreciation expense and cost of goods sold due to the step-up in the basis of fixed assets and inventory, respectively, goodwill amortization, a decrease in research and development due to the capitalization of software development costs and increased interest expense on acquisition debt adjusted for tax effect. The pro forma financial information is not necessarily indicative of the operating results that would have occurred if the acquisition had taken place on the aforementioned date, or of future results of operations of the consolidated entities. 5. ACCOUNTS AND NOTES RECEIVABLE Trade accounts and notes receivable are stated net of an allowance for doubtful accounts of $2,992,000 and $2,850,000 at September 30, 1997 and December 31, 1996, respectively. 6. INVENTORIES Inventories consist of the following (in thousands): September 30, December 31, 1997 1996 Finished goods $11,798 $12,879 Work-in-process 6,059 5,271 Raw material 7,254 5,352 $25,111 $23,502 7. NON-RECURRING CHARGES For the nine months ended September 30, 1997, the Company incurred non-recurring charges totalling $3.1 million. Of these total charges, $675,000 was related to the Company's planned secondary offering of common stock which was terminated due to the market valuation of the stock. The remainder ($2.4 million) related mainly to a repositioning by the Company to address the domestic television market's need for high definition and multichannel standard definition digital equipment that complies with recent Federal Communication Commission rulings. Included in this charge was a write-down of inventory related to product lines which have been discontinued as a result of a new market positioning strategy, severance expense related to a staff reduction in the second quarter, the write-off of software development projects related to product not within the new strategy, the consolidation of certain Chyron offices, the settlement of litigation dating back several years and the write-off of costs related to a potential acquisition that was abandoned due to the new strategy. 8. NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement on Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." This accounting standard is effective for financial statements issued for fiscal years beginning after December 15, 1997 and requires restatement of all prior-period earnings per share data presented. Adoption of SFAS 128 will not have a material impact on the calculation of earnings per share for the periods presented. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS Results of Operations Overview This discussion should be read in conjunction with the Consolidated Financial Statements including the Notes thereto: Comparison of the Three Months Ended September 30, 1997 and 1996 Sales for the quarter ended September 30, 1997 increased to $23.5 million, an increase of $2.9 million, or 14.0% over the $20.6 million reported for the third quarter of 1996. Pro-Bel product line sales increased by over 45% for the period with substantial increases being realized in U.S. sales of this line which grew over 200% in 1997 as compared to the same period in 1996. Chyron graphic product sales decreased by approximately 10%, with decreases being realized domestically. Domestic sales declined due mainly to customers opting to fill their graphic system needs with the Company's lower end Chyron products based on the recent Federal Communications Commission ("FCC") ruling requiring broadcasters to utilize digital advanced television transmission beginning in 1998 which should cause large future capital expenditures by the broadcast industry. The decrease in Chyron graphic product sales was driven mainly by a decrease in demand for the high-end iNFiNiT product line, while sales of the Max, Maxine and Liberty lines showed increases. Overall, international sales increased. Gross profit increased by $122,000, or 1.1%, to $10.9 million for the quarter ended September 30, 1997 from $10.8 million for the third quarter of 1996. Such increase was attributable to the increase in sales for the third quarter of 1997 offset by decreases realized due to the change in the product mix. Gross margins as a percentage of sales decreased to 46.5% in 1997 from 52.4% in 1996 mainly as a result of the increase in sales of Pro- Bel products, which historically have had lower gross margins than Chyron's gross margins. The decrease in the volume of Chyron graphics sales and the change in the product mix of this line also contributed to the decrease in gross margin. Selling, general and administrative ("SG&A") expenses increased by $1 million, or 17.2%, to $6.9 million in the third quarter of 1997 compared to $5.9 million for the third quarter of 1996. Such increase is due mainly to increases in expenses based on increased sales volume. SG&A as a percentage of sales increased slightly to 29.3% for the third quarter of 1997 from 28.5% for the comparable 1996 period. Net research and development ("R&D") expenses increased for the third quarter of 1997 over the 1996 third quarter by $203,000, or 14.0%. The