DEFM14A 1 chyr20150206_defm14a.htm FORM DEFM14A chyr20141208_pre14a.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

 

Filed by the Registrant ☒

Filed by a Party other than the Registrant □

 

Check the appropriate box:

 

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

 

CHYRONHEGO CORPORATION


(Name of Registrant as Specified In Its Charter)

 


(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

(1)

Title of each class of securities to which transaction applies:

 

    Common Stock, par value $0.01 per share, of ChyronHego Corporation

 

 

(2)

Aggregate number of securities to which transaction applies:

 

    32,130,613 shares of Common Stock outstanding and owned by shareholders other than treasury shares and other than certain shares owned by the parties identified in Annex C to this proxy statement, plus 5,502,907 shares of Common Stock subject to options to purchase shares of Common Stock with exercise prices less than the merger consideration of $2.82 per share and 1,097,159 shares of common stock subject to warrants with exercise prices less than the merger consideration of $2.82 per share.

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

    Solely for the purposes of calculating the filing fee, the proposed maximum aggregate value of the transaction was determined based upon the sum of (A) $90,608,329, being the product of 32,130,613 shares of Common Stock that are proposed to be acquired in the merger multiplied by the merger consideration of $2.82 per share, plus (B) $6,190,571 expected to be paid upon cancellation of outstanding stock options and warrants. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying $0.0001162 by the sum reflected in the preceding sentence.

 

 

(4)

Proposed maximum aggregate value of transaction:

 

    $96,798,900

 

 

(5)

Total fee paid:

 

    $11,248.04

 

 
 

 

 

Fee paid previously with preliminary materials.

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

(1)

Amount Previously Paid:

 

     

 

 

(2)

Form, Schedule or Registration Statement No.:

 

     

 

 

(3)

Filing Party:

 

     

 

 

(4)

Date Filed:

 

     

 

 
 

 

 

CHYRONHEGO CORPORATION

 

5 Hub Drive

Melville, New York 11747

(631) 845-2000

 

Dear Shareholder:

 

We invite you to attend a special meeting of shareholders of ChyronHego Corporation, a New York corporation (“ChyronHego,” the “Company,” “we” or “us”), to be held at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., 666 Third Avenue, New York, NY 10017, at 10:00 a.m. local time on March 6, 2015 (the “Special Meeting”). Holders of record of ChyronHego common stock at the close of business on January 5, 2015 will be entitled to vote at the Special Meeting or any adjournment or postponement of the Special Meeting.

 

At the Special Meeting, we will ask you to adopt the Agreement and Plan of Merger, dated as of November 17, 2014, by and among ChyronHego, Vector CH Holdings (Cayman), L.P., a Cayman Islands exempted limited partnership (“Purchaser”), and CH Merger Sub, Inc., a New York corporation and a wholly owned subsidiary of Purchaser (“Merger Subsidiary”), as such agreement may be amended from time to time (the “Merger Agreement”). As a result of the merger contemplated by the Merger Agreement (the “Merger”), ChyronHego will become a wholly owned subsidiary of Purchaser. This is a “going-private” transaction. Purchaser and Merger Subsidiary are each affiliates of Vector Capital Partners IV, L.P., Vector Capital International IV, L.P., Vector Entrepreneur Fund III, L.P. and their affiliated funds (collectively, “Vector Capital”).

 

At the Special Meeting, we will also ask you to approve, by non-binding, advisory vote, compensation that may become payable to ChyronHego’s named executive officers (as defined in Item 402 of Regulation S-K of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) in connection with the Merger.

 

We are also asking you to expressly grant the authority to vote your shares to adjourn the Special Meeting, if necessary and appropriate, to permit further solicitation of proxies to vote in favor of the adoption of the Merger Agreement if there are not sufficient votes at the time of the Special Meeting to adopt the Merger Agreement.

 

If the Merger is completed, each share of ChyronHego common stock (each a “Share” and collectively, the “Shares”) outstanding immediately prior to the effective time of the Merger will be converted into the right to receive $2.82 in cash (the “Merger Consideration”), without interest and subject to any applicable withholding taxes, other than 8,258,706 shares (the “Rollover Shares”), representing up to 50% of the shares held (excluding stock options and warrants and shares issuable upon exercise of stock options and warrants) by Westhill Group AB, of which Johan Apel, ChyronHego’s President, Chief Executive Officer and director, is sole equity owner and sole director; Maxflyt AB, of which Sören Kjellin, ChyronHego’s Chief Technology Officer, is sole equity owner and sole director; Jesper Gawell, ChyronHego’s Chief Marketing Officer; Stefan Fjellsten, one of ChyronHego’s principal shareholders; and certain employees who are former shareholders of companies previously acquired by ChyronHego (which are collectively hereinafter referred to as the “Rollover Holders”). In connection with the Merger, the Rollover Holders have agreed to contribute, immediately prior to the effective time of the Merger, the 8,258,706 Rollover Shares, which will be valued at $2.82 per share, and in exchange for the Rollover Shares, the Rollover Holders will receive equity interests in Purchaser. ChyronHego shareholders other than the Rollover Holders will have no ongoing ownership interest in the continuing business of ChyronHego. We cannot complete the Merger unless all of the conditions to closing are satisfied, including the adoption of the Merger Agreement by (i) holders of two-thirds of the outstanding shares of ChyronHego common stock and (ii) holders of a majority of the outstanding shares of ChyronHego common stock not owned, directly or indirectly, by Purchaser, Merger Subsidiary, Vector Capital IV International, L.P., Vector Entrepreneur Fund III, L.P., or the Rollover Holders.

 

A special committee of ChyronHego’s board of directors composed entirely of independent directors (the “Special Committee”) negotiated and reviewed the terms and conditions of the proposed Merger. The Special Committee and ChyronHego’s board of directors have determined that the Merger and the Merger Agreement are procedurally and substantively fair to, and in the best interests of, ChyronHego and its unaffiliated shareholders, declared the Merger Agreement and the Merger to be advisable and recommend that ChyronHego’s shareholders vote to adopt the Merger Agreement.

 

 
 

 

 

THE SPECIAL COMMITTEE AND

THE BOARD OF DIRECTORS RECOMMEND THAT YOU VOTE “FOR”

THE ADOPTION OF THE MERGER AGREEMENT.

YOUR VOTE IS IMPORTANT.

 

In the materials accompanying this letter, you will find a Notice of Special Meeting of Shareholders, a proxy statement relating to the actions to be taken by ChyronHego’s shareholders at the Special Meeting and a proxy card. Included in the proxy statement is the opinion of the Special Committee’s financial advisor, Duff & Phelps, LLC (“Duff & Phelps”) relating to the fairness, from a financial point of view, of the Merger Consideration to ChyronHego’s shareholders other than the Rollover Holders. The proxy statement includes other important information about the Merger Agreement and the Merger. We encourage you to read the entire proxy statement (including its annexes) carefully.

 

All of ChyronHego’s shareholders are cordially invited to attend the Special Meeting in person. Whether or not you plan to attend the Special Meeting, however, please complete, sign, date and return your proxy card in the enclosed envelope or vote over the Internet or by telephone as instructed in these materials. If you have Internet access, we encourage you to record your vote via the Internet using the Internet proxy instructions printed on your proxy card. It is important that your shares be represented and voted at the Special Meeting. If you attend the Special Meeting, you may vote in person as you wish, even though you have previously returned your proxy card or appointed a proxy over the Internet or by telephone. If you have any questions or need assistance voting your shares, please call The Proxy Advisory Group, LLC at (212) 616-2180.

 

On behalf of ChyronHego’s board of directors, we thank you for your support and urge you to vote “FOR” the adoption of the Merger Agreement, the non-binding, advisory proposal to approve compensation that may become payable to ChyronHego’s named executive officers in connection with the Merger, and, if necessary, to adjourn the Special Meeting for the purposes of obtaining proxies to vote in favor of adopting the Merger Agreement.

 

   

Sincerely yours,

   

/s/ Roger L. Ogden

   

Roger L. Ogden

   

Chairman of the Board

 

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE PROPOSED MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 

 

The proxy statement is dated February 6, 2015, and is first being mailed to shareholders of ChyronHego on or about February 10, 2015.

 

IMPORTANT

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE SIGN, DATE AND PROMPTLY MAIL YOUR PROXY CARD OR SUBMIT YOUR PROXY BY TELEPHONE OR THROUGH THE INTERNET AT YOUR EARLIEST CONVENIENCE.

 

 
 

 

 

CHYRONHEGO CORPORATION

 

5 Hub Drive

Melville, New York 11747

(631) 845-2000

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON MARCH 6, 2015

 

Dear Shareholder:

 

You are cordially invited to attend the Special Meeting of Shareholders of ChyronHego Corporation, a New York corporation (“ChyronHego,” the “Company,” “we” or “us”), that will be held at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., 666 Third Avenue, New York, NY 10017, at 10:00 a.m., local time, on March 6, 2015 (the “Special Meeting”), for the following purposes:

 

 

1.

To consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of November 17, 2014, by and among ChyronHego, Vector CH Holdings (Cayman), L.P., a Cayman Islands exempted limited partnership (“Purchaser”), and CH Merger Sub, Inc., a New York corporation and a wholly owned subsidiary of Purchaser (“Merger Subsidiary”), as may be amended from time to time (the "Merger Agreement");

 

 

2.

To approve, by non-binding, advisory vote, compensation that may become payable to ChyronHego’s named executive officers (as defined in Item 402 of Regulation S-K of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) in connection with the merger contemplated by the Merger Agreement (the “Merger”); and

 

 

3.

To vote to adjourn the Special Meeting, if necessary, for the purpose of soliciting additional proxies to vote in favor of adoption of the Merger Agreement if there are insufficient votes at the time of the meeting to adopt the Merger Agreement.

 

A special committee of ChyronHego’s board of directors composed entirely of independent directors (the “Special Committee”) negotiated and reviewed the terms and conditions of the Merger. The Special Committee and ChyronHego’s board of directors each determined that the Merger and the Merger Agreement are substantively and procedurally fair to, and in the best interests of, ChyronHego’s unaffiliated shareholders, and each recommended that ChyronHego’s shareholders vote to adopt the Merger Agreement. This item of business, which will be submitted to a vote of the shareholders at the Special Meeting, is more fully described in the attached proxy statement, which we urge you to read carefully. The Special Committee and the board of directors also recommend that you approve, by non-binding, advisory vote, compensation that may become payable to ChyronHego’s named executive officers (as defined in Item 402 of Regulation S-K of the Exchange Act) in connection with the Merger and that you expressly grant the authority to vote your shares to adjourn the Special Meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Special Meeting to adopt the Merger Agreement. No other business is expected to be transacted at the Special Meeting.

 

Shareholders of record at the close of business on January 5, 2015, the record date, are entitled to notice of and to vote at the Special Meeting and any adjournment or postponement of the meeting. All shareholders are cordially invited to attend the Special Meeting in person. Adoption of the Merger Agreement will require the affirmative vote of the holders of two-thirds of the shares of ChyronHego common stock outstanding as of the record date. In addition, the Merger Agreement requires approval by the affirmative vote of shareholders holding a majority of the outstanding shares of ChyronHego common stock, not including shares owned by Purchaser, Merger Subsidiary, Vector Capital IV International, L.P. or Vector Entrepreneur Fund III, L.P. (the “Guarantors”), or the Rollover Holders, as defined in the Merger Agreement.

 

Under New York law, shareholders of ChyronHego will not be entitled to appraisal, dissenters’ or similar rights in connection with the Merger.

 

 
 

 

 

You should not send any certificates representing shares of ChyronHego common stock with your proxy card. Upon closing of the Merger, you will be sent instructions regarding the procedure to exchange your stock certificates for the cash Merger Consideration.

 

 

 

THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS RECOMMEND THAT

YOU VOTE “FOR”

THE ADOPTION OF THE MERGER AGREEMENT, THE NON-BINDING, ADVISORY PROPOSAL TO APPROVE COMPENSATION THAT MAY BECOME PAYABLE TO CHYRONHEGO’S NAMED EXECUTIVE OFFICERS IN CONNECTION WITH THE MERGER, AND, IF NECESSARY, TO ADJOURN THE SPECIAL MEETING FOR THE PURPOSES OF OBTAINING ADDITIONAL PROXIES

TO VOTE IN FAVOR OF ADOPTING THE MERGER AGREEMENT.

YOUR VOTE IS IMPORTANT.

 

Your vote is very important, regardless of the number of shares you own. Even if you plan to attend the Special Meeting in person, we request that you complete, sign, date and return the enclosed proxy card, or vote over the Internet or by telephone as instructed in these materials, to ensure that your shares will be represented at the Special Meeting if you are unable to attend. If you do attend the Special Meeting, you may withdraw your proxy and vote in person. If your shares are held in the name of your broker, bank or other nominee, you must obtain a legal proxy, executed in your favor, from the holder of record to be able to vote in person at the Special Meeting. We encourage you to record your vote using the provided toll-free telephone number or via the Internet. We have provided instructions on your proxy card for using these convenient services.

 

No person has been authorized to give any information or to make any representations other than those set forth in the proxy statement in connection with the solicitation of proxies made hereby, and, if given or made, such information must not be relied upon as having been authorized by ChyronHego.

 

 

By Order of the Board of Directors

 

 

 

 

 

/s/ Dawn R. Johnston

 

Dawn R. Johnston

 

Interim Chief Financial Officer, Treasurer and Secretary

 

Melville, New York

 

 

February 6, 2015

 

 
 

 

 

TABLE OF CONTENTS

 

Page

 

SUMMARY TERM SHEET

1

ChyronHego Corporation

1

Vector CH Holdings (Cayman), L.P., CH Merger Sub, Inc. and Vector Capital

1

The Merger

1

Going-Private Transaction

1

Merger Consideration

1

Transactions with the Rollover Holders

1

Treatment of Stock Options

2

Treatment of Restricted Stock Units

2

Treatment of Warrants

2

Market Price

2

Special Committee

2

Position of ChyronHego as to the Fairness of the Merger

3

Opinion of Financial Advisor as to the Fairness of the Merger

3

Recommendation to ChyronHego’s Shareholders

3

Position of Purchaser, Merger Subsidiary and Vector Capital as to the Fairness of the Merger

3

Purposes and Reasons of the Rollover Holders for the Merger and Position of the Rollover Holders as to the Fairness of the Merger

3

Voting Agreement

4

Limited Guarantee of Payment of Reverse Termination Fee

4

Financing

4

Interests of ChyronHego’s Directors and Executive Officers in the Merger

4

Appraisal Rights

5

Material U.S. Federal Income Tax Consequences of the Merger

5

Regulatory Matters

5

The Special Meeting of ChyronHego’s Shareholders

5

The Merger Agreement

6

After the Vote 8
Solicitation of Proxies and Expense 8
Additional Information 8
   

SPECIAL FACTORS

9

Parties to the Merger Agreement

9

Background of the Merger

9

Reasons for the Merger

16

The Special Committee

20

Opinion of the Financial Advisor to ChyronHego’s Special Committee

20

Purposes and Reasons for the Merger of Purchaser

25

Position of Purchaser, Merger Subsidiary and Vector Capital as to the Fairness of the Merger

25

Purposes and Reasons of the Rollover Holders for the Merger and Position of the Rollover Holders as to the Fairness of the Merger

27

Purposes and Plans for ChyronHego After the Merger

30

Limited Guarantee of Payment of Reverse Termination Fee

30

Financing

30

Estimated Fees and Expenses

32

Rollover Agreements

32

Voting Agreement

33

Certain Effects of the Merger

33

Interests of ChyronHego’s Directors and Executive Officers in the Merger

34

Appraisal Rights

38

Material U.S. Federal Income Tax Consequences of the Merger

38

Litigation Related to the Merger

40

Provisions for Unaffiliated Security Holders

40

Regulatory Matters

40

 

 

 

 

CAUTION REGARDING FORWARD-LOOKING STATEMENTS 40
   
RISK FACTORS 41
   

THE PARTIES TO THE MERGER

42

ChyronHego Corporation

42

Vector CH Holdings (Cayman), L.P.

42

CH Merger Sub, Inc.

42

   

THE SPECIAL MEETING

42

Date, Time and Place

42

Purpose of the Special Meeting

42

Record Date; Stock Entitled to Vote; Quorum

42

Vote Required

42

Voting of Proxies

43

Voting over the Internet or by Telephone

43

Revocability of Proxies

44

Solicitation of Proxies and Expense

44

Delivery of this Proxy Statement to Multiple Shareholders with the Same Address

44

   

THE MERGER AGREEMENT

44

Merger Consideration

45

Conversion of Shares; Procedures for Exchange of Certificates

45

Effect on ChyronHego Stock Options

45

Effect on ChyronHego Restricted Shares

45

Effect on ChyronHego Restricted Stock Units

45

Effect on ChyronHego Warrants to Purchase Common Stock

46

Effect on Shares Held by Rollover Holders

46

Effect on ChyronHego’s 1999 Incentive Compensation Plan and 2008 Long-Term Incentive Plan, as Amended

46

Effective Time of the Merger

46

Representations and Warranties

46

Covenants

47

Conditions to the Merger

51

Termination of the Merger Agreement

52

Fees and Expenses

52

   

IMPORTANT INFORMATION CONCERNING CHYRONHEGO

53

Selected Historical Financial Data

53

Certain Projections

53

Ratio of Earnings to Fixed Charges 57

Book Value Per Share

57

Market Price and Dividend Data

58

Directors and Executive Officers of ChyronHego

58

Directors and Executive Officers of the Purchaser Group

59

Voting Parties

60

Security Ownership of Certain Beneficial Owners and Management

60

Prior Public Offerings

61

Transactions in Shares

61

   

OTHER MATTERS

64

Non-Binding Advisory Vote Regarding Merger-Related Compensation Proposal

64

Adjournment

65

Shareholder Proposals

65

Where You Can Find More Information

65

 

 

ANNEX A

Agreement and Plan of Merger, dated as of November 17, 2014, by and among ChyronHego Corporation, Vector CH Holdings (Cayman), L.P. and CH Merger Sub, Inc.

ANNEX B

Opinion of Duff & Phelps, LLC

ANNEX C

List of Rollover Holders

ANNEX D

Form of Proxy Card

 

 
ii

 

 

SUMMARY TERM SHEET

 

This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. To fully understand the Merger contemplated by the Agreement and Plan and Merger (the “Merger Agreement”), dated as of November 17, 2014, among ChyronHego Corporation (“ChyronHego,” the “Company,” “we” or “us”), Vector CH Holdings (Cayman), L.P., a Cayman Islands exempted limited partnership (“Purchaser”), and CH Merger Sub, Inc., a New York corporation and a wholly owned subsidiary of Purchaser (“Merger Subsidiary”), pursuant to which Merger Subsidiary will merge with and into ChyronHego with ChyronHego becoming the wholly owned subsidiary of Purchaser (the “Merger”), and for a more complete description of the legal terms of the Merger Agreement, you should read carefully this entire proxy statement, including the documents and information incorporated herein by reference and the annexes hereto. See “Other Matters — Where You Can Find More Information” on page 65. We have included page references in parentheses to direct you to a more complete description of the topics presented in this summary. The Merger Agreement is attached as Annex A to this proxy statement. We encourage you to read the Merger Agreement as it is the legal document that governs the Merger. 

 

ChyronHego Corporation (page 9)

 

ChyronHego is a global leader in broadcast graphics creation, playout, and real-time data visualization offering a wide variety of products and services for live television, news, and sports production. ChyronHego's end-to-end graphics offerings include hosted services for graphics creation and order management, on-air graphics systems, clip servers, social media and second screen applications, channel branding, graphics asset management, touch graphics, telestration, virtual placement and player tracking.

 

Vector CH Holdings (Cayman), L.P., CH Merger Sub, Inc. and Vector Capital (page 9)

 

Purchaser and Merger Subsidiary each are affiliates of Vector Capital Partners IV, L.P., Vector Capital International IV, L.P., Vector Entrepreneur Fund III, L.P. and their affiliated funds (collectively, “Vector Capital”). Purchaser is a newly organized Cayman Islands exempted limited partnership formed solely for the purpose of entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement. Merger Subsidiary is a newly formed New York corporation and a wholly owned subsidiary of Purchaser. Merger Subsidiary was formed solely for the purpose of entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement. Vector Capital is a leading global private equity firm specializing in transformational investments in established technology businesses.

 

The Merger (page 33)

 

Pursuant to the Merger Agreement, Merger Subsidiary will merge with and into ChyronHego. After the Merger, Purchaser will own all of ChyronHego’s outstanding stock. Shareholders (other than the Rollover Holders, as defined below, with respect to the Rollover Shares, as defined below) will receive cash in the Merger in exchange for their shares of ChyronHego common stock.

 

Going-Private Transaction (page 33)

 

This is a “going-private” transaction. If the Merger is completed, ChyronHego will cease to be a publicly-traded company. You will no longer be a shareholder of ChyronHego and as such, you will no longer have any interest in ChyronHego’s future earnings or growth. Following consummation of the Merger, the registration of ChyronHego common stock and ChyronHego’s reporting obligations with respect to ChyronHego common stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be terminated upon application to the Securities and Exchange Commission (the “SEC”). In addition, upon completion of the Merger, shares of ChyronHego common stock will no longer be listed on any stock exchange or quotation system.

 

Merger Consideration (page 45)

 

If the Merger is completed, each share of ChyronHego common stock outstanding immediately prior to the effective time of the Merger (including 8,853,725 outstanding shares of ChyronHego common stock held by the Rollover Holders that do not constitute Rollover Shares) will be converted into the right to receive $2.82 per share in cash (the “Merger Consideration”), without interest and subject to any applicable withholding taxes, other than 8,258,706 shares held by the Rollover Holders. As of January 26, 2015, the Rollover Holders, collectively, owned approximately 17,112,431 shares of ChyronHego common stock (excluding any options and warrants held by the Rollover Holders). The shares owned by the Rollover Holders represent approximately 42.4% of the total number of shares of ChyronHego common stock outstanding as of January 26, 2015.

 

After the Merger is completed, you will have the right to receive the Merger Consideration, but you will no longer have any other rights as a ChyronHego shareholder. In addition, you will not have the option to receive equity interests in Purchaser in exchange for your shares of ChyronHego common stock instead of cash. The aggregate Merger Consideration to be received by ChyronHego’s shareholders (other than the Rollover Holders with respect to the Rollover Shares) is expected to be approximately $96.8 million. 

 

Transactions with the Rollover Holders (page 37)

 

In connection with the Merger, the Rollover Holders have agreed to contribute, immediately prior to the effective time of the Merger, 8,258,706 shares (the “Rollover Shares”), which will be valued at $2.82 per share, and in exchange for the Rollover Shares, the Rollover Holders will receive equity interests in Purchaser valued at approximately $23.3 million, in the aggregate, at the same valuation as Vector Capital’s cash investment. The remaining 8,853,725 shares of ChyronHego common stock held by the Rollover Holders will be cashed out in the Merger at $2.82 per share (or a total of approximately $25.0 million, excluding payments of approximately $1.8 million with respect to stock options and warrants held by the Rollover Holders). Accordingly, immediately following the effective time of the Merger, the Rollover Holders will receive combined equity and cash with a total value of approximately $48.3 million (excluding payments of approximately $1.8 million with respect to stock options and warrants held by the Rollover Holders), the same value as their shares of ChyronHego common stock prior to the Merger (valued at $2.82 per share).

  

 
1

 

 

The Rollover Shares represent up to 50% of the shares held (excluding stock options and warrants, and shares issuable upon the exercise of stock options and warrants) by Mr. Apel; Westhill Group AB, of which Mr. Apel is the sole equity owner and sole director; Mr. Kjellin; Maxflyt AB, of which Mr. Kjellin is the sole equity owner and sole director; Jesper Gawell, ChyronHego’s Chief Marketing Officer; Stefan Fjellsten, a principal shareholder of ChyronHego, and certain employees who are former shareholders of companies previously acquired by ChyronHego (collectively, the “Rollover Holders”). The Rollover Holders are listed on Annex C to this proxy statement.

 

Purchaser intends to raise approximately $50.0 million in debt in connection with the Merger. Assuming the full amount is borrowed and is used to purchase common stock, then the post-closing equity value of Purchaser after the Merger will be approximately $76.1 million (determined based on the pre-Merger equity value of ChyronHego common stock, options and restricted stock reduced by the amount of the debt incurred by Purchaser in connection with the Merger) and the enterprise value will be approximately $126.1 million. To fund a portion of the Merger Consideration, Vector Capital will invest $52.8 million in Purchaser in the form of an equity contribution. The Rollover Holders’ contribution and Vector Capital’s investment in Purchaser will be made at the same valuation. As a result, immediately after the Merger, the Rollover Holders will hold equity in Purchaser valued at approximately $23.3 million (or approximately 30.6% of the total equity value of approximately $76.1 million) and Vector Capital will hold equity in Purchaser valued at approximately $52.8 million (or approximately 69.4% of the total equity value of approximately $76.1 million). The remainder of the capitalization of Purchaser will consist of $50.0 million in debt, which will not exist prior to the closing of the Merger, and which would be arranged by Vector Capital (as described elsewhere in this proxy statement).

 

It is anticipated that, after the closing of the Merger, Purchaser will authorize and reserve an equity pool representing approximately 10% of the fully-diluted equity of Purchaser. Of this equity pool, half of the interests will be awarded to ChyronHego management and the remaining half will be reserved for future awards to be granted to ChyronHego employees based on merit by Purchaser’s management. Some of these equity awards are expected to be granted to Johan Apel, ChyronHego’s President, Chief Executive Officer and a director, and Sören Kjellin, ChyronHego’s Chief Technology Officer, in connection with their continued employment with ChyronHego, pursuant to the employment agreements entered into by each respective executive and ChyronHego on November 17, 2014. See “Special Factors – Interests of ChyronHego’s Directors and Executive Officers in the Merger –Employment Agreements” beginning on page 36.

 

Treatment of Stock Options (page 45)

 

At the effective time of the Merger, each option to purchase ChyronHego common stock that has an exercise price less than $2.82 per share, whether or not exercisable or vested, will be converted into the right to receive a cash payment equal to the product of (1) the total number of shares of common stock subject to such stock option, multiplied by (2) an amount equal to the excess, if any, of the Merger Consideration of $2.82 per share over the exercise price per share of such stock option. Each option to purchase ChyronHego common stock that has an exercise price equal to or greater than $2.82 per share, whether or not exercisable or vested, will be cancelled.

 

Treatment of Restricted Stock Units (page 45)

 

At the effective time of the Merger, each restricted stock unit representing the right to acquire shares of ChyronHego common stock outstanding immediately prior to the effective time, whether vested or unvested, will be cancelled in exchange for the right to receive a cash amount equal to the product of (1) the total number of shares of common stock subject to such restricted stock unit, multiplied by (2) the Merger Consideration of $2.82 per share.

 

Treatment of Warrants (page 46)

 

At the effective time of the Merger, each warrant to purchase ChyronHego common stock that has an exercise price per share less than $2.82 per share, whether or not exercisable, will be converted into the right to receive a cash payment per share of ChyronHego common stock subject to such warrant equal to the excess of the Merger Consideration of $2.82 per share over the exercise price per share of such warrant.

 

Market Price (page 58)

 

ChyronHego’s common stock is listed on The NASDAQ Global Market under the ticker symbol “CHYR.” On November 14, 2014, the last full trading day prior to the public announcement of the proposed Merger, ChyronHego common stock closed at $2.71 per share. The Merger Consideration of $2.82 per share represents a premium of approximately 18% over the average closing price of ChyronHego common stock for the six months ended on November 14, 2014 and a premium of approximately 230% to the closing price of ChyronHego common stock on March 8, 2013, the day prior to the announcement of the merger between Chyron Corporation and Hego AB. The Merger Consideration also represents a premium of approximately 4% over the closing price of ChyronHego common stock on November 14, 2014, after a significant increase in the stock price in recent months. On February 5, 2015, the last full trading day prior to the date of this proxy statement, ChyronHego common stock closed at $2.79 per share. ChyronHego’s stock price can fluctuate broadly even over short periods of time. It is impossible to predict the actual price of ChyronHego’s stock immediately prior to the effective time of the Merger.

 

Special Committee (page 20)

 

Formed by ChyronHego’s board of directors, the Special Committee of the board of directors (the “Special Committee”) consists entirely of independent directors who are neither officers nor employees nor affiliated with significant shareholders of ChyronHego and who will not have an economic interest in the surviving entity following the Merger. The Special Committee was charged with representing the interests of ChyronHego’s unaffiliated shareholders and was actively involved in deliberations and negotiations regarding the terms and conditions of a change of control transaction on behalf of the unaffiliated shareholders. In this capacity, the Special Committee retained and received advice from Duff & Phelps, LLC (“Duff & Phelps”), as financial advisor, and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (“Mintz Levin”), as legal advisor. The authority of the Special Committee was not limited by ChyronHego’s board of directors. See “Special Factors — Background of the Merger” beginning on page 9 and “Special Factors — Reasons for the Merger” beginning on page 16.

