UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
X Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Fiscal Year
Ended December 31, 1999 OR
Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the transition
period from ________to________
Commission file number: 0-21324
NYFIX, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 06-1344888
(State of incorporation) (I.R.S. Employer identification number)
333 LUDLOW STREET,
STAMFORD, CT 06902
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 425-8000
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE PER SHARE NASDAQ STOCK MARKET
(Title of each class) (Name of each exchange on which registered)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The Issuer's revenues for the fiscal year ended December 31, 1999 were
$12,209,451.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $719 million, as of March 23, 2000. Solely for the
purposes of this calculation, shares held by directors and officers of the
Registrant have been excluded. Such exclusion should not be deemed a
determination by the Registrant that such individuals are, in fact, "affiliates"
of the Registrant.
As of March 23, 2000 there were 16,237,062 shares of the Registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Proxy Statement for the
2000 Annual Meeting
of Stockholders Part III, Items 10 - 13
<PAGE>
PART I
ITEM 1. BUSINESS
Description of Business
NYFIX, Inc. (the "Company" or "NYFIX") develops and markets advanced electronic
trading systems to brokerage firms, international banks and global exchanges
trading in equities, futures & options, and currencies. The Company's NYFIX
Network, a combined FIX (Financial Information Exchange protocol) and Exchange
Access Network, enables users to electronically communicate trade data among the
buy-side, sell-side and exchange floor environments. NYFIX is headquartered in
Stamford, Connecticut and maintains operations in New York, Chicago and London.
The Company (formerly Trinitech Systems, Inc.) was incorporated in New York in
1991 and is listed on the Nasdaq Stock Market under the symbol NYFX. Prior to
March 6, 2000, the Company's common stock was traded on the American Stock
Exchange under the ticker symbol NYF. Prior to October 25, 1999, the Company's
common stock was traded on the American Stock Exchange under the ticker symbol
TSI.
The Company's goal is to become the leading provider of real-time electronic
trade entry and routing systems and connectivity services to the global
financial services industry. The Company offers its customers the ability to
enter and route orders and executions electronically from "end-to-end," from the
buy-side/retail institution or remote branch office through to the exchange
floors and electronic exchanges. The Company's technology is being used by such
major firms as Lehman Brothers, Deutsche Bank, Warburg Dillon Read, ING Barings
and Merrill Lynch, among others.
The Company's systems provide electronic order entry, order routing, tracking
and risk monitoring capabilities, replacing existing paper and telephone based
trading and eliminating a number of redundant steps in the order flow and
execution reporting process. As the financial industry continues to move from a
paper and voice driven tracking environment to real-time electronic-based
trading, management believes NYFIX is well positioned to take advantage of this
growing trend. Wall Street firms are recognizing the ability of electronic
trading systems to enhance order and information flow and improve trading
performance by eliminating trading errors and providing on-line risk management,
in addition to the cost efficiencies associated with electronic trading.
Numerous trading scandals have provided further impetus for the implementation
of electronic trading systems with risk monitoring and audit tracking
capabilities by financial risk managers.
In September 1997, the Company launched its NYFIX Network, a FIX and Exchange
Access Network designed to provide the financial community with a central
electronic meeting place for routing real-time orders and other FIX messages.
NYFIX provides the Company's equities customers access to its subscription-based
quote, order and execution routing systems as well as providing connectivity
between the buy-side, sell-side and exchange floor environments through the
industry standard protocol, FIX. NYFIX offers financial firms the ability to
utilize the Company's systems without having to invest in a communications
infrastructure. Furthermore, the Company's NYFIX Data Centers offer the
potential for an "any to any" relationship for routing orders and executions
between and among firms, various exchanges and alternative sources of liquidity
including Electronic Communications Networks (ECNs). The Company has made
considerable progress implementing its subscription-based NYFIX business model
throughout 1999 and management believes the Company is well positioned for
further growth in 2000. NYFIX continues to provide the financial industry with
complete systems, including the raw terminals (hardware manufactured by NYFIX),
the software and the infrastructure (through its NYFIX Data Centers) to tie the
trading industry together for the electronic entry and routing of orders and
executions.
All of the Company's products are available in flexible building blocks that can
be sold as complete systems or separately to complement existing customer
components. This has given the Company the ability to collect revenue from each
"link" of the trading process. The Company also continues to expand and enhance
its product portfolio with new and complementary software modules and
connectivity services that allow the Company to collect revenue from multiple
levels. The Company offers its trading systems on a subscription basis, with
hardware, software and maintenance provided for a monthly fee. For the Company's
customers, this pricing model offers minimal up-front investment in technology
as well as an alternative to costly in-house development. For the Company, it
offers a simplification of the sales cycle as well as significant recurring
revenue. From time to time, the Company does offer
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certain products (such as a custom enhancement) for a one-time fee. The Company
as a whole is moving away from its previous capital sales model and now offers
its systems, including the entire NYFIX product line, on a subscription basis.
NYFIX Millennium, L.L.C.
In October of 1999, the Company announced the formation of NYFIX Millennium,
L.L.C. ("NYFIX Millennium"), which is a joint venture between NYFIX and Deutsche
Bank, ING Barings, Lehman Brothers, Morgan Stanley Dean Witter, Sanford C.
Bernstein & Co., Inc., SG Cowen Securities and Warburg Dillon Read. NYFIX
Millennium is an "Integrated Alternative Trading System (ATS), Exchange Access
and Intelligent `Best Execution' Order-Routing System." NYFIX Millennium will
provide a state-of-the art execution facility for both listed and OTC
securities. NYFIX Millennium is referred to as a Hybrid Market System because it
combines the electronic execution technology of an ECN with the liquidity of
traditional primary markets. Through real-time matching and automatic forwarding
of unexecuted orders to the primary exchange markets, NYFIX Millennium plans to
provide traders unparalleled access to liquidity. NYFIX Millennium plans to
generate transaction-oriented revenue by providing documented
"Price-Improvement" executions through its ATS and "Intelligent Order-routing"
functions. NYFIX Millennium plans to operate as a Broker/Dealer in compliance
with Regulation ATS and its Broker/Dealer application is currently on file with
the SEC. The NYFIX Millennium ATS is currently under development with formal
launch slated in the second half of 2000.
Products
Portfolio of Complete Electronic Trading Systems NYFIX supplies complete,
standardized trading solutions that consist of hardware, proprietary software
packages and network technology for the trading of equities and futures &
options. In addition, the Company supports its customers in all aspects of
planning and implementing these systems as well as providing on-going technical
support.
The Company has two principal business groups: The Equities Group and the Future
& Options Group. Each group has built its business and technical management
staff with expert knowledge so that their individual product segments are
efficiently targeted to their respective customers. The Equities Group operates
primarily out of the Company's Stamford and New York offices and the Future and
Options Group operates primarily out of the Company's London and Chicago
offices. However, each location has the opportunity to sell all of the Company's
products.
Equities Group-Products
The Company has developed eight systems for equities trading:
1. Market Looks System
2. FloorReport
3. FIXTrader
4. NYFIX Network Services
5. Breakwatch
6. TradeWatch
7. NYFIX HandHeld
8. Nasdaq Trader Interface
The NYFIX Market Looks System consists of the Trinitech Touchpad(R), a scanner,
server and proprietary software. The touchpad was designed by the Company to
simplify and expedite the entry of orders and information related to the trading
of financial instruments. The Trinitech Touchpad(R), with its patented flat
panel design, was developed to optimize critical trader/broker desktop real
estate. Its proprietary open architecture offers seamless integration with all
major industry operating systems, thereby allowing customers to freely choose
between the most popular operating systems. The Market Looks Systems is
comprised of two complementary software modules: FloorLook for the exchange
floor booth and ImageViewer for the upstairs trader workstation. The Market
Looks System solves the challenge faced by member firms in getting real-time
quotes or "looks" on stocks directly from the exchange floor to
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firms' upstairs trading operations. The Market Looks System operates by scanning
handwritten quote slips called "looks" into a scanner by a floor clerk located
at the member's booth. These scanned looks are instantly transmitted to upstairs
traders at their workstations in multiple sites and remote offices.
Implementation of the system results in the elimination of repetitive telephone
traffic between clerks and traders. The Market Looks System helps firms reduce
errors and disseminate information more efficiently.
The NYFIX FloorReport System is a complete electronic order management system
designed for member firms' exchange floor operations. Orders are received
electronically from upstairs traders (via the FIX Protocol), with execution
information routed back in the same efficient manner. FloorReport enables floor
clerks to route execution information to sales and block traders in real time,
enabling them to better service their customers. FloorReport organizes orders in
a central blotter, helping clerks by tracking status and calculating average
price in real-time.
The NYFIX FIXTrader System is a complete order management system for upstairs
traders, which allows the electronic entry and routing of orders and executions
between buy-side institutions, sales and block desks and exchange floor booths.
Traders enter orders quickly and efficiently through a Touchpad(R) (or a mouse
and keyboard configuration) and which are then routed to the appropriate venue
in seconds, with executions routed back in the same efficient manner. With the
financial industry's adoption of FIX as the standard protocol for communicating
electronically, FIXTrader offers an easy way for firms to gain FIX compliance.
FIXTrader enables firms to receive orders from electronically from the buy-side
as well as connect to back office systems helping firms achieve straight-through
processing.
The NYFIX Network is a Combined FIX and Exchange Access Network that link
various companies throughout the financial industry for the electronic
communication of trade information. Connecting buy-side, brokerage, exchange
floor booths and various exchange systems, NYFIX is a private, secure network
designed to provide firms with secure and reliable transmission of their
electronic trade information. NYFIX provides a number of benefits to clients
including reduced cost compared to maintaining one's own network, increased
routing options and network management ensuring connectivity between parties.
Breakwatch is NYFIX's application for identifying intra-day trade errors. This
program helps firms identify potential trading errors, giving firms a chance to
rectify mistakes on the day the trade takes place. Breakwatch also provides a
link into the OCS system, simplifying reporting as per exchange trade reporting
requirements.
TradeWatch is NYFIX's application for monitoring an entire trading desk's
positions. This application, used by head traders and/or risk managers, enables
management to keep apprised of all the trading desk's positions by integrating
data from all of the firm's FIXTrader workstations.
The NYFIX HandHeld is the Company's Market Looks System, which runs on a
handheld computer. This wireless, lightweight computer is used by exchange floor
brokers to transmit looks from the specialist to their booth and directly to
traders' workstations. Battery-powered, the NYFIX HandHeld enables the
simultaneous transmission of looks to multiple traders as well as enabling
traders to receive looks directly from "the crowd" on the trading floor. The
Handheld units were rolled out during the first quarter of 2000. This rollout
represents a productivity pilot, which will determine the final rollout phase
for the remainder of 2000.
NYFIX' Nasdaq Trader Interface is an application designed to accommodate order
management and routing for the Nasdaq marketplace. Level II compliant, the
Nasdaq Trader Interface will enable traders to communicate electronically with
the Nasdaq market. The Nasdaq Trader Interface will be rolled out during the
first quarter of 2000. This rollout represents a productivity pilot, which will
determine the final rollout phase for the remainder of 2000.
During 1999, the Company enhanced its product line by adding a number of
auxiliary services, such as increased connectivity options and linkages as well
as increased functionality. Product development continues to be focused on
adding more features to the Company's existing product line, accommodating
customer requests.
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Product Pricing-Equities Group
All of NYFIX' products for equities trading are sold on a subscription basis,
with hardware, software and maintenance provided for a monthly subscription fee.
Subscription agreements usually run from one to three years, with automatic
multiple year renewal provisions included. Products are priced on a monthly
basis per terminal.
Product Penetration-Equities Group
Building upon the Data Center established in late 1996, the Company launched
NYFIX, its combined FIX and Exchange Access Network, in September 1997. The
Network and data center, strategically located several blocks from the New York
Stock Exchange, offers easy monthly subscription-based access to all of the
Company's quote, order and execution routing systems. The NYFIX Network also
allows smaller "two-dollar" and independent brokers access to the Company's
systems. Firms no longer need a communications infrastructure to utilize the
Company's systems, as they can simply subscribe to the service. During 1999, the
Company has continued to invest in the NYFIX data center infrastructure to
accommodate customer needs and growth of the service.
Futures and Options Group-Products
For the futures & options trading market, the Company markets its Futures and
Options Order Book Management System ("OBMS"), which enables futures and options
traders to enter, route and manage orders and executions in real-time. Global
order routing between different international branches of the same firm and all
the major global exchanges, both open outcry and electronic is supported by this
comprehensive system. OBMS is offered utilizing the Company's patented Trinitech
Touchpad(R) or in stand-alone software versions.
Product Pricing-Futures and Options Group
The Company offers OBMS on a subscription or transaction basis, with hardware,
software and maintenance provided for a monthly fee. Subscription agreements
usually run from one to three years with automatic multiple year renewal
provisions included. When OBMS is sold on a transaction basis, the Company will
receive a fee per futures contract traded through the system with a guaranteed
monthly minimum payment.
Product Penetration-Futures and Options Group
OBMS has been utilized by a number of leading firms in the futures & options
industry, including CS First Boston, Dresdner Kleinwort Benson, and Merrill
Lynch, among others.
Marketing
Electronic Trading Systems
The Company believes that the financial trading industry represents an ideal
example of a uniform niche market. The characteristics of this market,
particularly its low level of automation at the trade-entry or deal-making
level, provide an excellent opportunity for the marketing of cost-effective and
innovative technical solutions. The Company believes that this market is clearly
defined, readily accessible, and accustomed to technological adjustment. As a
single, coherent community, the trading industry allows the Company to market
standardized products in a uniform manner in each of its market segments for
equities and futures & options trading on a global basis. Management believes
the Company's offering of products on a subscription or transaction basis
through a data center solution will significantly aid in the roll-out of its
products on an industry-wide basis, opening up new market segments for the
Company's products.
The Company continued its aggressive marketing efforts in 1999 and increased its
global presence by exhibiting its products at numerous domestic and
international technology and financial industry conferences. The Company also
generated significant press coverage with respect to its FIX trading solutions
and industry wide FIX and exchange connectivity network, NYFIX. The Company
intends to continue its marketing initiatives in 2000.