increase is due mainly to intensified efforts at Chyron and Pro-Bel to address the FCC rulings described above in terms of new product development. These increases are mainly the result of increased headcount at both Chyron and Pro-Bel. This increase was offset by an increase in the net capitalized software costs, which increased $463,000 for the third quarter of 1997 versus the same period in 1996. Other expenses, which include interest income and expense and foreign currency transaction gains and losses, decreased to $411,000, compared to $450,000 for the third quarter of 1996. This decrease is mainly a result of the foreign currency transaction gains recognized in the third quarter of 1997. Income before income taxes decreased $1 million, or 34.8%, to $2 million for the third quarter of 1997 compared to $3 million for the third quarter of 1996. This decrease was attributable mainly to the decrease in gross profit as a result of product mix and increases in SG&A and R&D as described above. Income taxes/equivalent provision decreased to $734,000, a decrease of $455,000 from the $1.2 million reported for the third quarter of 1996. This decrease is due mainly to the decrease in income before income taxes, as described above. Comparison of the Nine Months Ended September 30, 1997 and 1996 Sales for the nine month period ended September 30, 1997 increased to $63.6 million, an increase of $6.7 million, or 11.8%, over the $56.9 million reported for the 1996 comparable period. This increase was attributable to the inclusion of Pro-Bel since its acquisition on April 12, 1996 offset by a decrease of over 20% in Chyron graphic product sales. Chyron graphic product sales increased for the Max, Maxine, Liberty and Codi lines and decreased for the iNFiNiT product line. Gross profit decreased to $29.0 million for the nine months ended September 30, 1997. The decrease of $1.0 million, or 3.3% from the $30.0 million reported for the nine months of 1996, was attributable to a change in the product mix from 1996 to 1997 as is also reflected in the decline in gross margin percentages which decreased to 45.6% in 1997 from 52.7% in 1996. A shift in Chyron sales from the high end iNFiNiT lines to the Max, Maxine and Codi lines and the overall decrease in Chyron graphic product sales contributed to the decrease in both gross profit dollars and gross margin percentages. The gross margin percentage decrease was also impacted by the fact that 1997 amounts include Pro-Bel products (which historically have lower gross margin percentages) for nine months versus six months in 1996. SG&A expenses increased by $5.3 million, or 32.1%, to $21.6 million in 1997 compared to $16.4 million for the first nine months of 1996. The increase for the period is due mainly to the consolidation of Pro-Bel and the additional depreciation and goodwill amortization as a result of the application of the purchase accounting method on the acquired assets. Additional increases were seen due to an increase overall in sales volume. Net R&D expenses increased for the nine months ended September 30, 1997 compared to 1996 by $1.4 million, or 36.1%. This increase is mainly attributable to the inclusion of Pro-Bel expenditures for the full nine month period in 1997. Additional increases in R&D have been seen at both Chyron and Pro-Bel as the Company has focused its attention on new product development to address the FCC ruling described above. These increases were offset by the net capitalized software cost, which increased $713,000 for the nine months ended September 30, 1997 versus the same period in 1996. For the nine months ended September 30, 1997, non-recurring charges totaling $3.1 million were incurred by the Company. A non-recurring charge of $675,000 incurred in the first quarter of 1997 was attributable to the Company's planned secondary offering of common stock, which was terminated due to the market valuation of the stock. During the second quarter of 1997, in an effort to position Chyron to meet the domestic television market's need for high definition and multichannel standard definition equipment that comply with the recent FCC rulings described above, the Company underwent a repositioning which, together with several other items, resulted in non-recurring charges in the second quarter totalling $2,407,000. Included in this charge was a write-down of inventory related to product lines which have been discontinued as a result of a new market positioning strategy, severance expense related to products not within the new strategy, the consolidation of certain Chyron offices, the settlement of litigation dating back several years and the write-off of costs related to a potential acquisition that was abandoned due to the new strategy. The specific components of the non-recurring charge are as follows (in thousands): Non-cash outlays: Write-down of inventory $700 Write-off of software development costs 205 Litigation settlement 88 Total non-cash charges 993 Cash outlays: Secondary offering termination 675 Severance 825 Write-off of acquisition costs 200 Litigation settlement 