  

 
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Position of ChyronHego as to the Fairness of the Merger (page 16)

 

The Special Committee and ChyronHego’s board of directors determined that the Merger and the Merger Agreement are substantively and procedurally fair to, and in the best interests of, ChyronHego’s unaffiliated shareholders. The Special Committee and the board have declared the Merger Agreement and the Merger to be advisable and recommend that ChyronHego’s shareholders vote to adopt the Merger Agreement.

 

Opinion of Financial Advisor as to the Fairness of the Merger (page 20)

 

In connection with the Merger, Duff & Phelps, LLC, which we refer to as Duff & Phelps, delivered its opinion to the Special Committee to the effect that, as of November 17, 2014 and based upon and subject to the assumptions, qualifications and limiting conditions set forth therein, the $2.82 per share Merger Consideration to be received by the shareholders of the Company (other than the Rollover Holders) in connection with the Merger, was fair from a financial point of view, to such shareholders (without giving effect to any impact of the Merger on any particular shareholder other than in its capacity as a shareholder). The full text of Duff & Phelps’ written opinion, dated November 17, 2014, is attached as Annex B to this proxy statement.

 

Duff & Phelps’ opinion was furnished for the use and benefit of the Special Committee in connection with its consideration of the $2.82 per share Merger Consideration, from a financial point of view, and does not address any other aspect of the Merger. The opinion does not address the merits of the underlying business decision to enter into the Merger versus any alternative strategy or transaction. The opinion does not constitute a recommendation as to how the Special Committee or any shareholder should vote or act with respect to any matters relating to the Merger. Duff & Phelps was not requested to, and did not, (i) prior to the go-shop period, initiate any discussions with, or solicit any indications of interest from, third parties with respect to the Merger, the assets, businesses or operations of the Company, or any alternatives to the Merger, (ii) negotiate the terms of the Merger, and therefore Duff & Phelps assumed that such terms were the most beneficial terms, from the Company’s perspective, that could, under the circumstances, be negotiated among the parties to the Merger Agreement and the Merger, or (iii) advise the Board or any other party with respect to alternatives to the Merger. Shareholders of the Company are encouraged to read Duff & Phelps’ opinion carefully and in its entirety for a description of the assumptions, qualifications and limiting conditions set forth therein, as more fully described below under the caption “Special Factors—Opinion of the Financial Advisor to ChyronHego’s Special Committee” beginning on page 20.

 

Recommendation to ChyronHego’s shareholders (page 16)
 
 

 ChyronHego’s board of directors and the Special Committee recommend that you vote “FOR” adoption of the Merger Agreement. As of January 5, 2015, the record date, the directors and executive officers of ChyronHego held and are entitled to vote, in the aggregate, shares of ChyronHego common stock representing approximately 29.0% of ChyronHego’s outstanding shares. We believe ChyronHego’s directors and executive officers intend to vote all of their shares of ChyronHego common stock FOR the approval and adoption of the Merger Agreement. In addition, the Voting Parties, which include all of ChyronHego’s directors and executive officers, have entered into a Voting Agreement pursuant to which the Voting Parties have agreed to vote an aggregate of approximately 49.9% of the outstanding shares of ChyronHego common stock as of the record date, in favor of the adoption of the Merger Agreement and against any competing proposals.

 

Position of Purchaser, Merger Subsidiary and Vector Capital as to the Fairness of the Merger (page 25)

 

Based on their beliefs regarding the reasonableness of the conclusions and analyses of the Special Committee and ChyronHego’s board of directors (although Purchaser, Merger Subsidiary and Vector Capital did not rely on these conclusions and analyses) and in view of, among other things, the process undertaken by the Special Committee, Purchaser, Merger Subsidiary and Vector Capital believe that the terms and conditions of the Merger are substantively and procedurally fair to ChyronHego’s unaffiliated shareholders. The rules of the SEC require Purchaser, Merger Subsidiary and Vector Capital to express their belief as to the fairness of the Merger to ChyronHego’s unaffiliated shareholders. None of Purchaser, Merger Subsidiary or Vector Capital makes any recommendation as to whether any ChyronHego shareholder should adopt the Merger Agreement. As the acquiring parties in the Merger, Purchaser, Merger Subsidiary and Vector Capital are not objective in their views with regard to the fairness of the Merger. Purchaser, Merger Subsidiary and Vector Capital did not engage the services of a financial advisor in connection with the proposed Merger.

 

Purposes and Reasons of the Rollover Holders for the Merger and Position of the Rollover Holders as to the Fairness of the Merger (page 27)

 

The Rollover Holders believe that ChyronHego is well situated in its current segment of the market, but faces substantial execution risk in the near term which can be mitigated if ChyronHego were to become a private company. For this reason, the Rollover Holders have undertaken to pursue the Merger transaction at this time.

 

In connection with the Merger, the Rollover Holders have agreed to contribute, immediately prior to the effective time of the Merger, the Rollover Shares, which will be valued at $2.82 per share, in exchange for an equity interests in Purchaser valued at approximately $23.3 million, in the aggregate. As such, the Rollover Holders will continue to be owners of ChyronHego after ChyronHego common stock ceases to be publicly traded and will therefore continue to bear the rewards and risks of such ownership. Certain of the Rollover Holders will also continue to be employees of ChyronHego following the consummation of the Merger.

 

Based on their beliefs regarding the reasonableness of the conclusions and analyses of the Special Committee and ChyronHego’s board of directors (although the Rollover Holders did not rely on these conclusions and analyses) and in view of, among other things, the process undertaken by the Special Committee, the Rollover Holders believe that the terms and conditions of the Merger are substantively and procedurally fair to ChyronHego’s unaffiliated shareholders. The Rollover Holders will exchange, collectively, 8,853,725 of their own shares for the Merger Consideration of $2.82 per share, for a total of approximately $25.0 million. The rules of the SEC require the Rollover Holders to express their belief as to the fairness of the Merger to ChyronHego's unaffiliated shareholders. None of the Rollover Holders makes any recommendation as to whether any ChyronHego shareholder should adopt the Merger Agreement. The Rollover Holders did not engage the services of a financial advisor in connection with the proposed Merger.

 

 
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Voting Agreement (page 33)

 

Concurrently with the execution of the Merger Agreement, each of ChyronHego’s directors, executive officers and other management team members (collectively, the “Voting Parties”), entered into a Voting Agreement dated November 17, 2014 (the “Voting Agreement”) in which each Voting Party has agreed, among other things, to vote the 20,152,594 shares owned by them (approximately 49.9% of ChyronHego’s outstanding common stock as of January 5, 2015, the record date) plus any additional shares of ChyronHego common stock subsequently acquired by the Voting Parties, whether through the exercise of options to purchase an aggregate of 2,686,755 shares of ChyronHego common stock (which are exercisable with respect to 1,422,168 shares within 60 days of the record date), and any shares of common stock issuable upon vesting of restricted stock units (all of which shares had vested prior to the record date), in favor of the adoption of the Merger Agreement and approval of the Merger and against any competing proposals (with limited exceptions), and grants Purchaser a proxy to vote such shares in favor of the Merger in the event such Voting Party fails to do so. The Voting Agreement terminates upon the effective time of the Merger, if the Merger Agreement is terminated in accordance with its terms (including termination by ChyronHego in connection with a Superior Proposal as described under “The Merger Agreement — Termination of the Merger Agreement”), if there is an Adverse Recommendation Change (described under “The Merger Agreement – Covenants – Go Shop; No Shop; Change in Board Recommendation”) by the Special Committee in compliance with the Merger Agreement, or by mutual agreement of the parties to terminate the Voting Agreement.  

 

Limited Guarantee of Payment of Reverse Termination Fee (page 30)

 

Pursuant to a Limited Guarantee by Vector Capital IV International, L.P. and Vector Entrepreneur Fund III, L.P. (the “Guarantors”) in favor of ChyronHego, the Guarantors, severally and not jointly, have guaranteed their respective portion of Purchaser’s obligation to pay a reverse termination fee of $6.3 million to ChyronHego in the event that ChyronHego terminates the Merger Agreement due to a breach of any representation or warranty or failure to perform any covenant by Purchaser or Merger Subsidiary under the Merger Agreement, which breach would cause certain conditions to the closing to not be satisfied; and, provided, that there are no facts or circumstances (other than Purchaser or Merger Subsidiary’s breach of its agreements or representation) that would cause the conditions to closing to not be satisfied on or prior to May 16, 2015. This guarantee will terminate upon the earlier of the effective time of the Merger or the termination of the Merger Agreement (or 180 days after a termination of the Merger Agreement in which Purchaser is required to pay such reverse termination fee, if ChyronHego fails to present a claim or commence any action for payment of such fee).

 

Financing (page 30)

 

The Merger is not conditioned on Purchaser’s ability to obtain financing. Purchaser expects to fund the Merger Consideration with a combination of equity financing to be provided by the Guarantors, debt financing to be provided by one or more lenders, if available, and available cash balances of ChyronHego.

 

Interests of ChyronHego’s Directors and Executive Officers in the Merger (page 34)

 

In considering the recommendation of the Special Committee and ChyronHego’s board of directors in favor of adoption of the Merger Agreement, you should be aware that there are provisions of the Merger Agreement and the Merger that will result in certain benefits to ChyronHego’s directors and executive officers, including the payment of the $2.82 per share Merger Consideration for the shares held by ChyronHego’s directors and officers outstanding immediately prior to the effective time of the Merger, the continuation of certain indemnification and insurance arrangements, and acceleration of stock options.

 

The following table reflects the total cash consideration expected to be received by each of ChyronHego’s directors and executive officers in connection with the Merger as of January 26, 2015.

 

   

Cash Merger

   

Realizable

         
   

Consideration

   

Value of

         
   

to be

   

Stock Options

         
   

Received for

   

as a Result

         

Name of Director

 

ChyronHego

   

of the

   

Total Cash

 
and/or Executive Officer  

Common Stock (1)

   

Merger(2)

   

Consideration

 
                         

Executive Officers

                       

Johan Apel / Westhill Group AB (3)

  $ 7,470,527     $ 455,000     $ 7,925,527  
President, Chief Executive Officer and Director                        

Dawn R. Johnston

  $ 127,619     $ 66,610     $ 194,229  
Interim Chief Financial Officer                        

Sören Kjellin / Maxflyt AB

  $ 3,416,551     $ 262,313     $ 3,678,864  
Chief Technology Officer                        

Non-Employee Directors

                       

Roger L. Ogden

  $ 782,900     $ 22,800       805,700  
Chairman of the Board                        

Peter F. Frey

  $ 738,208     $ 22,800     $ 761,008  

Christopher R. Kelly

  $ 7,171,669     $ 37,801     $ 7,209,470  

Henrik Sundberg

  $ 78,999     $ -     $ 78,999  
Stella Capital Advisors   $ 1,548,101       -     $ 1,548,101  

Michael C. Wheeler

  $ 360,289     $ 30,301     $ 390,590  

TOTAL

  $ 21,694,863     $ 897,625     $ 22,592,488  

 

 

1)

This table excludes the contribution by the Rollover Holders of the 8,258,706 Rollover Shares for equity interests in Purchaser.

 

2)

This table excludes stock options with exercise prices greater than $2.82 per share as of January 26, 2015. All outstanding stock options that have an exercise price less than $2.82 per share, whether or not exercisable or vested, will be converted into the right to receive a cash payment equal to the excess of $2.82 per share over the exercise price per share of such stock option.

 

3)

This table does not reflect an additional $32,086 of Merger Consideration payable to Westhill Group AB due to the additional 11,378 shares of common stock purchased by Westhill Group AB from an employee of ChyronHego on February 2, 2015.


 
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Appraisal Rights (page 38)

 

The New York Business Corporation Law does not provide holders of shares of ChyronHego common stock with appraisal, dissenters’ or similar rights in connection with the Merger.

 

Material U.S. Federal Income Tax Consequences of the Merger (page 38)

 

The receipt of cash in exchange for ChyronHego common stock in connection with the Merger will be a taxable transaction for U.S. federal income tax purposes (and also may be a taxable transaction under applicable state, local, non-U.S. and other income tax laws). For U.S. federal income tax purposes, generally holders of common stock will recognize a gain or loss as a result of the Merger equal to the difference, if any, between the $2.82 per share cash consideration the holder will receive in connection with the Merger and the holder’s adjusted tax basis in the shares of ChyronHego stock surrendered in the Merger. Tax matters can be complicated and the tax consequences of the Merger to you will depend on the facts of your own situation. You should read the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 38 of this proxy statement and you should consult your own tax advisor to understand the U.S. federal income tax consequences of the Merger to you, as well as tax consequences arising under the laws of any state, local or foreign taxing jurisdictions.

 

Regulatory Matters (page 40)

 

Completion of the Merger is subject to certain governmental or regulatory clearance procedures, including the termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the “HSR Act”) required to permit the consummation of the Merger.

 

The HSR Act provides that transactions such as the Merger may not be completed until certain information has been submitted to the Federal Trade Commission (the “FTC”) and the Antitrust Division of the U.S. Department of Justice (the “DOJ”) and certain waiting period requirements have been satisfied. ChyronHego and Purchaser filed notification and report forms with the DOJ and the FTC under the HSR Act on December 3, 2014 and early termination of the waiting period was granted effective December 16, 2014.

 

The Special Meeting of ChyronHego’s Shareholders (page 42)

 

Time, Date and Place. The Special Meeting will be held to consider and vote upon the proposal to adopt the Merger Agreement, the non-binding, advisory proposal regarding compensation that may become payable to ChyronHego’s named executive officers in connection with the Merger, and to vote to adjourn the Special Meeting, if necessary and appropriate, for the purpose of soliciting additional proxies to vote in favor of adoption of the Merger Agreement, at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., at 666 Third Avenue, New York, NY 10017, at 10:00 a.m., local time, on March 6, 2015.

 

Record Date, Voting Power and Quorum. You are entitled to vote at the Special Meeting if you owned shares of ChyronHego common stock at the close of business on January 5, 2015, the record date for the Special Meeting. You will have one vote at the Special Meeting for each share of ChyronHego common stock you owned at the close of business on the record date. There are 40,381,633 shares of ChyronHego common stock entitled to be voted at the Special Meeting. A quorum will be present at the Special Meeting if a majority of the outstanding shares of ChyronHego common stock entitled to vote on the record date are represented in person or by proxy. In the event that a quorum is not present at the Special Meeting, it is expected that the Special Meeting will be postponed to solicit additional proxies. In addition, shareholders will be asked to vote to adjourn the Special Meeting, if necessary and appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Special Meeting to adopt the Merger Agreement.

 

Procedure for Voting. To vote, you can either (1) complete, sign, date and return the enclosed proxy card, (2) vote over the Internet or by telephone or (3) attend the Special Meeting and vote in person. If your shares are held in “street name” by your broker, bank or other nominee, you should instruct your broker to vote your shares by following the instructions provided by your broker. Your broker will not vote your shares without instruction from you. Failure to instruct your broker to vote your shares will have the same effect as a vote “AGAINST” adoption of the Merger Agreement.

 

Required Vote. To adopt the Merger Agreement, shareholders of record as of January 5, 2015 holding two-thirds of the outstanding shares of ChyronHego common stock must vote “FOR” the adoption of the Merger Agreement. The Merger Agreement also requires shareholders holding a majority of the outstanding shares of ChyronHego common stock, excluding shares owned by Purchaser, Merger Subsidiary, the Guarantors, or the Rollover Holders, to vote “FOR” the adoption of the Merger Agreement. There were 40,381,633 total shares of ChyronHego common stock outstanding on the record date, which are entitled to be voted at the Special Meeting. There were 23,269,574 shares of ChyronHego common stock outstanding on the record date excluding shares owned by Purchaser, Merger Subsidiary, the Guarantors, or the Rollover Holders. Pursuant to the Voting Agreement executed by each of the Voting Parties, the Voting Parties have agreed to vote an aggregate of 20,152,594 shares owned by them, or approximately 49.9% of the outstanding shares of ChyronHego common stock as of January 5, 2015, plus any additional shares of ChyronHego common stock subsequently acquired by the Voting Parties, whether through the exercise of options to purchase an aggregate of 2,686,755 shares of ChyronHego common stock (which are exercisable with respect to 1,422,168 shares within 60 days of the record date), and any shares of common stock issuable upon vesting of restricted stock units (all of which vested prior to the record date), in favor of the Merger Agreement and against any competing proposals.

 

Shareholders holding at least a majority of the shares of ChyronHego common stock voted at the Special Meeting must vote “FOR” the non-binding, advisory proposal regarding compensation that may become payable to ChyronHego’s named executive officers in connection with the Merger (as described in “Special Factors — Interests of ChyronHego’s Directors and Executive Officers in the Merger” beginning on page 34), which we refer to as the “Merger-Related Compensation Proposal,” in order for the proposal to be approved. Approval of the Merger-Related Compensation Proposal is not a condition to the completion of the Merger, and the vote with respect to the Merger-Related Compensation Proposal is advisory only and will not be binding on Purchaser or ChyronHego. Therefore, if shareholder approval for the Merger is obtained and the Merger is completed, the payments that are the subject of the Merger-Related Compensation Proposal may become payable to the named executive officers regardless of the outcome of the vote on the Merger-Related Compensation Proposal.

 

 
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Shareholders holding at least a majority of the shares of ChyronHego common stock voted at the Special Meeting must vote “FOR” the proposal to adjourn the Special Meeting, if necessary and appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the Merger and adopt the Merger Agreement, which we refer to as the “Adjournment Proposal,” in order for the proposal to be approved.

 

Because the Rollover Holders and the Voting Parties beneficially own more than a majority of the outstanding shares of ChyronHego common stock as of the record date, they can approve or disapprove the Merger-Related Compensation Proposal and the Adjournment Proposal regardless of how any other shareholder votes.

 

Voting, Counting Votes. You should read this proxy statement carefully, including its annexes, and consider how the Merger affects you. Then mail your completed, dated and signed proxy card in the enclosed return envelope or vote over the Internet or by telephone as soon as possible so that your shares can be voted at the Special Meeting. For each of the proposals being voted on in the Special Meeting, you may vote “FOR,” “AGAINST” or “ABSTAIN.”

 

For shareholders other than Purchaser, Merger Subsidiary, the Guarantors or the Rollover Holders, your vote on the proposal relating to the adoption of the Merger Agreement will be counted once to determine if holders of two-thirds of the outstanding shares of ChyronHego common stock approve the adoption of the Merger Agreement and once to determine if holders of a majority of the outstanding shares of ChyronHego common stock (other than shares owned by Purchaser, Merger Subsidiary, the Guarantors or the Rollover Holders) approve the adoption of the Merger Agreement. Abstentions will count as votes cast on the proposal relating to adoption of the Merger Agreement, and will also count for the purpose of determining whether a quorum is present. As a result, if you “ABSTAIN,” it will have the same effect as if you vote “AGAINST” the adoption of the Merger Agreement. The failure to return your proxy card (or to vote over the Internet or by telephone or to vote in person) will also have the same effect as voting “AGAINST” adoption of the Merger Agreement.

 

Abstentions will not count as votes cast on the Merger-Related Compensation Proposal and the Adjournment Proposal; as a result, if you “ABSTAIN,” it will have no effect on the Merger-Related Compensation Proposal and the Adjournment Proposal.

 

If you sign and return your proxy but do not indicate how you want to vote, your proxy will be voted “FOR” the proposal to adopt the Merger Agreement, “FOR” the Merger-Related Compensation Proposal and “FOR” the Adjournment Proposal.

 

Voting in Person. You may vote in person at the Special Meeting, rather than signing and returning your proxy card, if you own shares in your own name. However, we encourage you to return your signed proxy card to ensure that your shares are voted. You may be asked to present photo identification for admittance into the Special Meeting.

 

Voting over the Internet or by Telephone. If you own shares in your own name, you may vote over the Internet or by telephone by following the instructions included in these materials. You may vote over the Internet until 11:59 P.M. Eastern Time on the day before the Special Meeting by going to the website for Internet voting on the proxy card (www.proxyvote.com) and following the instructions on the screen. You may vote by telephone by calling the toll-free number on your proxy card, 24 hours a day and until 11:59 PM Eastern Time on the day before the Special Meeting and following the prerecorded instructions. Have your proxy card available when you access this web page or call.

 

Changing Your Vote. You may change your vote at any time before the shares reflected on your proxy card are voted at the Special Meeting. You can do this in one of four ways. First, you can send a written, dated notice to ChyronHego’s corporate secretary stating that you would like to revoke your proxy. Second, you can complete, sign, date and submit a new proxy card. Third, you can submit a subsequent proxy over the Internet or by telephone. Fourth, you can attend the meeting and vote in person. Your attendance alone will not revoke your proxy. If you have instructed a broker to vote your shares, you must follow the directions received from your broker to change your instructions.

 

Shares held in “Street Name.” If your shares are held in “street name” by your broker or bank, your broker or bank will not vote your shares without instructions from you. You should instruct your broker or bank to vote your shares, following the procedure provided by them, or by following their instructions for voting through the Internet or by telephone. Without instructions, your shares will not be voted, which will have the same effect as voting against adoption of the Merger Agreement. In the alternative, you may vote in person at the meeting if you obtain a valid legal proxy from your broker, bank or other nominee and present it at the meeting.

 

Failure to Adopt Merger Agreement. If the proposal to adopt the Merger Agreement fails to get the requisite number of shareholder votes, and the Adjournment Proposal passes, ChyronHego’s board of directors may adjourn the Special Meeting for the purpose of soliciting additional proxies. If the Special Meeting is not adjourned, the board of directors, the Special Committee and Purchaser will consider available options at that time.

 

Other Business. No business may be transacted at the Special Meeting other than the matters set forth in this proxy statement.

 

The Merger Agreement (page 44)

 

Go-Shop Period. ChyronHego was allowed, until January 5, 2015, to solicit proposals for, or participate in discussions with respect to, other acquisition transactions, as described further in this document. The go-shop period commenced on November 17, 2014 and concluded on January 5, 2015. At the conclusion of the go-shop period, the Special Committee was advised that no additional bids had been made during such period. During the go-shop period, Duff & Phelps contacted 85 potential buyers, including 20 strategic buyers and 65 private equity buyers, of which nine potential buyers entered into confidentiality agreements with ChyronHego and were given access to the same materials as had been provided to Vector Capital.  ChyronHego held management meetings with two of such potential buyers. Of such potential buyers, one was a strategic buyer and the other was a private equity buyer. None of these potential buyers submitted a bid to acquire ChyronHego. At the conclusion of the go-shop period, the Special Committee was advised that no additional bids had been made during such period. After January 5, 2015, we have agreed, prior to the Merger becoming effective or being terminated in accordance with its terms, to limitations on, among other things, ChyronHego’s ability to solicit proposals for, or participate in discussions with respect to, other acquisition transactions. See the section entitled “The Merger Agreement — Covenants — Go-Shop; No-Shop; Change in Board Recommendation” beginning on page 49 for a discussion of these provisions.

  

 
6

 

 

Conditions to the Merger. The obligations of ChyronHego, Purchaser and Merger Subsidiary to complete the Merger are subject to the following conditions:

 

 

the affirmative vote of the holders of two-thirds of the outstanding shares of common stock entitled to vote thereon;

 

 

the affirmative vote of the holders of a majority of the outstanding shares of common stock not owned, directly or indirectly, by Purchaser, Merger Subsidiary, the Guarantors or the Rollover Holders;

 

 

the absence of any applicable law, injunction, judgment or ruling prohibiting the consummation of the Merger;

 

 

the expiration or termination of the waiting period under the HSR Act; and

 

 

all actions by, or filings with, any governmental authority required to permit the consummation of the Merger, shall have been taken, made or obtained;

 

Purchaser and Merger Subsidiary’s obligations to complete the Merger are also subject to the following conditions:

 

 

ChyronHego must have performed in all material respects all of its obligations under the Merger Agreement;

 

 

ChyronHego’s representations and warranties must be true as of the closing of the Merger, except for (1) those representations and warranties which address matters as of a particular time (which shall have been true as of such time) or (2) any failure of certain representations and warranties to be so true which has not had and would not have, individually or in the aggregate, a “material adverse effect” on ChyronHego (except that certain representations and warranties must be true in all respects);

 

 

there must not be any instituted or pending actions or proceedings (or any investigation or other inquiry that might result in such action or proceeding) in which a governmental body has: (a) challenged, sought to make illegal, delayed materially or otherwise restrained or prohibited the consummation of the Merger, (b) sought to restrain or prohibit Purchaser’s, Merger Subsidiary’s or any of Purchaser’s affiliates’ (i) ability to exercise full rights of ownership of ChyronHego’s stock or (ii) ownership or operation of all or a material portion of the business or assets of ChyronHego and its subsidiaries, taken as a whole, or of Purchaser and its subsidiaries, taken as a whole, (c) sought to compel Purchaser or any of its subsidiaries or affiliates to dispose of or hold separate all or a material portion of the business or assets of ChyronHego and its subsidiaries, taken as a whole, or of Purchaser and its subsidiaries, taken as a whole, or (d) that otherwise, in Purchaser’s judgment, is likely to have a “material adverse effect” on ChyronHego or Purchaser;

 

 

there must not have been any action taken or any applicable law proposed, enacted, enforced, promulgated, issued or deemed applicable to the Merger by any governmental body, other than the application of the waiting period provisions of the HSR Act to the Merger, that, in the judgment of Purchaser, is likely to result in any of the consequences referred to in clauses (a) through (d) of the paragraph immediately above;

 

 

ChyronHego must have delivered to Purchaser a certificate for purposes of satisfying Purchaser’s obligations under Section 1.1445-2(c)(3)(i) of the U.S. Treasury Regulations and a notice to the Internal Revenue Service (the “IRS”) in accordance with Section 1.897-2(h)(2) of such regulations; and

 

 

there shall not have occurred any event, occurrence, revelation or development of a state of circumstances or facts which, individually or in the aggregate, has had or would reasonably be expected to have a “material adverse effect” on ChyronHego.

 

ChyronHego’s obligations to complete the Merger are also subject to the following conditions:

 

 

Purchaser and Merger Subsidiary must have performed in all material respects all of their obligations under the Merger Agreement by the effective time; the representations and warranties of Purchaser must be true at and as of the effective time as if made at and as of such time (other than such representations and warranties that by their terms address matters only as of another specified time, which must be true only as of such time); and we must have received a certificate signed by an executive officer of Purchaser to the foregoing effect.

 

See the section entitled “The Merger Agreement — Conditions to the Merger” beginning on page 51.

 

Termination of the Merger Agreement and Termination Fee. The Merger Agreement contains certain termination rights for ChyronHego and Purchaser. Upon termination of the Merger Agreement under specified circumstances, ChyronHego will be required to pay Purchaser a termination fee. If the termination fee becomes payable as a result of ChyronHego terminating the Merger Agreement in order to enter into a definitive agreement concerning a Superior Proposal, as defined below, the amount of the termination fee will be $1.8 million if the termination occurred on or before January 5, 2015 and $4.2 million if the termination occurs after January 5, 2015, which termination fee represents approximately 1.5% and approximately 3.5%, respectively, of the aggregate equity value of ChyronHego (consisting of the cash Merger Consideration and the value of the Rollover Shares). The Merger Agreement also provides that Purchaser will be required to pay ChyronHego a reverse termination fee of $6.3 million in the event that ChyronHego terminates the Merger Agreement due to a breach of any representation or warranty or failure to perform any covenant by Purchaser or Merger Subsidiary under the Merger Agreement, which breach would cause certain conditions to the closing to not be satisfied; and, provided, that there are no facts or circumstances (other than Purchaser or Merger Subsidiary’s breach of its agreements or representations) that would cause the conditions to closing to not be satisfied on or prior to May 16, 2015. See the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 52.

  

 
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After the Vote (page 44)

 

Results of the Shareholder Vote. After the shareholder votes are counted, ChyronHego will promptly file a final amendment to the Schedule 13E-3 Transaction Statement relating to this transaction, which will describe the results of the shareholder vote. In addition, ChyronHego also intends to file a Current Report on Form 8-K in which it will announce the results of the shareholder vote.

 

Completing the Merger; Exchanging Shares for Merger Consideration. Please do not send in your stock certificate at this time. ChyronHego is working toward completing the Merger as quickly as possible, but cannot predict the exact timing. ChyronHego currently expects the Merger to be completed in the first quarter of 2015. However, we cannot assure you that all conditions to the Merger will be satisfied or, if satisfied, the date by which they will be satisfied. After the Merger is completed, you will receive written instructions, including a letter of transmittal, that explain how to exchange your shares of ChyronHego common stock for the Merger Consideration of $2.82 per share in cash, without interest and subject to any applicable withholding taxes, for each share of ChyronHego common stock. Once you have properly completed and returned the required documentation described in the written instructions, you will promptly receive from the paying agent a payment of the Merger Consideration for your shares.

 

Solicitation of Proxies and Expense (page 44)

 

This proxy solicitation is being made and paid for by ChyronHego. In addition, ChyronHego has engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide proxy related advice and informational support, for a $10,000 services fee, plus customary disbursements. ChyronHego’s directors, officers and employees may solicit proxies by personal interview, mail, e-mail, telephone, facsimile or by other means of communications. These persons will not be paid additional remunerations for their efforts. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of ChyronHego common stock that the brokers and fiduciaries hold of record. We will reimburse them for their reasonable out-of-pocket expenses.