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Competition
Electronic Trading Systems
Competition exists in the Company's primary market. The Company believes that it
competes favorably with its trading systems, gaining additional leverage through
optimized integration of NYFIX's advanced systems and its large number of
connectivity options. To further enhance the marketability of its systems, the
Company is implementing its solutions on the most popular and well-established
client server architectures.
The Company believes that its technology offers unique advantages compared to
alternative technologies utilized by competitors. The Company believes, based
upon customer feedback, that its systems successfully fulfill their promise of
immediate entry, routing and reporting of trading positions, operational
savings, reduction of input error and improvement in reporting for compliance
purposes.
The Company also believes that its management and staff have an in-depth
knowledge of the inner-workings of trading rooms, exchange floors, and the
overall marketplace, thus facilitating its ability to serve client needs with
technological hardware and software adaptations.
Product Production
The Company designs, develops and produces its proprietary software and hardware
products at its facility in Stamford, Connecticut. The Company is not dependent
upon any one supplier, vendor or subcontractor for any of its manufacturing
components.
Rule 123 Amendment
NYFIX is aware of amendments on file with the SEC to change certain regulations
governing the recording and transmission of orders to and on the NYSE floor. The
first phase of such regulations calls for all orders received on the NYSE floor
to be input into an electronic order management system for better monitoring and
tracking of trades. The second phase calls for all orders to the exchange to be
sent electronically. The Company believes this regulation is positively
impacting NYFIX's business. The Company already produces systems capable of
meeting and exceeding regulatory requirements with many additional features
designed to reduce errors and maximize customer efficiency. Management believes
that this "regulatory push" continues to provide NYFIX an even greater
opportunity to capture market share both on the exchange floor and on the
upstairs trading desks.
Employees
As of March 17, 2000 the Company had 80 full-time employees.
Risk Factors: Forward Looking Statements
The management discussion and analysis and the information provided elsewhere in
this Form 10-K contain forward looking statements regarding the Company's future
plans, objectives and expected performance. Those statements are based on
assumptions that the Company believes are reasonable, but are subject to a wide
range of risks and uncertainties, and a number of factors could cause the
Company's actual results to differ materially from those expressed in the
forward looking statements referred to above. These factors include, among
others, the Company's ability to further penetrate the financial services market
with a full range of the Company's products and the highly competitive market in
which the Company operates.
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ITEM 2. PROPERTIES
The Company maintains its executive offices and production facilities in leased
premises at 333 Ludlow Street, Stamford, CT 06902 and its European Sales Office
in London, England. The Company's US headquarters consists of approximately
8,600 square feet at a current annual rental of approximately $185,000, expiring
on May 31, 2002. The Company's London office signed a new lease in 1999,
expiring on June 6, 2009, at an approximate yearly rental of $137,000, excluding
local taxes. The annual rental income is approximately $37,000, excluding local
taxes. The Company also rents office space at 100 Wall Street, New York, NY
10005 and at 20 North Wacker Drive, Chicago, IL 60606 for an annual rental of
approximately $150,000 and $19,000, respectively and approximately 4,800 square
feet and 1,000 square feet, respectively.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings that are currently pending or, to the
Company's knowledge, contemplated against the Company or to which it is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY OWNERS
(a) The special meeting of shareholders was held on October 21, 1999.
(b) Matters voted on at the meeting and the number of votes cast.
<TABLE>
<CAPTION>
Votes Against Broker
Voted For Or Withheld Abstentions Non-Votes
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
(1) Approval of 8,840,234 35,562 7,379 -
Amendment to the
Company's Certificate of
Incorporation to change the name of
the Company from Trinitech Systems,
Inc. to NYFIX, Inc.
(2) Approval of 5,996,876 348,337 12,219 -
Amendment to the
Company's Certificate of
Incorporation to increase
the number of authorized
shares of common stock,
$.001 par value of
the Company from
15,000,000 to
60,000,000 and
increase the number of
authorized shares of
preferred stock,
$1.00 par value of
the Company from
1,000,000 to
5,000,000
</TABLE>
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock is traded on Nasdaq Stock Market under the symbol
NYFX. Prior to March 6, 2000, the Company's common stock was traded on the
American Stock Exchange under the ticker symbol NYF. Prior to October 25, 1999,
the Company's common stock was traded on the American Stock Exchange under the
ticker symbol TSI. The following table sets forth the high and low sales prices
for the Common Stock, for the periods presented, as reported by the AMEX.
Prices of Common Stock
High Low
1999 Fiscal Year *
First Quarter $6.33 $4.58
Second Quarter $12.25 $4.25
Third Quarter $20.00 $9.58
Fourth Quarter $31.75 $16.67
1998 Fiscal Year * High Low
- ---------------- ---- ---
First Quarter $5.75 $4.00
Second Quarter $5.17 $3.83
Third Quarter $5.33 $3.67
Fourth Quarter $6.33 $3.83
1997 Fiscal Year * High Low
- ---------------- ---- ---
First Quarter $4.67 $3.42
Second Quarter $4.25 $3.71
Third Quarter $6.63 $5.83
Fourth Quarter $6.00 $5.17
*Restated for 3 for 2 stock split in the form of a stock dividend effective
11/15/99
(b) Holders
At March 23, 2000 the records of the Company's transfer agent indicated that
there were 457 holders of record of the Company's Common Stock.
(c) Dividends
Stockholders of the Company's Common Stock are entitled to dividends if and when
declared by the Board of Directors out of funds legally available. The Company
has not paid or declared any dividends on any class of its capital stock since
its organization and has no present intention of paying cash dividends on its
Common Stock. The Company intends to utilize any earnings it may achieve for the
development of its business and for working capital purposes.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Revenue $ 12,209,451 $ 6,235,393 $ 5,006,017 $ 7,013,605 $ 5,044,647
Net Earnings (loss) from Operations 1,194,166 (2,226,337) (2,712,109) (518,781) 15,515
Net Earnings (loss) Per Common Share:
Basic 0.07 (0.17) (0.21) (0.04) 0.01
Diluted 0.06 (0.17) (0.21) (0.04) 0.01
At Year End:
Assets - Total 38,828,025 12,997,519 7,547,263 7,473,336 5,869,925
Long Term Debt 2,000,000 1,800,000 45,855 31,065 29,167
Current Debt 500,000 -- 47,709 770,994 16,667
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto. Historical results and
percentage relationships are not necessarily indicative of the operating results
for any future period.
The Company commenced its present business operations in January 1991 through
the acquisition of a software license for its Guided-Input(R) Touchpad system.
Since that time, the Company has transitioned from a hardware vendor to a
software development company focusing exclusively on applications for the
financial marketplace. The Company provides a complete line of workstation
products for the financial trading desk environment and its systems provide
order management and routing software for firms engaged in financial trading.
During 1999 the Company achieved its first full year of profitability since the
launch of its NYFIX subscription business model in late 1997. The Company
currently offers its trading products (integrated systems including hardware and
software) together with linkage through its NYFIX data center.
The data center is a communication infrastructure known as the "NYFIX
network"enabling the Company to provide its customers with global electronic
connectivity for order routing and allows NYFIX to deploy and monitor its
systems and services from a single location. Customers subscribe to various
products, paying a monthly fee per terminal for the Company's integrated
software systems. Most contracts provide the customer with a basic system or
infrastructure, via the Company's NYFIX data center and are entered into by the
customer with the intention to expand the level of services subscribed to, once
the basic system and infrastructure are operational. Subscription revenue
contracts are generally for an initial period of one or two years with one to
three year renewal periods. The Company begins recording subscription revenue
once installation is complete.
Management has continued to apply a considerable effort to the expansion of its
operations and the development of various product enhancements to its trading
systems. The development of the NYFIX network has enabled the Company to improve
its market share. The Company believes that its expansion of personnel,
facilities, product portfolio and subscription-based model has positioned the
Company for steady future growth.
On October 27, 1999, the Company announced the formation of NYFIX Millennium
L.L.C. ("NYFIX Millennium") with a consortium of seven leading international
investment banks and brokerage firms. NYFIX Millennium is registering as a
Broker/Dealer and plans to operate in compliance with Regulation ATS. NYFIX
Millennium is an "Integrated ATS, Exchange Access and Intelligent `Best
Execution' Order-Routing System" designed to provide the financial community
with "Best-Execution." NYFIX Millennium is built upon NYFIX's proprietary "Super
FIX Engine" technology and existing NYFIX network infrastructure. NYFIX
Millennium is a Hybrid Market System leveraging new regulation and technology
with the power of the traditional markets.
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Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues
Subscription revenue for 1999 exceeded the Company's total revenue recognized
during 1998. The increase in subscription sales is partly due to a number of new
products enhancements and order routing services introduced during 1999 as well
as the Company's continued increase in new orders.
Consistent with the Company's objectives, recurring revenue has generally been
increasing on a quarter-to-quarter and year-to-year basis. Recurring contractual
revenue is accounting for a greater share of the Company's total revenue.
Recurring contractual revenue is comprised of subscription revenue and service
contracts. Recurring contractual revenue for the Company increased by
approximately 137% for the year ended December 31, 1999 (from $3,582,000 to
$8,494,000) over the comparable 1998 period. During the year ended December 31,
1999, subscription revenues and service contracts were approximately 79% and 21%
of recurring contractual revenue, respectively, as compared to 64% and 36%,
respectively, during the comparable 1998 period. The increase in recurring
contractual revenue is due principally to the Company's strategy of offering its
products and services on a subscription basis rather than capital sales coupled
with increased service agreements.
Sales revenue is comprised of software sales and capital equipment sales. Sales
revenue for the Company increased by approximately 40% for the year ended
December 31, 1999 over the comparable 1998 period (from $2,653,000 to
$3,715,000). During the year ended December 31, 1999, software sales and capital
equipment revenue were approximately 81% and 19% of sales revenues,
respectively, as compared to 61% and 39%, respectively, during the year ended
December 31, 1998. The increase in sales revenue is due principally to the
demand of its OBMS (derivatives) products. Revenue from export sales
approximated $733,000 (approximately 6% of revenue) during the year ended
December 31, 1999 as compared to approximately $234,000 (approximately 4% of
revenue) during the comparable period in 1998.
Total revenue for the Stamford/New York location increased by approximately 121%
for the year ended December 31, 1999 as compared to the year ended December 31,
1998. This increase was principally due to increased subscription revenue
recognized throughout 1999. Total revenue for the London location increased by
approximately 32% for the year ended December 31, 1999 over the comparable 1998
period. This increase was primarily due to an increase in software sales,
partially offset by a decrease in hardware sales. Total revenue for the Chicago
location increased by approximately 823% for the year ended December 31, 1999 as
compared to the year ended December 31, 1998 (from $31,000 to $286,000). The
increase was directly attributable to the growth of the Company's
subscription-based business model.
Cost of Sales and Service and Gross Profit
The Company's cost of recurring contracts and sales are principally comprised of
labor, materials, overhead, subscription communication lines, amortization of
capitalized product enhancement costs and depreciation of subscription-based
equipment. Gross profit, as a percentage of total revenue was approximately 69%
and 59% during 1999 and 1998, respectively. The increase in gross profit
percentage experienced by the Company during fiscal 1999 principally resulted
from an increase in the amount of higher margin software installations and
subscription agreements. The Company obtains its materials and supplies from a
variety of vendors in the US and Far East. During 1999, the Company did not
experience any significant price increases in its component parts purchased.
Included in cost of sales is amortization expense for product enhancement costs
of approximately $719,000 and $479,000 for 1999 and 1998, respectively. Also
included in cost of sales is depreciation expense for subscription-based
equipment of approximately $586,000 and $291,000 for 1999 and 1998,
respectively.
Selling, General and Administrative
During fiscal 1999, selling, general and administrative expenses increased 20%
(from $5,494,000 to $6,587,000) when compared to fiscal year 1998. These
increases reflect the continued expansion of the development teams both in the
U.S. and in London. The expansion in development efforts relates to the
Company's plans of providing an increased number of new and enhanced services.
These services relate to offering subscription and transaction-based order
routing, via the Company's data center, to multiple exchange-floors and between
the "Buy-side" and "Sell-side"
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<PAGE>
industry. As a result, the Company experienced increases in salaries and related
personnel costs, travel expenses and various office expenses. During the past
three years the Company added personnel principally to its technical,
programming, service, support and accounting staff. During 1999, the Company
added 25 new employees. The Company's recruitment effort continues to strengthen
the Company's infrastructure and position the Company to respond to increasing
market and revenue opportunities. The Company, during the past several years,
has spent a considerable effort in developing and enhancing a variety of "trader
desk-top" and "exchange-floor" trading systems. Management believes that the
continued investment in development of the new NYFIX data center, and its
services, are designed to better leverage the existing products together with
providing additional sources of revenue. The Company decreased its marketing
programs during 1999 from 1998 and will continue to market its products in 2000
however; a greater emphasis will be placed on its newer products & product
enhancements. Research and development (new explorative research) expenses for
the year ended December 31, 1999 and 1998 were approximately $297,000 and
$537,000, respectively, (a decrease of 45%) and are included in selling, general
and administrative expenses.
Depreciation
Depreciation expense increased by approximately 45% for the year ended December
31, 1999 over the comparable 1998 period (from $457,000 to $663,000). Such
increases principally reflect the continued investment in the Company's
infrastructure in its NYFIX data center on Wall Street.
Other (Expense) Income
Financing and interest expense increased in fiscal 1999 principally because of
higher balances outstanding on the Company's new line of credit and the cost of
warrants issued to a non-employee for the guarantee of the amounts outstanding
under the credit facility.
Other income includes interest income and other miscellaneous non-operating
items. Interest income in 1999 and 1998 approximated $113,000 and $92,000,
respectively. The 20% increase in interest income was principally because of
higher average cash balances maintained by the Company during the year ended
December 31, 1999 versus the comparable period in 1998.
Net Earnings/(Loss)
Net earnings for fiscal 1999 was approximately $960,000 ($0.07 per share)
compared to a net loss of $2,234,000 ($0.17 per share) for fiscal 1998. The
change in profitability resulted from the increase in subscription type revenue
and the increase in software capital sales. See "Revenues", "Cost of Sales and
Service and Gross Profit" and "Selling, General and Administrative" above.
Management continues to make a considerable effort with respect to expansion of
its operations, development of various trading systems, which began in 1993 and
continues into 1999 and changes to its business model to that of a
subscription-based product offering. The Company believes that this expansion of
personnel, facilities, product portfolio and subscription-based model has
positioned the Company for future growth.