100 Other 289 Total $3,082 Cash outlays related to the non-recurring charges total $2.1 million, of which $1.3 million was made by September 30, 1997. Other expenses, which included interest income and expense and foreign currency transaction gains and losses, increased to $1.2 million, or 34.7%, from $872,000 for the nine months ended September 30, 1996. This increase is mainly a result of the average increased borrowings for the nine months ended 1997 versus 1996. Increases also stem from the purchase of Pro-Bel in 1996 and Axis in 1997. Interest rates remained relatively consistent for both nine month periods. The Company incurred a loss before income taxes of $2.0 million compared to income of $9.0 million for the same period in the prior year. This loss was attributable mainly to the decrease in sales of Chyron graphics products, the gross margin erosion as a result of the product mix, increased SG&A and R&D expenses and the $3.1 million non-recurring charges as discussed above. The Company recognized a $573,000 tax benefit for the nine months ended September 30, 1997 compared to an income tax provision of $3.4 million for 1996. The tax benefit was primarily attributable to the loss of $2.0 million before taxes while the provision was based on pre-tax income of $9.0 million. Liquidity and Capital Resources On January 1, 1997, Pro-Bel entered into an agreement with Barclays Bank PLC to obtain borrowing facilities totaling 3.0 million pounds sterling ($4,883,000 converted at the September 30, 1997 exchange rate). The facility is payable on demand and matures December 31, 1997. This facility replaced former bank facilities which expired on December 31, 1996. Upon maturity, the Company intends to replace this borrowing facility with a similar one. On March 28, 1996 and April 16, 1996, the Company entered into agreements with a bank to obtain a revolving credit facility of $10 million and a term loan of $8 million, respectively. The revolving portion of the facility matures 3 years from closing, while the term portion matures 4 years from closing. The entire facility is secured by the Company's properties and assets. This facility replaced the $10 million secured credit facility which was due to expire on April 27, 1997. In April 1996, a portion of this new credit facility was used to fund the acquisition of Pro- Bel. Quarterly payments on the term loan portion of the facility are funded by the Company's working capital. On April 12, 1996, the Company issued promissory notes to the shareholders of Pro-Bel for 3.5 million pounds sterling ($5.7 million converted at the September 30, 1997 exchange rate). The notes are secured by an irrevocable letter of credit from a bank and limit amounts available under the revolving credit facility described above. The notes are due on or before April 15, 1998. At maturity, the notes will be repaid with the letter of credit described above. On March 31, 1997, the Company issued promissory notes to the shareholders of Axis for $667,000. The notes are payable in two annual installments beginning March 31, 1998. The Company intends to fund these payments with its working capital. At September 30, 1997, the Company's current ratio was 1.91 to 1 and its working capital was $31,369,000. At September 30, 1997, the Company had operating lease commitments for equipment, factory and office space totaling $11,887,000 of which $907,000 is payable within one year. PART II. OTHER INFORMATION ITEMS 1., 2., 3. Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a) On January 24, 1997, at a special meeting of shareholders, the Company's shareholders' ratified a one-for-three reverse stock split of its common stock which was effective February 10, 1997. 77,162,761 shares were voted for the proposal, 2,876,490 shares were voted against the proposal and 169,212 shares abstained. b) On May 14, 1997, the Company held its Annual Meeting of Shareholders. At this meeting, the Company's shareholders re-elected Sheldon D. Camhy, James Coppersmith, Charles M. Diker, Donald P. Greenberg, Raymond Hartman, Isaac Hersly, Alan J. Hirschfield, Wesley W. Lang, Jr., Eugene M. Weber, and Michael Wellesley-Wesley to the Board of Directors. No less than 20,256,462 shares were voted for the election of each director, no more than 230,885 shares were voted against the election of each director, and 0 shares abstained. Additionally, the shareholders voted to amend the Company's Long-Term Incentive Plan, increasing the number of shares by 1,333,334 shares to an aggregate of 3,000,000 shares. 20,250,283 shares were voted for the proposal, 459,150 shares were voted against the proposal, and 85,322 shares abstained. ITEM 5. Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits (1) On June 5, 1997, the Company entered into an Employment Agreement with Edward Grebow. Such agreement is incorporated herein in its entirety by reference to the report on Form 10-Q dated August 12, 1997. (2) On September 17, 1997, the Company entered into an Agreement with Isaac Hersly regarding the mutual agreement to sever Mr. Hersly's employment relationship with the Company. In connection therewith Mr. Hersly resigned as a Director and Officer of Chyron, effective September 26, 1997. The Severance Agreement is attached as Exhibit 1 to this document. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHYRON CORPORATION (Registrant) November 12, 1997 /s/ Edward Grebow (Date) Edward Grebow Chief Executive Officer and President November 12, 1997 /s/ Patricia Lampe (Date) Patricia Lampe Chief Financial Officer and Treasurer EX-27 2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. THE AGREEMENT (the "Agreement"), made as of this 17th day of September 1997, between CHYRON CORPORATION, a New York corporation (the "Company" or "Chyron") having its principal offices at 5 Hub Drive, Melville, New York 11747, and ISAAC HERSLY ("Hersly"), an individual residing at 9 Lafayette Drive, New City, New York 10956. WITNESSETH: WHEREAS, Hersly and Chyron are party to an employment agreement made as of September 17, 1996 (the "Employment Agreement") by which, among other things, Hersly was employed as President of Chyron for a term ending June 30, 1998 at an annual salary of $200,000; WHEREAS, Hersly and Chyron wish to sever that employment relationship and said Employment Agreement and this Agreement shall supersede that Employment Agreement, any other employment arrangement or agreement between the parties. WHEREAS, Hersly was appointed to the Board of Directors on March 14, 1996 and was elected by Chyron's Shareholders on May 20, 1996. NOW THEREFORE, in consideration of the mutual premises and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Resignation: Hersly resigns from his present position at Chyron and all its subsidiaries and affiliates effective September 26, 1997, and further resigns as a member of the Board of Directors of Chyron and all its subsidiaries and affiliates also effective September 26, 1997. Hersly shall execute a formal letter of resignation in the form attached hereto as Exhibit A. 2. Continued Employment as "Senior Advisor": For the period September 26, 1997 through January 10, 1998, Hersly will be employed in the position of "Senior Advisor" to Chyron. This is an exempt position with no salary or benefits except as set forth herein, provided, however, that Hersly will be reimbursed for all approved out of pocket expenditures. As "Senior Advisor", Hersly will not accrue any vacation or sick leave. As "Senior Advisor", Hersly will render such services as reasonably are requested of him by the Chief Executive Officer of Chyron, Edward Grebow, and shall report to Mr. Grebow. Hersly will undertake such assignments as Grebow shall give to him which Hersly shall perform on a mutually agreeable basis. Hersly will not continue as an employee of Chyron on an at-will basis, or on any other basis after January 10, 1998, except upon a further written agreement subscribed to by both Hersly and Chyron pursuant to paragraph 15 hereof. In the event that Hersly accepts or undertakes regular full time employment or work then his position as a "Senior Advisor" shall terminate effective with the earlier of either his commencement of such other employment or work on upon an effective date of a notice of resignation by Hersly as "Senior Advisor". 3. Compensation: In Consideration for (i) this Severance Agreement inclusive of the agreement not to compete and any other surviving obligations hereunder; (ii) in lieu of any surviving obligations of Chyron under the Employment Agreement and any surviving obligations of Hersly thereunder; and (iii) for his services as "Senior Advisor", Chyron shall pay to Hersly, and Hersly agrees to accept the aggregate sum of $225,000 which amounts will be paid in 26 bi-weekly installments beginning October 15, 1997. Hersly, at his option, may make a one time election to have up to four bi-weekly payments paid in advance as a lump sum. If Hersly exercises this one time election, then payments will be suspended during the period of the paid advance. Hersly will give at least one week's notice of such election. Except as set forth hereinbelow, Hersly shall be entitled to no other cash payments for any reason whatsoever or based upon any claim whatsoever. Hersly, or in the event of his death, his estate shall receive the $225,000 regardless of whether he resigns as "Senior Advisor" prior to January 10, 1998 or takes other employment, provided, however, that Hersly is not in breach of any of his other obligations hereunder. If there is a change of control" of Chyron, then payment of any outstanding portion of the $225,000 due hereunder shall be accelerated and be paid within 30 days of the effective date of the change of "control". For purposes of this paragraph, a change of "control" means either (i) a change or beneficial ownership of at least 50% of the common stock of Chyron; (i) a replacement of at least 75% of the Chyron Board of Directors; or (iii)a change of the CEO of Chyron. 