 

Additional Information (page 65)

 

ChyronHego files reports and other information with the SEC. Purchaser, Merger Subsidiary and Vector Capital are also required to file information with the SEC in connection with their potential ownership interest in ChyronHego. You may read and copy this information at the SEC’s public reference facilities. Please call the SEC at 1-800-SEC-0330 for information about these facilities. This information is also available at the SEC’s website maintained at www.sec.gov. You can also request copies of the documents we file with the SEC from us.

 

If you have additional questions about the Merger or require assistance in submitting proxies or voting shares of ChyronHego common stock, or if you would like to receive additional copies of the proxy statement or the enclosed proxy card, please contact The Proxy Advisory Group, LLC, who is assisting ChyronHego with the solicitation of proxies, by telephone at (212) 616-2180, by email at info@proxyadvisory.net, or by mail to the following address:

 

The Proxy Advisory Group, LLC

18 East 41st Street, Suite 2000

New York, NY 10017-6219 

 

If your brokerage firm, bank, trust or other nominee holds your shares in “street name,” you should also call your brokerage firm, bank, trust or other nominee for additional information.

 
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SPECIAL FACTORS

 

The discussion of the Merger and the Merger Agreement contained in this proxy statement summarizes the material terms of the Merger. Although we believe that the description covers the material terms of the Merger and the Merger Agreement, this summary may not contain all of the information that is important to you. We urge you to read this proxy statement, the Merger Agreement, a copy of which is attached to this proxy statement as Annex A, and the other documents referred to herein (including the annexes) carefully for a more complete understanding of the Merger.

 

Parties to the Merger Agreement

 

ChyronHego Corporation

 

In May 2013, Chyron Corporation, a New York corporation, acquired the outstanding stock of Hego Aktiebolag, a privately-held Swedish corporation, and the combined company changed its name to ChyronHego Corporation. ChyronHego is a global leader in broadcast graphics creation, playout, and real-time data visualization, offering a wide variety of products and services for live television, news, and sports production. ChyronHego's end-to-end graphics offerings include hosted services for graphics creation and order management, on-air graphics systems, clip servers, social media and second screen applications, channel branding, graphics asset management, touch graphics, telestration, virtual placement and player tracking. From the newsroom to the control room to the mobile unit on-the-go, ChyronHego continues to develop innovative technology for the unique and shifting demands of live production. ChyronHego’s principal executive offices are located at 5 Hub Drive, Melville, New York 11747, and ChyronHego’s telephone number is (631) 845-2000.

 

Vector CH Holdings (Cayman), L.P.

 

Vector CH Holdings (Cayman), L.P. (“Purchaser”) is an affiliate of Vector Capital Partners IV, L.P., Vector Capital International IV, L.P., Vector Entrepreneur Fund III, L.P. and their affiliated funds (collectively, “Vector Capital”). Since 1997, Vector Capital and its affiliates have been investing in technology and innovation worldwide. Vector Capital partners with entrepreneurs and management teams across technology sectors, geographies and stages of a company’s life, from start-up and expansion financing, to growth equity and buyouts. Purchaser was organized as a Cayman Islands exempted limited partnership on November 14, 2014. Purchaser has not engaged in any business activity other than in connection with its formation and the proposed Merger.

 

CH Merger Sub, Inc.

 

CH Merger Sub, Inc. (“Merger Subsidiary”) is a wholly owned subsidiary of Purchaser. Merger Subsidiary was incorporated under the laws of the State of New York on November 14, 2014. Merger Subsidiary has not engaged in any business activity other than in connection with its formation and the proposed Merger.

 

Background of the Merger 

 

ChyronHego and the Board have historically reviewed and evaluated the risks and opportunities within its existing business segments, and have regularly considered strategic alternatives in order to enhance shareholder value, including, from time to time, acquisitions, divestitures and the possible sale of ChyronHego.

 

On January 15, 2014, representatives of ChyronHego met with Dave Ramazetti, Managing Director at Vector Capital, at the Needham Growth Conference in New York. This meeting occurred after representatives of ChyronHego had given a business presentation at the conference and Mr. Ramazetti had then requested a meeting with representatives of ChyronHego.

 

In February 2014, Johan Apel, ChyronHego’s President and Chief Executive Officer, received an unsolicited inquiry from David Fishman, Managing Director and Head of Private Equity Investment at Vector Capital. Mr. Fishman indicated that Vector Capital was interested in a potential transaction with ChyronHego.

 

On February 10, 2014, ChyronHego and Vector Capital entered into a confidentiality agreement.

 

On February 24, 2014, Mr. Apel met with representatives of another private equity firm, referred to as Party B. Party B had contacted Mr. Apel to discuss its interest in a potential transaction with ChyronHego and to discuss Mr. Apel’s views on the state of the broadcast graphics market.

 

On March 6, 2014, Mr. Apel, Sören Kjellin, ChyronHego’s Chief Technology Officer, and Jesper Gawell, ChyronHego’s Chief Marketing Officer, met with Mr. Fishman, Nicholas Lukens, Vice President of Vector Capital, and other representatives of Vector Capital, in New York to discuss Vector Capital’s potential interest in ChyronHego. Mr. Apel reviewed ChyronHego’s current business and described its prospects and plans.

 

In March 2014, Mr. Apel informed Roger Ogden, the Chairman of ChyronHego's Board, of the communications he had had with Vector Capital.

 

On March 24, 2014, Mr. Apel met again with representatives of Party B to discuss further a potential transaction involving ChyronHego.

 

On April 9, 2014, representatives of Vector Capital met with representatives of ChyronHego at the National Association of Broadcasters, or NAB, conference in Las Vegas, Nevada. During this meeting, Mr. Apel reviewed ChyronHego’s product portfolio.

 

In April 2014, Mr. Apel provided Mr. Ogden with an update as to the meetings and communications he had had with Vector Capital. Mr. Ogden suggested that Mr. Apel update the full Board as to these meetings at its next scheduled meeting on May 22, or sooner if the discussions became more concrete or definitive in the meantime.

 

On April 11, 2014, ChyronHego and Party B entered into a confidentiality agreement.

 

On April 21, 2014, Mr. Apel and representatives of Party B met to discuss further a potential transaction involving ChyronHego.

  

 
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On April 22, 2014, Mr. Apel, together with Mr. Gawell and Mr. Kjellin, met with Mr. Fishman and Mr. Lukens in New York, as a follow-up to the meeting at the NAB conference. They continued to discuss ChyronHego’s business and prospects.

 

On May 7, 2014, Mr. Apel spoke by telephone with representatives of Party B, who indicated that Party B’s interest in a potential transaction with ChyronHego was dependent on a potential transaction between Party B and another company in this industry, that such other potential transaction was not going to be consummated, and that Party B was therefore no longer pursuing a transaction in this industry.

 

On May 14, 2014, Mr. Apel spoke with Mr. Fishman and Mr. Lukens by telephone, who expressed their interest in initiating a more formal dialogue regarding a potential transaction.

 

On May 20, 2014, the Board held a regularly scheduled meeting, at which representatives of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, legal counsel to ChyronHego (“Mintz Levin”), were also present. During that meeting, Mr. Apel indicated that he had been approached by Vector Capital and by other private equity firms in the media industry who had expressed interest in a potential investment in or acquisition of ChyronHego. Mr. Apel had not previously communicated the approaches by Vector Capital and by other private equity firms in the media industry to the full Board as he did not believe, until the discussion on May 14 with Mr. Fishman and Mr. Lukens, that the approaches were sufficiently concrete or definitive in nature to warrant the full Board’s attention. The Board noted that, although ChyronHego was not for sale at that time, it would like management to explore in further detail the interest that had been shown by the private equity investors, including the unsolicited indication of interest from Vector Capital. Management was advised not to commit to any period of exclusive dealings with Vector Capital or any other party at this time.

 

Later on May 20, 2014, Mr. Apel had a conversation with Mr. Fishman and Mr. Lukens regarding their interest in ChyronHego and potential next steps in an acquisition or investment process.

 

On May 21, 2014, Mr. Apel met with representatives of another private equity firm, referred to as Party C. Party C had contacted Mr. Apel on May 19, 2014 to schedule a meeting to discuss its interest in a potential transaction with ChyronHego. These discussions did not progress beyond this meeting, and no confidentiality agreement was entered into.

 

On May 22, 2014, the Board held a telephonic meeting, at which representatives of Mintz Levin were present. Mr. Apel summarized his discussions with Vector Capital and its interest in a transaction to acquire all or part of ChyronHego. Mr. Apel reported that Vector Capital had provided a preliminary valuation range for ChyronHego of $2.50 - $2.75 per share for all of the capital stock of ChyronHego. The Board discussed the need to evaluate the potential transaction in the context of ChyronHego’s future growth prospects.

 

Also at the May 22, 2014 board meeting, after discussing the need to evaluate ChyronHego’s prospects and position in an acquisition context, the Board formed a Special Committee of independent directors, comprising Messrs. Roger Ogden, Michael Wheeler, Henrik Sundberg and Peter Frey. The Special Committee’s purpose and duties were to explore, evaluate and make recommendations to the full Board about transactional inquiries and other strategic alternatives and to determine and make recommendations to the full Board as to which options were in the best interest of ChyronHego’s shareholders. The Special Committee was also given the authority to hire an advisor to advise it in its deliberations as to the strategic alternatives that were available to ChyronHego and the fairness, from a financial point of view, of a potential transaction to the unaffiliated shareholders of ChyronHego. 

 

On May 23, 2014, the Special Committee held its first meeting, and representatives of Mintz Levin were also present. Mr. Wheeler was initially appointed as chair of the Special Committee. The Special Committee discussed how to evaluate the potential transaction with Vector Capital and the valuation of ChyronHego. Mr. Apel also attended the meeting, and the Special Committee asked him to analyze ChyronHego’s potential future growth trajectory over the next two to three years to help the Special Committee to better evaluate the available strategic alternatives. During this meeting, the members of the Special Committee noted the need to retain a financial advisor and the importance to the process of obtaining analysis and advice in this regard. Members of the Special Committee agreed to reach out to their contacts at investment banks to obtain proposals to handle the engagement by the Special Committee.  

 

On May 27, 2014, the Special Committee met again and Mr. Apel presented financial information regarding the budget for ChyronHego’s 2014 fiscal year and projected financial information for the next three years, including the growth prospects for specific business lines, ChyronHego’s potential future market share and the competition in both the U.S. and international markets. The Special Committee also discussed alternatives to the Vector Capital transaction, and reviewed ChyronHego’s prospects for raising additional funds in the capital markets, and how a financing could change ChyronHego’s available alternatives. Additionally, the Special Committee discussed how raising additional capital in the capital markets could potentially have a dilutive ownership effect on current shareholders and discussed the potential downward pressure the stock price could experience if large insiders attempted to sell shares in the open market. Mintz Levin described the legal responsibilities of the Board in a transaction of the kind proposed by Vector Capital, including the Board’s fiduciary duties to the shareholders of ChyronHego. The Special Committee discussed next steps and agreed that Mr. Apel and Mr. Sundberg would meet with representatives of Vector Capital following an amendment to the confidentiality agreement with Vector Capital to include a customary standstill provision.

 

During this process, Mintz Levin served as legal counsel to both the Board and the Special Committee. The Special Committee did not believe it necessary to hire separate legal counsel as it was understood that Mr. Apel would recuse himself from any vote at the Board level on a transaction in which he had a personal interest, and absent that conflict of interest, the Special Committee did not view the interests that it was charged with representing as being different from those which the Board was charged with representing. 

 

On May 28, 2014, Mr. Wheeler provided an update on behalf of the Special Committee to the Board as to the financial information that had been provided by Mr. Apel and the next steps in the process.

 

Over the following week, the Special Committee met with two investment banking firms to obtain their input on ChyronHego’s current business. At these meetings, the Special Committee and the investment banking firms discussed ChyronHego’s financial forecasts, the Vector Capital proposal, public market conditions, and the benefits and risks related to ChyronHego’s ability to achieve its strategies and financial goals as an independent company.

 

On May 29, 2014, ChyronHego and Vector Capital entered into an amended and restated confidentiality agreement, which replaced in its entirety the confidentiality agreement entered into in February 2014. This confidentiality agreement included a standstill provision providing that Vector Capital could not make a bid for ChyronHego that was not approved by the Board for a one year period.

  

 
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On June 2, 2014, representatives from Vector Capital gave a presentation to the Special Committee. Vector Capital described its focus in the technology area and experience in the broadcast sector. Later on June 2, Mr. Ogden circulated a written proposal from Vector Capital to the full Board. This proposal included an indicative price range to be paid for ChyronHego of $2.50 - $2.75 per share, which equated to an enterprise value of between $103 million - $114 million, representing a multiple of 16.7x – 18.4x pro forma last twelve months EBITDA and a premium of approximately 17% - 29% above the most recent closing market price of $2.13 per share. This proposal also discussed the need for ChyronHego to enter into a binding agreement to give Vector Capital exclusivity for a specified period, during which Vector Capital would have the ability to complete its due diligence on ChyronHego, and the parties would negotiate a definitive transaction agreement, and also included a five-week “go-shop” period, during which ChyronHego would use an investment bank to solicit other bidders and determine the potential interest of other parties in acquiring ChyronHego.

 

Also on June 2, 2014, Mr. Apel met with representatives of another private equity firm, referred to as Party D. Party D had contacted Mr. Apel on May 22, 2014 to schedule a meeting to discuss its interest in a potential transaction with ChyronHego. These discussions did not progress beyond this meeting, and no confidentiality agreement was entered into.

 

On June 3, 2014, the Board met to discuss the status of the discussions with Vector Capital and the proposal that had been received from it. Mr. Apel presented an analysis of ChyronHego’s financial status and prospects to the Board. The Special Committee also described their views on the financial projections. Mintz Levin noted that if the Board decided to pursue the proposed transaction with Vector Capital, the Company would likely need to enter into a binding agreement to give Vector Capital exclusivity for a specified period. Mintz Levin noted that it would also be important to agree to a go-shop period, as proposed in Vector Capital’s proposal. The Board also discussed alternatives to the Vector Capital transaction, including the potential to raise additional capital in the public markets and remain an independent entity. After these discussions, the Board decided that there was sufficient interest in the potential transaction to ask Vector Capital to give a presentation to the full Board. As noted above, Mintz Levin represented both the full Board and the Special Committee during this process.   

 

On June 6, 2014, representatives from Vector Capital met telephonically with the Special Committee to discuss Vector Capital’s proposal.

 

On June 9, 2014, the Special Committee met to discuss Vector Capital’s offer. The Special Committee agreed to recommend that the full Board authorize Mintz Levin and members of the Special Committee to approach Vector Capital regarding a higher price per share.

 

On June 10, 2014, the Board met to evaluate the Vector Capital proposal, including in particular the aspect of the proposal that required some shareholders, including those in senior management, to have a continuing investment in the resulting company (the “Rollover Holders”). Mintz Levin noted that any Rollover Holders would need to retain their own legal counsel to represent their interests in the transaction. The Board also discussed the potential costs of the transaction, including those to be incurred to retain a financial advisor to provide an opinion as to the fairness, from a financial point of view, of the consideration to be received by the unaffiliated shareholders of ChyronHego in the transaction, as well as costs for legal counsel and other fees. After the Special Committee presented its recommendation that Mintz Levin and Mr. Sundberg be authorized to approach Vector Capital regarding a higher price, the Board voted to unanimously approve that recommendation and authorize Mr. Sundberg, Mr. Frey and Mintz Levin to pursue negotiations with Vector Capital. The negotiations would concern the potential price per share to acquire ChyronHego and the contemplated deal structure that would allow certain shareholders to retain ownership in the post-transaction entity and at what percentage. The Board also agreed to share ChyronHego’s long-term financial projections with Vector Capital pursuant to the confidentiality agreement between the two parties.

 

Between June 13, 2014 and June 25, 2014, representatives of Vector Capital communicated telephonically with Mr. Apel to discuss the status of the Vector Capital proposal.

 

On June 16, 2014, the Special Committee met with representatives of Vector Capital and discussed the share price that the Special Committee viewed as appropriate, the mechanics of the rollover by certain ChyronHego shareholders of their ownership into the resulting company, and the length of the go-shop period. In these discussions, the Special Committee proposed to Vector Capital a price range from $3.00 - $3.25 per share in cash. Vector Capital reiterated that it would not pay more than $2.75 per share in cash, which equated to approximately $114 million in enterprise value, for ChyronHego. Vector Capital also resisted ChyronHego’s proposed seven- to eight-week go-shop period.

 

On June 19, 2014, the Board met telephonically to hear a report from the Special Committee as to the status of negotiations with Vector Capital. The Board discussed the price per share to be paid, and the prospects for ChyronHego’s future development and growth, either independently or as a private company. The Board authorized the Special Committee to ask for a seven to eight week go-shop period and to communicate to Vector Capital that the price would need to be at least within the range of $2.75 - $3.00 per share.

 

On June 25, 2014, Vector Capital provided an updated proposal to the Special Committee, indicating that it would be willing to pay a price of $2.63 per share for ChyronHego, which equated to an enterprise value of $113 million, representing a multiple of 18.2x last twelve months EBITDA or a premium of 44% based on the then-current market price of $1.83 per share. Although the share price was at the mid-point of the previous range, the enterprise value represented in the proposal did not represent the mid-point of the enterprise values in the proposal dated June 2, 2014 due to adjustments in share count and updated balance sheet information.

 

On June 27, 2014, the Board met telephonically to discuss these negotiations, with representatives of Mintz Levin present. The members of the Special Committee noted that when they had requested Vector Capital to provide a specific price per share instead of a price range, Vector Capital had identified $2.63 as the price per share it was prepared to offer ChyronHego’s shareholders. The Board discussed this price and agreed that ChyronHego would not accept a per share price less than $2.75. The Board also discussed continuing to pursue strategic alternatives to the Vector Capital transaction.

 

On June 30, 2014, Vector Capital sent a revised proposal to the Special Committee. In the proposal, Vector Capital increased its price per share for ChyronHego to $2.75, which equated to an enterprise value of $118 million, representing a multiple of 19.1x pro forma last twelve months EBITDA and a premium of 32% over the last twelve months average share price. It also agreed to extend the go-shop period to five weeks in length. In addition, Vector Capital asked for an exclusivity period of 20 business days.

 

 
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On July 2, 2014, the Board met telephonically, with representatives of Mintz Levin present. During the meeting, the Special Committee reported that Vector Capital had raised its offer for ChyronHego to $2.75 per share. Also, pursuant to Vector Capital’s offer, 25% of Vector Capital’s investment in ChyronHego would be participating preferred equity with a 5% coupon, which would be senior to the remainder of Vector Capital’s investment and the interests of the Rollover Holders, which would be in the form of preferred equity, also with a 5% coupon. Vector Capital stated that this change in proposed structure with the Rollover Holders had enabled them to increase their offer to the Company from $2.63 per share to $2.75 per share. At the meeting, Mintz Levin reviewed and described the Board’s fiduciary duties to ChyronHego’s shareholders under New York law. The Board then engaged in a lengthy discussion about the desirability of the proposed transaction with Vector Capital, the associated risks, and the range of alternative strategies other than the transaction proposed by Vector Capital. At the conclusion of the meeting, the Board authorized Mr. Frey and Mintz Levin to contact Vector Capital to negotiate the go-shop period and termination fee with Vector Capital.

 

On July 2, 2014, Mr. Frey contacted Mr. Fishman and indicated that the Special Committee would like to extend the go-shop period to seven weeks and to set a termination fee of 1% of the purchase price if ChyronHego decided to terminate the agreement due to a higher bid received during the go-shop period, and a termination fee of 3% of the purchase price if ChyronHego unilaterally decided to terminate the definitive agreement without having a higher bid.

 

On July 3, 2014, Mr. Fishman sent a revised draft of the non-binding term sheet to the Special Committee, including a seven week go-shop period and a termination fee of 2% of the purchase price if ChyronHego decided to terminate the agreement due to a higher bid received during the go-shop period, and a termination fee of 4% if ChyronHego decided to terminate the definitive agreement without having a higher bid. Mr. Fishman also included a proposed form of exclusivity agreement for the transaction.

 

On July 4, 2014, representatives of Vector Capital met telephonically with Mintz Levin to discuss the transaction.

 

On July 7, 2014, ChyronHego and Vector Capital reached a verbal agreement to the material terms of a non-binding term sheet, by which Vector Capital would purchase all of ChyronHego’s outstanding shares at a price of $2.75 per share. Other terms included a seven week go-shop period during which ChyronHego could pursue another bidder at a higher price. Also, ChyronHego would be obligated to pay a termination fee of 1.5% of the purchase price if ChyronHego decided to terminate the agreement due to receiving a higher bid and entering into a definitive agreement by the end of the go-shop period, and a termination fee of 3.5% if ChyronHego decided to terminate the definitive agreement without having a higher bid. Also, ChyronHego management would be required to roll over a portion of its interest in ChyronHego and to hold a subordinate interest with respect to a portion of the equity held by Vector Capital.

 

On July 8, 2014, the Board met to discuss the next steps with regard to Vector Capital’s offer. The Board noted that the negotiations to date had been extremely thorough and that the Special Committee had negotiated an increase in Vector Capital’s offer price, obtained a lengthy go-shop period and reduced the termination fee payable by ChyronHego. After a comprehensive discussion, the Board voted unanimously to authorize and direct the management, the Special Committee and Mintz Levin to negotiate a definitive purchase agreement with Vector Capital and to authorize ChyronHego to enter into an exclusivity agreement with Vector Capital. The Board also discussed the need to retain a financial advisor; management agreed to solicit proposals from investment banks, each of which had been suggested as candidates by members of the Special Committee, to advise ChyronHego on the proposed transaction. The Board also decided that the Special Committee should continue to manage the process relating to the potential transaction and to advise the Board on maximizing the value to ChyronHego’s unaffiliated shareholders.

 

On July 9, 2014, ChyronHego entered into an exclusivity agreement with Vector Capital, providing for a period of exclusivity through August 11, 2014, subject to extension as described below, during which ChyronHego would be prohibited from initiating or soliciting another proposal to acquire ChyronHego, obligated to disclose to Vector Capital if it received another unsolicited proposal and required to allow Vector Capital to increase its offer price in response to any unsolicited offer. The exclusivity agreement provided that it would be automatically extended for up to two consecutive five business day periods, until August 25, 2014, unless ChyronHego elected to terminate the exclusivity agreement not later than two business days prior to the scheduled expiration date. During the following weeks, representatives of Vector Capital continued to meet with representatives of ChyronHego and conduct due diligence.

 

Also on July 9, 2014, representatives of Vector Capital spoke with management of ChyronHego regarding ChyronHego’s financial performance.

 

Following its July 8, 2014 meeting, the Special Committee interviewed and received proposals from three major investment banks to advise it on the transaction with Vector Capital.

 

On July 10, 2014 and July 11, 2014, representatives of Vector Capital met in New York with management of ChyronHego to discuss ChyronHego’s business performance.

 

On July 12, 2014, Shearman & Sterling LLP (“Shearman & Sterling”), counsel to Vector Capital, provided a draft of the proposed Merger Agreement and began conducting a due diligence review and negotiating the terms of the Merger Agreement with Mintz Levin.

 

On July 16, 2014, management of ChyronHego met in San Francisco with representatives of Vector Capital to discuss the transaction.

 

On July 21, 2014, Mintz Levin provided its comments on the draft Merger Agreement to Shearman & Sterling.

 

On July 23, 2014, the Special Committee met to discuss the proposals it had received to serve as advisor to the Special Committee, and decided to retain Duff & Phelps. On July 25, 2014, the Special Committee entered into an engagement letter with Duff & Phelps relating to its service as financial advisor in connection with the proposed transaction.

 

On July 30, 2014, Shearman & Sterling provided a draft of the proposed Voting Agreement for review by Mintz Levin.

 

Also on July 30, 2014, representatives of Vector Capital spoke telephonically with management of ChyronHego to discuss ChyronHego’s customers and operations.

 

On August 1, 2014, Shearman & Sterling provided a revised draft of the Merger Agreement for review by Mintz Levin, and the Special Committee provided an update to the Board regarding the status of the transaction.

  

 
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On August 2, 2014, Shearman & Sterling provided a proposed term sheet relating to the equity to be received in the rollover agreement to Mr. Apel.

 

On August 4, 2014, representatives of Mintz Levin and Shearman & Sterling had a conference call to discuss open points on the Merger Agreement. The primary open points discussed during this call included the features of the go-shop period, specifically including whether Vector Capital would have the right to match any offer received by ChyronHego from a third party during the go-shop period, and the lengths of time that each of ChyronHego and Vector Capital would have to provide information and respond to information provided during the go-shop period.  

 

Also on August 4, 2014, Mr. Fishman and Mr. Lukens met Mr. Apel in New York to discuss the rollover equity term sheet.

 

On August 5, 2014, Mintz Levin provided its comments on the revised draft of the Merger Agreement and its comments on the draft of the Voting Agreement to Shearman & Sterling.

 

On August 6, 2014, Mr. Apel retained Proskauer Rose LLP (“Proskauer”) as his counsel.

 

Also on August 6, 2014, representatives of Vector Capital spoke with Mr. Apel regarding the rollover equity term sheet.

 

On August 7, 2014, the Board met to discuss the status of the transaction. During the meeting, representatives from Duff & Phelps noted that while Duff & Phelps was not being asked to provide an opinion to the Special Committee at that time, its analysis indicated that, subject to review of final documentation, it would be able to render an opinion to the Special Committee to the effect that the proposed merger consideration of $2.75 per share to be received by the shareholders of ChyronHego (other than the Rollover Holders) in the Merger was fair, from a financial point of view. Duff & Phelps also explained the go-shop process it would oversee. Duff & Phelps would provide a short description of ChyronHego to a list of potential buyers to encourage competing offers. If one of these potential buyers signed a confidentiality agreement, Duff & Phelps would provide them the same materials that were provided to Vector Capital. After the board meeting, Duff & Phelps met with the Special Committee and management to review a list of potential buyers to be contacted during the go-shop period. Members of the Special Committee and management identified a number of additional potential buyers to be added to the list, which resulted in a total of 88 potential buyers to be contacted during the go-shop period, which included 21 strategic parties and 67 financial buyers.

 

On August 11, 2014, Mr. Apel provided comments from Proskauer on the proposed rollover equity term sheet to Vector Capital.

 

During the weeks of August 11 and 18, 2014, representatives of Vector Capital and management spoke by telephone and exchanged electronic communications regarding outstanding due diligence issues and the structure of, and the key issues in, the rollover equity term sheet and draft employment agreement for Mr. Apel. On each of August 11 and August 18, the exclusivity agreement between Vector Capital and ChyronHego was automatically extended pursuant to its terms, in light of the ongoing dialogue and due diligence review taking place between the parties.

 

On August 12, 2014, representatives of Vector Capital met with management of ChyronHego in New York to discuss the Company’s forecasts and sale pipeline.

 

On August 14, 2014, Proskauer and Shearman & Sterling met by conference call to discuss the structure of the rollover equity arrangement.

 

On August 18, 2014, representatives of Proskauer and Shearman & Sterling met by conference call to discuss the term sheet relating to the rollover, including Mr. Apel’s role with ChyronHego after consummation of the proposed transaction.

 

On August 19, 2014, the Special Committee and representatives of Mintz Levin and Duff & Phelps met by conference call to discuss the status of the transaction.

 

On August 20, 2014, Shearman & Sterling provided a revised draft of the rollover equity term sheet to Proskauer, as well as initial drafts of the form of rollover agreement and the employment agreement between ChyronHego and Mr. Apel relating to his employment by ChyronHego after consummation of the proposed transaction.

 

On August 21, 2014, the Special Committee met by conference call to discuss the status of the transaction and the price per share to be paid in the transaction. Following the Special Committee’s meeting, the Board met to discuss and consider the Special Committee’s views on the topic. It was concluded that the Board would not offer an extension of the exclusivity agreement with Vector Capital, which was scheduled to expire pursuant to its terms on August 25. Mr. Frey was asked to contact representatives of Vector Capital to propose a call to determine the status of open issues, which Mr. Frey did.

 

On August 26, 2014, Mr. Frey, Mr. Fishman and Mr. Lukens met by conference call to discuss the status of the Merger Agreement. In light of the fact that the price per share of the common stock had recently traded as high as $2.75 per share on the Nasdaq Stock Market in intra-day trading, during that discussion, Mr. Frey noted that the Special Committee believed it to be necessary for Vector Capital to increase the proposed price per share to be paid in the transaction. Mr. Fishman and Mr. Lukens noted that they did not believe that an increase in the price was warranted or would be possible.

 

Later on August 26, 2014, Mr. Lukens sent Mr. Frey a summary of topics to be resolved prior to signing the Merger Agreement, including the completion of due diligence and the resolution of the rollover equity discussions. Mr. Lukens also provided a proposed extension to the exclusivity arrangement between the parties.

 

On August 28, 2014, the Special Committee and representatives of Mintz Levin met by conference call to discuss the proposed extension to the exclusivity arrangement. The Special Committee chose not to extend the period of exclusivity with Vector Capital.