At December 31, 1999, the Company had net operating loss carryforward balance of
approximately $4,300,000, which expire between 2014 and 2019. These
carryforwards may be significantly limited under the Internal Revenue Code of
1986, as amended, as a result of ownership changes resulting from the Company's
equity offerings. A valuation allowance of approximately $2,010,300 was
established at December 31, 1999 to offset any benefit from the net operating
loss carryforwards.
11
<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues
The increase in revenues for the year ended December 31, 1998 over the
comparable 1997 period was principally due to the Company's changing its
strategy to electronic order routing which it began executing in late 1997. In
addition to the conversion from capital sales to subscription sales, a number of
new products and order routing services under the NYFIX umbrella are
contributing to the Company's continued increase in new orders and corresponding
recurring revenues.
Consistent with the Company's objectives, recurring revenue has generally been
increasing on a quarter-to-quarter and year-to-year basis. Recurring contractual
revenue is accounting for a greater share of the Company's total revenue.
Recurring contractual revenue is comprised of subscription revenue and service
contracts. Recurring contractual revenue for the Company increased by
approximately 172% for the year ended December 31, 1998 (from $1,318,000 to
$3,582,000) over the comparable 1997 period. During the year ended December 31,
1998, subscription revenues and service contracts were approximately 64% and 36%
of recurring contractual revenue, respectively, as compared to 21% and 79%,
respectively, during the comparable 1997 period. The increase in recurring
contractual revenue is due principally to the Company's strategy of offering its
products and services on a subscription basis rather than capital sales coupled
with increased service agreements.
Sales revenue is comprised of capital equipment sales and software sales. Sales
revenue for the Company decreased by approximately 28% for the year ended
December 31, 1998 over the comparable 1997 period (from $3,688,000 to
$2,653,000). During the year ended December 31, 1998, capital equipment sales
and software revenue were approximately 39% and 61% of sales revenues,
respectively, as compared to 66% and 34%, respectively, during the year ended
December 31, 1997. The decrease in sales revenue is due principally to the
Company's strategy of offering its products and services on a subscription basis
rather than capital sales. Revenue from export sales approximated $234,000
(approximately 4% of revenue) during the year ended December 31, 1998 as
compared to approximately $1,283,000 (approximately 26% of revenue) during the
comparable period in 1997. During fiscal 1998, sales to two customers accounted
for approximately 26% of total revenue.
Total revenue for the Stamford/New York location increased by approximately 19%
for the year ended December 31, 1998 as compared to the year ended December 31,
1997. This increase was principally due to higher levels of subscription and
service revenue partially offset by a decrease in sales revenue resulting from
the Company's efforts to market its products on a subscription basis. Total
revenue for the London location increased by approximately 55% for the year
ended December 31, 1998 over the comparable 1997 period. This increase was also
due to higher levels of subscription and service revenue together with an
increase in software sales, partially offset by a decrease in hardware sales.
Total revenue for the Chicago location decreased by approximately 81% for the
year ended December 31, 1998 as compared to the year ended December 31, 1997
(from $167,000 to $31,000). The decrease was directly attributable to the change
in the Company's business model from capital sales to an emphasis on
subscription-based revenue.
Cost of Sales and Service and Gross Profit
The Company's cost of recurring contracts and sales are principally comprised of
labor, materials, overhead, subscription communication lines, amortization of
capitalized product enhancement costs and depreciation of subscription-based
equipment. Gross profit, as a percentage of total revenue was approximately 59%
and 46% during 1998 and 1997, respectively. The increase in gross profit
percentage experienced by the Company during fiscal 1998 principally resulted
from an increase in the amount of higher margin software installations and
subscription agreements. The Company obtains its materials and supplies from a
variety of vendors in the US and Far East. During 1998, the Company did not
experience any significant price increases in its component parts purchased.
Included in cost of sales is amortization expense for product enhancement costs
of approximately $479,000 and $373,000 for 1998 and 1997, respectively. Also
included in cost of sales is depreciation expense for subscription-based
equipment of approximately $291,000 and $111,000 for 1998 and 1997,
respectively.
12
<PAGE>
Selling, General and Administrative
During fiscal 1998, selling, general and administrative expenses increased 14%
(from $4,830,000 to $5,494,000) when compared to fiscal year 1997. These
increases reflect the continued expansion of the development teams both in the
U.S. and in London. The expansion in development efforts relates to the
Company's plans of providing an increased number of new additional services.
These services relate to offering subscription and transaction-based order
routing, via the Company's data center, to multiple exchange-floors and between
the "Buy-side" and "Sell-side" industry. As a result, the Company experienced
increases in salaries and related personnel costs, travel expenses and various
office expenses. During the past two years the Company added personnel
principally to its technical, programming, service, support and accounting
staff. During 1998, the Company added 7 new employees. The Company's recruitment
effort continues to strengthen the Company's infrastructure and position the
Company to respond to increasing market and revenue opportunities. The Company,
during the past several years, has spent a considerable effort in developing a
variety of "trader desk-top" and "exchange-floor" trading systems. Management
believes that the investment in development of the new NYFIX data center, and
its services, are designed to better leverage the existing products together
with providing additional sources of revenue. The Company has continued its
marketing programs in 1998 primarily focusing on public relations activities,
production of various product brochures, and representation at technological
exhibitions planned throughout the year. The Company will continue to expand
these programs during 1999. Research and development (new explorative research)
expenses for the year ended December 31, 1998 and 1997 were approximately
$537,000 and $322,000, respectively, (an increase of 67%) and are included in
selling, general and administrative expenses.
Depreciation
Depreciation expense increased by approximately 145% for the year ended December
31, 1998 over the comparable 1997 period (from $186,000 to $457,000). Such
increases principally reflect the continued investment in the Company's
infrastructure in its state of the art NYFIX data center on Wall Street.
Other (Expense) Income
Financing and interest expense increased in fiscal 1998 principally because of
higher balances outstanding on the Company's new line of credit and the cost of
warrants issued to a non-employee for the guarantee of the amounts outstanding
under the credit facility.
Other income includes interest income and other miscellaneous non-operating
items. Interest income in 1998 and 1997 approximated $92,000 and $133,000,
respectively. The 31% decrease in interest income was principally because of
lower average cash balances maintained by the Company during the year ended
December 31, 1998 versus the comparable period in 1997. The Company previously
leased a portion of its corporate office facility under a three-year sublease,
which expired on April 30, 1997. Due to the continuing expansion of operations,
(see "Selling, General and Administrative" above) the Company has decided not to
renew the sublease and incorporated such space into its existing corporate
facility. Sublease rental income earned during 1997 approximated $13,000.
Net Loss
Net loss for fiscal 1998 was $2,234,000 ($0.17 per share) compared to a net loss
of $2,594,000 ($0.21 per share) for fiscal 1997. The decrease in net loss
principally resulted from the increase in subscription type revenue and the
increase in software capital sales. See "Revenues", "Cost of Sales and Service
and Gross Profit" and "Selling, General and Administrative" above.
Management has made a considerable effort with respect to an expansion of its
operations, development of various trading systems, which began in 1993 and
continues into 1998 and changes to its business model to that of a
subscription-based product offering. The Company believes that this expansion of
personnel, facilities, product portfolio and subscription-based model will
better position the Company and facilitate its future growth. However, in spite
of its optimism, management is also cautioning that the Company's aggressive
conversion from a capital sales model to subscription-based model is causing
revenue recognition from subscription-based orders to be realized over a longer
period of time than the previous capital sales model.
At December 31, 1998, the Company had net operating loss carry forwards of
approximately $5,270,000, which expire between 2008 and 2013. These carry
forwards may be significantly limited under the Internal Revenue Code of 1986,
as amended, as a result of ownership changes resulting from the Company's equity
offerings. A valuation allowance of
13
<PAGE>
approximately $2,400,000 has been established at December 31, 1998 to offset any
benefit from the net operating loss carry forwards, as it cannot be determined
when or if the Company will be able to utilize the net operating losses.
Liquidity and Capital Resources
The Company's primary source of liquidity has been equity capital and draw downs
from its line of credit. In November of 1998 NYFIX raised approximately
$3,450,000 and in September of 1999 raised approximately $2,547,000 from private
placements of its securities. At December 31, 1999, cash balances decreased to
$1,566,000 from $3,948,000 at December 31, 1998 as a result of the Company's
working capital needs and continued desire to strengthen its NYFIX and
subscription infrastructure.
The Company at December 31, 1999 had total debt of $2,500,000, which represents
amounts drawn down from its line of credit. See discussion below. In addition,
at December 31, 1999, the Company had no material commitments for capital
expenditures or inventory purchases.
On July 13, 1998, the Company entered into a three-year $3 million line of
credit agreement (the "Agreement") with a financial institution with advances on
such agreement available to the Company during the first 18 months. The
Agreement is primarily intended to finance existing and future equipment
expenditures. The Agreement bears interest at either LIBOR plus 1.25% or the
Bank's Prime rate. The rate used is management's discretion. The Company drew
down an aggregate of $1,800,000 under the agreement during 1998 and an
additional $700,000 during August of 1999. The Agreement requires monthly
payments of interest only until January 30, 2000. Principal drawdowns under the
Agreement cannot be prepaid in the first eighteen months. Repayment of principal
commences on July 30, 2000 with twelve monthly installments of $83,333 with the
remaining balance due on July 30, 2001. A Company shareholder and the Company's
president personally secure the debt. In consideration for securing the
Agreement, the said shareholder and president received 150,000 and 25,000
warrants respectively, to purchase the Company's common stock at $6.375 per
share, which was the market value of the Company's common stock on the date such
warrants were issued. Expense related to the warrants issued to the non-employee
shareholder will be recognized over the three-year term of the Agreement.
In association with obtaining the $3 million line of credit facility, the
Company terminated its previous $500,000 line of credit agreement (revised from
$1 million line of credit agreement in June 1998) and repaid all outstanding
term loans.
In addition, the Company has warrants outstanding for the purchase of 367,500
shares of its Common Stock. Assuming the exercise of all such outstanding
warrants, the Company would receive approximately $1,512,000 in gross proceeds.
On October 27, 1999, NYFIX announced the formation of NYFIX Millennium, with a
consortium of seven leading international banks and brokerage firms. NYFIX
Millennium intends to operate as an alternative trading system. All of the
members of the consortium, including NYFIX, Inc. have invested $2,000,000 each
in NYFIX Millennium. In addition, each of the seven non-NYFIX members received
187,500 shares of common stock of NYFIX totaling 1,312,500 shares of common
stock (adjusted for stock split).
Working Capital
At December 31, 1999 and 1998 the Company had working capital of approximately
$4,488,000 and $5,970,000, respectively. The Company's present capital resources
include proceeds from its 1999 and 1998 private placement of Common Stock and
drawdowns from its bank credit facility.
Cash Used in Operating Activities
During fiscal 1999, net cash earned from operations was approximately $1,583,000
as compared to cash used in operations in fiscal 1998 of approximately
$1,159,000. The increase from fiscal 1998 to fiscal 1999 is primarily
attributable to the change in profitability from a loss of approximately
$2,234,000 in 1998 to net income of approximately $960,000.
14
<PAGE>
Cash Used in Investing Activities
During fiscal 1999 and fiscal 1998, net cash used in investing activities was
approximately $7,907,000 and $3,152,000, respectively, and principally
represents the Company's investment in NYFIX Millennium, along with payments for
the increased purchases of equipment related to the Company's data center and
subscription equipment and payments related to product enhancement costs for the
Company's product portfolio.
Proceeds From Financing Activities
During fiscal 1999 and fiscal 1998, proceeds from financing activities were
approximately $3,942,000 and $6,117,000, respectively. Such increase in fiscal
1999 primarily resulted from the issuance of Common Stock through the issuance
of common stock for the investment of NYFIX Millennium and the exercise of
warrants and stock options totaling approximately $874,000, and borrowings under
our credit line of approximately $700,000.
Year 2000 Compliance
NYFIX completed a Year 2000 plan consisting of several phases which include,
risk assessment, manual and automated review of programming code, baseline
testing, unit testing, integrated testing and a review of third party products.
Our systems, both internal and external, were fully functional during and after
the calendar year and leap year transitions. The Company will continue to
monitor critical business systems for possible Year 2000 system issues.
Seasonality
The Company believes that its operations are not significantly effected by
seasonality.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes standards for the accounting and reporting for derivative
instruments and for hedging activities and requires the recognition of all
derivatives as assets or liabilities measured at their fair value. Gains or
losses resulting from changes in the fair value of derivatives would be
recognized in earnings in the period of change unless certain hedging criteria
are met. We do not expect the Statement to have a material impact on our
consolidated financial statements. The statement is effective for fiscal years
beginning after June 15, 1999.
ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk principally with changes in interest
rates. Interest rate exposure is principally limited to the $2.5 million of
long-term debt outstanding at December 31, 1999, under the Company's line of
credit agreement. Borrowings under the line of credit agreement bear interest at
rates that float with the market. Assuming a change of 100 basis points in the
interest rates on the line of credit agreement, interest expense and cash flows
would be affected by approximately $25,000 on an annual basis. The Company does
not use derivative financial instruments for any purpose.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See index to Financial
Statements on Page 19.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference to the
Section entitled "Proposal No. 1. -Election of Directors" and "Executive
Compensation" in the Company's Proxy Statement for the June 5, 2000 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
no later than April 30, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
Section entitled "Executive Compensation and Transactions with Management" in
the Company's Proxy Statement for the June 5, 2000 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission no later
than April 30, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
Sections entitled "Principal Holders of Voting Securities" and "Security
Ownership of Officers and Directors" of the Company's Proxy Statement for the
June 5, 2000 Annual Meeting of Stockholders, to be filed with the Securities and
Exchange Commission no later than April 30, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
Section entitled "Executive Compensation and Transactions with Management" in
the Company's Proxy Statement for the June 5, 2000 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission no later
than April 30, 2000.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) Documents filed as part of this report
(1) Financial Information
See index to Financial Statements on Page 19
(2) Financial Statement Schedules
Supplemental schedules are omitted because they are not
required, inapplicable or the required information is shown in the
financial statements or notes thereto.