4. Benefits: Hersly will continue to receive medical, dental, and disability benefits in accordance with the standard policies of Chyron for the shorter of September 25, 1998 or until Hersly has commenced other regular full time employment ("Benefit Period"). Chyron shall continue the existing life insurance policy on Hersly's life through the Benefit Period. At the option of Hersly, Chyron shall transfer to him the term life insurance policy which presently is in existence without adjustment for any unexpired term. Chyron shall make payment of premiums on insurance and other benefit plans on behalf of Hersly which comes due during such Benefit Period, provided, however, that Hersly is only entitled to pension benefits and to participate in the Chyron pension plan through the last date of his employment with Chyron, (i.e., no later than January 10, 1998 as provided in Paragraph 2 hereinabove). 5. Office and Secretarial Assistance: Chyron will furnish to Hersly a closed office, if available, and secretarial assistance through January 31, 1998. Hersly shall be allowed to retain, and Chyron will transfer title to Hersly of (i) the telecopy machine presently located in Hersly's residence; (ii) the laster printer presently located in Hersly's office; and (iii) a fully operational IBM compatible desk top computer. Hersly shall return to Chyron the laptop computer that has been made available to him. 6. Reference: Chyron will give Hersly a positive reference. Hersly expressly releases Chyron and waives any and all possible claims whether at law or at equity against Chyron, regarding or arising from any reference that is given pertaining to Hersly, except for any claim of defamation arising subsequent to the execution hereof. Any reference will be consistent with the announcement dated September 23, 1997, from Edward Grebow to Chyron employees, a copy of which is attached hereto as Exhibit B. 7. Stock Options: The incentive stock options and non-incentive stock options that are to vest on July 25, 1998 are accelerated and shall vest effective September 26, 1997. The one year period for exercise shall commence on the earlier of January 10, 1998, as the last date of Hersly's employment as a "Senior Advisor," or upon Hersly's earlier resignation from Chyron. The provisions in paragraph 3(h) of the Employment Agreement between Hersly and Chyron shall continue in full force and effect, are incorporated herein by reference, and shall apply only to those options which were granted as non-incentive stock options. 8. Representations and Warranties: Hersly represents and warrants to the Company that: (a) Hersly is under no contractual or other restriction or obligation which is inconsistent with the execution of this Agreement, the performance of his duties hereunder, or the other rights of the Company hereunder; and (b) Hersly is under no physical or mental disability that would hinder his performance of duties under this Agreement. 9. Non-Competition: (i) Hersly agrees that he will note: (a) during the period from the date of this Agreement through March 31, 1998, engage in, or otherwise directly or indirectly be employed by, or act as a consultant or lender to, or be a director, officer, employee, owner, member, or partner of, any other business or organization worldwide that is or shall then be competing, directly or indirectly, with Chyron, (b) during the period April 1, 1998 though December 31, 1998, engage in, or otherwise directly or indirectly be employed by, or act as a consultant or lender to, or be a director, officer, employee, owner, member, or partner of, any other business or organization that is or shall then be a direct competitor of Chyron. For purposes of this covenant, director competitors include: Collage Leitch Tektronix BTS - Philips SONY* Louth Automation Pinnacle Quantel (ii) It is the intent of the parties to this Agreement that the provisions of this paragraph 9 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If any particular provisions or portions of this paragraph 9 shall be adjudicated to be invalid or unenforceable, such provisions or portion thereof shall be deemed amended to the minimum extent necessary to render such provision or portion valid and enforceable, such amendment to apply only with respect to the operation of such provisions or portions in the particular jurisdiction in which such adjudication is made. (iii) The parties acknowledge that damages and remedies at law for any breach of this paragraph 9 and for following paragraphs 10, 11, and 12, will be adequate and that the Company shall be entitled to specific performance and other equitable remedies (including injunction) and such other relief as a court or tribunal may deem appropriate in addition to any other remedies the Company may have. *Hersly may become employed by SONY as long as he does not, directly or indirectly, work or consult with the Broadcast or Professional systems operations, or any related operation or other SONY operation, whether organized as a subsidiary division, unit, group, or otherwise, that in any way competes, directly or indirectly with Chyron and only upon the further condition that Hersly (1) not divulge or utilize any Chyron confidential information and (2) first