 

On August 28, 2014, Mr. Fishman and Mr. Lukens met with Mr. Apel in New York to discuss the rollover equity term sheet.

  

 
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On August 29, 2014, Mr. Frey, Mr. Fishman, Mr. Lukens and representatives of Mintz Levin and Shearman & Sterling met by conference call to discuss the status of open items on the process and the Merger Agreement, including timing aspects of the go-shop process.

 

On August 30, 2014, Shearman & Sterling provided Mintz Levin with revised drafts of the Merger Agreement and the Voting Agreement.

 

On September 8, 2014, the Board met by conference call to discuss the status of the transaction. Mr. Ogden noted that, in light of recent trading patterns in ChyronHego’s common stock, as well as an impasse in the discussions between Vector Capital and Mr. Apel regarding Mr. Apel’s role in the future management of ChyronHego, the Special Committee and Vector Capital had decided to discontinue further discussions regarding the potential transaction. Mr. Ogden further noted that the exclusivity period with Vector Capital had come to an end, and that the Special Committee was being dissolved.

 

Between October 4 and October 9, 2014, Mr. Apel and representatives of Vector Capital spoke several times by telephone and email. During these communications, Mr. Fishman reiterated Vector Capital’s continued interest in a transaction with ChyronHego and suggested that the parties continue to communicate about the potential transaction and drafts of the transaction documents. Mr. Apel entertained these and the other discussions and interactions described below, including allowing a representative of Vector Capital to visit ChyronHego’s facility on October 22, in the spirit of maintaining positive relations with a large, influential financial participant in ChyronHego’s industry; in the interests of not foreclosing the possibility of a future transaction that, in Mr. Apel’s view, could prove to be beneficial to the shareholders of ChyronHego; and in order to address issues concerning Mr. Apel’s role in future management of ChyronHego in the event that the trading patterns in ChytonHego’s common stock, which had affected the discussions regarding the potential transaction, changed.  

 

On October 14, 2014, Shearman & Sterling provided Proskauer with a revised draft of the rollover term sheet.

 

On October 15, 2014, Mr. Fishman provided Mr. Apel with a revised draft employment agreement.

 

On October 17, 2014, representatives of Vector Capital spoke telephonically with management of ChyronHego to discuss ChyronHego’s outlook on financial results for the fourth quarter of 2014. Representatives of Vector Capital also spoke telephonically with Mr. Frey to discuss its continued interest in pursuing a transaction with ChyronHego.  

 

Also on October 17, 2014, the Board held a telephonic meeting, with representatives of Mintz Levin also participating, to discuss whether to re-open the dialogue with Vector Capital regarding a potential transaction. Mr. Apel indicated that Vector Capital had indicated to him that they could be willing to increase the price to a level between $2.80 - $2.85 per share. The conclusion of the Board was that it was not prepared to reopen discussions at that time, but would revisit the topic at a future meeting.

 

On October 22, 2014, Mr. Lukens visited ChyronHego’s office in Stockholm, Sweden, and toured ChyronHego’s facility there.

 

On October 24, 2014, Proskauer provided Shearman & Sterling with comments on the draft employment agreement with Mr. Apel.

 

On October 27, 2014, Proskauer provided comments to Shearman & Sterling on the draft rollover agreement and rollover equity term sheet.

 

On October 28, 2014, Mr. Fishman and Mr. Lukens spoke telephonically with Mr. Apel to discuss its continued interest in pursuing a transaction with ChyronHego.    

 

Also on October 28, 2014, representatives of Vector Capital and Mr. Apel communicated electronically to discuss the employment agreement. The Special Committee played no role in these discussions and communications on October 28.

 

On October 30, 2014, Proskauer provided Shearman & Sterling with a revised draft of the employment agreement.

 

On November 2, 2014, Shearman & Sterling provided Proskauer with the revised drafts of the rollover term sheet and rollover agreement.

 

On November 6, 2014, Mr. Frey spoke with representatives of Vector Capital by telephone. Vector Capital indicated that it was essentially done with its due diligence review of ChyronHego and had reached agreement on material open issues pertaining to the Rollover Shares, and that if ChyronHego wanted to proceed, they could sign the definitive agreement in a few days. They also noted that their current proposed price range was between $2.80 - $2.85 per share.

 

On November 6, 2014, the Board met in person at a regularly scheduled Board meeting. During the meeting, the Board discussed the renewed indication of interest from Vector Capital. Also present were representatives of Mintz Levin and Duff & Phelps. During the meeting, the representative of Duff & Phelps indicated due to recent trading patterns in ChyronHego’s common stock that Duff & Phelps would not be prepared to render an opinion to the Special Committee as to the proposed Merger Consideration without either (1) ChyronHego having undertaken a process to more broadly market itself prior to the signing of a definitive agreement with Vector Capital, or (2) changes in structural protections for the non-Rollover Holders.

 

On November 7, 2014, representatives of Vector Capital spoke telephonically with Mr. Apel to discuss the transaction. The Special Committee played no role in this discussion on November 7, as the Special Committee had not yet been reconstituted. However, the members of the Special Committee were aware, in light of the discussion during the Board meeting on November 6, that representatives of Vector Capital still were interested in the potential transaction. The members of the Special Committee, in their capacities as individual members of the Board, had noted to Mr. Apel that if the approach from Vector Capital became more concrete or definitive in nature, the Special Committee would need to be reconstituted in order to resume the process of evaluating the potential transaction with Vector Capital.

 

On November 8, 2014, Duff & Phelps indicated to the members of the Special Committee that it was continuing to consider its position with regard to the fairness, from a financial point of view, of the Merger Consideration to be received by the shareholders of ChyronHego (other than the Rollover Holders) in the Merger, and that it would need to see the current draft of the Merger Agreement together with the draft of ChyronHego’s Form 10-Q for the quarter ended September 30, 2014, in order to update its analysis on the transaction. Mintz Levin and ChyronHego provided those items to Duff & Phelps. Duff & Phelps also noted that the Special Committee should consider requiring that a condition be added to the Merger Agreement to the effect that the Merger must be approved by a majority of the outstanding shares held by non-Rollover Holders in order to provide greater structural protection for the non-Rollover Holders in light of the ownership by the Rollover Holders of approximately 42.5% of the outstanding shares of ChyronHego common stock and the recent trading prices of ChyronHego common stock.

 

 
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Also on November 8, 2014, representatives of Shearman & Sterling and Proskauer met via teleconference to discuss the issues in the equity rollover agreements and equity rollover term sheet relating to the rights of the Rollover Holders’ equity interests in the resulting company, including liquidity, governance and voting rights, and the terms and conditions of the Rollover Holders’ commitment to rollover their equity.  

 

On November 10, 2014, ChyronHego reported financial results for the quarter ended September 30, 2014. Also on November 10, 2014, Vizrt Ltd., ChyronHego’s largest competitor, announced its proposed acquisition by Nordic Capital, a well-funded private equity firm.

 

Also on November 10, 2014, Mr. Fishman and Mr. Lukens spoke telephonically with Mr. Apel to discuss the general deal dynamics and the status of the transaction. The Special Committee played no role in this discussion on November 10, as it had not yet been reconstituted. Mr. Apel contacted Mr. Ogden to advise him of this discussion, and Mr. Ogden determined that a meeting of the Special Committee should be called to discuss these recent developments.

 

On November 11, 2014, the Special Committee was formally re-established and reconstituted and met by telephone, with representatives of Mintz Levin present, to discuss the renewed indication of interest from Vector Capital, and the additional conditions that could be placed on the shareholder approval of the transaction in order to provide additional protection to the minority shareholders of ChyronHego. It was decided that Mr. Ogden would henceforth serve as the Chairman of the Special Committee at this stage. Representatives of Duff & Phelps and Mr. Apel joined the call after this discussion, and the representatives of Duff & Phelps reported that, if the Merger Agreement included a provision requiring a vote of a majority of the shares held by shareholders who were not going to be parties to the Rollover Agreements, Duff & Phelps would be prepared, based upon that change for the structural protection of the non-Rollover Holders, to render an opinion to the Special Committee as to the fairness, from a financial point of view, of the Merger Consideration to be received by the shareholders of ChyronHego (other than the Rollover Holders) in the Merger. The members of the Special Committee discussed the impact of that condition on the votes that would be required in order to receive approval for the transaction. During the meeting, the members of the Special Committee and Mr. Apel also noted and discussed the announcement on the previous day by Vizrt Ltd. It was noted that this was a very significant development in terms of the meaningful financial strength that this would provide to ChyronHego’s largest competitor and that the offer to Vizrt Ltd. was made at a lower EBITDA multiple than Vector Capital’s offer for ChyronHego.

 

Also on November 11, 2014, Proskauer sent revised drafts of the rollover agreement and equity rollover term sheet to Shearman & Sterling and Shearman & Sterling sent a revised draft of the employment agreement with Mr. Apel to Proskauer.

 

On November 12, 2014, members of the Special Committee met in person with Mr. Fishman and Mr. Lukens of Vector Capital at the offices of Mintz Levin. During that meeting, Vector Capital indicated that it was prepared to pay $2.82 in cash per share for ChyronHego. The members of the Special Committee and Vector Capital also discussed, and indicated that they were in agreement, that the merger should be conditioned upon receipt of approval by a majority of the shares held by the non-Rollover Holders. On the same date, Mr. Apel provided comments to Vector Capital on his proposed employment agreement.

 

On November 12, 2014, Proskauer provided Shearman & Sterling with comments on the draft of the employment agreement with Mr. Apel and Shearman & Sterling provided Proskauer with revised drafts of the rollover term sheet and rollover agreement.

 

On November 13, 2014, representatives of Mintz Levin and Shearman & Sterling discussed the two primary remaining open points in the Merger Agreement, which were the features of the go-shop provision and the voting condition for approval of the transaction. The parties also discussed the voting agreement to be entered into by directors and executive officers of ChyronHego, and the conditions under which that agreement could be terminated, and the language included in the merger agreement concerning representations and warranties about ChyronHego’s material contracts. Mintz Levin updated the Special Committee by e-mail regarding the discussion. On the same date, representatives of Shearman & Sterling and Proskauer discussed Mr. Apel’s proposed employment agreement, including how it differed from Mr. Apel’s current employment agreement.   

 

On November 14, 2014, the Board met by telephone, with representatives of Mintz Levin present, and discussed the price per share being offered by Vector Capital, as well as the provision requiring a vote of a majority of the shares held by the non-Rollover Holders and the news regarding the Vizrt transaction. Mintz Levin reviewed the protective provisions that had been included in the documentation with regard to the length and terms of the go-shop period and the conditions on receipt of shareholder approval. After a discussion, the Board approved authorizing management, the Special Committee and Mintz Levin to continue negotiations with Vector Capital and Shearman & Sterling to complete the documentation of the transaction, subject to receipt by the Special Committee of an opinion as to the fairness, from a financial point of view, of the Merger Consideration to be received by the shareholders of ChyronHego (other than the Rollover Holders) in the Merger.

 

On November 14, 2014, Shearman & Sterling provided Mintz Levin with revised drafts of the Merger Agreement and Voting Agreement. Between November 14 and 16, 2014, Shearman & Sterling and Mintz Levin exchanged multiple drafts of the Merger Agreement, Voting Agreement and related documents, including disclosure schedules and the documents relating to the financing to be obtained by Vector Capital in connection with the transaction.

 

Between November 14, 2014 and November 16, 2014, representatives of Shearman & Sterling and Proskauer met by conference call to discuss the drafts of the rollover term sheet, rollover agreement and Mr. Apel’s employment agreement and Shearman & Sterling and Proskauer exchanged multiple drafts of Mr. Apel’s proposed employment agreement, which would result in Mr. Apel executing a new employment agreement to be effective as of the Merger. On November 16, 2014, at Vector Capital's request, Mr. Apel forwarded a draft employment agreement prepared by Shearman & Sterling to Mr. Kjellin, and Mr. Kjellin executed the new employment agreement, to be effective as of the Merger. Mr. Apel was asked to forward the document to Mr. Kjellin as Mr. Apel had a close professional relationship with Mr. Kjellin whereas Vector Capital had had little direct contact with Mr. Kjellin to that point.

     

On November 16, 2014, the Special Committee met by conference call, with representatives of Mintz Levin and Duff & Phelps present. At this meeting, representatives of Duff & Phelps reviewed with the Special Committee Duff & Phelps’ financial analyses with respect to the Merger Consideration. Representatives of Duff & Phelps also indicated that, upon request, Duff & Phelps would be prepared to deliver its opinion to the Special Committee as to the fairness, from a financial point of view, of the Merger Consideration to be received by the shareholders of ChyronHego (other than the Rollover Holders) in the Merger.

 

 
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On November 17, 2014, the Special Committee and the Board each met by telephone, with representatives of Mintz Levin and Duff & Phelps participating. At this meeting of the Special Committee, Duff & Phelps distributed a presentation that was identical to the presentation that had been distributed to the Special Committee on November 16, 2014. Duff & Phelps delivered its opinion to the Special Committee to the effect that, as of that date and subject to the assumptions, qualifications and limiting conditions set forth therein, the $2.82 per share Merger Consideration to be received by the shareholders of ChyronHego (other than the Rollover Holders) in the Merger was fair, from a financial point of view, to such shareholders (without giving effect to any impact of the Merger on any particular shareholder other than in its capacity as a shareholder). The full text of the opinion of Duff & Phelps, dated as of November 17, 2014, which sets forth, among other things, the assumptions, qualifications and limiting conditions, is attached as Annex B to this proxy statement. Also at this meeting, the members of the Special Committee unanimously resolved to recommend the approval of the Merger Agreement and the transactions contemplated thereby to the full Board. The Special Committee considered the terms of the proposed acquisition, the Duff & Phelps presentation of the financial analyses reviewed with the Special Committee on the previous day, and the opinion dated as of November 17, 2014, and determined that the Merger, the Merger Agreement and the transactions contemplated thereby are substantively and procedurally fair to, and in the best interests of, ChyronHego unaffiliated shareholders and approved the Merger, the Merger Agreement and the transactions contemplated thereby. The Special Committee further recommended that the Board approve the Merger, the Merger Agreement and the transactions contemplated thereby and that the Board recommend that ChyronHego’s shareholders vote to adopt the Merger, the Merger Agreement and the transactions contemplated thereby. Following the Special Committee’s recommendation, the Board, by unanimous vote (with one abstention as noted below), determined that the Merger and the Merger Agreement are substantively and procedurally fair to, and in the best interests of, ChyronHego and its unaffiliated shareholders, declared the Merger Agreement and the Merger to be advisable and recommended that ChyronHego’s shareholders vote to adopt the Merger, the Merger Agreement and the transactions contemplated thereby. Mr. Apel abstained from this vote of the Board due to his status as a Rollover Holder, while noting his support for the transaction.

 

Following the meeting on November 17, 2014, ChyronHego issued a press release announcing the entry into the Merger Agreement. The go-shop period commenced on November 17, 2014 and concluded on January 5, 2015. At the conclusion of the go-shop period, the Special Committee was advised that no additional bids had been made during such period. During the go-shop period, Duff & Phelps contacted 85 potential buyers, including 20 strategic buyers and 65 private equity buyers, of which nine potential buyers entered into confidentiality agreements with ChyronHego and were given access to the same materials as had been provided to Vector Capital.  ChyronHego held management meetings with two of such potential buyers. Of such potential buyers, one was a strategic buyer and the other was a private equity buyer. None of these potential buyers submitted a bid to acquire ChyronHego.

 

Reasons for the Merger 

 

In considering the Merger, the Special Committee consulted with Duff & Phelps regarding the financial aspects of the Merger and also consulted with representatives of Mintz Levin regarding the fiduciary duties of the members of the Special Committee and the Board and the terms of the Merger Agreement and related agreements. Based on these consultations and the factors discussed below, the Special Committee and the Board determined that the Merger and the Merger Agreement are substantively and procedurally fair to, and in the best interests of, ChyronHego’s unaffiliated shareholders.

 

In the course of reaching the determination and recommendation to proceed with the transaction at this time, the Special Committee and the Board considered a number of potentially positive factors in its deliberations, including the following:

 

 

The familiarity of the Board with, and information and analysis provided by management as to, ChyronHego’s business, financial performance and condition, results of operations, the nature of ChyronHego’s business and the industry in which ChyronHego competes and economic and market conditions on both a historical and a prospective basis, as well as ChyronHego’s strategic objectives and its competitive position in the markets in which it competes. In particular, the Board noted the significant increase in competition in the broadcast graphics creation, playout and real-time data visualization industry over the past two years, which had led in some instances to pricing pressure and discounting on ChyronHego’s products and services, and consistent competition for clients and customers with other companies, such as Vizrt, that were increasingly well-capitalized. This led to a belief on the part of the Board that a merger with a very well-capitalized partner, such as Vector Capital, would be in the best interests of ChyronHego’s shareholders. 

 

 

The strategic options available to ChyronHego and the Board’s assessment that when considering the financial resources and time required to execute those options, neither of these options was considered to be likely to present an opportunity that is equal or superior to the proposed transaction or to create value for ChyronHego shareholders that is equal to or greater than that created by the proposed transaction in the foreseeable future. The strategic options that were considered by the Board included remaining independent and being acquired by another party. In evaluating the choice to remain independent, the Board considered ChyronHego’s prospects to raise additional capital as an independent public company, which would be necessary in order to stay competitive in the increasingly challenging broadcast graphics creation, playout and real-time data visualization industry. Members of the Board believed, based on their experience with the capital markets, that issuers with small market capitalizations and insignificant levels of coverage by investment analysts generally have a more difficult time raising meaningful amounts capital on terms that are not punitively dilutive to their shareholders. In terms of the possibility to be acquired by another party, members of the Board noted that the lengthy go-shop period provided for in the Merger Agreement would provide an ample opportunity to determine if another third party would be willing to acquire ChyronHego on terms that were more favorable than those represented by the transaction with Vector Capital.

 

 

The possible alternative of ChyronHego remaining independent as a standalone company, which alternative the Board determined was less favorable to ChyronHego’s shareholders than the proposed transaction given the potential risks, rewards and uncertainties associated with such alternative.

 

 

The fact that ChyronHego’s primary competitor, Vizrt Ltd., had announced on November 10, 2014 that it would be acquired by an entity controlled by Nordic Capital, a leader in Nordic private equity investments. The Special Committee and the Board considered this fact to be significant because of the meaningful financial resources this would make available to Vizrt.

 

 

The fact that the trading volume of the common stock was low and the number of shares held by non-affiliates of ChyronHego was quite small, resulting in a stock price that the Special Committee did not believe accurately reflected the inherent value of ChyronHego.

 

 

The costs and expenses of remaining a public company, which the Company estimated to be approximately $785,000 (excluding option expense) for 2014, and the effect of such costs on ChyronHego’s profitability and access to capital through the public markets in view of the size of its business.

  

 
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The financial analyses of Duff & Phelps with respect to the Merger Consideration and the opinion of Duff & Phelps to the Special Committee to the effect that, as of November 17, 2014 and based upon and subject to the assumptions, qualifications and limiting conditions set forth therein, the $2.82 per share Merger Consideration to be received by the shareholders of ChyronHego (other than the Rollover Holders) in connection with the Merger, was fair from a financial point of view, to such shareholders (without giving effect to any impact of the Merger on any particular shareholder other than in its capacity as a shareholder). The Special Committee adopted Duff & Phelps’ financial analyses and fairness determination as its own. In reviewing Duff & Phelps’ analyses, the Special Committee did not raise any concerns as to the reliability of certain of Duff & Phelps’ analyses described in “Opinion of the Financial Advisor to ChyronHego’s Special Committee - Selected Public Companies and Merger and Acquisition Transactions Analyses - Selected Merger and Acquisition Transactions Analyses” in which five out of eleven selected merger and acquisition transactions were excluded from the EBITDA multiples analysis because of the absence of publicly available EBITDA information for the target company or because LTM EBITDA for the target company was a de minimis or negative number. Further, the Special Committee and the Board took note of the fact that the opinion of Duff & Phelps addressed the fairness, from a financial point of view, of the $2.82 per share Merger Consideration to the shareholders of ChyronHego (other than the Rollover Holders). This is a distinct population of ChyronHego shareholders from all shareholders who are unaffiliated with ChyronHego, and includes shareholders who are affiliates of ChyronHego but who are not Rollover Holders. The unaffiliated shareholders of ChyronHego who are not Rollover Holders will also receive $2.82 per share in Merger Consideration in the transaction, which is the same Merger Consideration to be received by ChyronHego affiliates who are not Rollover Holders, such as the ChyronHego directors other than Mr. Apel. Thus, the Special Committee and the Board did not believe that there was any difference between the fairness, from a financial point of view, of the Merger Consideration to be received by ChyronHego shareholders (other than the Rollover Holders) and the Merger Consideration to be received by the unaffiliated shareholders of ChyronHego, and that as such they could consider the Duff & Phelps opinion as a relevant factor in their own conclusion that the Merger was substantively and procedurally fair to ChyronHego’s unaffiliated shareholders.

 

 

The fact that the price paid by Vector Capital for the Company represents a multiple of 19.2x LTM EBITDA, which exceeds the 6.6x -10.5x LTM EBITDA multiples at which ChyronHego’s public peers trade, and the 10.6x multiple to be paid in the recently announced Vizrt Ltd. transaction.

 

 

The relationship between the Merger Consideration and the historical market prices of ChyronHego’s common stock. The Board deliberated over the $2.82 per share to be paid in cash for each share of Company common stock (other than the Rollover Shares), and considered that such price represented a premium of approximately 18% over the average closing price of the common stock for the six months ended on November 14, 2014, and a premium of approximately 230% to the closing price of ChyronHego common stock on March 8, 2013, the day prior to the announcement of the merger between its predecessor Chyron Corporation and Hego AB. While the Board acknowledges that ChyronHego had evolved into a different entity from its predecessor company, Chyron Corporation, since the time of the merger with Hego, the Board nevertheless notes the $2.82 per share price as compared to the closing price of Chyron Corporation on March 8, 2013, primarily as an indicator of the response to the improvements that had been made to the underlying business of Chyron Corporation since the time of its merger with Hego, and the contributions that had been made to developing that business by Mr. Apel and the management team he had brought in to ChyronHego following the merger with Hego. References to ChyronHego prior to the completion of the merger of Chyron Corporation and Hego AB, which took place on May 22, 2013, are solely to the predecessor company, Chyron Corporation. Further, the $2.82 per share price represented a premium of approximately 4% over the closing price of the common stock on November 14, 2014, after a significant increase in the stock price in recent months. The Special Committee and the Board did not consider whether the Merger Consideration constitutes fair value in relation to ChyronHego’s liquidation value, and did not attempt to calculate a specific going concern value, and did not give consideration to ChyronHego’s book value, because they believed that those measures of asset value do not reflect, or have any meaningful impact on, the market value of ChyronHego common stock. In addition, the liquidation value of ChyronHego’s assets was not considered to be a material factor from the perspective of the Special Committee or the Board because they believe that substantial value results from continuing ChyronHego as a going concern and any liquidation would destroy that value. Therefore, no appraisal of the liquidation value was attempted.

 

 

The possibility that, if the Board declined to approve the Merger Agreement, there would not be another opportunity for ChyronHego’s shareholders to receive a comparable price in another transaction.

 

 

ChyronHego’s ability during the period beginning on the date of the Merger Agreement and continuing until 11:59 p.m., New York City time, on January 5, 2015 (the “go-shop period”) to initiate, solicit and encourage alternative Acquisition Proposals from third parties and to enter into and maintain or continue discussions or negotiations with third parties with respect to such proposals. At the conclusion of the go-shop period, the Special Committee was advised that no additional bids had been made during such period. During the go-shop period, Duff & Phelps contacted 85 potential buyers, including 20 strategic buyers and 65 private equity buyers, of which nine potential buyers entered into confidentiality agreements with ChyronHego and none of these potential buyers submitted a bid to acquire ChyronHego.

 

 

ChyronHego’s ability to continue discussions after the end of the go-shop period with parties from whom ChyronHego has received during the go-shop period an Acquisition Proposal that the Board determines in good faith constitutes a superior proposal.

 

 

ChyronHego’s ability, at any time from and after the end of the go-shop period but prior to the time ChyronHego shareholders approve the Merger Agreement, to consider and respond to an unsolicited written Acquisition Proposal, to engage in negotiations or discussions with the person making such a proposal and to furnish non-public information to the person making such a proposal, if the Board reasonably believes such proposal could lead to a superior proposal.

 

 

ChyronHego’s ability, under certain circumstances, to terminate the Merger Agreement in order to enter into an agreement providing for a superior proposal, provided that it complies with its obligations relating to the entering into of any such agreement and concurrently with the termination of the Merger Agreement pays to Purchaser a termination fee of $1.8 million (which is relatively low based on a survey of comparable transactions that occured during the past several years), if the Merger Agreement had been terminated prior to the end of the go-shop period, and $4.2 million, if the Merger Agreement is terminated after that date.

 

 

The fact that the Merger must be approved by a majority of the outstanding shares held by non-Rollover Holders.

 

 
17

 

 

 

The likelihood that the transaction would be completed, based on, among other things, the limited number of conditions to the transaction, Vector Capital’s prior experience in completing acquisitions of other companies, the relative likelihood of obtaining required regulatory approvals for the transaction and the terms of the Merger Agreement regarding the obligations of both companies to pursue such approvals, ChyronHego’s ability, under certain circumstances pursuant to the Merger Agreement, to seek specific performance from Vector Capital to make or secure equity contributions pursuant to the equity commitment letters and the fact that in the event of a failure of the Merger to be consummated under certain circumstances, Vector Capital will pay ChyronHego a $6.3 million termination fee.

 

 

The fact that the form of consideration to be paid in the transaction to the holders of ChyronHego’s common stock is cash, which will provide substantial certainty of value and liquidity to ChyronHego’s shareholders.

 

 

The board’s conclusion that the termination fees and the circumstances when such termination fees may be payable by ChyronHego to Vector Capital are reasonable in light of the benefit of the transactions contemplated by the Merger Agreement.

 

In terms of the timing of the transaction and the decision to recommend proceeding with the transaction at this time, the Board and the Special Committee were strongly influenced by the announcement on November 10, 2014 by Vizrt Ltd., ChyronHego’s primary competitor, that it would be acquired by a well-capitalized private equity firm called Nordic Capital. This event was deemed to be significant by the Board and the Special Committee in that it would mean that ChyronHego’s primary competitor would have access to meaningful capital resources, while ChyronHego’s access to capital, as a company with a small market capitalization and the need to rely on financing through the public capital markets, was much less certain.

 

The Board and the Special Committee also noted significant competitive pressures in ChyronHego’s industry, which were continuing to increase and to present challenges and uncertainty regarding ChyronHego’s ability to successfully address these trends. Continued development of new products and services in a timely and competitive manner will require significant investment in new products at a time when many of ChyronHego’s competitors are better financed than it is. The Board and the Special Committee believed that obtaining additional equity financing to fund these investments would be difficult to obtain on terms that were not dilutive to ChyronHego stockholders, due to its small market capitalization and history of operating losses. The Board and the Special Committee believed that this financing challenge reduced ChyronHego’s value as an independent company, and conversely increased ChyronHego’s value to potential acquirers, such as private equity firms, that were not subject to these constraints on their access to capital, as they would be in a better position to make necessary investments than ChyronHego is as a small, independent company.

 

In addition to taking into account the foregoing factors, the Board also considered a variety of risks and other countervailing factors related to entering into the Merger Agreement and the transactions contemplated by the Merger Agreement at this time, including:

 

 

The fact that, while the transactions contemplated by the Merger Agreement are expected to be completed, there can be no assurance that the transactions will be consummated in a timely manner or that all conditions to the parties’ obligations to complete the transaction will be satisfied, and as a result, it is possible that the transaction may not be completed as described under “The Merger Agreement — Conditions to the Merger.”

 

 

The risk that the Merger will not occur if the financing contemplated by the financing commitments is not obtained, as described under “Special Factors — Financing,” since Purchaser does not on its own possess sufficient funds to complete the transaction.

 

 

The fact that ChyronHego’s shareholders (other than the Rollover Holders) will have no ongoing equity in the surviving company following the Merger, meaning that ChyronHego’s shareholders will cease to participate in ChyronHego’s future earnings or growth, or to benefit from any increases in the value of ChyronHego’s common stock.

 

 

The fact that Purchaser and Merger Subsidiary are newly formed companies with essentially no assets other than the equity commitments of the Guarantors and that ChyronHego’s remedy in the event of breach of the Merger Agreement by Purchaser or Merger Subsidiary may be limited to receipt of the $6.3 million termination fee, and that under certain circumstances ChyronHego may not be entitled to a termination fee at all.

 

 

The possible effect of the public announcement, pendency or consummation of the transactions contemplated by the Merger Agreement, including any suit, action or proceeding in respect of the Merger Agreement or the transactions contemplated by the Merger Agreement, any loss or change in relationship with any customer, supplier, vendor or other business partner of such person, any actions by competitors or any other disruption of the business of such person and any effect on ChyronHego’s stock price, operations and employees and ChyronHego’s ability to retain key employees.