(3) Exhibits *
3.1 Articles of Incorporation of NYFIX, Inc.
(Exhibit 3.1 to Registrant's Form 10 filed
March 5, 1993).
3.2 Certificate of Amendment to Articles of
Incorporation of NYFIX, Inc. (Exhibit 3.3 to
Registrant's form S-3 Filed December 30, 1999)
16
<PAGE>
3.3 By-Laws of NYFIX, Inc. (Exhibit 3.2 to
Registrant's Form 10 filed March 5, 1993).
4.1 Certificate of Designation of Series A
Preferred Stock (Exhibit 4.1 to Registrant's
Form 10 filed March 5, 1993).
4.2 Specimen - Common Stock Certificate (Exhibit
4.2 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993).
4.3 1991 Incentive and Nonqualified Stock Option
Plan of NYFIX, Inc. (Exhibit 4.3 to
Registrant's Form S-8 Filed on October 19,
1994.)
4.4 Amendment No. 1 to Amended and Restated 1991
Incentive and Nonqualified Stock Option Plan
(Exhibit 4.4 to Registrant's Form S-8 Filed
January 21, 2000)
10.1 Employment Agreement with Peter Kilbinger
Hansen dated January 1, 1991 (Exhibit 3.2 to
Registrant's Form 10 filed March 5, 1993).
10.2 Revolving Credit Agreement, dated July 13,
1998, between Chase Manhattan Bank and NYFIX,
Inc. (Exhibit 10.4 to the Company Form 8K dated
July 13, 1998.)
10.3 Amended and Restated 1991 Incentive Stock
Option Plan of NYFIX, Inc. (Exhibit 10.3 to
Company's Annual Report on Form 10-KSB for the
year ended December 31, 1996).
10.4 Limited Liability Company Operating Agreement
of NYFIX Millennium, L.L.C.**
21.1 Subsidiaries of the Registrant (Exhibit 21.1 to
Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994).
24.1 Consent of Independent Public Accountants.**
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information purposes only and
not filed.
* - Except as noted, all exhibits have been previously filed.
** - Filed herewith.
(b) Reports on Form 8-K
On October 25, 1999 the Company filed a current report on Form 8-K relating to
the change of its name to NYFIX, Inc.
On October 28, 1999 the Company filed a current report on Form 8-K relating to
the formation of NYFIX Millennium.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has caused this report to be
signed this 30th day of March, 2000 on its behalf by the undersigned, thereunto
duly authorized.
NYFIX, INC.
By:/s/ Peter Kilbinger Hansen
--------------------------
Peter Kilbinger Hansen
Chairman of the Board
and President
(Chief Executive Officer)
POWER OF ATTORNEY
NYFIX, Inc. and each of the undersigned do hereby appoint Peter Kilbinger Hansen
and Richard A. Castillo, and each of them severally, its or his true and lawful
attorney to execute on behalf of NYFIX, Inc. and the undersigned any and all
amendments to this Annual Report on Form 10-K and to file the same with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission; each of such attorneys shall have the power
to act hereunder with or without the other.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Peter Kilbinger Hansen Chairman of the Board March 30, 2000
- ------------------------------ (Principal Executive
Peter Kilbinger Hansen Officer)
/s/ Richard A. Castillo Chief Financial Officer March 30, 2000
- ------------------------------ & Secretary (Principal
Richard A. Castillo Accounting Officer)
/s/ Dean G. Stamos Executive Vice President March 30, 2000
- ------------------------------ & Director
Dean G. Stamos
/s/ Dr. John H. Chapman Director March 30, 2000
- ------------------------------
Dr. John H. Chapman
/s/ Craig M. Shumate
- ------------------------------ Director March 30, 2000
Craig M. Shumate
/s/ Carl E. Warden Director March 30, 2000
- ------------------------------
Carl E. Warden
18
<PAGE>
Index to Financial Statements
Page
Report of Independent Public Accountants.....................................20
Financial Statements:
Consolidated Balance Sheets at December 31, 1999 and 1998.................21
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997.....................................22
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997.....................................23
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.....................................24
Notes to Consolidated Financial Statements...................................25
19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of NYFIX, Inc.:
We have audited the accompanying consolidated balance sheets of NYFIX, Inc. (a
New York corporation) and subsidiary (formerly Trinitech Systems, Inc.) as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NYFIX, Inc. and subsidiary as
of December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of valuation and qualifying
accounts (note 16) is presented for purposes of complying with the Securities
and Exchange Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/S/ ARTHUR ANDERSEN LLP
Stamford, Connecticut
March 29, 2000
20
<PAGE>
NYFIX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,565,649 $ 3,948,004
Accounts receivable - less allowance of $125,000 and $92,986, respectively 7,088,820 3,417,418
Inventories, net 1,303,658 1,279,302
Prepaid expenses and other current assets 478,641 283,912
Due from NYFIX Millennium 861,970 --
Receivable from officers 156,992 120,583
------------ ------------
Total Current Assets 11,455,730 9,049,219
EQUIPMENT, net 5,873,037 2,854,131
INVESTMENT IN NYFIX MILLENNIUM 19,500,000 --
OTHER ASSETS 1,999,258 1,094,169
------------ ------------
TOTAL ASSETS $ 38,828,025 $ 12,997,519
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,845,996 $ 873,817
Accrued expenses 1,269,070 635,943
Current portion of debt 500,000 --
Advance billings 3,178,636 1,489,057
Payroll and other taxes payable 149,043 79,953
------------ ------------
Total Current Liabilities 6,942,745 3,078,770
LONG TERM DEBT 2,000,000 1,800,000
------------ ------------
TOTAL LIABILITIES 8,942,745 4,878,770
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
10% Convertible preferred stock - par value $1.00; 5,000,000
shares authorized; zero issued and outstanding -- --
Common Stock - par value $.001; 60,000,000 authorized; 15,903,302
and 9,408,530 shares issued and outstanding 15,903 9,409
Warrants 189,509 125,513
Additional paid-in capital 35,681,437 14,767,116
Accumulated deficit (5,369,945) (6,330,364)
Due from officers and directors (631,624) (452,925)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 29,885,280 8,118,749
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,828,025 $ 12,997,519
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
21
<PAGE>
NYFIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Sales $ 3,715,479 $ 2,653,100 $ 3,688,041
Subscription revenue 6,732,928 2,278,447 273,771
Service contracts 1,761,044 1,303,846 1,044,205
------------ ------------ ------------
Total Revenues 12,209,451 6,235,393 5,006,017
------------ ------------ ------------
COST OF REVENUES 3,765,587 2,532,709 2,680,138
------------ ------------ ------------
GROSS PROFIT 8,443,864 3,702,684 2,325,879
------------ ------------ ------------
EXPENSES:
Selling, general and administrative 6,587,161 5,494,025 4,815,437
Depreciation and amortization 662,537 474,996 222,551
------------ ------------ ------------
Total Expenses 7,249,698 5,969,021 5,037,988
------------ ------------ ------------
EARNINGS (LOSS) FROM OPERATIONS 1,194,166 (2,266,337) (2,712,109)
Interest expense (221,711) (108,465) (13,463)
Interest income 112,807 91,715 133,491
Other income 11,166 61,744 12,965
------------ ------------ ------------
NET EARNINGS (LOSS) BEFORE PROVISION FOR INCOME
TAXES AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE 1,096,428 (2,221,343) (2,579,116)
PROVISION FOR INCOME TAXES 94,400 12,466 14,924
------------ ------------ ------------
NET EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE 1,002,028 (2,233,809) (2,594,040)
------------ ------------ ------------
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 41,609 -- --
------------ ------------ ------------
NET EARNINGS (LOSS) $ 960,419 $ (2,233,809) $ (2,594,040)
============ ============ ============
BASIC EARNINGS (LOSS) PER COMMON SHARE BEFORE AND
AFTER CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE $ 0.07 $ (0.17) $ (0.21)
============ ============ ============
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 14,501,722 13,241,895 12,154,995
============ ============ ============
DILUTED EARNINGS (LOSS) PER COMMON SHARE BEFORE AND
AFTER CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE $ 0.06 $ (0.17) $ (0.21)
============ ============ ============
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 15,537,941 13,241,895 12,154,995
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
22
<PAGE>
NYFIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional Due from Total
---------------------------- Paid-in Accumulated Officers Stockholders
Description Shares Amount Warrants Capital Deficit and Directors Equity
- ---------------------------- ------------ ------------- ---------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1996 7,375,030 $ 7,375 $ -- $ 6,088,975 $ (1,502,515) $ (50,000) $ 4,543,835
Stock issued from
exercise of options and
warrants 349,500 350 -- 816,588 -- -- 816,938
Common stock, net of
issuance costs 800,000 800 -- 3,514,200 -- -- 3,515,000
Due from officers and directors -- -- -- -- -- (380,000) (380,000)
Net loss -- -- -- -- (2,594,040) -- (2,594,040)
--------- ---------- -------------- ------------ ------------- ------------- -------------
BALANCE,
DECEMBER 31, 1997 8,524,530 $ 8,525 -- $10,419,763 $ (4,096,555) $ (430,000) $ 5,901,733
Stock issued from
exercise of options and
warrants 284,000 284 -- 983,466 -- -- 983,750
Common stock, net of
issuance costs 600,000 600 -- 3,449,400 -- -- 3,450,000
Warrants issued -- -- 125,513 (85,513) -- -- 40,000
Due from officers and directors -- -- -- -- -- (22,925) (22,925)
Net loss -- -- -- -- (2,233,809) -- (2,233,809)
----------- ------------ -------------- ------------ ------------- ------------- -------------
BALANCE,
DECEMBER 31, 1998 9,408,530 $ 9,409 $ 125,513 $14,767,116 $(6,330,364) $ (452,925) $ 8,118,749
Three-for-two common stock
split effected in the form
of a 50% stock dividend 4,704,265 4,704 -- (4,704) -- -- --
Stock issued from
exercise of options and
warrants 290,507 290 -- 873,650 -- -- 873,940
Common stock, net of
issuance costs 1,500,000 1,500 -- 20,045,375 -- -- 20,046,875
Warrants issued -- -- 63,996 -- -- -- 63,996
Due from officers and directors -- -- -- -- -- (178,699) (178,699)
Net earnings -- -- -- -- 960,419 -- 960,419
----------- ------------ ------------- ------------ ------------- -------------- ------------
BALANCE,
DECEMBER 31, 1999 15,903,302 $ 15,903 $ 189,509 $ 35,681,437 $ (5,369,945) $ (631,624) $ 29,885,280
=========== ============ ============ ============ ============= ============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
23
<PAGE>
NYFIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 960,419 $ (2,233,809) $ (2,594,040)
Adjustments to reconcile net earnings (loss) to net cash provided (used) in
operating activities:
Depreciation 1,244,818 747,664 297,672
Amortization 738,581 497,552 409,346
Provision for bad debts 44,758 50,922 144,269
Provision for inventory obsolescence -- -- 82,000
Noncash financing charges 63,996 40,000 --
Changes in assets and liabilities:
Accounts receivable (3,716,160) (1,609,039) 1,798,794
Inventory (24,356) 31,681 (136,186)
Due from NYFIX Millennium (861,970) -- --
Prepaid expenses and other current assets (194,729) (181,412) 90,634
Receivable from officers (36,409) (28,986) (18,820)
Accounts payable 972,179 (53,855) (458,634)
Accrued expenses 633,127 246,769 (136,479)
Advance billings 1,689,579 1,317,643 21,739
Payroll and other taxes payable 69,090 16,247 (2,102)
------------ ------------ ------------
Net cash provided by (used in) operating activities 1,582,923 (1,158,623) (501,807)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for equipment (4,263,724) (2,342,698) (1,224,742)
Investment in NYFIX Millennium (2,000,000) -- --
Payments for software development costs and other assets (1,643,670) (809,243) (574,317)
------------ ------------ ------------
Net cash used in investing activities (7,907,394) (3,151,941) (1,799,059)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 700,000 2,300,000 75,000
Repayment of borrowings -- (593,564) (783,495)
Issuance of common stock, net of issuance costs 3,242,116 4,410,825 3,951,938
------------ ------------ ------------
Net cash provided by financing activities 3,942,116 6,117,261 3,243,443
------------ ------------ ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,382,355) 1,806,697 942,577
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,948,004 2,141,307 1,198,730
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,565,649 $ 3,948,004 $ 2,141,307
============ ============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 149,777 $ 69,044 $ 16,404
Cash paid during the year for income taxes $ 39,150 $ 12,466 $ 14,924
Common stock issued for investment in NYFIX Millennium $ 17,500,000 $ -- $ --
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
24
<PAGE>
NYFIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
1. ORGANIZATION AND PRESENTATION
NYFIX, Inc. and subsidiary (formerly known as Trinitech Systems,
Inc., the "Company") develops and markets advanced electronic
trading systems to brokerage firms, international banks and global
exchanges trading in equities and futures & options. The Company's
NYFIX Network, a combined FIX (Financial Information Exchange
protocol) and Exchange Access Network, enables users to
electronically communicate trade data among the buy-side, sell-side,
and exchange floor environments. In addition, the Company offers a
range of related information technology services and maintenance
support. The Company is headquartered in Stamford, Connecticut and
maintains operations in New York, Chicago and London.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of NYFIX,
Inc. and its subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
Reclassifications
Certain 1998 and 1997 balances have been reclassified to conform to
the 1999 presentation.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with original
maturities of three months or less to be cash equivalents.
Inventories
Inventories consist of parts, finished goods and minor materials and
are stated at the lower of cost, determined on an average cost
basis, or market.
25
<PAGE>
Equipment
Equipment is stated at cost less accumulated depreciation. Included
in equipment are certain payroll costs related to the development of
the NYFIX network and other long-lived assets to support the
Company's subscription and service based businesses. Depreciation is
provided using the straight-line method over the estimated useful
lives of the assets ranging from two to eight years. The estimated
useful lives for subscription and service based equipment is
generally two to three years. In the fourth quarter of 1998, the
Company extended the life of certain subscription equipment from two
to three years. The change decreased depreciation expense by
approximately $20,000.
Other Assets
Other assets consist principally of patents, deferred product
enhancements costs (capitalized based on time incurred for
enhancements of products which have achieved technological
feasibility), and deposits. Product enhancement costs are being
amortized using the straight-line method over three years. Patent
costs are being amortized over seventeen years.