obtains approval from Chyron to take such employment, which approval shall not unreasonably be withheld. (iv) The provisions of this paragraph 9 will not be deemed breached merely because Hersly owns not more than five percent (5.0%) of the outstanding common stock of a corporation, if, at the time of its acquisition by Hersly, such stock is listed on a national securities exchange, is reported on NASDAQ, or is regularly traded in over-the-counter market by a member of a national securities exchange. (v) In the event that Chyron defaults in making the payments owned under this Agreement of $225,000 as provided for in Paragraph 3 hereinabove, which default is not cured upon 45 days written notice, then the non-compete obligations of Hersly in this Paragraph 9 shall become ineffective and not enforceable by Chyron. This is in addition to all other remedies that Hersly might have by reason of such uncured default by Chyron. Nothing, however, shall relieve Hersly of his obligations under Paragraph 11, 12, and 13 regarding "Confidential Information", "Non-Solicitation" and "Release", respectively. 10. Patents: Copyrights: Any interest in patents, patent applications, inventions, copyrights, developments, and processes ("Such Inventions") which Hersly now or hereafter during the period he is or has been employed by the Company may own or develop relating to the fields in which the Company was or is then engaged shall belong to the Company; and forthwith upon request of the Company, Hersly shall execute all such assignments and other documents and take all such other action as the Company may reasonably request in order to vest in the Company all his right, title, and interest in and to Such Inventions, free and clear of all liens, charges, and encumbrances. 11. Confidential and Company Information: All confidential information which Hersly may now possess, or may obtain or create prior to the end of the period he is employed by the Company, relating to the business of the Company or of any employee , customer, or supplier of the Company shall not be published, knowingly disclosed, or knowingly made accessible by him to any other person, firm, or corporation during his continued employment or any time thereafter without the prior written consent of the Company. Hersly shall return all books, records, papers, reports, materials, and information of Chyron, whether or not confidential, no matter how recorded or stored, including computer files, disks, and data storage of every description to the Company prior to or at the termination of his employment. 12. Non-Solicitation: Hersly shall not during the term of his continued employment hereunder and thereafter through December 31, 1998 solicit, directly or indirectly any then employee of Chyron, including its wholly and partly owned subsidiaries, for employment on either a full-time, part-time or consulting basis and shall refrain from discussing other employment opportunities with any then Chyron employee which may benefit Hersly or his then employer. 13. Confidentiality of this Agreement: Hersly agrees to keep this Agreement and the substance hereof strictly confidential and not to divulge it to any other person (other than his immediate family and his counsel) or entity, unless Chyron makes the Agreement public or if disclosure is required by reason of judicial process. 14. Release by Hersly: HERSLY, who has had at least 21 days to review and consider this Agreement and who in connection herewith has consulted with counsel of his choice, for and in consideration of the payment made by CHYRON as set forth herein and other good and valuable consideration, hereby releases and forever discharges, and by this instrument does release and forever discharge CHYRON, its directors, officers , employees, and each of its divisions, affiliates and subsidiaries, and each of their respective present an former directors, officers, employees, trustees, agents, attorneys, insurers, parent corporations, subsidiaries, divisions, related and affiliated companies and entities, shareholders, representatives, predecessors, successors and assigns; (hereinafter collectively referred to as the 'RELEASED PARTIES") against all liabilities, claims, causes of action, charges, complaints, controversies , grievances, obligations, costs, losses, damages, injuries, attorneys' fees, and other legal responsibilities (collective referred to as "claims:) of any form whatsoever, including but not limited to any claims in law, equity, contract, tort or any claims arising under the Employment Agreement, the ADEA, Title VII, the Civil Rights Act, the CRA of 1991, the ADA, the FMLA, the FLSA, the NYHRL, the NYCHRL and/or any and all other federal, state or local statutes, laws, rules and regulations pertaining to employment, as well as any and all claims under state contract or common law or tort law whether known, unknown, unforeseen, unanticipated, unsuspected or latent which he, his heirs, executors, administrators, successors and assigns ever had, now have or hereafter can, shall or may have for upon or by reason of any matter, cause or thing whatsoever from the beginning of the world to the date of the execution of this Agreement. Hersly further releases and waives any and all claims that might arise under this Agreement except for claims arising from breaches or defaults of Chyron under Paragraph 3, 4, and 7 ("Compensation", "Benefits", and "Stock Options" respectively). 