 

 

The fact that the transactions contemplated by the Merger Agreement will be taxable transactions to ChyronHego’s shareholders for U.S. federal income tax purposes.

 

 

The absence of a pre-signing market check by ChyronHego as to the availability of alternative proposals for the purpose of minimizing management distraction and reaching a binding agreement at an attractive valuation for ChyronHego’s shareholders as soon as possible, while imposing minimal constraints on a topping bid thereto, and ChyronHego’s ability to conduct a go-shop process post-signing to provide ChyronHego with a market check.

 

 

The fact that, under the terms of the Merger Agreement, ChyronHego would be required to pay Vector Capital a termination fee if ChyronHego were to terminate the Merger Agreement to accept a superior proposal for a business combination with or acquisition of ChyronHego, and that ChyronHego’s obligation to pay the termination fee might discourage other parties from proposing a business combination with or acquisition of ChyronHego, as described under “The Merger Agreement — Termination of the Merger Agreement.”

 

 

The fact that ChyronHego will have incurred significant transaction and opportunity costs attempting to consummate the transactions contemplated by the Merger Agreement.

 

 

The risks and costs to ChyronHego if the Merger does not close, including the diversion of management and employee attention, employee attrition and the effect on other business relationships.

  

 
18

 

 

 

The interests of certain executive officers of ChyronHego that are different from or in addition to the interests of ChyronHego’s shareholders generally as described under “Special Factors — Interests of ChyronHego’s Directors and Executive Officers in the Merger.”

 

 

The customary restrictions on the conduct of ChyronHego’s business prior to the consummation of the transaction, requiring ChyronHego’s business to be conducted in the ordinary course, subject to specific limitations, which may delay or prevent ChyronHego from undertaking certain business opportunities, outside the ordinary course of business, that may arise over the period that the Merger Agreement remains in effect.

 

The foregoing discussion of the information and factors considered by the Board, while not exhaustive, includes the material factors considered by the Board. In view of the variety of factors considered in connection with its evaluation of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, the Board did not find it practicable to, and did not, quantify, rank or otherwise assign relative or specific weight or values to any of these factors, and individual directors may have given different weights to different factors. The Board considered all of the factors as a whole and considered the factors in their totality to be favorable and to support the decision to unanimously (with one abstention noted above) adopt and declare advisable the Merger Agreement and the transactions contemplated by the Merger Agreement and to recommend approval of the Merger Agreement by the shareholders of ChyronHego.

 

In addition, the members of the Board who were not members of the Special Committee considered the extensive discussions, review and analysis that had been conducted by the Special Committee, and the Board expressly adopted the Special Committee’s analysis and conclusions.

 

The Special Committee and the Board also considered a number of additional potentially countervailing factors in its deliberations concerning the Merger, including the following:

 

 

that ChyronHego will no longer exist as an independent company and its shareholders (other than the Rollover Holders) will no longer participate in ChyronHego’s growth or from any future increase in the value of ChyronHego;

 

 

that the Merger Agreement requires ChyronHego to pay Purchaser a termination fee in the amount of $1.8 million if the Merger Agreement is terminated under circumstances involving a bona fide written superior proposal, and a termination fee of $4.2 million if the Merger Agreement is terminated unilaterally by ChyronHego under certain circumstances. See the section entitled “The Merger Agreement — Termination of the Merger Agreement”;

 

 

the fact that any gains from an all-cash transaction would be taxable to ChyronHego’s shareholders for U.S. federal income tax purposes;

 

 

that, under the terms of the Merger Agreement, ChyronHego agreed that it will carry on its business in the ordinary course of business consistent with past practice and, subject to specified exceptions, that it will not take a number of actions related to the conduct of its business without the prior consent of Purchaser (which cannot be unreasonably withheld or delayed in certain circumstances specified in the Merger Agreement); and

 

 

that if the Merger does not close, ChyronHego’s officers and other employees will have expended extensive efforts attempting to complete the transaction and will have experienced significant distractions from their work during the pendency of the transaction and ChyronHego will have incurred substantial transaction costs in connection with the transaction and such costs will harm its operating results.

 

The Special Committee and the Board also considered the interests of ChyronHego’s executive officers in the Merger which existed as of the time of the Special Committee’s and the Board’s determination, by reviewing a summary provided to the Special Committee and the Board of the ownership interests in ChyronHego of ChyronHego’s executive officers and the proposed treatment of such ownership interests in the proposed transaction, including the terms of the Rollover Holders’ agreements with respect to their shares of common stock and their future employment following the Merger, which are described below under “Special Factors — Interests of ChyronHego’s Directors and Executive Officers in the Merger.” The Special Committee and the Board also deemed it appropriate to reimburse Mr. Apel for his legal fees and expenses in connection with the transaction, which were incurred by him in connection with the rollover and his employment agreement, because the Special Committee and the Board viewed those fees and expenses as a necessary cost of completing a transaction that they each believed to be in the best interests of ChyronHego shareholders.

 

The Special Committee also considered the significant business and operating risks to executing ChyronHego’s business as a stand-alone entity, which created uncertainty as to ChyronHego’s ability to execute its business plan and achieve its projected operating results at this time, including the following:

 

 

the competitive pressures in ChyronHego’s industry, including competition with many larger, better capitalized companies, which have longer operating histories, larger customer bases, greater financial and marketing resources, and better brand recognition than it has;

     
 

the fact that ChyronHego’s largest competitor, Vizrt, had agreed to be purchased by Nordic Capital, a private equity firm with very meaningful capital resources; 

     
 

the challenges associated with raising capital as an independent public company in ChyronHego’s industry with a small market capitalization; and

     
 

the potential dilutive effect on ownership to current shareholders if ChyronHego raised additional capital in the capital markets in order to accomplish its business plan.

 

As a result of these current trends and challenges, the Special Committee determined that there was significant uncertainty regarding ChyronHego’s ability to execute its business plan successfully, and to achieve the projected operating results described under “Important Information Concerning ChyronHego — Certain Projections.” However, the Special Committee also believed that an acquirer of ChyronHego could potentially create value by using its resources to reduce these risks and to address and capitalize on trends in its industry, and that this value could be reflected in a per share price in an acquisition that was greater than ChyronHego’s value as an independent company. Accordingly, the Special Committee determined that it would be advantageous to ChyronHego’s unaffiliated shareholders to pursue a sale of the company at this time.

  

 
19

 

 

The Special Committee

 

The Special Committee of the board of directors consists entirely of independent directors who are neither officers nor employees of ChyronHego and who will not have an economic interest in the surviving entity following the Merger. The Special Committee was charged with representing the interests of ChyronHego’s unaffiliated shareholders and was actively involved in deliberations and negotiations regarding the terms and conditions of a change of control transaction on behalf of the unaffiliated shareholders. In this capacity, the Special Committee retained and received advice from Duff & Phelps, LLC, as financial advisor, and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., as legal advisor. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. was not legal advisor exclusively to the Special Committee, but also continued providing legal advice to the board of directors during the period in which it advised the Special Committee. The authority of the Special Committee was not limited by ChyronHego’s board of directors. See “Special Factors — Background of the Merger,” “Special Factors — Reasons for the Merger,” “Special Factors – Position of Purchaser, Merger Subsidiary and Vector Capital as to the Fairness of the Merger,” and “Special Factors – Purposes and Reasons of the Rollover Holders for the Merger and Position of the Rollover Holders as to the Fairness of the Merger.”

 

The Special Committee of the board of directors is comprised of Roger L. Ogden (Chair), Peter F. Frey, Henrik Sundberg and Michael C. Wheeler.

 

Opinion of the Financial Advisor to ChyronHego’s Special Committee

 

Duff & Phelps was engaged to provide an opinion to the Special Committee as to the fairness, from a financial point of view, to the shareholders of the Company (other than the Rollover Holders) of the $2.82 per share Merger Consideration to be received by such shareholders in connection with the Merger (without giving effect to any impact of the Merger on any particular shareholder other than in its capacity as a shareholder).

 

Duff & Phelps delivered its opinion to the Special Committee on November 17, 2014 to the effect that, as of such date and subject to the assumptions, qualifications and limiting conditions set forth therein, the $2.82 per share Merger Consideration to be received by the shareholders of the Company (other than the Rollover Holders) in the Merger was fair, from a financial point of view, to such shareholders (without giving effect to any impact of the Merger on any particular shareholder other than in its capacity as a shareholder).

 

The full text of Duff & Phelps’ opinion is attached as Annex B to this proxy statement and is incorporated into this proxy statement by reference.  The full text of the written opinion should be read carefully in its entirety for a description of the assumptions, qualifications and limiting conditions of the review undertaken in connection with the opinion.

 

The Duff & Phelps opinion was furnished for the use and benefit of the Special Committee in connection with its consideration of the Merger and was not intended to, and did not, confer any rights or remedies upon any other person, and was not intended to be used, and may not be used, by any other person or for any other purpose, without Duff & Phelps’ express consent. Duff & Phelps’ opinion did not address the merits of the underlying business decision to enter into the Merger versus any alternative strategy or transaction; did not address any transaction related to the Merger; was not a recommendation as to how the Special Committee or any shareholder should vote or act with respect to any matters relating to the Merger, or whether to proceed with the Merger or any related transaction, and did not indicate that the consideration received was the best possibly attainable under any circumstances; instead, it merely stated whether the consideration in the Merger is within a range suggested by certain financial analyses. Duff & Phelps was not requested to, and did not, (i) prior to the go-shop period, initiate any discussions with, or solicit any indications of interest from, third parties with respect to the Merger, the assets, businesses or operations of the Company, or any alternatives to the Merger, (ii) negotiate the terms of the Merger, and therefore Duff & Phelps assumed that such terms were the most beneficial terms, from the Company’s perspective, that could, under the circumstances, be negotiated among the parties to the Merger Agreement and the Merger, or (iii) advise the Board or any other party with respect to alternatives to the Merger. The decision as to whether to proceed with the Merger or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which Duff & Phelps’ opinion was based. Duff & Phelps’ opinion should not be construed as creating any fiduciary duty on the part of Duff & Phelps to any party.

 

In connection with its opinion, Duff & Phelps made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation, in general, and with respect to similar transactions, in particular. Duff & Phelps’ procedures, investigations and financial analysis with respect to the preparation of its opinion included, but were not limited to, the items summarized below:

 

 

Reviewed the following documents:

 

 

The Company’s annual reports on Form 10-K, including the audited financial statements contained therein, filed with the SEC for the years ended December 31, 2010 through December 31, 2013;

 

 

The Company’s unaudited interim financial statements for the quarter ended September 30, 2014 included in the Company’s quarterly report on Form 10-Q for such quarter filed with the SEC and which the Company’s management identified as being the most current financial statements available;

 

 

Other internal documents relating to the history, current operations, and probable future outlook of the Company, including financial projections, provided to Duff & Phelps by management of the Company; and

 

 

Documents related to the Merger, including the Merger Agreement in the form of a draft dated November 13, 2014; and the Voting Agreement among Purchaser, Merger Subsidiary and the signatories thereto in the form of a draft dated November 13, 2014;

 

 

Discussed the information referred to above and the background and other elements of the Merger with the management of the Company;

 

 

Reviewed the historical trading price and trading volume of the Company’s common stock and the publicly traded securities of certain other companies that Duff & Phelps deemed relevant;

  

 
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Performed certain valuation and comparative analyses using generally accepted valuation and analytical techniques including a discounted cash flow analysis, an analysis of selected public companies that Duff & Phelps deemed relevant, and an analysis of selected transactions that Duff & Phelps deemed relevant; and

 

 

Conducted such other analyses and considered such other factors as Duff & Phelps deemed appropriate.

   

In performing its analyses and rendering its opinion with respect to the Merger, Duff & Phelps, with the Company’s consent:

 

 

Relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including Company management, and did not independently verify such information;

 

 

Relied upon the fact that the Special Committee and the Company have been advised by counsel as to all legal matters with respect to the Merger, including whether all procedures required by law to be taken in connection with the Merger have been duly, validly and timely taken;

 

 

Assumed that any estimates, evaluations, forecasts and projections furnished to Duff & Phelps were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same, and Duff & Phelps expressed no opinion with respect to such projections or the underlying assumptions;

 

 

Assumed that information supplied and representations made by Company management were substantially accurate regarding the Company and the Merger;

 

 

Assumed that the representations and warranties made in the Merger Agreement were substantially accurate;

 

 

Assumed that the final versions of all documents reviewed by Duff & Phelps in draft form conformed in all material respects to the drafts reviewed;

 

 

Assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business, or prospects of the Company since the date of the most recent financial statements and other information made available to Duff & Phelps, and that there is no information or facts that would make the information reviewed by Duff & Phelps incomplete or misleading in any material respect;

 

 

Assumed that all of the conditions required to implement the Merger would be satisfied and that the Merger would be completed in accordance with the Merger Agreement without any amendments thereto or any waivers of any terms or conditions thereof; and

 

 

Assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Merger would be obtained without any material adverse effect on the Company or the contemplated benefits expected to be derived in the Merger.

 

To the extent that any of the foregoing assumptions or any of the facts on which Duff & Phelps’ opinion was based prove to be untrue in any material respect, Duff & Phelps’ opinion cannot and should not be relied upon. Furthermore, in its analysis and in connection with the preparation of its opinion, Duff & Phelps made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the Merger.

 

Duff & Phelps’ opinion is necessarily based upon market, economic, financial and other conditions as they existed on and could be evaluated as of the date of its opinion, and Duff & Phelps disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion which may come or be brought to the attention of Duff & Phelps after the date of its opinion.

 

Duff & Phelps did not evaluate the Company’s solvency or conduct an independent appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise). Duff & Phelps was not requested to, and did not, (i) prior to the go-shop period, initiate any discussions with, or solicit any indications of interest from, third parties with respect to the Merger, the assets, businesses or operations of the Company, or any alternatives to the Merger, (ii) negotiate the terms of the Merger, and therefore, Duff & Phelps assumed that such terms were the most beneficial terms, from the Company’s perspective, that could, under the circumstances, be negotiated among the parties to the Merger Agreement and the Merger, or (iii) advise the Board or any other party with respect to alternatives to the Merger.

 

Duff & Phelps expressed no opinion as to the market price or value of the Company’s common stock (or anything else) after the announcement or the consummation of the Merger. The opinion of Duff & Phelps should not be construed as a valuation opinion, credit rating, solvency opinion, an analysis of the Company’s credit worthiness, as tax advice, or as accounting advice. Duff & Phelps did not make, and assumed no responsibility to make, any representation, or render any opinion, as to any legal or tax matter.

 

In rendering its opinion, Duff & Phelps expressed no opinion with respect to the amount or nature of any compensation to any of the Company’s officers, directors, or employees, or any class of such persons, relative to the Merger Consideration to be received by the shareholders of the Company in the Merger, or with respect to the fairness of any such compensation.

 

Set forth below is a summary of the material analyses performed by Duff & Phelps in connection with the delivery of its opinion to the Special Committee. While this summary describes the analyses and factors that Duff & Phelps deemed material in its presentation to the Special Committee, it is not a comprehensive description of all analyses and factors considered by Duff & Phelps. The preparation of a fairness opinion is a complex process that involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis. In arriving at its opinion, Duff & Phelps did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Duff & Phelps believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it in rendering the fairness opinion without considering all analyses and factors could create a misleading or incomplete view of the evaluation process underlying its opinion. The conclusion reached by Duff & Phelps was based on all analyses and factors taken as a whole, and also on the application of Duff & Phelps’ own experience and judgment.

 

 
21

 

 

The financial analyses summarized below include information presented in tabular format. In order for Duff & Phelps’ financial analyses to be fully understood, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Duff & Phelps’ financial analyses. The summary below is qualified in its entirety by reference to the presentation of Duff & Phelps to the Special Committee dated November 17, 2014, a copy of which is filed as Exhibit (c)(2) to the Schedule 13E-3.

 

Discounted Cash Flow Analysis 

 

Duff & Phelps performed a discounted cash flow analysis of the estimated future free cash flows of the Company for the fiscal years ending December 31, 2014 through December 31, 2017, with “free cash flow” defined as cash that is available either to reinvest or to distribute to security holders. The discounted cash flow analysis was used to determine the net present value of estimated future free cash flows utilizing a weighted average cost of capital as the applicable discount rate. For purposes of its discounted cash flow analysis, Duff & Phelps utilized and relied upon Company management’s financial forecasts, which are described in this proxy statement in the section entitled “Important Information Concerning ChyronHego—Certain Projections.”

 

Duff & Phelps estimated the net present value of all cash flows of the Company after fiscal year 2023 (the “terminal value”) using a perpetuity growth formula assuming a 3.5% terminal growth rate, which Duff & Phelps selected in its professional judgment, based on its experience in the industry in which the Company operates, the growth prospects of the Company beyond the terminal year, and the outlook for long-term inflation. Duff & Phelps used discount rates ranging from 14.0% to 16.0%, reflecting Duff & Phelps’ estimate of the Company’s weighted average cost of capital, to discount the projected free cash flows and terminal value.

 

Based on these assumptions, Duff & Phelps’ discounted cash flow analysis resulted in a range of implied enterprise values for the Company of approximately $77.3 million to $91.9 million. Duff & Phelps then subtracted the Company’s indebtedness as of September 30, 2014, the present value of expected earn-out payments to Zxy shareholders, the Company’s pension liability (after-tax) and non-controlling interest, added cash and cash equivalents and the present value of the Company’s tax benefits (including net operating loss carry-forwards and tax amortization), and divided such amount by the number of outstanding shares of Company common stock calculated using the treasury stock method, which resulted in a range of implied per share values of approximately $2.00 to $2.32 for the Company’s common stock, as compared to the $2.82 per share Merger Consideration to be received by the Company’s shareholders (other than the Rollover Holders with respect to the Rollover Shares) in the Merger.

 

Selected Public Companies and Merger and Acquisition Transactions Analyses

 

Duff & Phelps analyzed selected public companies and selected merger and acquisition transactions for purposes of estimating valuation multiples with which to calculate a range of implied enterprise values of the Company. This collective analysis was based on publicly available information and is described in more detail in the sections that follow.

 

Selected Public Companies Analysis. Duff & Phelps compared certain financial information of the Company to corresponding data and ratios from the following eight publicly traded companies that Duff & Phelps deemed relevant to its analysis:

 

 

Dalet S.A.

 

 

Dolby Laboratories, Inc.

 

 

DTS Inc.

 

 

EVS Broadcast Equipment SA

 

 

Harmonic Inc.

 

 

Orad Hi Tec Systems Ltd.

 

 

SeaChange International, Inc.

 

 

Vizrt Ltd.

 

The companies utilized for comparative purposes in Duff & Phelps’ analysis were not identical to the Company. As a result, a complete valuation analysis cannot be limited to a quantitative review of the selected public companies, but also requires complex considerations and judgments concerning differences in financial and operating characteristics of such companies, as well as other factors that could affect their value relative to that of the Company.

 

The tables below summarize certain observed trading multiples and historical and projected financial performance, on an aggregate basis, of the selected public companies. The estimates for 2014 and 2015 included in the tables below were derived from information for the 12-month periods ending closest to the Company’s fiscal year ends for which information related to the selected companies was available.

  

 

   

REVENUE GROWTH

   

EBITDA GROWTH

   

EBITDA MARGIN

 
                   
   

LTM

   

2014

   

2015

   

LTM

   

2014

   

2015

   

LTM

   

2014

   

2015

 

Mean

    8.1%       0.2%       7.4%       17.4%       12.0%       35.5%       16.3%       18.4%       20.9%  

Median

    10.2%       -5.2%       9.2%       5.6%       -2.4%       16.6%       15.1%       21.9%       23.4%  
                                                                         

ChyronHego (Management projections)

 

NM

      10.3%       10.7%    

NM

      43.0%       24.2%       12.8%       15.4%       17.3%  

  

 
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          ENTERPRISE VALUE AS A MULTIPLE OF  
   

ENTERPRISE VALUE

($ in millions)

   

LTM EBITDA

   

2014 EBITDA

   

2015 EBITDA

   

LTM Revenue

   

2014 Revenue

 

Dalet S.A.

 

$26

   

17.5x

   

N/A

   

N/A

   

0.53x

   

N/A

 

Dolby Laboratories, Inc.

 

$3,529

   

10.7x

   

11.0x

   

10.0x

   

3.68x

   

3.88x

 

DTS Inc.

 

$539

   

15.2x

   

15.4x

   

13.8x

   

3.70x

   

3.77x

 

EVS Broadcast Equipment SA

 

$402

   

6.4x

   

6.7x

   

8.1x

   

2.45x

   

2.42x

 

Harmonic Inc.

 

$501

   

21.4x

   

30.3x

   

13.3x

   

1.12x

   

1.17x

 

Orad Hi Tec Systems Ltd.

 

$24

   

6.9x

   

11.3x

   

7.1x

   

0.65x

   

0.83x

 

SeaChange International, Inc.

 

$108

   

NM

   

NM

   

7.0x

   

0.85x

   

0.86x

 

Vizrt Ltd.

 

$313

   

10.9x

   

9.8x

   

8.0x

   

2.26x

   

2.14x

 
                                     

Mean

       

12.7x

   

14.1x

   

9.6x

   

1.90x

   

2.15x

 

Median

       

10.9x

   

11.1x

   

8.1x

   

1.69x

   

2.14x

 

  

LTM = Latest twelve months

Enterprise Value = (Market Capitalization + Debt + Preferred Stock + Minority Interest) - (Cash & Equivalents)

EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization

Source: Bloomberg, Capital IQ, SEC filings

 

Selected Merger and Acquisition Transactions Analysis. Duff & Phelps compared the Company to the target companies involved in the selected merger and acquisition transactions listed in the table below.

 

Date Announced   Acquirer Name   Target Name  

TARGET COMPANY

ENTERPRISE VALUE

($ in millions)

   

TARGET COMPANY

LTM REVENUE

($ in millions)

   

TARGET COMPANY

LTM EBITDA

($ in millions)

   

ENTERPRISE VALUE / REVENUE

   

ENTERPRISE 

VALUE / EBITDA

 
11/10/2014   Nordic Capital Fund VIII   Vizrt Ltd.  

$332.1

   

$138.6

   

$30.3

   

2.40x

   

11.0x

 
3/16/2014   Matthews International Corporation   Schawk, Inc.  

$585.3

   

$442.6

   

$53.3

   

1.32x

   

11.0x

 
2/6/2014   Miranda Technologies Inc.   Grass Valley USA, LLC  

$218.0

   

$290.0

   

$27.0

   

0.75x

   

8.1x

 
1/6/2014   Brightcove Inc.   Unicorn Media, Inc.*  

$51.3

   

$5.7

   

NM

   

8.97x

   

N/A

 
11/13/2013   Vizrt Ltd.   Mosart Medialab AS*  

$17.1

   

$5.4

   

NM

   

3.17x

   

N/A

 
3/9/2013   Chyron Corporation (nka: ChyronHego Corporation)   Hego AB*  

$30.3

   

$15.4

   

NM

   

1.97x

   

N/A

 
11/8/2012   Global Eagle Acquisition Corp.   Advanced Inflight Alliance AG  

$155.2

   

$169.1

   

$19.4

   

0.92x

   

8.0x

 
6/4/2012   Belden CDT (Canada) Inc.   Miranda Technologies Inc.  

$320.8

   

$184.9

   

$35.6

   

1.74x

   

9.0x

 
12/22/2010   Rovi Corporation   Sonic Solutions LLC*  

$643.6

   

$103.5

   

NM

   

6.22x

   

N/A

 
10/12/2009   Cisco Systems, Inc.   Starent Networks, Corp.  

$2,420.4

   

$308.1

   

$103.8

   

7.86x

   

23.3x

 
11/7/2007   Vizrt Ltd.   Escenic AS*  

$60.6

   

$8.7

   

NM

   

6.96x

   

N/A

 

 

*Transactions excluded from the low, median, mean and high multiples summarized below because of the absence of publicly available EBITDA information for the target company or because LTM EBITDA for the target company was a de minimis or negative number.

 

NM = Not meaningful

N/A = Not available

 

The selected transactions indicated enterprise value to LTM revenue multiples ranging from 0.75x to 8.97x, with a mean of 3.84x and a median of 2.40x. The selected transactions also indicated enterprise value to LTM EBITDA multiples ranging from 8.0x to 23.3x, with a mean of 11.7x and a median of 10.0x.

  

 
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Implied Enterprise Values Derived from Selected Public Companies and Selected Merger and Acquisition Transactions Analyses. Duff & Phelps utilized the data derived from the selected public company analysis in conjunction with the transaction multiples derived from the selected merger and acquisition transactions analysis to calculate a range of implied enterprise values and implied per share values for the Company. Duff & Phelps applied valuation multiples to the Company’s Adjusted EBITDA for the 2014 and 2015 fiscal years and 2014 Revenue. Duff & Phelps’ selected valuation multiples were as follows:

 

 

 

2014 Adjusted EBITDA multiple ranged from 8.5x to 9.5x;

 

 

 

2015 Adjusted EBITDA multiple ranged from 7.0x to 8.0x; and

 

 

 

2014 Revenue multiple ranged from 1.30x to 1.50x.

 

Duff & Phelps selected these valuation multiples taking into consideration the size, historical and projected financial performance of the Company relative to the selected public companies, as well as the enterprise value multiples implied from the selected merger and acquisition transactions. As a result of these selected valuation multiples, the collective public companies and merger and acquisition transactions analyses indicated an estimated enterprise value for the Company of approximately $81.4 million to $93.1 million. Duff & Phelps then subtracted the Company’s indebtedness as of September 30, 2014, the present value of expected earn-out payments to Zxy shareholders, the Company’s pension liability (after-tax) and non-controlling interest, added cash and cash equivalents and the present value of the Company’s tax benefits (including net operating loss carry-forwards and tax amortization), and divided such amount by the number of outstanding shares of Company common stock calculated using the treasury stock method, which resulted in a range of implied per share values of approximately $2.09 to $2.35 per share, as compared to the $2.82 per share Merger Consideration to be received by the Company’s shareholders (other than the Rollover Holders with respect to the Rollover Shares) in the Merger.

 

Summary of Analyses

 

The range of estimated enterprise values and per share values for the Company that Duff & Phelps derived from its discounted cash flow analysis was approximately $77.3 million to $91.9 million and $2.00 to $2.32, respectively. The range of estimated enterprise values and per share values that Duff & Phelps derived from the combination of its selected public companies and selected merger and acquisition transactions analyses was approximately $81.4 million to $93.1 million and $2.09 to $2.35, respectively. Based on the foregoing analyses, Duff & Phelps estimated an enterprise value for the Company of approximately $79.4 to $92.5 million. Duff & Phelps then subtracted the Company’s indebtedness as of September 30, 2014, the present value of expected earn-out payments to Zxy shareholders, the Company’s pension liability (after-tax) and non-controlling interest, added cash and cash equivalents and the present value of the Company’s tax benefits (including net operating loss carry-forwards and tax amortization), and divided such amount by the number of outstanding shares of Company common stock calculated using the treasury stock method, which resulted in a range of implied per share values of approximately $2.04 to $2.33. Duff & Phelps noted that the $2.82 per share Merger Consideration to be received by the Company’s shareholders (other than the Rollover Holders) in the Merger was above the range of the per share value indicated by its analyses and represented a 4.1% premium to the Company’s closing stock price of $2.71 as of November 14, 2014.

 

Duff & Phelps’ opinion was only one of the many factors considered by the Special Committee in its evaluation of the Merger and should not be viewed as determinative of the views of the Special Committee.

 

Miscellaneous

 

The Special Committee selected Duff & Phelps because of Duff & Phelps’ reputation as a leading independent financial advisory firm, offering a broad range of valuation and investment banking services, including fairness and solvency opinions, mergers and acquisitions advisory, mergers and acquisitions due diligence services, financial reporting and tax valuation, fixed asset and real estate consulting, ESOP and ERISA advisory services, legal business solutions and dispute consulting.

 

As compensation for Duff & Phelps’ services in connection with the rendering of its opinion to the Special Committee, the Company agreed to pay Duff & Phelps $200,000 due and payable as follows: $100,000 in cash upon execution of the engagement letter with Duff & Phelps, and the remaining $100,000 in cash upon Duff & Phelps informing the Special Committee that it was prepared to deliver its opinion. No portion of the foregoing Duff & Phelps’ fee is contingent upon the conclusion expressed in the opinion or whether the Merger is consummated. In addition, the Company agreed to pay Duff & Phelps a fee in the amount of $149,000 contingent upon consummation of the Merger. Furthermore, Duff & Phelps is entitled to be paid additional fees at Duff & Phelps’ standard hourly rates for any time incurred should Duff & Phelps be called upon to support its findings (to parties other than the Special Committee) subsequent to the delivery of its opinion. The Company has also agreed to reimburse Duff & Phelps for its out-of-pocket expenses and reasonable fees and expenses of counsel, consultants and advisors retained by Duff & Phelps in connection with the engagement. The Company has also agreed to indemnify Duff & Phelps for certain liabilities arising out of its engagement. Duff & Phelps’ opinion indicated that Duff & Phelps’ liability in connection with its opinion is limited in accordance with the terms set forth in the engagement letter dated July 25, 2014 among Duff & Phelps, Duff & Phelps Securities, LLC and the Company (the “Engagement Letter”). In that regard, the Engagement Letter provides that (i) no indemnified person (meaning Duff & Phelps and its affiliates, and its and their respective directors, officers, attorneys and other agents, stockholders, employees, and controlling persons) shall be liable to the Company for or in connection with Duff & Phelps’ engagement by the Company, except for certain losses by the Company which are determined by a final judgment of a court of competent jurisdiction to have resulted primarily and directly from the fraud, willful misconduct or gross negligence of that indemnified person, and (ii) in the event that the Company and Duff & Phelps are required to contribute to any losses or expenses for which indemnification is unavailable or insufficient, the contribution by Duff & Phelps and any indemnified persons shall not exceed the amount of fees actually received by Duff & Phelps pursuant to its engagement by the Company.