Long-Lived Assets
Long-lived assets, primarily equipment, other assets and the
investment in NYFIX Millennium are reviewed for impairment whenever
events or circumstances indicate that the asset's undiscounted
expected cash flows are not sufficient to recover its carrying
amount. The Company measures an impairment loss by comparing the
fair value of the asset to its carrying amount. The fair value of an
asset is calculated based upon the present value of expected future
cash flows. There has been no impairment in long-lived assets
through December 31, 1999.
Revenue Recognition
Sales are generally recorded upon shipment of the product to and
acceptance by customers. Subscription revenue is recognized ratably
over the life of the subscription agreements with customers.
Installation revenue is recognized at time of installation. Revenue
from service contracts is recognized ratably over the period the
services are performed. Amounts billed in advance for service,
installation and subscription contracts are deferred and reflected
as advance billings.
Research and Development
Research and development costs are expensed as incurred.
Advertising
The Company expenses advertising costs as incurred. Advertising
expense was approximately $159,000, $294,000 and $320,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
26
<PAGE>
Foreign Currency Translation
The Company's functional currency is the U.S. dollar. Accordingly,
the monetary assets and liabilities of the London sales office are
translated at year-end exchange rates while non-monetary assets and
liabilities are translated at historical rates. Revenues and
expenses are translated at average rates in effect during the year,
except for depreciation and cost of sales, which are translated at
historical rates. The resulting currency translation gain or loss is
included in the results of operations for the periods presented.
Net Earnings (Loss) Per Common Share
The Company accounts for earnings (loss) per common share under
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per share."
The weighted average number of common shares outstanding used for
calculating earnings (loss) per share is based upon the number of
shares outstanding at the end of each period. Diluted earnings
(loss) per share are not presented in either 1998 or 1997 because
the effect of the Company's common stock equivalents (employee stock
options and warrants) is antidilutive.
Cumulative Effect of a Change in Accounting Principle
In 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-Up Activities." The SOP requires costs of start-up activities
and organization costs to be expensed as incurred. The Company
adopted the SOP in 1999 and recognized a charge for the cumulative
effect of accounting change of approximately $42,000.
Income Taxes
The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes."
The Company uses different methods of accounting for financial
reporting and tax purposes, principally through the utilization of
accelerated depreciation methods for income tax purposes, certain
valuation allowances and net operating loss carry-forwards. Deferred
taxes are provided on the basis of such differences.
Financial Instruments
The carrying value for all current assets and current liabilities
approximates fair value because of their short-term nature. The
carrying value of the Company's long-term debt also approximates its
fair value based on prevailing interest rates.
Impact of Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes standards for the accounting
and reporting for derivative instruments and for hedging activities
and requires the recognition of all derivatives as assets or
liabilities measured at their fair value. Gains or losses resulting
from changes in the fair value of derivatives would be recognized in
earnings in the period of change unless certain hedging criteria are
met. The Company does not expect the Statement to have a material
impact on the consolidated financial statements. The Financial
Accounting Standards Board issued SFAS No. 137, which deferred the
effective date for SFAS No. 133, to all fiscal quarters of all
fiscal years beginning after June 15, 2000.
27
<PAGE>
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Parts, including minor materials $ 828,259 $ 823,429
Finished goods 557,399 537,873
---------- ----------
1,385,658 1,361,302
Less: Allowance for obsolescence 82,000 82,000
---------- ----------
Total $1,303,658 $1,279,302
========== ==========
</TABLE>
4. EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Computer software $ 424,022 $ 389,090
Leasehold improvements 169,755 116,002
Furniture and equipment 1,463,694 1,087,174
Subscription and service bureau equipment 6,514,267 2,715,747
---------- ----------
8,571,738 4,308,013
Less: Accumulated depreciation 2,698,701 1,453,882
---------- ----------
Total $5,873,037 $2,854,131
========== ==========
</TABLE>
Included in other assets are unamortized deferred product
enhancement costs aggregating approximately $1,811,000 and $974,000
as of December 31, 1999 and 1998, respectively. Amounts deferred are
based upon an analysis of payroll and other costs directly related
to the enhancement of existing products. Included in cost of sales
is amortization expense for product enhancement costs of
approximately $719,000, $479,000 and $373,000 for 1999, 1998 and
1997, respectively. Also included in cost of sales is depreciation
expense for subscription-based equipment of approximately $586,000,
$291,000 and 111,000 for 1999, 1998 and 1997, respectively.
5 EARNINGS PER SHARE
The Company's basic EPS is calculated based on net earnings
available to common shareholders and the weighted-average number of
shares outstanding during the reported period. Diluted EPS includes
additional dilution from common stock equivalents, such as stock
issuable pursuant to the exercise of stock options and stock
warrants.
28
<PAGE>
<TABLE>
<CAPTION>
Twelve Months
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net Earnings (Loss) $ 960,419 $(2,233,809) $ (2,594,040)
------------ ----------- ------------
Basic Weighted Average Shares Outstanding 14,501,722 13,241,895 12,154,995
============ =========== ============
Basic Earnings (Loss) per Common Share $ 0.07 $ (0.17) $ (0.21)
============ =========== ============
Dilutive Options 870,686 -- --
Dilutive Warrants 165,533 -- --
------------ ----------- ------------
Dilutive Weighted Average Shares Outstanding 15,537,941 13,241,895 12,154,995
============ =========== ============
Dilutive Earnings (Loss) per Common Share $ 0.06 $ (0.17) $ (0.21)
============ =========== ============
</TABLE>
Stock options and warrants were excluded from the earnings (loss)
per share calculation for 1998 and 1997 since the amounts would be
anti-dilutive.
6. CAPITAL STOCK
On October 21, 1999, shareholders approved an increase in the
authorized shares of the Company's common and preferred stock.
Common shares were increased from 15 million to 60 million shares
and preferred shares from 1 million to 5 million shares. Along with
this increase, the Board of Directors authorized a 3 for 2 stock
split in the form of a 50% stock dividend to all shareholders of
record on November 1, 1999, and was paid on November 15, 1999.
On September 7, 1999, the Company completed a private placement of
187,500 shares of Common Stock (adjusted for stock split) to an
institutional investment firm at a price equal to the average
closing price of the stock for the 30-day period prior to the
closing date on September 1, 1999. This approximated the fair market
value of the stock at $13.583 per share (adjusted for stock split)
for an aggregate value of $2,546,875.
On November 24, 1998, the Company completed a private placement of
900,000 shares of Common Stock, (adjusted for stock split) at a
price of $4.00 per share, for an aggregate value of $3,600,000.
Costs related to this offering amounted to approximately $150,000
resulting in net proceeds to the Company of approximately
$3,450,000.
On March 7, 1997, the Company completed a private placement of
1,200,000 shares of Common Stock, (adjusted for stock split) at a
price of $3.00 per share, for an aggregate value of $3,600,000.
Costs related to this offering amounted to approximately $85,000
resulting in net proceeds to the Company of approximately
$3,515,000.
On September 1, 1997, the Board of Directors declared a dividend
distribution of one Preference Share Purchase right (a "Right") for
each outstanding share of Common Stock, par value $.001 per share,
of the Company to stockholders of record on September 19, 1997. Each
Right entitles the registered holder to purchase from the Company
one one-hundredth of a share of Series A Preference Stock, par value
$.001 per share, of the Company, at a price of $40 per one
one-hundredth of a Preference Share, subject to adjustment, upon
change of control in the Company, as defined in the rights
agreement.
Due to the nature of the Preference Shares' dividend liquidation and
voting rights, the value of a Preference Share should approximate
the value of one share of Common Stock.
29
<PAGE>
During 1999, approximately 121,000 warrants and 169,000 options were
exercised for approximately 290,000 shares of Common Stock (adjusted
for stock split). The Company received approximately $186,000 from
the warrant exercises and approximately $532,000 from the option
exercises.
7. MAJOR CUSTOMERS AND EXPORT SALES
For the year ended December 31, 1999 two customers accounted for 24%
of total sales. For the year ended December 31, 1998, two customers
accounted for approximately 26% of total sales. For the year ended
December 31, 1997, one customer accounted for approximately 17% of
total sales. Export sales amounted to approximately $733,000,
$234,000 and $1,283,000 for the years ended December 31, 1999, 1998
and 1997, respectively.
8. RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the years ended December 31,
1999, 1998 and 1997 totaled approximately $297,000, $537,000 and
$322,000, respectively and are included in selling, general and
administrative expenses.
9. DEBT
On July 13, 1998, the Company entered into a three-year $3 million
line of credit agreement (the "Agreement") with a financial
institution with advances on such agreement available to the Company
during the first eighteen months. The Agreement is primarily
intended to finance existing and future equipment expenditures. The
Agreement bears interest at either LIBOR plus 1.25% or the Bank's
Prime rate. The rate used is at management's discretion. The Company
drew down an aggregate of $1,800,000 under the Agreement during 1998
and an additional $700,000 during 1999. The weighted average
outstanding borrowings during 1999 were approximately $2,059,000 at
a weighted average interest rate of 7.43%. The Agreement requires
monthly payments of interest only until January 30, 2000. Principal
drawdowns under the Agreement cannot be prepaid in the first
eighteen months. Repayment of principal commences on July 30, 2000,
with twelve monthly installments of $83,333 with the remaining
balance due on July 30, 2001. The debt is personally secured by a
Company non-employee shareholder and the Company's president. In
consideration for securing the Agreement, the said shareholder and
president received 225,000 and 37,500 warrants respectively
(adjusted for stock split), to purchase the Company's common stock
at $4.25 per share, which was the market value of the Company's
common stock on the date such warrants were issued. The expense
related to the warrants issued to the non-employee shareholder will
be recognized over the three-year term of the Agreement.
The following is a schedule of principal payments as of December 31,
1999:
2000 $ 500,000
2001 2,000,000
In association with obtaining the $3 million line of credit
facility, the Company terminated its previous $500,000 line of
credit agreement and repaid all outstanding term loans. The weighted
average outstanding borrowings under the previous credit line during
1998 approximated $74,000 at a weighted average interest rate of
9.50%.
30
<PAGE>
10. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Company was committed under operating
leases for offices, production facilities and equipment for terms
expiring through June 6, 2009. Future minimum annual rental payments
are as follows:
Year Amount
- ---- ------
2000 $772,144
2001 483,916
2002 365,088
2003 280,266
2004 293,883
Thereafter 693,496
Aggregate rental expense amounted to approximately $780,000,
$623,000 and $229,000 for the years ended December 31, 1999, 1998
and 1997, respectively.
In 1991, the Company entered into an employment agreement with its
President. The agreement calls for a base salary of $114,000 for the
first year, with such base salary to be reviewed on an annual basis
thereafter by the Compensation Committee of the Board of Directors.
The Company may be subject to legal proceedings, which arise in the
ordinary course of business. In the opinion of management, the
ultimate resolution of these matters will not materially affect the
Company's financial statements.
11. RELATED PARTIES
Certain executive officers and directors of the Company have amounts
due to the Company for the exercise of warrants for capital stock.
Such amounts aggregated $631,624 and $452,925 as of December 31,
1999 and 1998, respectively, and have been shown as a reduction to
stockholders' equity.
At December 31, 1999 and 1998, the Company had amounts receivable
from officers of $156,992 and $120,583, respectively.
12. DEFINED CONTRIBUTION PLAN
The Company sponsors a 401(k) retirement plan (the "Plan") covering
substantially all of its U.S. employees who meet eligibility
requirements. The Plan permits participants to contribute up to a
maximum of 15% of their annual compensation, as defined, not to
exceed the federal limit of $10,000 in 1999. The Plan permits the
Company to match employees' tax deferred contributions up to a
maximum of 3% of employees' compensation provided the Company
employs the employee at the end of the year. Remaining contributions
under the Plan are discretionary. Total contribution under the Plan
approximated $80,000, $57,000 and $52,000 in 1999, 1998 and 1997,
respectively.
13. STOCK WARRANTS AND STOCK OPTION PLAN
On March 30, 1999, the Board of Directors formally approved the
second amendment to the Amended and Restated 1991 Incentive and
Nonqualified Stock Option Plan. Under this amendment, the number of
options reserved for issuance has been increased from 1,500,000
shares to 2,500,000 shares of common stock. This amendment was
approved at the Company's Annual Meeting of Shareholders held on
June 7, 1999. In
31
<PAGE>
connection with the aforementioned stock split paid on November 15,
1999, the number of shares reserved for issuance was increased to
3,750,000.