15. Survival: The covenants, agreements, representations, and warranties contained in or made pursuant to this Agreement shall survive Hersly's termination of employment, irrespective of any investigation made by or on behalf of any party. 16. Release by Chyron: CHYRON, for the mutual covenants herein and other good and valuable consideration hereby releases and forever discharges Hersly from any and all liabilities, claims, causes of action, charges, complaints, controversies, grievances, obligations, costs, losses, damages, injuries, attorneys' fees, and other legal responsibilities (collectively "claims") of any form whatsoever, including but not limited to any claims in law, equity, contract, tort from the beginning of the world to the date of this Agreement provided that such claims are now known to either the current Chairman of the Board (Michael Wellesley-Wesley) CEO (Grebow) or CFO (Lampe) of Chyron, and to the extent not known, all claims except for claims arising from discrimination, harassment, dishonesty or other wrongful conduct, intentional or otherwise, by Hersly, whether or not such claims are formally asserted against Chyron by a third party on account of any conduct by Hersly. 17. Modifications: This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject matter, and may be modified only by a written instrument duly executed by each party. 18. Notices: Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be delivered in person or mailed by certified mail, return receipt requested, or delivered against receipt to the party to whom it is to be given at the address of such party set forth in the preamble to this Agreement (or to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 14). In the case of a notice to the Company, a copy of such notice (which copy shall not constitute notice) shall be delivered to Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th Floor, New York, New York 10019- 4315, Attn: Daniel I. DeWolf, Esq. Notice to the estate of Hersly shall be sufficient if addressed to Hersly as provided in this Section 14. Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which be deemed given at the time of receipt thereof. 19. Waiver: Any waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term of any other term of this Agreement. Any waiver must be in writing. 20. Binding Effects: Hersly's rights and obligations under this Agreement shall not be transferable by assignment or otherwise, such rights shall not be subject to encumbrance or the claims of Hersly's creditors, and any attempt to do any of the foregoing shall be void. Subject to the foregoing, the provisions of this Agreement shall be binding upon and inure to the benefit of Hersly and his heirs and personal representatives, and shall be binding upon and inure to the benefit of the company and its successors and its assigns. If Hersly shall die, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Hersly's devisee, legatee or other designee, or, if there be no such designee, to Hersly's estate. 21. Arbitration: Any controversy or claim arising out of or relating to this Agreement or the breach thereof, shall be settled by arbitration in the City of New York in accordance with the laws of the State of New York by three arbitrators, one of whom shall be appointed by the Company, one by Hersly and the third of whom shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the Chief Judge of the United States Court of Appeals for the Second Circuit. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this Section 17. Judgement upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. Nothing in this paragraph shall impair or impede the rights of Chyron to seek injunctive relief for violation of paragraphs 9, 10, 11, or 12 and Chyron expressly reserves and does not waive such right to seek judicial redress for such purpose. 22. This Severance Agreement supersedes the Employment Agreement and that Agreement is of no further force or effect except as set forth hereinabove. 23. Headings: The headings in this Agreement are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 24. Counterparts: Governing Laws: This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. It shall be governed by , and construed in accordance with, the laws of the State of New York, without given effect to the rules governing the conflicts of laws. IN WITNESS WHEREOF, the parties have duly executed this Severance Agreement as of the date first written above, except for all the release provisions which are executed this 30th day of October 1997. CHYRON CORPORATION By: /s/ Edward Grebow Edward Grebow Chief Executive Officer /s/ Isaac Hersly Isaac Hersly
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