 

In the event the Merger Agreement is terminated and an alternative acquisition proposal is consummated during the term of Duff & Phelps’ engagement by the Company or within six months following the effective date of termination of its engagement by the Company, Duff & Phelps will be paid a fee in the amount of $149,000 plus 5% multiplied by the difference between the aggregate Merger Consideration pursuant to the Merger Agreement and the aggregate merger consideration pursuant to the alternative acquisition proposal.

 

The terms of the fee arrangements with Duff & Phelps, which the Company believes are customary in transactions of this nature, were negotiated at arm’s length, and the Special Committee and the Board are aware of these fee arrangements.

  

 
24

 

 

Duff & Phelps Securities, LLC has acted as financial advisor to the Special Committee, providing such financial and market related advice and assistance as deemed appropriate in connection with the Merger, including assisting the Special Committee in initiating, soliciting and encouraging any alternative transaction proposals from third parties pursuant to the “go-shop period” provision of the Agreement, and will receive a fee for such services. Other than its engagement as financial advisor to the Special Committee, during the two years preceding the date of its opinion, Duff & Phelps has not had any material relationship with ChyronHego, Vector Capital, or any of their respective affiliates, for which compensation has been received or is intended to be received, nor is any such material relationship or related compensation mutually understood to be contemplated.

 

Purposes and Reasons for the Merger of Purchaser 

 

Purchaser and Merger Subsidiary are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. If the Merger is completed, ChyronHego will become a subsidiary of Purchaser. For Purchaser and Merger Subsidiary, the purpose of the Merger is to effectuate the transactions contemplated by the Merger Agreement and to bear the rewards and risks of such ownership after shares of ChyronHego common stock cease to be publicly traded. Purchaser did not consider any alternatives for achieving these purposes.

 

Purchaser and Merger Subsidiary believe that ChyronHego is relatively well situated in its industry, but faces substantial execution risk in the near term if it were to remain independent, as detailed elsewhere in this Proxy Statement under the caption “Special Factors — Reasons for the Merger.” Purchaser and Merger Subsidiary believe that this execution risk could be mitigated, and ChyronHego’s long-term market growth potential could be better realized, as a private company, particularly if it had the resources and support to pursue growth initiatives and to compete effectively against larger and better-capitalized entities.

 

Purchaser also believes that as a private company, ChyronHego could operate more efficiently and effectively. Operating as a public company entails substantial expense. Purchaser believes that other improvements to ChyronHego’s cost structure and strategic direction could be achieved, free of the market pressures imposed on a publicly traded company with regard to operating results. In addition, Purchaser considered what it believed were competitive advantages of ChyronHego no longer being a public company, including less transparency to competitors and greater access to capital resources to capitalize on market opportunities, if any. Purchaser has undertaken to pursue the Merger at this time for the reasons described above.

 

Purchaser and Merger Subsidiary believe that structuring the transaction as a merger transaction is preferable to other transaction structures because (i) it will enable Purchaser to acquire all of the outstanding shares of ChyronHego at the same time, (ii) it represents an opportunity for ChyronHego’s shareholders (other than the Rollover Holders with respect to the Rollover Shares) to receive fair value for their shares of common stock in the form of the Merger Consideration, and (iii) it allows the Rollover Holders to maintain a portion of their investment in ChyronHego. Further, Purchaser believes that structuring the transaction as a merger transaction provides a prompt and orderly transfer of ownership of ChyronHego in a single step, without the necessity of financing separate purchases of ChyronHego common stock in a tender offer and implementing a second-step Merger to acquire any shares of common stock not tendered in any such tender offer, and without incurring any additional transaction costs associated with such activities.

 

The primary purposes of the rollover transaction are to (i) reduce the amount of upfront liquidity required by Purchaser in order to fund the Merger Consideration, (ii) encourage management continuity by allowing management to retain an indirect equity interest in ChyronHego through the exchange of the Rollover Shares for equity interests of Purchaser, and to continue bearing the rewards and risks of such ownership after shares of ChyronHego common stock cease to be publicly traded and (iii) otherwise better align the incentives of the Rollover Holders with those of Vector Capital following the completion of the transaction. The primary purpose of Purchaser in structuring the rollover as partial rollover (as compared to a 100% rollover) is to effect Purchaser’s desired post-closing equity ownership and capital structure, including specifically, Vector Capital’s desire to obtain a substantial ownership position in ChyronHego after shares of ChyronHego common stock cease to be publicly traded. In structuring the transaction as a rollover, Purchaser considered the potential tax effects to the Rollover Holders. Purchaser structured the rollover to minimize the tax burden with respect to the illiquid stock received by the Rollover Holders in the transaction.

 

Position of Purchaser, Merger Subsidiary and Vector Capital as to the Fairness of the Merger

 

The rules of the SEC governing “going private” transactions require Purchaser and Merger Subsidiary to express their belief as to the fairness of the Merger to unaffiliated shareholders of ChyronHego. Purchaser and Merger Subsidiary did not undertake a formal evaluation of the fairness of the proposed Merger and are making the statements included in this section solely for purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of Purchaser and Merger Subsidiary should not be construed as a recommendation as to whether any ChyronHego shareholder should adopt the Merger Agreement.

 

As the acquiring parties in the Merger, Purchaser and Merger Subsidiary are not objective in their views with regard to the fairness of the Merger to ChyronHego’s unaffiliated shareholders. Purchaser and Merger Subsidiary did not engage the services of a financial advisor in connection with the proposed Merger.

 

The shareholders of ChyronHego (other than the Rollover Holders) were, as described elsewhere in this proxy statement, represented by the Special Committee which negotiated with certain representatives of Purchaser and Merger Subsidiary, with the assistance of outside legal counsel and independent financial advisors. Purchaser and Merger Subsidiary were not members of, and did not participate in the deliberations of, the Special Committee.

 

Purchaser and Merger Subsidiary believe that the terms and conditions of the Merger are substantively and procedurally fair to ChyronHego’s unaffiliated shareholders. In making this determination, Purchaser and Merger Subsidiary considered among others, the following factors:

 

 

the Special Committee, which is comprised of four independent directors who are not affiliated with Purchaser or Merger Subsidiary, unanimously concluded that the Merger is fair to and in the best interests of ChyronHego’s unaffiliated shareholders, approved the Merger Agreement and the Merger and recommended to ChyronHego’s board that it approve the Merger Agreement and that the Merger Agreement be submitted to ChyronHego’s shareholders for adoption;

 

 

the Special Committee was advised by outside legal counsel and an independent financial advisor in relation to the Merger;

  

 
25

 

 

 

ChyronHego’s board unanimously approved the Merger Agreement and recommended that the Merger Agreement be submitted to ChyronHego’s shareholders for adoption;

 

 

the fact that, although Purchaser and Merger Subsidiary are not entitled to rely on it, the Special Committee received an opinion from the Special Committee’s independent financial advisor, Duff & Phelps, to the effect that, as of the date of the opinion and subject to various assumptions, qualifications, limitations and other matters set forth therein, the consideration to be received by the shareholders (other than the Rollover Holders) in the proposed Merger pursuant to the Merger Agreement was fair to such shareholders from a financial point of view. The Duff & Phelps opinion addressed the fairness, from a financial point of view, of the Merger Consideration to be received by ChyronHego shareholders (other than the Rollover Holders), which is a distinct population of ChyronHego shareholders from all shareholders who are unaffiliated with ChyronHego, and includes shareholders who are affiliates of ChyronHego but who are not Rollover Holders. The unaffiliated shareholders of ChyronHego who are not Rollover Holders will also receive $2.82 per share in Merger Consideration in the transaction, which is the same Merger Consideration to be received by ChyronHego affiliates who are not Rollover Holders, such as the ChyronHego directors other than Mr. Apel. Thus, Purchaser and Merger Subsidiary did not believe that there was any difference between the fairness, from a financial point of view, of the Merger Consideration to be received by ChyronHego shareholders (other than the Rollover Holders) and the Merger Consideration to be received by the unaffiliated shareholders of ChyronHego, and that as such they could consider the Duff & Phelps opinion as a relevant factor in their own conclusion that the Merger was substantively and procedurally fair to ChyronHego’s unaffiliated shareholders.

 

 

the fact that the Merger would be subject to the approval of the holders of two-thirds of the outstanding shares of ChyronHego common stock as well as the approval of a majority of holders of the outstanding shares of ChyronHego common stock, not including shares owned by Purchaser, Merger Subsidiary, the Guarantors or the Rollover Holders;

 

 

the fact that the shareholder approval pursuant to the Voting Agreement is not sufficient to approve the Merger and that the Voting Agreement terminates if the Merger Agreement is terminated in accordance with its terms (including termination by ChyronHego in connection with a superior proposal or an Adverse Recommendation Change (defined below) by the Special Committee in compliance with the Merger Agreement);

 

 

the Special Committee had the authority to reject any transaction proposed by Purchaser and Merger Subsidiary;

 

 

the terms of the Merger Agreement do not contain a financing contingency, which Purchaser and Merger Subsidiary believe is favorable to ChyronHego’s shareholders;

 

 

the fact that ChyronHego and its subsidiaries and their respective representatives had the right during the go-shop period to initiate, solicit and encourage or otherwise knowingly facilitate alternative acquisition proposals from third parties (or offers, proposals inquiries or indications of interest or other efforts or attempts that could potentially lead to acquisition proposals) and enter into and maintain or continue discussions or negotiations with respect to potential acquisition proposals (or offers, proposals, inquiries or indications of interest or other efforts or attempts that could potentially lead to acquisition proposals), or otherwise cooperate with, or assist or participate in, or facilitate, any such inquiries, proposals, discussions or negotiations, subject to specific conditions, and after such go-shop period, the Special Committee, in the exercise of its fiduciary duties in accordance with the Merger Agreement, can authorize ChyronHego’s management to provide information to and can engage in negotiations with a third party following receipt of a proposal or offer that ChyronHego’s board (or the Special Committee) believes in good faith is reasonably likely to lead to a superior proposal in the manner provided in the Merger Agreement, subject to specified conditions;

 

 

the fact that ChyronHego’s Board or the Special Committee, in the exercise of its fiduciary duties in accordance with the Merger Agreement, can terminate the Merger Agreement following receipt of a bona fide written superior proposal, or an intervening event, in the manner provided in the Merger Agreement, subject to specified conditions, including the payment of a termination fee;

 

 

the fact that the $2.82 per share to be paid in cash for each share of Company common stock (other than the Rollover Shares) represented a premium of approximately 18% over the average closing price of the common stock for the six months ended on November 14, 2014, and a premium of approximately 230% to the closing price of ChyronHego common stock on March 8, 2013, the day prior to the announcement of the merger between its predecessor Chyron Corporation and Hego AB. While the Purchaser and Merger Subsidiary acknowledge that ChyronHego had evolved into a different entity from its predecessor company, Chyron Corporation, since the time of the merger with Hego, the Purchaser and Merger Subsidiary nevertheless note the $2.82 per share price as compared to the closing price of Chyron Corporation on March 8, 2013, primarily as an indicator of the response to the improvements that had been made to the underlying business of Chyron Corporation since the time of its merger with Hego, and the contributions that had been made to developing that business by Mr. Apel and the management team he had brought in to ChyronHego following the merger with Hego. References to ChyronHego prior to the completion of the merger of Chyron Corporation and Hego AB, which took place on May 22, 2013, are solely to the predecessor company, Chyron Corporation. Further, such price represented a premium of approximately 4% over the closing price of the common stock on November 14, 2014, after a significant increase in the stock price in recent months; and


 

the other factors referred to above as having been taken into account by the Special Committee and ChyronHego’s board, which Purchaser and Merger Subsidiary adopt as their own, as described above under “Special Factors — Reasons for the Merger” starting at page 16).

 

In addition, Purchaser and Merger Subsidiary considered, and gave substantial weight to, the following procedural safeguards in Purchaser and Merger Subsidiary’s determination that the terms and conditions of the Merger were procedurally fair to ChyronHego’s unaffiliated shareholders:

 

 

the Special Committee and outside legal counsel negotiated all financial and other terms and conditions of the Merger Agreement with Purchaser and Merger Subsidiary and its counsel, with the Special Committee benefiting from the advice of its independent financial advisor. Purchaser and Merger Subsidiary did not participate in the deliberations of the Special Committee or ChyronHego’s board;

 

 

the Special Committee unanimously concluded that the Merger is fair to and in the best interests of ChyronHego’s unaffiliated shareholders, approved the Merger Agreement and the Merger and recommended to ChyronHego’s board that ChyronHego’s board approve the Merger Agreement and that the Merger Agreement be submitted to ChyronHego’s shareholders for adoption;

 

 

the Special Committee had the authority to reject the transaction proposed by Purchaser and Merger Subsidiary;

 

 
26

 

 

 

the fact that ChyronHego and its subsidiaries and their respective representatives had the right during the go-shop period to initiate, solicit and encourage or otherwise knowingly facilitate alternative acquisition proposals from third parties (or offers, proposals inquiries or indications of interest or other efforts or attempts that could potentially lead to acquisition proposals) and enter into and maintain or continue discussions or negotiations with respect to potential acquisition proposals (or offers, proposals, inquiries or indications of interest or other efforts or attempts that could potentially lead to acquisition proposals), or otherwise cooperate with, or assist or participate in, or facilitate, any such inquiries, proposals, discussions or negotiations, subject to specific conditions, and after such go-shop period, the Special Committee, in the exercise of its fiduciary duties in accordance with the Merger Agreement, can authorize ChyronHego’s management to provide information to and can engage in negotiations with a third party following receipt of a proposal or offer that ChyronHego’s board (or the Special Committee thereof) believes in good faith is reasonably likely to lead to a superior proposal in the manner provided in the Merger Agreement, subject to specified conditions;

 

 

the fact that ChyronHego’s board or the Special Committee, in the exercise of its fiduciary duties in accordance with the Merger Agreement, can terminate the Merger Agreement following receipt of a bona fide written superior proposal, or an intervening event, in the manner provided in the Merger Agreement, subject to specified conditions, including the payment of a termination fee; and

 

 

the fact that the Voting Agreement terminates if the Merger Agreement is terminated in accordance with its terms (including termination by ChyronHego in connection with a superior proposal or an Adverse Recommendation Change (defined below) by the Special Committee in compliance with the Merger Agreement).

 

Purchaser and Merger Subsidiary also considered the interests of ChyronHego’s directors and executive officers, including Rollover Holders who are directors and executive officers, in the Merger which existed as of November 17, 2014, by reviewing a summary of the ownership interests of ChyronHego’s executive officers and directors and considering the proposed treatment of such ownership interests in the proposed transaction, which interests are described below under “Special Factors — Interests of ChyronHego’s Directors and Executive Officers in the Merger,” and the other risks and potentially negative factors identified under “— Purposes and Reasons for the Merger of Purchaser.”  

 

Purchaser and Merger Subsidiary have considered all of the foregoing factors as a whole to support their belief that the proposed Merger is substantively and procedurally fair to ChyronHego’s unaffiliated shareholders. In view of the number and wide variety of factors considered in connection with making a determination as to the fairness of the proposed Merger to ChyronHego’s shareholders, and the complexity of these matters, Purchaser and Merger Subsidiary did not find it practicable to, nor did they attempt to, quantify, rank or otherwise assign relative weights to the specific factors they considered. Moreover, Purchaser and Merger Subsidiary have not undertaken to make any specific determination to assign any particular weight to any single factor, but have conducted an overall analysis of the factors described above. Purchaser and Merger Subsidiary did not engage a financial advisor for purposes of undertaking a formal evaluation of the fairness of the Merger to ChyronHego’s shareholders.

 

Purchaser and Merger Subsidiary did not consider whether the Merger Consideration constitutes fair value in relation to ChyronHego’s liquidation value, did not give consideration to ChyronHego’s book value, and did not attempt to calculate a specific going concern value, because they believed that those measures of asset value do not reflect, or have any meaningful impact on, the market value of ChyronHego common stock. In addition, the liquidation value of ChyronHego’s assets was not considered to be a material factor from the perspective of Purchaser and Merger Subsidiary because they believe that substantial value results from continuing ChyronHego as a going concern and any liquidation would destroy that value. Therefore, no appraisal of the liquidation value was attempted. Purchaser and Merger Subsidiary have not previously purchased shares of ChyronHego common stock.  

 

Purchaser and Merger Subsidiary believe that the factors discussed above provide a reasonable basis for their belief that the Merger is fair to ChyronHego’s unaffiliated shareholders. This belief should not, however, be construed as a recommendation to any shareholder to vote to approve the Merger Agreement. Purchaser and Merger Subsidiary do not make any recommendation as to how ChyronHego’s shareholders should vote their shares relating to the Merger or any related transaction. The foregoing discussion of the information and factors considered by Purchaser and Merger Subsidiary is not intended to be exhaustive but includes all material factors.

 

Purposes and Reasons of the Rollover Holders for the Merger and Position of the Rollover Holders as to the Fairness of the Merger

 

The Rollover Holders believe that ChyronHego is well situated in its current segment of the market, but faces substantial execution risk in the near term if it were to remain independent as detailed elsewhere in this proxy statement as described under the caption “Special Factors — Reasons for the Merger.” The Rollover Holders believe that this execution risk could be mitigated, and ChyronHego’s long-term market growth potential could be better realized, as a private company, particularly if it had the resources and support to pursue growth initiatives both organically and through strategic acquisitions.

 

The Rollover Holders believe that as a private company, ChyronHego could operate more efficiently and effectively. Operating as a public company entails substantial expense, which has been significantly increased by requirements arising from the Sarbanes-Oxley Act of 2002. The Rollover Holders believe that other improvements to ChyronHego’s long-term and strategic direction could be achieved, free of the market pressures imposed on a publicly traded company with quarterly reporting obligations. In addition, the Rollover Holders considered what it believed were competitive advantages of ChyronHego no longer being a public company, including less transparency to competitors and greater access to capital resources to capitalize on market opportunities, if any. Further, the Rollover Holders believe that the acquisition by Virzt Ltd., ChyronHego’s largest competitor, as announced on November 10, 2014, will create a significantly well-capitalized competitor in an already highly competitive market for ChyronHego’s products and services, against which ChyronHego would find it extremely challenging to compete as an independent entity. Accordingly, the Rollover Holders have undertaken to pursue the transaction at this time for the reasons described above.

 

The purposes of the Merger for the Rollover Holders are to: (i) enable ChyronHego’s shareholders to realize a premium on their shares of ChyronHego common stock (including 8,853,725 shares beneficially owned by the Rollover Holders which are not Rollover Shares as of January 26, 2015) based on the closing price of shares of ChyronHego common stock on November 14, 2014, and (ii) retain an indirect equity interest in ChyronHego through the exchange of the Rollover Shares for equity interests of Purchaser, and to continue bearing the rewards and risks of such ownership after shares of ChyronHego common stock cease to be publicly traded. If the Merger is completed, in addition to exchanging the Rollover Shares for equity interests in Purchaser, the Rollover Holders will also receive $2.82 per share for the remaining 8,853,725 shares of ChyronHego common stock they beneficially own. In addition, the Rollover Holders considered the potential tax effects of structuring the transaction as a rollover. Purchaser and the Rollover Holders structured the transaction as a rollover to attempt to minimize the tax burden with respect to the illiquid stock received by the Rollover Holders in the transaction.

 

 
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In addition, Mr. Apel and Mr. Kjellin, who are both Rollover Holders, will continue to be employed by ChyronHego after completion of the Merger under the terms of employment agreements by and between each of Messrs. Apel and Kjellin and ChyronHego dated November 17, 2014. See “Special Factors – Interests of ChyronHego’s Directors and Executive Officers in the Merger – Employment Agreements.”

 

The rules of the SEC governing “going private” transactions require the Rollover Holders to express their belief as to the fairness of the Merger to unaffiliated shareholders of ChyronHego. The Rollover Holders did not engage a financial advisor to undertake a formal evaluation of the fairness of the proposed Merger to ChyronHego’s unaffiliated shareholders. The Rollover Holders are making the statements included in this section solely for purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of the Rollover Holders should not be construed as a recommendation as to whether any ChyronHego shareholder should adopt the Merger Agreement.

 

The unaffiliated shareholders of ChyronHego were, as described elsewhere in this proxy statement, represented by the Special Committee which negotiated with certain representatives of Purchaser and Merger Subsidiary, with the assistance of outside legal counsel and independent financial advisors. The Rollover Holders were not members of, and did not participate in the deliberations of, the Special Committee. The Merger is structured to require the approval of at least a majority of ChyronHego’s shareholders other than Purchaser, Merger Subsidiary, the Guarantors and the Rollover Holders, which the Rollover Holders viewed as a positive factor in assessing the procedural fairness of the Merger.

 

In addition, the following procedural safeguards were considered, and given substantial weight, in the Rollover Holders’ determination that the terms and conditions of the Merger were procedurally fair to ChyronHego’s unaffiliated shareholders: the fact that the Special Committee was advised by outside legal counsel and an independent financial advisor in relation to the Merger; the fact that the Special Committee and its advisors took an active role in the negotiations with Vector Capital in the sales process and had exclusive authority to review, evaluate and negotiate the terms of the transaction; the fact that the Rollover Holders did not participate in the negotiations with Vector Capital regarding the terms of the Merger Agreement; the terms of the Merger Agreement detailed below, including the fact that the Special Committee can engage in negotiations with a third party under certain circumstances; and the fact the Merger Agreement can be terminated following receipt of a bona fide written superior proposal subject to the payment of a fee as described below.

 

In connection with the Merger, the Rollover Holders have agreed to contribute, immediately prior to the effective time of the Merger, 8,258,706 Rollover Shares, which will be valued at $2.82 per share, and in exchange for the Rollover Shares, the Rollover Holders will receive equity interests in Purchaser valued at approximately $23.3 million, in the aggregate. The remaining 8,853,725 shares of ChyronHego common stock owned by the Rollover Holders as of January 26, 2015 will be cashed out in the Merger at $2.82 per share (or a total of approximately $25.0 million).

 

The Rollover Holders believe that the terms and conditions of the Merger are substantively and procedurally fair to ChyronHego’s unaffiliated shareholders. In making this determination, the Rollover Holders considered among others, the following factors:

 

 

the Special Committee unanimously concluded that the Merger is fair to and in the best interests of ChyronHego’s unaffiliated shareholders, approved the Merger Agreement and the Merger and recommended to ChyronHego’s board that it approve the Merger Agreement and that the Merger Agreement be submitted to ChyronHego’s shareholders for adoption;

 

 

the Special Committee was advised by outside legal counsel and an independent financial advisor in relation to the Merger;

 

 

ChyronHego’s board unanimously approved the Merger Agreement and recommended that the Merger Agreement be submitted to ChyronHego’s shareholders for adoption;

 

 

the fact that, although the Rollover Holders are not entitled to rely on it, the Special Committee received an opinion from the Special Committee’s independent financial advisor, Duff & Phelps, to the effect that, as of the date of the opinion and subject to various assumptions, qualifications, limitations and other matters set forth therein, the consideration to be received by the shareholders (other than the Rollover Holders) in the proposed Merger pursuant to the Merger Agreement was fair to such shareholders from a financial point of view. The Duff & Phelps opinion addressed the fairness, from a financial point of view, of the Merger Consideration to be received by ChyronHego shareholders (other than the Rollover Holders), which is a distinct population of ChyronHego shareholders from all shareholders who are unaffiliated with ChyronHego, and includes shareholders who are affiliates of ChyronHego but who are not Rollover Holders. The unaffiliated shareholders of ChyronHego who are not Rollover Holders will also receive $2.82 per share in Merger Consideration in the transaction, which is the same Merger Consideration to be received by ChyronHego affiliates who are not Rollover Holders, such as the ChyronHego directors other than Mr. Apel. Thus, the Rollover Holders did not believe that there was any difference between the fairness, from a financial point of view, of the Merger Consideration to be received by ChyronHego shareholders (other than the Rollover Holders) and the Merger Consideration to be received by the unaffiliated shareholders of ChyronHego, and that as such they could consider the Duff & Phelps opinion as a relevant factor in their own conclusion that the Merger was substantively and procedurally fair to ChyronHego’s unaffiliated shareholders.

 

 

the fact that the Merger would be subject to the approval of the holders of two-thirds of the outstanding shares of ChyronHego common stock as well as the approval of a majority of holders of the outstanding shares of ChyronHego common stock, not including shares owned by Purchaser, Merger Subsidiary, the Guarantors or the Rollover Holders;

 

  the fact that the shareholder approval pursuant to the Voting Agreement is not sufficient to approve the Merger and that the Voting Agreement terminates if the Merger Agreement is terminated in accordance with its terms (including termination by ChyronHego in connection with a superior proposal or an Adverse Recommendation Change by the Special Committee in compliance with the Merger Agreement);

 

 

the Special Committee had the authority to reject any transaction proposed by Purchaser and Merger Subsidiary;

  

 
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the terms of the Merger Agreement do not contain a financing contingency, which the Rollover Holders believe is favorable to ChyronHego’s shareholders given the current market conditions;

 

 

the fact that ChyronHego and its subsidiaries and their respective representatives had the right during the go-shop period to initiate, solicit and encourage or otherwise knowingly facilitate alternative acquisition proposals from third parties (or offers, proposals inquiries or indications of interest or other efforts or attempts that could potentially lead to acquisition proposals) and enter into and maintain or continue discussions or negotiations with respect to potential acquisition proposals (or offers, proposals, inquiries or indications of interest or other efforts or attempts that could potentially lead to acquisition proposals), or otherwise cooperate with, or assist or participate in, or facilitate, any such inquiries, proposals, discussions or negotiations, subject to specific conditions, and after such go-shop period, the Special Committee, in the exercise of its fiduciary duties in accordance with the Merger Agreement, can authorize ChyronHego’s management to provide information to and can engage in negotiations with a third party following receipt of a proposal or offer that ChyronHego’s board (or the Special Committee) believes in good faith is reasonably likely to lead to a superior proposal in the manner provided in the Merger Agreement, subject to specified conditions;

 

 

the fact that ChyronHego’s board or the Special Committee, in the exercise of its fiduciary duties in accordance with the Merger Agreement, can terminate the Merger Agreement following receipt of a bona fide written superior proposal, or an intervening event, in the manner provided in the Merger Agreement, subject to specified conditions, including the payment of a termination fee;

 

 

the fact that the $2.82 per share to be paid in cash for each share of Company common stock (other than the Rollover Shares) represented a premium of approximately 18% over the average closing price of the common stock for the six months ended on November 14, 2014, and a premium of approximately 230% to the closing price of ChyronHego common stock on March 8, 2013, the day prior to the announcement of the merger between its predecessor Chyron Corporation and Hego AB. While the Rollover Holders acknowledge that ChyronHego had evolved into a different entity from its predecessor company, Chyron Corporation, since the time of the merger with Hego, the Rollover Holders nevertheless note the $2.82 per share price as compared to the closing price of Chyron Corporation on March 8, 2013, primarily as an indicator of the response to the improvements that had been made to the underlying business of Chyron Corporation since the time of its merger with Hego, and the contributions that had been made to developing that business by Mr. Apel and the management team he had brought in to ChyronHego following the merger with Hego. References to ChyronHego prior to the completion of the merger of Chyron Corporation and Hego AB, which took place on May 22, 2013, are solely to the predecessor company, Chyron Corporation. Further, that such price represented a premium of approximately 4% over the closing price of the common stock on November 14, 2014, after a significant increase in the stock price in recent months; and

 

 

the other factors referred to above as having been taken into account by the Special Committee and ChyronHego’s board, which the Rollover Holders adopt as their own, as described above under “Special Factors— Reasons for the Merger”).