At December 31, 1999, 1998, and 1997, the following options and
warrants had been granted and were outstanding:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Stock Exercise Stock Exercise
Options Price Warrants Price
------- ----- -------- -----
<S> <C> <C> <C> <C>
Outstanding at
December 31, 1996 435,000 $ 2.04 813,880 $ 1.83
Granted 1,128,750 $ 3.30 42,375 $ 3.00
Exercised (63,750) $ 2.05 (460,500) $ 1.49
Forfeited (72,000) $ 2.90 -- --
---------- -----------
Outstanding at
December 31, 1997 1,428,000 $ 3.01 395,755 $ 2.34
Granted 602,550 $ 4.46 300,000 $ 4.22
Exercised (301,500) $ 2.37 (124,500) $ 2.18
Forfeited (114,600) $ 4.35 (82,500) $ 1.88
---------- -----------
Outstanding at
December 31, 1998 1,614,450 $ 3.56 488,755 $ 3.61
Granted 964,425 $ 9.88 -- --
Exercised (169,302) $ 3.57 (121,256) $ 2.25
Forfeited (41,250) $ 4.03 -- --
----------- -----------
Outstanding at
December 31, 1999 2,368,323 $ 6.13 367,500 $ 4.11
=========== ===========
</TABLE>
The following table summarizes the options and warrants exercisable at December
31, 1999, 1998 and 1997 and the weighted average fair value of warrants and
options granted during the years then ended:
<TABLE>
<CAPTION>
Exerciseable Options Exercisable Warrants
-------------------- --------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Fair Value Exercise Fair Value
Options Price of Grants Warrants Price of Grants
<S> <C> <C> <C> <C> <C> <C>
Shares exercisable at
December 31, 1997 359,250 $ 2.03 $ 2.03 302,005 $ 2.14 $ 1.45
Shares exercisable at
December 31, 1998 366,750 $ 2.97 $ 2.57 110,005 $ 2.10 $ 1.95
Shares exercisable at
December 31, 1999 678,371 $ 3.37 $ 19.87 367,500 $ 4.11 $ 3.44
</TABLE>
The following table summarizes information about stock options and warrants
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Range of Outstanding at Average Remaining Average Exercisable at Average
Exercise Prices December 31, 1999 Contractual Life Exercise Price December 31, 1999 Exercise Price
--------------- ----------------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$1.50 - $2.00 61,500 4.18 $ 1.87 61,500 $ 1.87
$2.42 - $3.42 821,000 6.76 $ 3.13 440,000 $ 3.08
$3.75 - $5.42 1,142,473 7.74 $ 4.36 544,371 $ 4.29
$5.83 - $10.17 99,000 7.82 $ 8.49 -- --
$10.25 - $26.87 611,850 8.25 $ 12.29 -- --
--------- ---------
2,735,823 1,045,871
========= =========
</TABLE>
32
<PAGE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997:
o Risk free interest rates range from 4.18% to 6.42%
o Expected dividend yields of 0%
o Expected lives of 3 to 5 years and
o Expected volatility of 65%, 63% and 66%, respectively
The Company applies APB Opinion No. 25 "Accounting for Stock Issued to
Employees" to account for its stock plans. Except for certain warrants granted
to non-employees during 1998, no compensation cost has been recognized for any
option grants in the accompanying income statement. Had compensation costs been
recorded, the net earnings (loss) and basic and diluted earnings (loss) per
share would have been reduced from the following as reported amounts to the
following pro forma amounts:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Earnings (loss):
As reported $ 960,419 $ (2,233,809) $ (2,594,040)
Pro forma $ (831,791) $ (3,215,042) $ (3,335,625)
Basic earnings (loss) per common share:
As reported $ 0.07 $ (0.17) $ (0.21)
Pro forma $ (0.06) $ (0.24) $ (0.27)
Diluted earnings (loss) per common share:
As reported $ 0.06 $ (0.17) $ (0.21)
Pro forma $ (0.05) $ (0.24) $ (0.27)
</TABLE>
14. BUSINESS SEGMENT INFORMATION
The Company has two principal business groups: Equities and Futures
& Options. The Equities Group operates primarily out of Stamford/New
York offices, while the Futures & Options Group operates primarily
out of the London and Chicago offices. However, each office has the
opportunity to sell all of the Company's products. The Company views
each office as its own business segment, measures its performance
based on the revenues of each location. The Company makes decisions
on each segment based on gross profit.
Foreign operation revenues amounted to approximately $2,636,000,
$2,001,000 and $1,293,000 for the years ended December 31, 1999,
1998 and 1997, respectively. Intersegment sales are accounted for at
cost.
Identifiable assets by segment include assets directly identifiable
with those operations. Other assets consist primarily of corporate
cash and cash equivalents and fixed assets associated with
non-segment activities.
Summarized financial information by business segment for 1999, 1998
and 1997 is as follows (in 000's):
33
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Stamford / New York $ 9,287 $ 4,203 $ 3,546
London 2,636 2,001 1,293
Chicago 286 31 167
Inter-Segment Sales 78 95 189
Inter-Segment Elimination (78) (95) (189)
-------- -------- --------
Total revenues $ 12,209 $ 6,235 $ 5,006
Gross Profit:
Stamford / New York $ 5,897 $ 1,936 $ 1,185
London 2,288 1,745 1,074
Chicago 259 22 67
-------- -------- --------
Gross Profit $ 8,444 $ 3,703 $ 2,326
Identifiable assets at December 31:
Stamford / New York $ 34,313 $ 7,284 $ 4,013
London 2,411 1,472 1,130
Chicago 346 57 142
Corporate 1,758 4,184 2,262
-------- -------- --------
Total identifiable assets $ 38,828 $ 12,997 $ 7,547
Additions to fixed assets:
Stamford / New York $ 4,184 $ 2,259 $ 1,165
London 31 81 44
Chicago 49 3 16
-------- -------- --------
Total additions to fixed assets $ 4,264 $ 2,343 $ 1,225
Depreciation:
Stamford / New York $ 1,198 $ 676 $ 262
London 39 69 35
Chicago 8 3 1
-------- -------- --------
Total depreciation $ 1,245 $ 748 $ 298
</TABLE>
15. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amount used for income tax
purposes. The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liability recognized as of December 31, 1999 and 1998 are presented
below:
34
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Deferred tax assets:
Bad debt expense $ 50,000 $ 37,200
Inventory obsolescence 32,800 32,800
Product development costs 218,700 199,000
Other 50,500 53,000
Operating loss carry forward 1,721,000 2,110,100
---------- ----------
Total deferred tax asset 2,073,000 2,432,100
Less valuation allowance 2,010,300 2,400,400
---------- ----------
Net deferred tax assets 62,700 31,700
Deferred tax liability:
Depreciation 62,700 31,700
---------- ----------
Total deferred tax liability 62,700 31,700
---------- ----------
Net deferred tax amount $ -- $ --
========== ==========
</TABLE>
At December 31, 1999 and 1998, the Company had net operating loss
carry-forwards of approximately
35
<PAGE>
$4,300,000 and $5,270,000, respectively. These losses expire between
2014 and 2019. The tax benefit of such operating loss carry-forwards
will be credited to income when realization is considered more
likely than not. In addition, these amounts may be limited under
Internal Revenue Code Section 382 as a result of ownership changes
resulting from the Company's equity offerings.
Significant components of the provision (benefit) for income taxes
are as follows for the years ended:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Current $ 94,400 $ 12,466 $ 14,924
Deferred:
Federal 321,800 (727,000) (918,000)
State and foreign 68,300 (128,000) (102,400)
(Decrease) Increase in valuation
allowance (390,100) 855,000 1,020,400
----------- ----------- -----------
Total deferred -- -- --
----------- ----------- -----------
Total provision for income
taxes $ 94,400 $ 12,466 $ 14,924
=========== =========== ===========
</TABLE>
The reconciliation between the federal statutory income tax rate and
the Company's income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998 1997
------------------------------
<S> <C> <C> <C>
Statutory tax rate 34% (34%) (34%)
State and local taxes, net of federal benefit 6 (6) (6)
Alternative minimum tax and other 3 -- --
Valuation allowance (34) 40 40
--- --- ---
9% 0% 0%
</TABLE>
36
<PAGE>
16 VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance Charged to Balance at
Beginning Costs and Deductions
of Year Expenses Write-offs End of Year
------------ ---------- ------------ -----------
Allowance for doubtful accounts:
<S> <C> <C> <C> <C>
December 31, 1998 $144,000 $ 50,922 $101,936 $ 92,986
======== ======== ======== ========
December 31, 1999 $ 92,986 $ 44,758 $ 12,744 $125,000
======== ======== ======== ========
</TABLE>
17. JOINT VENTURE
On October 27, 1999, the Company announced the formation of NYFIX
Millennium, L.L.C. ("NYFIX Millennium") with a consortium of seven
leading international investment banks and brokerage firms. NYFIX
owns 50% of the joint venture and the seven other investors own the
remaining 50%. NYFIX Millennium intends to operate as an alternative
trading system for institutional investors. All of the members of
the consortium, including the Company, have invested $2,000,000 each
in NYFIX Millennium. In return for their investment, each non-NYFIX,
Inc. partner received 187,500 shares of common stock of the Company
for an aggregate 1,312,500 shares (adjusted for stock split).
NYFIX's total investment in the
37
<PAGE>
joint venture of $19,500,000 consists of (1,312,500 shares x $13.33)
$17,500,000 plus the capital cash contribution of $2,000,000.
Pursuant to the Operating Agreement, the first $14,000,000 in losses
will be allocated to the seven non-NYFIX, Inc. investors, which
equals the extent of their capital investment in NYFIX Millennium.
The Company retains the option to buy back the units up to no more
than 80% of the total membership interest. The Company may exercise
the option through the exchange of one share of the Company's common
stock for each unit to be purchased, subject to adjustments in the
event of any split, combination, reclassification or other
adjustments to the capital structure of the Company. The Company has
incurred operating and capital costs on behalf of NYFIX Millennium.
Such costs are reflected as due from NYFIX Millennium Joint Venture
on the Company's balance sheet.
18. SUBSEQUENT EVENTS
On March 14, 2000, the Company announced a 3 for 2 stock split in
the form of a 50% stock dividend to all shareholders of record on
March 24, 2000, payable on April 4, 2000. The Company has 16,021,762
common shares outstanding prior to the split and will have
24,032,643 shares outstanding following the split.
On March 16, 2000, Trinitech Systems International, Inc., a wholly
owned subsidiary of the Company announced a straight through
processing joint venture with Rolfe and Nolan PLC, to provide
advanced web-based client order management systems and back office
interfaces for the global market.
38
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
NYFIX MILLENNIUM, L.L.C.
(a Delaware limited liability company)
<PAGE>
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
NYFIX MILLENNIUM, L.L.C.
This Limited Liability Company Operating Agreement of the
above, a limited liability company organized pursuant to the Act (as hereinafter
defined), shall be effective as of the Effective Date (as hereinafter defined),
by and among the Company and the persons executing this Agreement (each a
"Member").
ARTICLE I
DEFINITIONS
For purposes of this Agreement, unless the context clearly
indicates otherwise, terms used herein shall have the meaning set forth in the
Act and the following terms shall have the following meanings:
1.1 Act. The Delaware Limited Liability Company Act and all amendments
thereto.
1.2 Affiliate. Affiliate shall have the meaning ascribed to such term
in Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
1.3 Agreement. This Limited Liability Company Operating Agreement
including all amendments adopted in accordance with this Agreement and
the Act.
1.4 Articles. The Articles of Organization of the Company, as amended
from time to time, and filed with the Secretary of State of the State
of Delaware.
1.5 Assignee. A transferee of any Unit of Membership Interest who has
not been admitted as a Substitute Member.
1.6 BHCA. The Bank Holding Company Act of 1956, as amended.
1.7 BHCA Member. A BHCA Member shall be any Member who is subject to
Section 4 of the BHCA (and shall include the BHCA Special Member).
1.8 BHCA Special Member. The BHCA Special Member shall be the Member
designated as such on the signature pages hereto.
<PAGE>
1.9 Board of Director or Board. Board of Directors or Board shall mean
the Board of Directors of the Company.
1.10 By-Laws. By-Laws shall mean the By-Laws of the Company.
1.11 Capital Accounts. Capital Accounts shall mean the capital account
of a Member as described herein.
1.12 Capital Contribution. Any contribution of Property or services
made by or on behalf of a Member, Substitute Member or Assignee.
1.13 Commitment. The Capital Contribution that a Member is obligated to
make pursuant to this Agreement.
1.14 Company. The company named at the beginning of this Agreement, a
limited liability company formed under the laws of the State of
Delaware, and any successor limited liability company.
1.15 Disability. The inability to perform a substantial portion of the
Member's services to the Company as the result of a mental or physical
illness which has continued or can reasonably be expected to continue
for a period of not less than six months or has continued or can
reasonably be expected to continue for an aggregate of not less than
180 days in any 365-day period.
1.16 Effective Date. The date of filing of the Articles or such other
date as set forth in the Articles.
1.17 Fiscal Period. Each fiscal quarter.
1.18 Initial Member. Trinitech and each other Member who became a
Member on or prior to October 31, 1999. There shall not be permitted
more than seven Initial Members, in addition to Trinitech.
1.19 Membership Interest. The rights of a Member to distributions
(liquidating or otherwise) and allocations of the Profits, Losses,
gains, deductions and credits of the Company and, to the extent
permitted by this Agreement, to possess and exercise voting rights.
1.20 Property. Any property, real or personal, tangible or intangible
including, without limitation, money, and any legal or equitable
interest in such property, but excluding services and promises to
perform services in the future.
-2-
<PAGE>
1.21 Substitute Member. An Assignee who has been admitted to all of the
rights of membership pursuant to Section 10.3 of the Agreement.
1.22 Special Dividend. A dividend of cash in an amount equal to 20% of
the Company's Profits in the fiscal quarter immediately prior to
payment of such dividend.
1.23 Tax Characterization and Additional Tax Terms. It is intended that
the Company be characterized and treated as a partnership for, and
solely for, federal, state and local income tax purposes. For such
purpose, (i) the Company shall be subject to all of the provisions of
Subchapter K of Chapter 1 of Subtitle A of the Code, (ii) all
references to a "Partner," to "Partners" and to the "Partnership" in
this Agreement (including the provisions of Article VIII) and in the
provisions of the Code and Tax Regulations cited in this Agreement
shall be deemed to refer to a Member, the Members and the Company,
respectively. In addition, the following terms shall have the following
meanings:
(a) Code shall mean the Internal Revenue Code of 1986, as
amended.
(b) Adjusted Capital Account Deficit shall mean, with
respect to any Member, the deficit balance, if any, in such Member's
Capital Account as of the end of the relevant Fiscal Period, after
giving effect to the following adjustments:
(i) Credit to such Capital Account the minimum gain
chargeback that such Member is deemed to be obligated to
restore pursuant to the penultimate sentences of Sections
1.704-2(g)(1) and 1.704-2(i)(5) of the Tax Regulations; and
(ii) Debit to such Capital Account the items
described in Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6) of the
Tax Regulations.
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d)
of the Tax Regulations and shall be interpreted consistently therewith.
(c) Nonrecourse Deductions has the meaning set forth in
Section 1.704-2(b)(1) of the Tax Regulations.
(d) Nonrecourse Liability has the meaning set forth in
Section 1.704-2(b)(3) of the Tax Regulations.
(e) Partner Nonrecourse Debt has the meaning set forth in
Section 1.704-2(b)(4) of the Tax Regulations.
-3-
<PAGE>
(f) Partner Nonrecourse Debt Minimum Gain means an amount,
with respect to each Partner Nonrecourse Debt, equal to the Partnership
Minimum Gain that would result if such Partner Nonrecourse Debt were
treated as a Nonrecourse Liability, determined in accordance with
Section 1.704-2(i)(3) of the Tax Regulations.
(g) Partner Nonrecourse Deductions has the meaning set forth
in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Tax Regulations.
(h) Partnership Minimum Gain has the meaning set forth in
Sections 1.704- 2(b)(2) and 1.704-2(d) of the Tax Regulations.
(i) Profits and Losses shall mean, for each Fiscal Period,
an amount equal to the Company's taxable income or loss for such Fiscal
Period, determined in accordance with Section 703(a) of the Code (for
this purpose, all items of income, gain, loss, or deduction required to
be stated separately pursuant to Section 703(a)(1) of the Code shall be
included in taxable income or loss), with the following adjustments:
(i) Any income of the Company that is exempt from
federal income tax and not otherwise taken into account in
computing Profits or Losses pursuant to this Section 1.22
shall be added to such taxable income or loss;
(ii) Any expenditures of the Company described in
Section 705(a)(2)(B) of the Code or treated as Section
705(a)(2)(B) of the Code expenditures pursuant to Section
1.704-1(b)(2)(iv)(i) of the Tax Regulations, and not
otherwise taken into account in computing Profits or Losses
pursuant to this Section 1.18, shall be subtracted from such
taxable income or loss;
(j) Tax Regulations shall mean the federal income tax
regulations promulgated by the United States Treasury Department under
the Code as such Tax Regulations may be amended from time to time. All
references herein to a specific section of the Tax Regulations shall be
deemed also to refer to any corresponding provision of succeeding Tax
Regulations.
1.24 Trinitech. Trinitech shall mean Trinitech Systems, Inc., a New
York corporation.
1.25 Unit. One of the units of Membership Interest that are authorized
to be issued under this Agreement. Each Unit represents a Membership
Interest with an initial ratio of one divided by the total number of
Units issued hereunder, subject to adjustment as provided herein. A
Unit is divisible into fractional parts. References to Units herein
shall be solely for the purpose of certificating the Membership
Interests authorized hereunder. Voting, the granting or withholding of
consents or approvals, and allocation of Profits and Losses and
distributions shall be made pursuant to the applicable provisions of
this Agreement without reference to the number of Units held by
Members.
-4-
<PAGE>
ARTICLE II
FORMATION
2.1 Organization. The Members hereby organize the Company as a Delaware
limited liability company pursuant to the provisions of the Act.
2.2 Agreement. For and in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Members executing this
Agreement hereby agree to the terms and conditions of the Agreement, as it may
from time to time be amended. Except as otherwise provided herein, it is the
express intention of the Members that the Agreement shall be the sole source of
agreement of the parties and, except to the extent a provision of the Agreement
expressly incorporates federal income tax rules by reference to sections of the
Code or Tax Regulations or is expressly prohibited or ineffective under the Act,
the Agreement shall govern, even when inconsistent with, or different than, the
provisions of the Act or any other law or rule. To the extent any provision of
the Agreement is prohibited or ineffective under the Act, the Agreement shall be
deemed to be amended to the least extent necessary in order to make the
Agreement effective under the Act. In the event the Act is subsequently amended
or interpreted in such a way to make any provision of the Agreement that was
formerly invalid valid, such provision shall be considered to be valid from the
effective date of such interpretation or amendment.
2.3 Name. The name of the Company is the name set forth at the
beginning of this Agreement and all business of the Company shall be conducted
under that name.
2.4 Term. The Company shall be dissolved and its affairs wound up in
accordance with the Act and the Agreement on December 31, 2049 unless the term
shall be extended by amendment to the Agreement and the Articles, or unless the
Company shall be sooner dissolved and its affairs wound up in accordance with
the Act or the Agreement.
2.5 Executive and Administrative Offices. The executive office (the
"Executive Office") of the Company shall be located at 100 Wall Street, New
York, New York, 10005 and the administrative office (the "Administrative
Office") of the Company shall be located at 333 Ludlow Street, Stamford,
Connecticut 06902. The Board of Directors may, from time to time, change the
location of the Executive Office or the Administrative Office.
2.6 Registered Agent and Office. The name and address of the registered
agent for the service of process shall be National Corporate Research, Ltd., 9
East Loockerman Street, Dover, Delaware 19901. The Board of Directors, may, from
time to time, change the registered agent or office through appropriate filings
with the Department of State of the State of Delaware. In the event the
registered agent ceases to act as such for any reason or the registered office
shall change, the Board of Directors shall promptly designate a replacement
registered agent or file a notice of change of address, as the case may be.
-5-
<PAGE>
ARTICLE III
PURPOSE; NATURE OF BUSINESS
The business purpose of the Company is to create and operate
an Alternative Trading System ("ATS") to be registered as a Broker Dealer in
compliance with Regulation ATS. The authority granted to the Board of Directors
hereunder to bind the Company shall be limited to actions necessary or
convenient to this business.
ARTICLE IV
ACCOUNTING AND RECORDS
The Board of Directors, at the Company's expense, shall
prepare and timely file income tax returns of the Company in all jurisdictions
where such filings are required, and the Company shall prepare and deliver to
each Member, as soon as practicable following the expiration of each Fiscal
Period, and at the Company's expense, all information returns and reports
required by the Code and Tax Regulations and information in respect of the
Company necessary for the preparation of the Members' federal income tax
returns.
ARTICLE V
NAMES AND ADDRESSES OF MEMBERS
The names and addresses of the Members are as set forth on
each Member's signature page hereto.
ARTICLE VI
BOARD OF DIRECTORS
6.1 Powers of the Board. (a) The business affairs of the Company shall
be managed by the Board of Directors in accordance with this Agreement and the
By-Laws. The Board may exercise all such powers of the Company and do all such
lawful acts and things as are not by statute, this Agreement or the By-Laws
directed or required to be exercised or done by the Members.
(b) Except as otherwise provided in this Agreement or the By-Laws, the
Board of Directors may delegate any or all of its powers to committees of the
Board established pursuant to the By-Laws, and to officers and agents elected or
designated by the Board or a duly constituted committee thereof.
6.2 Board Members. The Board of Directors of the Company shall
initially consist of (i) three (3) voting directors (collectively, the "Voting
Directors") to be designated by Trinitech, and (ii) a number of advisory board
members (collectively, the "Advisory Directors") equal to the
-6-
<PAGE>
number of Members other than Trinitech (the "Non-Trinitech Members"), such that
one Advisory Director shall be designated by each Non-Trinitech Member. The
Voting Directors shall initially be Peter Kilbinger Hansen, Dean Stamos and a
representative of the Company's legal counsel, as may be changed by Trinitech
from time to time. Each Advisory Director appointed to the Board of Directors
shall have the right to attend all board meetings and to participate in all
discussions regarding the management of the Company and make recommendations to
the Voting Directors. All decisions relating to the management and operations of
the Company shall be made solely through a majority vote of the Voting
Directors, subject to the provisions of Section II(4) of the Subscription
Agreements between the Company, Trinitech and each of the other Initial Members.
6.3 Records to be Maintained. The Board of Directors of the Company
shall maintain, or cause to be maintained, the following records at the
Administrative Office:
(a) A current list of the full name and last known business or
residence address of each Member and former Member and the Capital Account of
each Member associated with their respective Membership Interests, as of a
recent practicable date;
(b) A copy of the Certificate and all amendments thereto, together with
executed copies of any powers of attorney pursuant to which the Certificate has
been executed;
(c) Copies of the Company's federal, foreign, state and local income
tax returns and reports, if any, for the seven most recent years;
(d) Copies of this Agreement, including all subsequent amendments
thereto; and
(e) Copies of all financial statements of the Company for the seven
most recent years.
6.4 Reports to Members. The Board of Directors shall provide (or cause
the Company to provide) reports at least annually to the Members at such time
(but not later than 90 days after the end of each fiscal year of the Company,
unless good cause is shown) and in such manner as it shall reasonably determine,
which reports shall include (i) a balance sheet of the Company as of the close
of the last completed fiscal year, a statement of income showing the results of
operation of the Company during such year, and a cash flow statement showing the
cash receipts and disbursements of the Company during such year, each prepared
in accordance with GAAP, (ii) a statement showing each Member's share of Profit
or Loss of the Company for such year, and (iii) such other information as the
Board deems appropriate. The Board shall provide (or cause the Company to
provide) all Members with the information returns required by the Code and the
laws of any applicable state in a timely manner.
-7-
<PAGE>
ARTICLE VII
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
7.1 Capital Contributions. Each Member shall, no later than upon his
execution and delivery of this Agreement, make the Capital Contribution set
forth on his respective signature page hereto, in consideration of which each
Member shall receive the Membership Interest set forth on its respective
signature page; provided, however, Trinitech shall receive a Membership Interest
equal to the aggregate Membership Interest of all other Initial Members, to be
adjusted as appropriate such that Trinitech shall have a Membership Interest
equal to 50% of the Units granted to all Initial Members, including Trinitech.
No Member shall have the right to withdraw or be repaid any Capital Contribution
except as provided in this Agreement.
7.2 Capital Account. A separate Capital Account shall be maintained for
each Member throughout the term of the Company in accordance with the rules of
Section 1.704-1(b)(2)(iv) of the Tax Regulations as in effect from time to time
and, to the extent not inconsistent therewith, to which the following provisions
apply:
(a) To each Member's Capital Account there shall be credited
(i) the amount of money contributed by such Member to the Company
(including liabilities of the Company assumed by such Member as
provided in Section 1.704-1(b)(2)(iv)(c) of the Tax Regulations); (ii)
the fair market value of any Property contributed to the Company by
such Member (net of liabilities secured by such contributed Property
that the Company is considered to assume or take subject to under
Section 752 of the Code); and (iii) such Member's share of Profits and
items of income and gain.
(b) To each Member's Capital Account there shall be debited:
(i) the amount of money distributed to such Member by the Company
(including liabilities of such Member assumed by the Company as
provided in Section 1.704-1(b)(2)(iv)(c) of the Tax Regulations) other
than amounts which are in repayment of debt obligations of the Company
to such Member; (ii) the fair market value of Property distributed to
such Member (net of liabilities secured by such distributed Property
that such Member is considered to assume or take subject to under
Section 752 of the Code); and (iii) such Member's share of Losses or
items of loss or deduction that are specially allocated.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Section
1.704-1(b) of the Tax Regulations and Section 704(c) of the Code and shall be
interpreted and applied in a manner consistent with such Tax Regulations. In the
event the Members shall determine that it is prudent to modify the manner in
which the Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities that are secured by
contributed or distributed Property or that are assumed by the Company or any
Member), are computed in order to comply with such Tax Regulations, the Members
may make such modification, provided that it is not likely to have a
-8-
<PAGE>
material effect on the amounts distributable to any Member pursuant to Article
XI hereof upon the dissolution of the Company.
7.3 Withdrawal. A Member shall not be entitled to withdraw any part of
its Capital Account or to receive any distribution from the Company, except as
specifically provided in the Agreement, and no Member shall be entitled to make
any Capital Contribution to the Company other than in respect of his respective
Commitment.
7.4 Interest. No Member shall be entitled to interest on such Member's
Capital Contribution or on any Profits retained by the Company.
7.5 Additional Members. At any time up to October 31, 1999, the Board
of Directors may, in its sole discretion, from time to time, admit to the
Company one or more persons as additional Initial Members; provided, however,
that the number of Initial Members, other than Trinitech, shall not exceed
seven. Each additional Initial Member shall execute a counterpart of this
Agreement and such other instruments as the Board of Directors may require to
confirm the undertaking of such person to be bound by all the terms and
provisions of this Agreement. At any time subsequent to October 31, 1999, the
Company may from time to time, with the prior written consent of both (i)
two-thirds of the Members, such two-thirds calculated on the basis of the total
number of Members without regard to the Members' respective Membership
Interests, and (ii) Trinitech, admit to the Company one or more persons as
additional Members. Each such additional Member shall execute a counterpart of
this Agreement and such other instruments as the Board of Directors may require
to confirm the undertaking of such person to be bound by all the terms and
provisions of this Agreement. With respect to any such additional Member
admitted to the Company on or after October 31, 1999, the Capital Accounts of
Members other than such additional Member shall be adjusted, i.e. "booked up" or
"booked down" as the case may be, in accordance with Section
1.704-1(b)(2)(iv)(f) of the Tax Regulations to reflect the Commitment of the
additional Member, except as otherwise determined by consent of the Members and
Trinitech as provided above.
ARTICLE VIII
ALLOCATIONS AND DISTRIBUTIONS
8.1 Profits and Losses. Profits and Losses, and each item of Company
income, gain, loss, deduction, credit and tax preference with respect thereto,
for each Fiscal Period (or shorter period in respect of which such items are to
be allocated) shall be allocated among the Members as provided in this Article
VIII.
(a) Profits. After giving effect to the special allocations
set forth in Sections 8.3, 8.4 and 8.6, Profits for any Fiscal Period shall be
allocated: 80% to Trinitech and 20% to the Non- Trinitech Members in accordance
with Section 8.5.
-9-
<PAGE>
(b) Losses. After giving effect to the special allocations
set forth in Sections 8.4 and 8.5, Losses shall be allocated in the following
order of priority:
(i) first, as to the first Losses up to the product
of (x) $2,000,000 multiplied by (y) the number of Initial
Members (other than Trinitech), to the Non- Trinitech
Members, in proportion to their respective Membership
Interests, but only to the extent of their respective
Capital Account balances;
(ii) second, to Trinitech to the extent of its
Capital Account balance; and
(iii) then, the balance, if any, among the Members in
proportion to their respective Membership Interests.
8.2 Distributions.
(a) Dividends. Distributions shall be made (i) to the
Non-Trinitech Members in an amount equal to 20% of the Profits for any Fiscal
Period, which distribution shall be the Special Dividend allocated and paid
pursuant to the provisions set forth in Section 8.2(b) below and (ii) to
Trinitech in an amount equal to 80% of the Profits for any Fiscal Period. The
distributions to Trinitech shall be made at such time or times as the Board of
Directors shall determine consistent with the provisions of this Agreement.