 

In addition, the Rollover Holders considered, and gave substantial weight to, the following procedural safeguards in the Rollover Holders’ determination that the terms and conditions of the Merger were procedurally fair to ChyronHego’s unaffiliated shareholders:

 

 

the Special Committee and outside legal counsel negotiated all financial and other terms and conditions of the Merger Agreement with Purchaser and Merger Subsidiary and its counsel, with the Special Committee benefiting from the advice of its independent financial advisor. The Rollover Holders did not participate in the deliberations of the Special Committee;

 

 

the Special Committee unanimously concluded that the Merger is fair to and in the best interests of ChyronHego’s unaffiliated shareholders, approved the Merger Agreement and the Merger and recommended to ChyronHego’s board that it approve the Merger Agreement and that the Merger Agreement be submitted to ChyronHego’s shareholders for adoption;

 

 

the Special Committee had the authority to reject the transaction proposed by Purchaser and Merger Subsidiary;

 

 

the fact that ChyronHego and its subsidiaries and their respective representatives had the right during the go-shop period to initiate, solicit and encourage or otherwise knowingly facilitate alternative acquisition proposals from third parties (or offers, proposals inquiries or indications of interest or other efforts or attempts that could potentially lead to acquisition proposals) and enter into and maintain or continue discussions or negotiations with respect to potential acquisition proposals (or offers, proposals, inquiries or indications of interest or other efforts or attempts that could potentially lead to acquisition proposals), or otherwise cooperate with, or assist or participate in, or facilitate, any such inquiries, proposals, discussions or negotiations, subject to specific conditions, and after such go-shop period, the Special Committee, in the exercise of its fiduciary duties in accordance with the Merger Agreement, can authorize ChyronHego’s management to provide information to, and can engage in negotiations with a third party following receipt of a proposal or offer that ChyronHego’s board (or the Special Committee thereof) believes in good faith is reasonably likely to lead to a superior proposal in the manner provided in the Merger Agreement, subject to specified conditions;

 

 

the fact that ChyronHego’s board or the Special Committee, in the exercise of its fiduciary duties in accordance with the Merger Agreement, can terminate the Merger Agreement following receipt of a bona fide written superior proposal, or an intervening event, in the manner provided in the Merger Agreement, subject to specified conditions, including the payment of a termination fee; and

 

 

the fact that the Voting Agreement terminates if the Merger Agreement is terminated in accordance with its terms (including termination by ChyronHego in connection with a superior proposal or an Adverse Recommendation Change by the Special Committee in compliance with the Merger Agreement).

 

The Rollover Holders also considered the interests of ChyronHego’s directors and executive officers, including Rollover Holders who are directors and executive officers, in the Merger which existed as of November 17, 2014, by reviewing the ownership interests of ChyronHego’s executive officers and directors and considering the proposed treatment of such ownership interests in the proposed transaction, which interests are described below under “Special Factors — Interests of ChyronHego’s Directors and Executive Officers in the Merger,” and the other risks and potentially negative factors identified under “Special Factors — Purposes and Reasons for the Merger of Purchaser.”

  

 
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The Rollover Holders have considered all of the foregoing factors as a whole to support their belief that the proposed Merger is substantively and procedurally fair to ChyronHego’s unaffiliated shareholders. In view of the number and wide variety of factors considered in connection with making a determination as to the fairness of the proposed Merger to the unaffiliated shareholders of ChyronHego, and the complexity of these matters, the Rollover Holders did not find it practicable to, nor did they attempt to, quantify, rank or otherwise assign relative weights to the specific factors they considered. Moreover, the Rollover Holders have not undertaken to make any specific determination to assign any particular weight to any single factor, but have conducted an overall analysis of the factors described above. The Rollover Holders did not engage a financial advisor for purposes of undertaking a formal evaluation of the fairness of the Merger to ChyronHego’s unaffiliated shareholders.

 

The Rollover Holders did not consider whether the Merger Consideration constitutes fair value in relation to ChyronHego’s liquidation value, did not give consideration to ChyronHego’s book value, and did not attempt to calculate a specific going concern value, because they believed that those measures of asset value do not reflect, or have any meaningful impact on, the market value of ChyronHego common stock. In addition, the liquidation value of ChyronHego’s assets was not considered to be a material factor from the perspective of the Rollover Holders because they believe that substantial value results from continuing ChyronHego as a going concern and any liquidation would destroy that value. Therefore, no appraisal of the liquidation value was attempted. Nonetheless, the Rollover Holders note that ChyronHego’s net book value per share was approximately $0.77 as of September 30, 2014. The Merger Consideration represents a premium of 266% to net book value per share as of September 30, 2014.  

 

The Rollover Holders believe that the factors discussed above provide a reasonable basis for their belief that the Merger is fair to ChyronHego’s unaffiliated shareholders. This belief should not, however, be construed as a recommendation to any shareholder to vote to approve the Merger Agreement. The Rollover Holders do not make any recommendation as to how ChyronHego’s shareholders should vote their shares relating to the Merger or any related transaction. The foregoing discussion of the information and factors considered by the Rollover Holders is not intended to be exhaustive but includes all material factors.

 

Purposes and Plans for ChyronHego After the Merger

 

The purpose of the Merger is to enable ChyronHego’s shareholders (other than the Rollover Holders with respect to the Rollover Shares) to immediately realize the value of their investment in ChyronHego through their receipt of the per share Merger Consideration of $2.82 in cash. We expect that, upon consummation of the Merger, the operations of ChyronHego will be conducted substantially as they currently are being conducted except that ChyronHego will not be subject to the obligations and constraints, and the related direct and indirect costs and personnel requirements, associated with being a public company.

 

At the effective time of the Merger, the directors of Merger Subsidiary immediately prior to the effective time of the Merger will be directors of the surviving corporation. It is further contemplated that the officers of ChyronHego immediately prior to the effective time of the Merger will be the initial officers of the surviving corporation.

 

Purchaser does not have any current plans or proposals that relate to, or would result in, an extraordinary corporate transaction following completion of the Merger involving ChyronHego’s corporate structure, business or management, such as a merger, reorganization, liquidation, relocation of any operations or sale or transfer of a material amount of assets. Purchaser expects, however, that following the Merger, ChyronHego’s management will evaluate and review ChyronHego’s business and operations and may develop new plans and proposals that they consider appropriate to maximize the value of ChyronHego after the Merger. Purchaser expressly reserves the right to make any changes it deems appropriate in light of its evaluation and review or in light of future developments.

 

Limited Guarantee of Payment of Reverse Termination Fee

 

Pursuant to a Limited Guarantee by Vector Capital IV International, L.P. and Vector Entrepreneur Fund III, L.P. (the “Guarantors”) in favor of ChyronHego, the Guarantors, severally and not jointly, have guaranteed their respective portion (98.2% for Vector Capital IV International, L.P. and 1.8% for Vector Entrepreneur Fund III, L.P.) of Purchaser’s obligation to pay a reverse termination fee of $6.3 million to ChyronHego in the event that ChyronHego terminates the Merger Agreement due to a breach of any representation or warranty or failure to perform any covenant by Purchaser or Merger Subsidiary under the Merger Agreement, which breach could cause certain conditions to the closing not to be satisfied; and, provided, that, there are no facts or circumstances (other than Purchaser or Merger Subsidiary’s breach of its agreements or representations) that would cause the conditions to closing to not be satisfied on or prior to May 16, 2015. This guarantee will terminate upon the earlier of the effective time of the Merger or the termination of the Merger Agreement (or 180 days after a termination of the Merger Agreement in which Purchaser is required to pay the reverse termination fee, if ChyronHego fails to present a claim or commence any action for payment of such fee).

 

Financing

 

The Merger is not conditioned on Purchaser’s ability to obtain financing. Purchaser expects to fund the Merger Consideration with a combination of equity financing to be provided by the Guarantors, which are affiliates of Vector Capital, and debt financing to be provided by one or more groups of lenders, if available, and available cash balances of ChyronHego.

 

In connection with the Merger, Purchaser expects that the total amount of funds necessary to consummate the Merger and the related transactions is approximately $129.6 million, which includes $96.8 million to be paid out to ChyronHego’s shareholders (other than to the Rollover Holders in respect of the Rollover Shares) and holders of ChyronHego’s options, warrants and restricted stock units, with the remainder to be applied to pay related fees and expenses in connection with the Merger, any financing arrangements and related transactions. This amount is expected to come from a combination of debt financing to be provided by one or more groups of lenders, equity contributions by the Guarantors and Rollover Holders, and ChyronHego’s cash, cash equivalents and marketable securities on hand. As of December 31, 2014, we had approximately $5.4 million in cash and cash equivalents.

 

Equity Financing

 

As discussed above, the Guarantors have committed to contribute approximately $49.3 million to Purchaser to pay the aggregate Merger Consideration and related expenses. Such commitment is subject to the substantially contemporaneous contribution of the Rollover Shares to Purchaser by the Rollover Holders pursuant to the Rollover Agreements, the substantially contemporaneous funding of their respective portion of the debt financing by the lenders under the Debt Commitment Letter, defined below (or replacement debt commitment letter, if any), and the satisfaction of conditions precedent to Purchaser’s and Merger Subsidiary’s obligations under the Merger Agreement.

  

 
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Debt Financing

 

Merger Subsidiary has received a commitment letter, dated November 17, 2014 (the “Debt Commitment Letter”), from Silicon Valley Bank (“SVB”) and Apollo Investment Corporation (“Apollo,” and together with SVB, the “Lenders”), to provide the following debt financing to Merger Subsidiary, initially, and the surviving corporation, as borrower, immediately following the Merger, subject to the conditions described below:

 

 

a $50 million senior secured term loan, which we refer to as the term facility, for the purpose of financing the Merger, repay any existing indebtedness of ChyronHego and its subsidiaries, and paying fees and expenses incurred in connection with the Merger and the financing. The term facility will be secured by the assets and any intercompany debt of Purchaser, ChyronHego, Vector CH (Lux) 1, S.a r.l (a subsidiary of Purchaser) and certain subsidiaries specified as “guarantors” under the Debt Commitment Letter and a pledge of the capital stock of the surviving corporation to the Merger, Vector CH (Lux) 1, S.a r.l (a subsidiary of Purchaser) and ChyronHego’s subsidiaries, in each case, subject to certain exceptions for foreign subsidiaries. The loans under the term facility are expected to bear interest, at the surviving company’s option, at either (i) the Eurodollar Base Rate plus 5.625% (subject to a 1.0% floor with respect to the Eurodollar Base Rate), or (ii) at the Adjusted Base Rate (defined as the highest of (w) 2.75% of (x) the Wall Street Journal Prime Rate and (y) the Federal Funds Rate plus 0.50%) plus 3.875%, and will have a five year term.


 

Up to $7 million of senior secured revolving credit loans, which we refer to as the revolving credit facility, to be used for financing working capital and capital expenditures and other general corporate purposes. The revolving credit facility will be secured by the assets and any intercompany debt of Purchaser, ChyronHego, Vector CH (Lux) 1, S.a r.l (a subsidiary of Purchaser) and certain subsidiaries of ChyronHego specified as “guarantors” under the Debt Commitment Letter and a pledge of the capital stock of the surviving corporation to the Merger, Vector CH (Lux) 1, S.a r.l (a subsidiary of Purchaser) and ChyronHego’s subsidiaries, in each case, subject to certain exceptions for foreign subsidiaries. The loans under the revolving credit facility are expected to bear interest, at the surviving company’s option, at either (i) the Eurodollar Base Rate plus 5.625% (subject to a 1.0% floor with respect to the Eurodollar Base Rate ), or (ii) at the Adjusted Base Rate (defined as the highest of (w) 2.75% of (x) the Wall Street Journal Prime Rate and (y) the Federal Funds Rate plus 0.50%) plus 3.875%, and will have a five year term.

 

The credit facilities described above will be guaranteed on a joint and several basis by Purchaser, ChyronHego, Vector CH (Lux) 1, S.a r.l. (a subsidiary of Purchaser) and ChyronHego’s subsidiaries, subject to certain exceptions for foreign subsidiaries.

 

Conditions Precedent to the Debt Commitment

 

Under the Debt Commitment Letter, the availability of the credit facilities is subject to ordinary documentation conditions and the satisfaction or waiver of the following conditions precedent:

 

 

the accuracy of representations and warranties made by ChyronHego in the Merger Agreement as are material to the interests of the Lenders, but only to the extent that Merger Subsidiary (or any of its affiliates) has the right to terminate its obligations under the Merger Agreement as a result of a breach of such representations in the Merger Agreement;

 

 

the accuracy of representations made by the borrower or guarantors in the loan documentation relating to incorporation or formation; organizational power and authority; due execution, delivery, validity and enforceability of the loan documents; solvency of Purchaser and its subsidiaries on a consolidated basis; no conflicts in the loan documentation with charter documents; Federal Reserve margin regulations; the Investment Company Act of 1940, as amended; the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, anti-terrorism laws and other laws applicable to sanctioned persons (including the Office of Foreign Assets Control); use of proceeds; and the creation, perfection and first priority status of the security interests (subject to customary permitted liens) granted in Uniform Commercial Code Article 9 collateral; and

 

 

there shall not have occurred any event, occurrence, revelation or development of a state of circumstances or facts which, individually or in the aggregate, has had or would reasonably be expected to have a “material adverse effect” (as defined in the Merger Agreement) on ChyronHego.

 

In addition to the foregoing conditions, we expect the loan documentation to contain other customary corporate and other conditions, including the following:

 

 

receipt of customary filings, lien searches and certificates of insurance;

 

 

receipt of satisfactory opinions of counsel with respect to the loan documentation;

 

 

repayment of ChyronHego’s existing credit facilities;

 

 

subject to certain exceptions, satisfactory evidence of a valid and perfected security interest in the collateral described above granted to SVB as administrative agent or the other secured parties;

 

 

receipt of historical and pro forma consolidated financial statements giving effect to the Merger, and forecasts prepared by management of ChyronHego;

 

 

receipt of a certification regarding the financial condition and solvency of Purchaser and its subsidiaries;

  

 
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the Merger shall have been consummated in accordance with the terms of the Merger Agreement;

 

 

the Lenders shall be satisfied that the Merger Subsidiary shall have received a capital contribution of at least $70.0 million in equity (of which up to $30.0 million may be roll-over equity) from Vector Capital (through Purchaser);

 

 

Purchaser shall have cash and cash equivalents of not less than $2.0 million;

 

 

payment of accrued fees and expenses of SVB and Apollo;

 

 

the receipt by SVB and Apollo of information requested for applicable Patriot Act and Bank Secrecy Act requirements.

 

The credit facilities will contain customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, acquisitions, investments, mergers and other fundamental changes, sales and other dispositions of property or assets, changes in the nature of the business, transactions with affiliates, burdensome agreements, use of proceeds, sale leasebacks, amendments of organizational documents, changes in fiscal year, hedging obligations, prepayments of certain indebtedness, or modification or termination of the documents related to the equity and debt financing of the Merger and certain other indebtedness, designation of other senior debt, and changes in the activities of Purchaser. The credit facilities will also include customary events of default, including a change of control default. There is no current plan or arrangement to finance or repay the credit facilities.

 

The term facility is subject to quarterly amortization payments of 0.625% of the original principal amount, with any remaining principal amount to be paid at maturity.

 

The obligations of the Lenders to provide financing under the Debt Commitment Letter expire on May 16, 2015. The legal and financing fees estimated to be paid for the debt financing are approximately $2,255,000.

 

The documentation governing the credit facilities has not been finalized and, accordingly, the actual terms may differ from those described in this proxy statement. In addition, Purchaser may obtain financing from different sources in amounts and on terms that may vary from those described herein.

 

Estimated Fees and Expenses

 

Except as set forth below, ChyronHego will not pay any fees or commissions to any broker, dealer or other person in connection with the Merger. Upon termination of the Merger Agreement under specified circumstances, ChyronHego will be required to pay Purchaser a termination fee. If the termination fee becomes payable as a result of ChyronHego terminating the Merger Agreement in order to enter into a definitive agreement concerning a Superior Proposal, the amount of the termination fee would have been $1.8 million if the termination occurred on or before the end of the go-shop period and will be $4.2 million if the termination occurs after the end of the go-shop period. If the termination fee becomes payable in other circumstances, the amount of the termination fee will be $4.2 million.

 

The following is an estimate of fees and expenses to be incurred by ChyronHego in connection with the Merger, excluding any potential litigation or litigation-related fees, costs and expenses:

 

Legal

  $ 1,400,000*  

Financial Advisors

    426,000  

Accounting Fees

    25,000  
Proxy Solicitation     10,000  

Printing and Mailing

    80,000  

SEC Filing Fees

    11,243  

Paying Agent

    40,000  

Miscellaneous

    7,757  

Total

  $ 2,000,000  

 

*Includes approximately $220,000 payable by ChyronHego for Mr. Apel’s legal fees and expenses in connection with the Merger. The Special Committee and the Board deemed it appropriate to reimburse Mr. Apel for his legal fees and expenses in connection with the transaction, which were incurred by him in connection with the rollover and his employment agreement, because the Special Committee and the Board viewed those fees and expenses as a necessary cost of completing a transaction that they each believed to be in the best interests of ChyronHego shareholders.

 

None of the costs and expenses described above will reduce the $2.82 per share Merger Consideration payable to ChyronHego’s shareholders (other than the Rollover Holders with respect to the Rollover Shares).

 

ChyronHego has not retained Duff & Phelps to provide any services, in the past or the future, other than those services described in this proxy statement with respect to the Merger.

 

Rollover Agreements

 

Each of the Rollover Holders has entered into a Rollover Agreement with Purchaser dated November 17, 2014 in which such Rollover Holder has agreed to contribute to Purchaser, immediately prior to the effective time of the Merger, the Rollover Shares, representing up to 50% of the shares held by such Rollover Holders (excluding stock options and warrants and shares issuable upon exercise of stock options and warrants) in exchange for equity interests of Purchaser, as more fully described elsewhere in this proxy statement. The Rollover Agreements also contain customary representations and warranties of both Purchaser and the Rollover Holders.

 

 
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Voting Agreement

 

The Voting Parties have executed and delivered a Voting Agreement dated November 17, 2014 in which each Voting Party has agreed to vote shares owned by them (20,152,594 shares as of the record date of January 5, 2015, or approximately 49.9% of ChyronHego’s outstanding common stock as of January 5, 2015) plus any additional shares of ChyronHego common stock subsequently acquired by the Voting Parties, whether through the exercise of options to purchase an aggregate of 2,686,755 shares of ChyronHego common stock (which are exercisable with respect to 1,422,168 shares within 60 days of the record date), any shares of common stock issuable upon vesting of restricted stock units (all of which shares had vested prior to the record date), in favor of the adoption of the Merger Agreement and approval of the Merger and all other transactions contemplated by the Merger Agreement, against any transaction or proposal that would result in a breach of the Merger Agreement or could result in the conditions under the Merger Agreement not being fulfilled, and in favor of any other matter necessary to consummate the Merger, and grants Purchaser a proxy to vote such shares in favor of the Merger in the event such Voting Party fails to do so. Each Voting Party also agreed not to dispose of any of his or her shares of ChyronHego common stock, other than to immediate family members or for estate planning purposes, and not to solicit or participate in any discussions or negotiations regarding any unsolicited proposal that constitutes or may reasonably be expected to lead to a Superior Proposal, other than activities in such person’s capacity as a director or executive officer of ChyronHego as permitted by the Merger Agreement. The Voting Agreement terminates upon the effective time of the Merger, if the Merger Agreement is terminated in accordance with its terms (including termination by ChyronHego in connection with a Superior Proposal as described under “The Merger Agreement — Termination of the Merger Agreement”), if there is an Adverse Recommendation Change (defined below) by the Special Committee in compliance with the Merger Agreement, or by mutual agreement of the parties to terminate the Voting Agreement.

 

Certain Effects of the Merger

 

If the Merger is consummated, Merger Subsidiary will be merged with and into ChyronHego, with ChyronHego continuing as the surviving corporation and a wholly owned subsidiary of Purchaser.

 

Upon the consummation of the Merger, each share of ChyronHego common stock issued and outstanding immediately prior to the effective time of the Merger (other than the Rollover Shares) will be converted into the right to receive $2.82 in cash, without interest and subject to any applicable withholding taxes. At the effective time of the Merger, each option to purchase ChyronHego common stock that has an exercise price less than $2.82 per share, whether or not exercisable or vested, shall be converted into the right to receive a cash payment equal to the excess of $2.82 per share over the exercise price per share of such stock option.

 

ChyronHego’s 1999 Incentive Compensation Plan and 2008 Long-Term Incentive Plan, as amended, shall terminate immediately prior to the effective time of the Merger.

 

As of January 26, 2015, the Rollover Holders, collectively, owned approximately 17,112,431 shares of ChyronHego common stock (excluding any options and warrants held by the Rollover Holders). These shares are worth approximately $48.3 million at $2.82 per share. The shares owned by the Rollover Holders represent approximately 42.4% of the total number of shares of ChyronHego common stock outstanding as of January 26, 2015.

 

In connection with the Merger, the Rollover Holders have agreed to contribute to Purchaser, immediately prior to the effective time of the Merger, 8,258,706 Rollover Shares, which will be valued at $2.82 per share, and in exchange for the Rollover Shares, the Rollover Holders will receive equity in Purchaser valued at approximately $23.3 million, in the aggregate, in the same class of stock, and at the same valuation, as Vector Capital’s cash investment. The remaining 8,853,725 shares of ChyronHego common stock owned by the Rollover Holders will be cashed out in the Merger at $2.82 per share (or a total of approximately $25.0 million). Accordingly, immediately following the effective time of the Merger, the Rollover Holders will receive combined equity and cash in the total value of approximately $48.3 million (excluding payments of approximately $1.8 million with respect to stock options and warrants held by the Rollover Holders), the same value as their shares of ChyronHego common stock prior to the Merger (valued at $2.82 per share).

 

Vector Capital intends to raise approximately $50.0 million in debt in connection with the Merger. Assuming the full amount is borrowed and is used to purchase common stock, then the post-closing equity value of Purchaser after the Merger will be approximately $76.1 million (determined based on the pre-Merger equity value of ChyronHego common stock, options and restricted stock reduced by the amount of the debt incurred by Purchaser in connection with the Merger) and the enterprise value will be approximately $126.1 million. To fund a portion of the Merger Consideration, Vector Capital will invest $52.8 million in Purchaser in the form of an equity contribution. The Rollover Holders’ contribution and Vector Capital’s investment in Purchaser will be made at the same valuation. As a result, immediately after the Merger, the Rollover Holders will hold equity in Purchaser valued at approximately $23.3 million (or approximately 30.6% of the total equity value of approximately $76.1 million) and Vector Capital will hold equity in Purchaser valued at approximately $52.8 million (or approximately 69.4% of the total equity value of approximately $76.1 million). The remainder of the capitalization of Purchaser will consist of $50.0 million in debt, which will not exist prior to the closing of the Merger, and which was arranged by Vector Capital (as described elsewhere in this proxy statement). If the Merger is completed, ChyronHego’s shareholders (other than the Rollover Holders) will have no interests in ChyronHego’s net book value or net earnings after the Merger. Following the Merger, the entire interest in ChyronHego’s net book value and net income will be held indirectly by Vector Capital and the Rollover Holders.

 

A primary benefit of the Merger to ChyronHego’s shareholders will be the right of such shareholders to receive a cash payment of $2.82, without interest and subject to any applicable withholding taxes, for each share of ChyronHego common stock held by such shareholders as described above. Additionally, such shareholders will avoid the risk of any possible decrease in the future earnings, growth or value of ChyronHego following the Merger. The primary detriments of the Merger to such shareholders include the lack of an interest of such shareholders in the potential future earnings or growth of ChyronHego. Additionally, the receipt of cash in exchange for shares of ChyronHego common stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes.

 

The primary benefits of the Merger to Purchaser, Vector Capital and the Rollover Holders include their right to all of the potential future earnings and growth of ChyronHego, which, if ChyronHego successfully executes its business strategies, could exceed the value of their original investment in ChyronHego. Additionally, immediately following the Merger, ChyronHego will be a private company directly owned by Purchaser and the Rollover Holders and as such will be relieved of the burdens imposed on companies with publicly traded equity, including the pressure to meet analyst forecasts and the requirements and restrictions on trading that ChyronHego’s directors, officers and beneficial owners of more than 10% of the shares of ChyronHego common stock currently face as a result of the provisions of Sections 13 and 16 of the Exchange Act. Certain of the Rollover Holders will also continue to be employees of ChyronHego. See “— Interests of ChyronHego’s Directors and Executive Officers in the Merger – Employment Agreements.”

  

 
33

 

 

The primary detriments of the Merger to Purchaser, Vector Capital and the Rollover Holders include the fact that all of the risk of any possible decrease in the earnings, growth or value of ChyronHego following the Merger will be borne by Purchaser and the Rollover Holders. Additionally, the shares of Purchaser will be illiquid, with no public trading market for such securities.

 

ChyronHego common stock is currently registered under the Exchange Act and is quoted on the NASDAQ Global Market under the symbol “CHYR.” If the Merger is completed, ChyronHego common stock will be delisted from NASDAQ and will be deregistered under the Exchange Act.

 

Interests of ChyronHego’s Directors and Executive Officers in the Merger

 

In considering the recommendation of the Special Committee and ChyronHego’s board with respect to the Merger, ChyronHego shareholders should be aware that directors and executive officers of ChyronHego have certain interests in the Merger that are different from, or in addition to, the interests of ChyronHego shareholders generally. These interests may present them with actual or potential conflicts of interest, and these interests, to the extent material, are described below. The Special Committee and ChyronHego’s board of directors were aware of these interests and considered them, among other matters, in approving the Merger Agreement and the Merger and making its recommendation that ChyronHego shareholders adopt the Merger Agreement. These interests are described below.

 

Treatment of Outstanding Equity Awards

 

Pursuant to the terms of the Merger Agreement, ChyronHego equity awards held by ChyronHego employees, including its executive officers and directors, that are outstanding immediately prior to the effective time of the Merger will be subject to the following treatment.

 

ChyronHego Stock Options

 

At the effective time of the Merger, each stock option representing the right to acquire shares of ChyronHego common stock outstanding immediately prior to the effective time that has an exercise price less than $2.82 per share, whether or not exercisable or vested, will be cancelled and converted into the right to receive a cash payment equal to the product of (1) the total number of shares of common stock subject to such stock option, multiplied by (2) an amount equal to the excess, if any, of the Merger Consideration of $2.82 per share over the exercise price per share of such stock option. Stock options where the exercise price per share is equal to or greater than the Merger Consideration of $2.82 per share will be cancelled for no consideration and will have no further force or effect from and after the effective time of the Merger.

 

The following table shows, for each executive officer and each director, as applicable, as of January 26, 2015, (a) the number of shares subject to vested stock options held by such person, (b) the cash consideration that such person will receive for such vested stock options as a result of the Merger, (c) the number of shares subject to unvested stock options held by such person, (d) the cash consideration that such person will receive for such unvested stock options at the effective time of the Merger, (e) the aggregate number of shares subject to vested stock options and unvested stock options held by such person and (f) the total cash consideration such person will receive for all such vested and unvested stock options.

 

   

Vested Stock Options

   

Stock Options that
will Vest as a Result
of the Merger

   

Totals

 

Directors and Executive Officers

 

(a)
Shares

   

(b)
Value

   

(c)
Shares

   

(d)
Value

   

(e)
Total Shares

   

(f)
Total Value

 

Executive Officers

                                               

Johan Apel

    133,332     $ 86,666       566,668     $ 368,334       700,000     $ 455,000  
President, Chief Executive Officer and Director                                                

Dawn R. Johnston

    79,668     $ 66,610       -     $ -       79,668     $ 66,610  
Interim Chief Financial Officer                                                

Sören Kjellin

    94,999     $ 82,833       211,251     $ 179,480       306,250     $ 262,313  
Chief Technology Officer                                                
                                                 

Non-Employee Directors

                                               

Roger L. Ogden

    40,000     $ 22,800       -     $ -       40,000     $ 22,800  
Chairman of the Board                                                

Peter F. Frey

    30,000     $ 22,800       -     $ -       30,000     $ 22,800  

Christopher R. Kelly

    55,002     $ 37,801       -     $ -       55,002     $ 37,801  

Henrik Sundberg

    -     $ -       -     $ -       -     $ -  

Michael C. Wheeler

    50,835     $ 30,301       -     $ -       50,835     $ 30,301  

All directors and executive officers as a group (8 persons)

    483,836     $ 349,811       777,919     $ 547,814       1,261,755     $ 897,625  

 

 
34

 

 

ChyronHego Restricted Stock Units

 

At the effective time of the Merger, each restricted stock unit representing the right to acquire shares of ChyronHego common stock outstanding immediately prior to the effective time, whether vested or unvested, will be cancelled in exchange for the right to receive a cash amount, without interest and subject to any applicable withholding taxes, equal to the product of (1) the total number of shares of common stock subject to such restricted stock unit, multiplied by (2) the Merger Consideration of $2.82 per share. All restricted stock units held by any director or executive officer have vested and are reflected in the table below under “—Treatment of Shares of Common Stock.”

 

Treatment of Shares of Common Stock

 

In connection with the Merger, all of ChyronHego’s directors and executive officers holding shares of ChyronHego common stock will have their shares (other than Rollover Shares) converted into the right to receive $2.82 per share in cash. The following table shows, for each executive officer and each director, as applicable, as of January 26, 2015, (a) the number of Rollover Shares beneficially owned by such person, (b) the value on which such Rollover Shares will be exchanged for equity interests in Purchaser at $2.82 per share, (c) the number of outstanding shares of common stock beneficially owned by such person that are not Rollover Shares, (d) the cash consideration that such person will receive for such shares that are not Rollover Shares at the effective time of the Merger, (e) the aggregate number of outstanding shares beneficially owned by such person and (f) the total of the cash consideration that such person will receive for outstanding shares beneficially owned by such person that are not Rollover Shares plus the value at which the Rollover Shares beneficially owned by such person will be exchanged.

 

   

Rollover Shares

   

Outstanding Shares Beneficially Owned Other Than Rollover Shares

   

Totals

 

Directors and Executive Officers

 

(a)
Shares

   

(b)
Value

   

(c)
Shares

   

(d)
Value

   

(e)
Total Shares

   

(f)
Total Value

 

Executive Officers

                                               

Johan Apel(1)

    2,648,782     $ 7,469,565       2,649,123     $ 7,470,527       5,297,905     $ 14,940,092  
President, Chief Executive Officer and director                                                

Dawn R. Johnston

    -       -       45,255     $ 127,619       45,255     $ 127,619  
Interim Chief Financial Officer                                                

Sören Kjellin(2)

    1,210,855     $ 3,414,611       1,211,543     $ 3,416,551       2,422,398     $ 6,831,162  
Chief Technology Officer                                                
                                                 

Non-Employee Directors

                                               

Roger L. Ogden

    -       -       277,624     $ 782,900       277,624     $ 782,900  
Chairman of the Board                                                

Peter F. Frey

    -       -       261,776     $ 738,208       261,776     $ 738,208  

Christopher R. Kelly

    -       -       2,543,145     $ 7,171,669       2,543,145     $ 7,171,669  

Henrik Sundberg (3)

    -       -       576,986     $ 1,627,100       576,986     $ 1,627,100  

Michael C. Wheeler

    -       -       127,762     $ 360,289       127,762     $ 360,289  

All directors and executive officers as a group (8 persons)

    3,859,637     $ 10,884,176       7,693,214     $ 21,694,863       11,552,851     $ 32,579,039  

 

(1)

Consists of 5,245,403 shares held by Westhill Group AB, of which Mr. Apel is sole equity owner and sole director (of which 2,622,701 shares are Rollover Shares); 31,804 shares held individually (of which 15,902 shares are Rollover Shares); 5,698 shares held in ChyronHego’s 401(k) plan (of which 2,679 shares are Rollover Shares); and 15,000 shares held in a personal pension plan (of which 7,500 shares are Rollover Shares). Does not reflect an additional 11,378 shares of common stock purchased by Westhill Group AB from an employee of ChyronHego on February 2, 2015.

(2)

Consists of shares held by Maxflyt AB, of which Mr. Kjellin is sole equity owner and sole director.

(3)

Includes 548,972 shares held by Stella Capital Advisors, of which Mr. Sundberg is co-founder and has a 25% ownership interest. Mr. Sundberg disclaims beneficial ownership of the shares except to the extent of his pecuniary interest therein.

 

 

Quantification of Potential Payments to Named Executive Officers in Connection with the Merger

 

In accordance with Item 402(t) of Regulation S-K, the following table sets forth the estimated amounts of compensation that are based on or otherwise relate to the Merger and that may be payable to the following individuals, each a named executive officer of ChyronHego, under existing agreements with ChyronHego. This compensation is referred to as “golden parachute” compensation by applicable SEC disclosure rules. The “golden parachute compensation” payable by ChyronHego to these individuals is subject to a non-binding, advisory vote of ChyronHego’s shareholders, is described below in “Non-Binding Advisory Vote Regarding Merger-Related Compensation Proposal” beginning on page 64 of this proxy statement and assumes the following:

 

 

the price per share of ChyronHego common stock in the Merger is $2.82 per share;

 

 

the Merger closes on January 26, 2015, which is a date assumed solely for purposes of the calculations set forth in this table, as required by SEC rules; and

 

 

the named executive officers of ChyronHego are terminated without cause immediately following a change in control on January 26, 2015.

 

 
35

 

 

Named Executive Officers

 

Cash
(1)

   


Equity
(2)

   

Pension/
Non-Qualified Deferred Compensation

   

Perquisites/ Benefits
(3)

   


Tax Reimburse-ment

(4)

   


Other

(5)

   


Total Consideration

 
                                                         

Johan Apel

  $ 774,050     $ 455,000     $ -     $ 30,555     $ 14,214     $ 21,001     $ 1,294,820  
President, Chief Executive Officer and director                                                        
Dawn R. Johnston   $ -     $ 66,610     $ -     $ -     $ -     $ -     $ 66,610  
Interim Chief Financial Officer                                                        

Sören Kjellin

  $ -     $ 262,313     $ -     $ -     $ -     $ -     $ 262,313  
Chief Technology Officer                                                        

_______

 

(1)

Cash. Represents the value of cash severance payments payable under the applicable named executive officer's employment or separation agreement, including bonus payments equal to the bonus to be paid for a full fiscal year immediately prior to the effective date of a change in control, annualized. 

 

(2)

Equity. Represents the value of the conversion of the applicable named executive officer’s outstanding options and restricted stock units to a right to receive cash payments, as discussed above, by reason of consummation of the Merger.

 

(3)

Perquisites/Benefits. Represents the value of continued medical insurance coverage, long-term disability and life insurance costs payable by the Company upon the applicable named executive officer's separation.

 

(4)

Tax reimbursement. Estimated tax gross-up as required to compensate the applicable named executive for an estimated 46.52% effective rate (U.S. federal, state, local, social security and Medicare taxes) on the perquisites/benefits amounts.

 

(5)

Other. Dollar value of accrued vacation as of January 26, 2015.

 

Employment Agreements

 

In connection with the Merger, and in order to provide Mr. Apel and Mr. Kjellin with incentives to continue their employment with us, we entered into employment agreements with each of Messrs. Apel and Kjellin, dated November 17, 2014, which will be effective as of the effective time of the Merger and will govern their respective employment arrangements with ChyronHego after such time. Each employment agreement provides that the executive’s employment relationship with ChyronHego will be “at-will” and terminable by either the executive or ChyronHego at any time, for any reason or no reason. Each employment agreement provides for an initial annual base salary for the executives, in the following amounts: (i) $500,000 for Mr. Apel, and (ii) $250,000 for Mr. Kjellin. In addition, each executive will be eligible to receive an annual bonus, determined in the reasonable discretion of ChyronHego’s board of directors, based on each such executive’s achievement of annually established performance objectives.

 

The employment agreements with Messrs. Apel and Kjellin further provide to such executives grants of equity interests. The grants of equity interests shall occur as soon as reasonably practicable following the start of employment, and will entitle Mr. Apel to an equity interest equal to 1.5% of any appreciation in the value of Purchaser and ChyronHego (as a subsidiary of Purchaser), and will entitle Mr. Kjellin to an equity interest to be determined by the board of directors. The equity interest grants shall vest over a five-year period with respect to 50% of the granted shares (with 20% vesting on the first anniversary of the executives’ employment), and vest with respect to 100% of the granted shares in the event of certain change in control events and public offerings of ChyronHego stock, but only if ChyronHego has achieved certain valuation milestones. Grants that remain unvested after a change in control event or on the tenth anniversary of the effective date will expire and be forfeited.

 

If either of Messrs. Apel and Kjellin’s employment is terminated by ChyronHego or by the executive, then ChyronHego shall pay to such executive: (i) any base salary accrued but not paid, any reimbursements due, and any amounts provided under any plan, policy or program of ChyronHego; (ii) for any termination other than a termination for cause or a voluntary termination without good reason, the prior year’s bonus and a pro-rata portion of the current year’s bonus, subject to a release of claims; and (iii) for a termination without cause or a voluntary termination with good reason, and, subject to a release of claims, severance of 12 months continued payment of such executive’s base salary plus twice ChyronHego’s cost for monthly life insurance, long-term disability, and health insurance benefits, and the accelerated vesting of certain amounts of such executive’s equity interest grant. Mr. Apel’s employment agreement provides that his removal as Chief Executive Officer following the failure of ChyronHego to meet specified performance milestones will not result in Mr. Apel being entitled to resign with good reason, whereas if ChyronHego otherwise removes him from the position of Chief Executive Officer, he will be entitled to resign for good reason. Each of Messrs. Apel and Kjellin will, in certain circumstances, have the right to sell one-half (1/2) of his Rollover Shares to ChyronHego for the lower of (a) the value of the Rollover Shares at the time of rollover, and (b) the per share fair market value of the Rollover Shares (determined by the board of directors in its sole, but reasonable, discretion) as of the date of termination. Mr. Apel will have this right if his employment is terminated for any reason other than by ChyronHego for cause; Mr. Kjellin will have this right if his employment is terminated by ChyronHego without cause or if he terminates his employment by resignation for good reason.

 

In the event that Messrs. Apel or Kjellin receive any payments or distributions pursuant to these employment agreements or otherwise that constitute “parachute payments” within the meaning of Section 280G of the Code, defined below, ChyronHego and the executives have agreed to take steps so as to prevent the imposition of excise taxes under Section 280G of the Code and the loss of deductions under Section 4999 of the Code, which steps may include subjecting amounts to shareholder approval to exempt payments from the application of foregoing Code Sections or reducing amounts otherwise payable so that the foregoing Code Sections may not apply. Furthermore, in the event of the involuntary termination of Mr. Apel’s employment where the severance and other payments provided to Mr. Apel in connection with the Merger result in the imposition of a tax under Section 280G of the Code, then instead of the foregoing treatment, Mr. Apel will be provided an additional payment that will put him in substantially the same after-tax economic position that he would have been in had there been no Section 280G tax, unless the payments provided to Mr. Apel in connection with the Merger are equal to or less than 115% of his Section 280G threshold (in general, three-times his average taxable income for the five years preceding the year of the Merger or, if shorter, for such period as he has been employed by ChyronHego or a related company), in which case payments will be reduced to avoid the application of Section 280G.

  

 
36

 

 

The employment agreements contain certain restrictive covenants, including covenants of non-solicitation of ChyronHego employees and business relationships and covenants of non-competition for 12 months after the termination of employment, as well as confidentiality provisions.

 

As of the date of this proxy statement, none of the other executive officers of ChyronHego has entered into any employment arrangements with Vector Capital, Purchaser or their affiliates.

 

 Positions with the Surviving Corporation

 

It is anticipated that the officers of ChyronHego immediately prior to the effective time of the Merger will be the initial officers of the surviving corporation. To the extent these officers receive stock options or other equity interests in the surviving corporation or Purchaser, they would benefit from future growth, if any, of ChyronHego after it ceases to be publicly traded.

 

Indemnification of Directors and Officers; Insurance

 

The Merger Agreement provides that, for a period of six years after the effective time of the Merger, the surviving corporation will continue ChyronHego’s indemnification obligations with respect to ChyronHego’s directors and officers; Purchaser will cause to be maintained provisions in the surviving corporation’s certificate of incorporation and bylaws regarding the elimination of liability of directors, indemnification of officers, directors and employees and advancement of expenses that is no less advantageous to ChyronHego’s directors and officers as the provisions in ChyronHego’s current certificate of incorporation and bylaws; and ChyronHego or the surviving corporation will obtain and pay the premiums under ChyronHego’s directors’ and officers’ liability insurance policies and ChyronHego’s existing fiduciary liability insurance policies, in an amount not to exceed 250% of the amount per annum ChyronHego paid in its last full fiscal year, that provides coverage for events occurring at or prior to the effective time of the Merger that is no less favorable than the coverage provided under the existing policies of ChyronHego.

 

Compensation of Members of the Special Committee

 

The members of the Special Committee will not be compensated separately in connection with the performance of their duties as members of the Special Committee.

 

Transactions with the Rollover Holders

 

In connection with the Merger, the Rollover Holders will contribute, immediately prior to the effect time of the Merger, 8,258,706 Rollover Shares to Purchaser. The Rollover Holders include the following executive officers and affiliates of ChyronHego’s executive officers: Westhill Group AB, which is controlled by Mr. Apel, and Maxflyt AB, which is controlled by Mr. Kjellin. The Rollover Shares will be valued at $2.82 per share, and in exchange for the Rollover Shares, the Rollover Holders will receive equity in Purchaser valued at approximately $23.3 million, in the aggregate, representing approximately 30.6% of the equity interests of Purchaser. The remaining 8,853,725 shares of ChyronHego common stock owned by the Rollover Holders will be cashed out in the Merger at $2.82 per share (or a total of approximately $25.0 million). Accordingly, immediately following the effective time of the Merger, the Rollover Holders will receive combined equity and cash in the total value of approximately $48.3 million (excluding payments of approximately $1.8 million with respect to stock options and warrants held by the Rollover Holders), the same value as their shares of ChyronHego common stock prior to the Merger (valued at $2.82 per share).

 

Vector Capital intends to raise approximately $50.0 million in debt in connection with the Merger. Assuming the full amount is borrowed and is used to purchase common stock, then the post-closing equity value of Purchaser after the Merger will be approximately $76.1 million (determined based on the pre-Merger equity value of ChyronHego common stock, options and restricted stock reduced by the amount of the debt incurred by Purchaser in connection with the Merger) and the enterprise value will be approximately $126.1 million. To fund a portion of the Merger Consideration, Vector Capital will invest $52.8 million in Purchaser in the form of an equity contribution. The Rollover Holders’ contribution and Vector Capital’s investment in Purchaser will be made at the same valuation. As a result, immediately after the Merger, the Rollover Holders will hold equity in Purchaser valued at approximately $23.3 million (or approximately 30.6% of the total equity value of approximately $76.1 million) and Vector Capital will hold equity in Purchaser valued at approximately $52.8 million (or approximately 69.4% of the total equity value of approximately $76.1 million). The remainder of the capitalization of Purchaser will consist of $50.0 million in debt, which will not exist prior to the closing of the Merger, and which was arranged by Vector Capital (as described elsewhere in this proxy statement).

 

In addition, all of ChyronHego’s executive officers and directors have executed and delivered the Voting Agreement dated November 17, 2014 in which each Voting Party has agreed to vote shares owned by them (approximately 49.9% of ChyronHego’s outstanding common stock as of the record date, January 5, 2015) in favor of the adoption of the Merger Agreement and approval of the Merger and all other transactions contemplated by the Merger Agreement, against any transaction or proposal that would result in a breach of the Merger Agreement or could result in the conditions under the Merger Agreement not being fulfilled, and in favor of any other matter necessary to consummate the Merger, and grants Purchaser a proxy to vote such shares in favor of the Merger in the event such Voting Party fails to do so. Each Voting Party also agreed not to dispose of any of his or her shares of ChyronHego common stock, other than to immediate family members or for estate planning purposes, and not to solicit or participate in any discussions or negotiations regarding any unsolicited proposal that constitutes or may reasonably be expected to lead to a Superior Proposal, other than activities in such person’s capacity as a director or executive officer of ChyronHego as permitted by the Merger Agreement. The Voting Agreement terminates upon the effective time of the Merger, if the Merger Agreement is terminated in accordance with its terms (including termination by ChyronHego in connection with a Superior Proposal as described under “The Merger Agreement — Termination of the Merger Agreement”), if there is an Adverse Recommendation Change by the Special Committee in compliance with the Merger Agreement, or by mutual agreement of the parties to terminate the Voting Agreement.

  

 
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The Rollover Holders will enter into a limited partnership agreement (or similar agreement), on terms attached to the Rollover Agreements, with Purchaser and Vector Capital, which will govern the rights and obligations of Vector Capital and the Rollover Holders as holders of equity in Purchaser following completion of the Merger. Immediately following the Merger, the board of directors of the general partner of Purchaser will initially consist of five members, three of which initially will be designated by Vector Capital and two of which (who will initially be Johan Apel and Henrik Sundberg) initially will be designated by a majority of the Rollover Holders. Under the limited partnership agreement, there will be multiple classes of convertible preferred units and common units of Purchaser and the terms of the preferred units and the common units of Purchaser will differ with respect to liquidation preferences and distributions. The limited partnership agreement will also set forth certain requirements regarding the voting of the equity of Purchaser and certain restrictions on transfers of the equity of Purchaser and provide the Rollover Holders with certain consent rights, information rights, preemptive rights, rights of first offer, tag-along rights, drag-along rights and registration rights with respect to the registration under the Securities Act of 1933, as amended (the “Securities Act”), of the equity of Purchaser they will own following the Merger. Purchaser has agreed, contingent upon the closing of the Merger, to reimburse the Rollover Holders for the expenses incurred by them in connection with the negotiation of the rollover terms.

 

Appraisal Rights

 

Section 910 of the New York Business Corporation Law (“NYBCL”) provides an appraisal right to certain shareholders who do not assent to certain plans of merger or consolidation. However, the Merger of ChyronHego into Merger Subsidiary is not a merger for which appraisal rights are provided pursuant to the NYBCL. Accordingly, if the Merger Agreement is adopted and the Merger is consummated, the ChyronHego shareholders (other than the Rollover Holders) will have all of their shares in ChyronHego cancelled in exchange for the right to receive cash, and the holders of shares of ChyronHego common stock will NOT have any appraisal rights.

 

Material U.S. Federal Income Tax Consequences of the Merger

 

The following summary is a general discussion of certain material U.S. federal income tax consequences to ChyronHego shareholders whose shares of common stock are exchanged for cash pursuant to the Merger. This summary is based on the current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable U.S. Treasury regulations promulgated thereunder, judicial authority and administrative rulings, all of which are subject to change, possibly with retroactive effect or different interpretations. Any such change could alter the tax consequences to ChyronHego shareholders as described herein. As a result, we cannot assure you that the tax consequences described herein will not be challenged by the IRS or will be sustained by a court if challenged by the IRS. No ruling from the IRS has been or will be sought with respect to any aspect of the transactions described herein. This summary does not cover the U.S. federal income tax consequences applicable to the Rollover Holders that will hold equity interests in Purchaser.

 

This summary only applies to beneficial owners of ChyronHego common stock that own such common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This summary does not contain an analysis of all potential tax effects of the Merger. For example, it does not consider the effect of any applicable state, local, foreign, estate or gift tax laws, or of any U.S. federal non-income tax laws. In addition, this discussion does not address the tax consequences of transactions effectuated prior to or after the Merger (whether or not such transactions occur in connection with the Merger), including, without limitation, any exercise of a ChyronHego option, the acquisition or disposition of ChyronHego shares other than pursuant to the Merger, or the exchange of Rollover Shares for equity interests in Purchaser. In addition, it does not address all aspects of U.S. federal income taxation that may affect particular ChyronHego’s shareholders in light of their particular circumstances, including:

 

 

shareholders that are insurance companies;

 

 

shareholders that are tax-exempt organizations;

 

 

shareholders that are financial institutions, regulated investment companies, or brokers or dealers in securities;

 

 

shareholders who hold their common stock as part of a hedge, straddle or conversion transaction;

 

 

shareholders that hold common stock which constitutes qualified small business stock for purposes of Section 1202 of the Code or “section 1244 stock” for purposes of Section 1244 of the Code;

 

 

shareholders who are liable for the alternative minimum tax;

 

 

shareholders that are partnerships or other entity classified as a partnership for U.S. federal income tax purposes;

 

 

shareholders who acquired their common stock pursuant to the exercise of a stock option or otherwise as compensation;

 

 

shareholders that are controlled foreign corporations or passive foreign investment companies; and

 

 

shareholders whose functional currency for U.S. federal income tax purposes is not the U.S. dollar.

 

For the purposes of this discussion, the term “U.S. holder” is any beneficial owner of stock who is treated for U.S. federal income tax purposes as:

 

 

an individual who is a citizen or resident of the United States;

 

 

a corporation or other entity treated as a corporation for U.S. federal income tax purposes that is, in each case, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

  

 
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an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

 

 

a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more U.S. persons or (2) has validly elected to be treated as a U.S. person for U.S. federal income tax purposes.

 

A “non-U.S. holder” is a beneficial owner of stock that is not a U.S. holder nor an entity or arrangement classified as a partnership for U.S. federal income tax purposes.

 

If a partnership, or other entity treated as a partnership for U.S. federal income tax purposes, holds shares of ChyronHego common stock, the tax treatment of its partners generally will depend on a partner’s status and the activities of the partnership. Partnerships and their partners should consult their tax advisors regarding the U.S. federal income tax consequences to them of the Merger.

 

ACCORDINGLY, CHYRONHEGO’S SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES, AND AS TO ANY TAX REPORTING REQUIREMENTS OF THE MERGER AND RELATED TRANSACTIONS IN LIGHT OF THEIR OWN RESPECTIVE TAX SITUATIONS.

 

Consequences to U.S. Holders of ChyronHego

 

The receipt of cash in exchange for shares of ChyronHego common stock in the Merger will be a taxable transaction for U.S. federal income tax purposes. Generally, this means that a U.S. holder (other than a Rollover Holder with respect to the Rollover Shares) will recognize a capital gain or loss equal to the difference between (1) the amount of cash such U.S. holder receives in the Merger and (2) the U.S. holder’s adjusted tax basis in the ChyronHego common stock surrendered therefor. For this purpose, U.S. holders that acquired different blocks of ChyronHego shares at different times for different prices must calculate gain or loss separately for each identifiable block of ChyronHego common stock surrendered in the exchange. Such gain or loss will be long-term capital gain if the U.S. holder has held such ChyronHego common stock for more than one year as of the date of the Merger. Any long-term capital gain recognized by individuals and other non-corporate U.S. holders generally will be subject to reduced rates of U.S. federal income tax. In addition, certain U.S. holders may be subject to the additional tax on net investment income of 3.8%. The deduction of capital losses is subject to limitations.

 

Consequences to Non-U.S. Holders of ChyronHego

 

A non-U.S. holder that receives cash in exchange for shares of ChyronHego common stock in the Merger generally will not be subject to U.S. federal income taxation unless:

 

 

gain resulting from the Merger is effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base of the non-U.S. holder in the United States;

 

the non-U.S. holder is an individual who is present in the United States for 183 days or more in the individual’s taxable year in which the Merger occurs and certain other conditions are satisfied; or

 

ChyronHego is or has been a U.S. real property holding corporation (“USRPHC”) as defined in Section 897 of the Code at any time within the shorter of the five-year period preceding the Merger, and the non-U.S. holder’s holding period of its ChyronHego common stock. We do not believe that ChyronHego is or was a USRPHC during the applicable period for U.S. federal income tax purposes.

 

Any gain recognized by a non-U.S. holder described in the first bullet above generally will be subject to U.S. federal income tax on a net income basis at regular graduated U.S. federal income tax rates in the same manner as if such holder were a “U.S. person” as defined under the Code, unless an applicable income tax treaty provides otherwise. A non-U.S. holder that is a corporation may also be subject to an additional 30% branch profits tax (unless an applicable income tax treaty provides otherwise) on after-tax profits effectively connected with a U.S. trade or business to the extent that such after-tax profits are not reinvested and maintained in the U.S. trade or business. Gain described in the second bullet above generally will be subject to U.S. federal income tax at a flat 30% rate (unless an applicable income tax treaty provides otherwise), but may be offset by certain U.S. source capital losses, if any, of the non-U.S. holder.

 

Backup Withholding and Non-U.S. Holder Withholding

 

Certain ChyronHego shareholders may be subject to “backup withholding” with respect to certain “reportable payments” including cash consideration received in exchange for the shareholder’s shares of ChyronHego common stock in the Merger. The current backup withholding rate is 28%. Backup withholding will generally apply only if the ChyronHego shareholder fails to furnish a correct Social Security number or other taxpayer identification number, or otherwise fails to comply with applicable backup withholding rules and certification requirements. In order to avoid backup withholding, a U.S. holder generally must complete an IRS Form W-9. U.S. holders that fail to provide their correct taxpayer identification numbers may be subject to penalties imposed by the IRS. A non-U.S. holder will generally not be subject to U.S. federal backup withholding and information reporting with respect to cash consideration received in exchange for shares of ChyronHego common stock if the non-U.S. holder delivers the applicable IRS Form W-8 to the paying agent, for example by providing a properly completed IRS Form W-8BEN or W-8BEN-E certifying such shareholder’s non-U.S. status. Each ChyronHego shareholder and, if applicable, each other payee, should complete and sign the IRS Form W-9 included with the letter of transmittal (or other applicable form such as the appropriate IRS Form W-8) in order to provide the information and certification necessary to avoid the imposition of backup or other withholding, unless an exemption applies and is established in a manner satisfactory to the paying agent. Backup withholding is not an additional tax and may be refunded or allowed as a credit against a shareholder’s U.S. federal income tax liability, provided that the shareholder furnishes the required information to the IRS in a timely manner.

 

THE FOREGOING DISCUSSION OF THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IS FOR CHYRONHEGO’S SHAREHOLDERS’ (OTHER THAN THE ROLLOVER HOLDERS’) GENERAL INFORMATION ONLY. ACCORDINGLY, CHYRONHEGO’S SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.

  

 
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Litigation Related to the Merger

 

Following the announcement on November 17, 2014 of the execution of the Merger Agreement, eight lawsuits challenging the proposed acquisition of ChyronHego were filed in the Supreme Court of the State of New York, County of Suffolk. Four of the actions have been consolidated as In re ChyronHego Corporation Shareholders Litigation (Index No. 069864-2014), and the complainant in one of the actions, John D. Deleo v. ChyronHego Corporation, et al., was designated as the Lead Plaintiff. We expect the remaining actions will also be consolidated with the class action suit. One complainant filed an identical action in the County of New York which we expect to be dismissed or transferred and consolidated with the class action suit. Another complainant filed a substantially similar action in the United States District Court for the Eastern District of New York.

 

The litigation is a putative class action filed on behalf of the shareholders of ChyronHego other than the defendants and their affiliates. The operative complaint in the consolidated action, which names as defendants ChyronHego, its directors, Vector Capital Management, L.P., Purchaser and Merger Subsidiary, alleges that the ChyronHego directors breached their fiduciary obligations in connection with their approval of the Merger Agreement by entering into a transaction that is coercive and constitutes an unfair and inequitable subversion of shareholders’ rights, and that the entity defendants aided and abetted those breaches. The complaint seeks, among other relief, declaratory and injunctive relief enjoining the proposed Merger, rescission of the Merger Agreement or awarding rescissory damages of an undisclosed amount, and fees and costs. The federal complaint alleges that ChyronHego's directors caused ChyronHego to issue a false or misleading proxy statement in connection with the Merger in violation of the federal securities laws, and seeks declaratory and injunctive relief enjoining the proposed Merger, an accounting for damages, and fees and costs.

 

ChyronHego believes that the claims in the suits are without merit and intends to vigorously defend against them. However, there can be no assurances as to the outcome of the litigation. A preliminary injunction could delay or jeopardize the completion of the Merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the Merger.

 

Provisions for Unaffiliated Security Holders

 

No provision has been made to grant ChyronHego’s shareholders access to the corporate files of ChyronHego, any other party to the Merger Agreement or to obtain counsel at the expense of ChyronHego or any other such party.

 

Regulatory Matters

 

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), and the rules promulgated thereunder by the Federal Trade Commission (“FTC”), the Merger may not be completed until notification and report forms have been filed with the FTC and the Antitrust Division of the Department of Justice (“DOJ”), and the applicable waiting period has expired or been terminated. Each of Vector Capital and ChyronHego filed on December 3, 2014 notification and report forms under the HSR Act with the FTC and the DOJ and early termination of the waiting period was granted effective December 16, 2014. At any time before or after consummation of the Merger, notwithstanding the termination of the waiting period under the HSR Act, the DOJ or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Merger or seeking divestiture of substantial assets of ChyronHego or Vector Capital. At any time before or after the consummation of the Merger, and notwithstanding the termination of the waiting period under the HSR Act, any state could take such action under antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the consummation of the Merger or seeking divestiture of substantial assets of ChyronHego or Vector Capital. Private parties may also seek to take legal action under certain circumstances.

 

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement, and the documents to which we refer you in this proxy statement, contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which may be identified by their use of words like “plans,” “expects,” “will,” “anticipates,” “intends,” “projects,” “estimates” or other words of similar meaning including, without limitation, under the headings “Summary Term Sheet,” “Questions and Answers about the Merger and the Special Meeting,” “Opinion of the Financial Advisor to ChyronHego’s Special Committee,” “Purposes and Reasons for the Merger of Purchaser,” “Purposes and Reasons of the Rollover Holders for the Merger and Position of the Rollover Holders as to the Fairness of the Merger,” “Purposes and Plans for ChyronHego After the Merger,” “Litigation Related to the Merger” and “Certain Projections.”

 

Forward-looking statements are based on certain assumptions and expectations of future events. ChyronHego cannot guarantee that these assumptions and expectations are accurate or will be realized. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Many important factors, including those discussed more fully in documents filed with the SEC by ChyronHego, particularly under the heading “Risk Factors” in ChyronHego’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2014, June 30, 2014 and September 30, 2014 and subsequent filings with the SEC, as well as others, could cause results to differ materially from those indicated by such forward-looking statements. Any forward-looking statement made by us in this proxy statement speaks only as of the date on which we make it. Factors or events that could cause ChyronHego’s actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. Except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise. In addition to other factors and matters contained in or incorporated by reference in this proxy statement, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

 

 

current and future economic conditions that may adversely affect ChyronHego’s business and customers;