(b) Non-Trinitech Member Dividends. Dividends to the
Non-Trinitech Members as provided in Section 8.2(a) above shall be paid as a
Special Dividend no later than 45 days following the end of any fiscal quarter
in which the Company shows a Profit. Such Special Dividend shall be distributed
amongst the Non-Trinitech Members according to the fraction, the numerator of
which is the aggregate order flow volume measured in Company eligible shares of
each Non- Trinitech Member during such fiscal quarter, and the denominator of
which is aggregate order flow volume measure in Company eligible shares for all
Non-Trinitech Members during such fiscal quarter. For example, if the Profits
for a fiscal quarter are $25 million, and a Non-Trinitech Member puts through 50
million aggregate order flow volume measured in Company eligible shares during
such fiscal quarter, while all Non-Trinitech Members put through 100 million
aggregate order flow volume measured in Company eligible shares during such
fiscal quarter, then such Member shall receive one-half of the available Special
Dividend, or $2.5 million. No such Special Dividend shall be payable following
any fiscal quarter in which the Company has not shown a Profit, nor shall such
Special Dividend be payable to the Non-Trinitech Member(s), if any, who fail to
effectuate any trades with the Company during the fiscal quarter for which a
Special Dividend relates.
8.3 Special Allocations. The following special allocations shall be
made in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704- 2(f) of the Tax Regulations, notwithstanding any other provision
of this Article VIII, if there is a net decrease in Partnership Minimum Gain
during any Fiscal Period, each Member shall be specially
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allocated items of Company income and gain for such Fiscal Period (and, if
necessary, subsequent Fiscal Periods) in an amount equal to such Member's share
of the net decrease in Partnership Minimum Gain, determined in accordance with
Section 1.704-2(g) of the Tax Regulations. Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Member pursuant thereto. The items to be so allocated shall be
determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the
Tax Regulations. This Section 8.3(a) is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(f) of the Tax Regulations and shall be
interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Except as otherwise
provided in Section 1.704-2(i)(4) of the Tax Regulations, notwithstanding any
other provision of this Article VIII, if there is a net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to a Partner Nonrecourse Debt during
any Fiscal Period, each Member who has a share of the Partner Nonrecourse Debt
Minimum Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Section 1.704-2(i)(5) of the Tax Regulations, shall be specially
allocated items of Company income and gain for such Fiscal Period (and, if
necessary, subsequent Fiscal Periods) in an amount equal to such Member's share
of the net decrease in Partner Nonrecourse Debt Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Section 1.704-
2(i)(4) of the Tax Regulations. Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Member pursuant thereto. The items to be so allocated shall be
determined in accordance with Sections 1.704-2(i)(4) and 1.704- 2(j)(2) of the
Tax Regulations. This Section 8.3(b) is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(i)(4) of the Tax Regulations and shall
be interpreted consistently therewith.
(c) Qualified Income Offset. In the event any Member
unexpectedly receives any adjustments, allocations, or distributions described
in Section 1.704-1(b)(2)(ii)(d)(4), Section 1.704- 1(b)(2)(ii)(d)(5), or Section
1.704-1(b)(2)(ii)(d)(6) of the Tax Regulations, items of Company income and gain
shall be specially allocated to the Member in an amount and manner sufficient to
eliminate, to the extent required by the Tax Regulations, the Adjusted Capital
Account Deficit of the Member as quickly as possible, provided that an
allocation pursuant to this Section 8.3(c) shall be made only if and to the
extent that the Member would have an Adjusted Capital Account Deficit after all
other allocations provided for in this Article VIII have been tentatively made
as if this Section 8.3(c) were not in this Agreement.
(d) Gross Income Allocation. In the event any Member has a
deficit Capital Account at the end of any Fiscal Period which is in excess of
the sum of the amounts such Member is deemed to be obligated to restore pursuant
to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the
Tax Regulations, each such Member shall be specially allocated items of Company
income and gain in the amount of such excess as quickly as possible, provided
that an allocation pursuant to this Section 8.3(d) shall be made only if and to
the extent that such Member would have a deficit Capital Account in excess of
such sum after all other allocations provided for in this Article VIII have been
made as if Section 8.3(c) and this Section 8.3(d) were not in this Agreement.
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(e) Nonrecourse Deductions. Nonrecourse Deductions for any
Fiscal Period shall be specially allocated among the Members in proportion to
their Membership Interests.
(f) Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any Fiscal Period shall be specially allocated to the Member who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Section 1.704-2(i)(1) of the Tax Regulations.
(g) Mandatory Allocations Under Section 704(c) of the Code.
Notwithstanding the foregoing provisions of this Section 8.3, in the event
Section 704(c) of the Code or Section 704(c) of the Code principles applicable
under Section 1.704-1(b)(2)(iv) of the Tax Regulations require allocations of
Profits or Losses in a manner different than that set forth above, the
provisions of Section 704(c) of the Code and the Tax Regulations thereunder
shall control such allocations among the Members. Any item of Company income,
gain, loss and deduction with respect to any property (other than cash) that has
been contributed by a Member to the capital of the Company or which has been
revalued for Capital Account purposes pursuant to Section 1.704-l(b)(2)(iv) of
the Tax Regulations) and which is required or permitted to be allocated to such
Member for income tax purposes under Section 704(c) of the Code so as to take
into account the variation between the tax basis of such property and its fair
market value at the time of its contribution shall be allocated solely for
income tax purposes in the manner so required or permitted under Section 704(c)
of the Code using the "traditional method" described in Section 1.704-3(b) of
the Tax Regulations; provided, however, that curative allocations consisting of
the special allocation of gain or loss upon the sale or other disposition of the
contributed property shall be made in accordance with Section 1.704-3(c) of the
Tax Regulations to the extent necessary to eliminate any disparity, to the
extent possible, between the Members' book and tax Capital Accounts attributable
to such property; further provided, however, that any other method allowable
under applicable Tax Regulations may be used for any contribution of property as
to which there is agreement between the contributing Member and the other
Members.
8.4 Curative Allocations. The allocations set forth in Sections 8.3 (a)
through (g) (the "Regulatory Allocations") are intended to comply with certain
requirements of the Tax Regulations. It is the intent of the Members that, to
the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
Company income, gain, loss, or deduction pursuant to this Section 8.4.
Therefore, notwithstanding any other provision of this Article VIII (other than
the Regulatory Allocations), the Members shall make such offsetting special
allocations of Company income, gain, loss, or deduction in whatever manner it
determines appropriate so that, after such offsetting allocations are made, each
Member's Capital Account balance is, to the extent possible, equal to the
Capital Account balance such Member would have had if the Regulatory Allocations
were not part of this Agreement and all Company items were allocated pursuant to
Sections 8.2 and 8.3. The Members (i) shall take into account future Regulatory
Allocations under Sections 8.3(a) and 8.3(b) that, although not yet made, are
likely to offset other Regulatory Allocations previously made under Sections
8.3(e) and 8.3(f) and (ii) may reallocate Profits and Losses for prior open
years (or items of gross income and deduction of the Company for such years)
among the Members to the extent it is not possible to achieve such result
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with allocations of items of income (including gross income) and deduction for
the current year and future years. This Section 8.4 shall control
notwithstanding any reallocation or adjustment of taxable income, taxable loss,
or items thereof by the Internal Revenue Service or any other taxing authority.
8.5 Allocations Relating to Non-Trinitech Member Dividends.
(a) Any Non-Trinitech Member allocated a Special Dividend
pursuant to Section 8.2 shall also be allocated that percentage of the Profits
for the fiscal quarter that relates to such Non- Trinitech Member's Special
Dividend.
(b) The amount of any Special Dividend shall be charged
against and shall reduce the Capital Accounts of the Non-Trinitech Members in
accordance with the distributions to each such Non-Trinitech Member pursuant to
Section 8.2(b).
8.6 Other Allocation Rules.
(a) For purposes of determining the Profits, Losses, or any
other item allocable to any period (including allocations to take into account
any changes in any Member's Membership Interest during a Fiscal Period and any
transfer of any interest in the Company), Profits, Losses, and any such other
item shall be determined on a daily, monthly, or other basis, as determined by
the Members using any permissible method under Section 706 of the Code and the
Tax Regulations thereunder.
(b) The Members are aware of the income tax consequences of
the allocations made by this Article VIII and hereby agree to be bound by the
provisions of this Article VIII in reporting their shares of Company income and
loss for income tax purposes.
ARTICLE IX
TAXES
9.1 Tax Matters Partner. Trinitech shall be the Tax Matters Partner of
the Company pursuant to Section 6231(a)(7) of the Code. Such Member shall not
resign as the Tax Matters Partner unless, on the effective date of such
resignation, the Company has designated another Member as Tax Matters Partner
and such Member has given its consent in writing to its appointment as Tax
Matters Partner. The Tax Matters Partner shall receive no additional
compensation from the Company for its services in that capacity, but all
expenses incurred by the Tax Matters Partner in such capacity shall be borne by
the Company. The Tax Matters Partner is authorized to employ such accountants,
attorneys and agents as he, in his sole discretion, determines is necessary to
or useful in the performance of its duties. In addition, such Member shall serve
in a similar capacity with respect to any similar tax related or other election
provided by state or local laws.
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9.2 Section 754 Election. The Board of Directors may agree to have the
Company make the election permitted by Section 754 of the Code with respect to
adjustments to the basis of Property of the Company. The cost of preparing such
election, and any additional accounting expenses of the Company occasioned by
such election, shall be borne by the transferees or distributees of the interest
in the Company.
ARTICLE X
TRANSFER OF MEMBERSHIP INTEREST
10.1 Compliance with Securities Laws. No Unit of Membership Interest
has been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or under any applicable state securities laws. A Member may
not transfer (a transfer, for purposes of this Agreement, shall be deemed to
include, but not be limited to, any sale, transfer, assignment, pledge, creation
of a security interest or other disposition) all or any part of such Member's
Units of Membership Interest, except upon compliance with the applicable federal
and state securities laws. The Members shall have no obligation to register any
Member's Units of Membership Interest under the Securities Act or under any
applicable state securities laws, or to make any exemption therefrom available
to any Member.
10.2 Transfer of Economic Interest. The right to receive allocations of
Profits and Losses and to receive distributions may not be transferred, in whole
or in part, unless the following terms and conditions have been satisfied:
(a) Members (including the transferring Member) holding at
least 51% of the Membership Interests shall have consented in writing
to the transfer, which consent may be arbitrarily withheld by any such
Member;
(b) The transferor shall have assumed all costs incurred by
the Company in connection with the transfer;
(c) The transferor shall have furnished the Company with a
written opinion of counsel, satisfactory in form and substance to
counsel for the Company, that such transfer complies with applicable
federal and state securities laws and the Agreement and that such
transfer, for federal income tax purposes, will not cause the
termination of the Company under Section 708(b) of the Code, cause the
Company to be treated as an association taxable as a corporation for
income tax purposes or otherwise adversely affect the Company or the
Members; and
(d) The transferor shall have complied with such other
conditions as the Board may reasonably require from time to time.
Transfers will be recognized by the Company as effective only upon the close of
business on the last day of the calendar month following satisfaction of the
above conditions. Any transfer in
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contravention of this Article X and any transfer which if made would cause a
termination of the Company for federal income tax purposes under Section 708(b)
of the Code shall be void ab initio and without force and effect and shall not
bind the Company or the other Members. Transfers by Members to Affiliates shall
not be subject to the provisions of Section 10.2(a) hereof.
10.3 Transfer of Membership Interest and Admission of Substitute
Member. Except for the right to receive allocations of Profits and Losses and to
receive distributions, a Membership Interest of any Member may not be
transferred, in whole or in part, and a transferee shall not have a right to
become a Member unless, in addition to satisfying the terms and conditions of
Sections 10.2 (b), (c) and (d), the following terms and conditions have been
satisfied:
(a) Members (including the transferring Member) holding at
least 51% of the Membership Interests shall have consented in writing
to the transfer and substitution, which consent may be arbitrarily
withheld by any such Member;
(b) The transferee shall have assumed the obligations, if
any, of the transferor to the Company, including the obligation to
fulfill the pro rata portion of the transferor's then existing or
subsequently arising Commitment allocable to the transferred Unit of
Membership Interest or portion thereof; and
(c) The transferor and the transferee shall have complied
with such other requirements as the Board may reasonably impose
including, without limitation, the conditions that the transferee:
(i) adopt and approve in writing all the terms and
provisions of the Agreement then in effect; and
(ii) pay such fees as may be reasonable to pay the
costs of the Company in effecting such substitution.
Transfers by Members to Affiliates shall not be subject to
the provisions of Section 10.3(a) hereof.
10.4 Status of Transferee. Except as otherwise provided herein, a
transferee of a Unit of Membership Interest who is not a Substitute Member shall
be entitled only to receive that share of Profits, Losses and distributions, and
the return of Capital Contributions, to which the transferor would otherwise be
entitled with respect to the interest transferred, and shall not have the rights
of a Member of the Company under the Act or this Agreement including, without
limitation, the right to obtain any information on account of the Company's
transactions, to inspect the Company's books or to vote with the Members on, or
to grant or withhold consents or approvals of, any matter. The Company shall,
however, if a transferee and transferor jointly advise the Company in writing of
a transfer of the Unit of Membership Interest, furnish the transferee with
pertinent tax information at the end of each Fiscal Period.
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10.5 Transfer of Membership Interest of a BHCA Special Member and other
BHCA Related Provisions.
(a) A BHCA Special Member's Membership Interest shall be
held by any assignee or other transferee of such BHCA Special Member's
Membership Interest in the same capacity, provided that any such assignee or
transferee shall have full voting rights with regard to such Membership
Interest, without regard to the limitation set forth in Section 13.1, if they
are transferred (i) to the public in an offering registered under the Securities
Act of 1933, as amended (the "Securities Act"), (ii) in a transaction pursuant
to Rules 144 or 144A under the Securities Act in which no person acquires more
than 2% of the Company's outstanding Membership Interests or (iii) in a single
transaction to a third party who acquires a majority of the Company's
outstanding Membership Interests without regard to the transfer of such BHCA
Special Member's Membership Interests. In the event of a change in the law
governing a BHCA Special Member the effect of which is to permit any such BHCA
Special Member to transfer such Membership Interests in any other manner, the
foregoing shall be deemed modified to permit a transfer of such Membership
Interests in such other manner.
(b) No transfer of a Unit of Membership Interest by a BHCA
Special Member shall confer on such transferee a greater Membership Interest
than such BHCA Special Member had after giving effect to the limitations imposed
pursuant to the BHCA unless such transferor certifies to the Board of Directors
that the transfer, taking into account the increase in Membership Interest
resulting therefrom, is consistent with applicable banking law, including the
BHCA.
(c) If at any time the percentage Membership Interest owned
by a BHCA Member or its Affiliates exceeds 24.99% of the total issued and
outstanding Membership Interests of the Company (the "Ownership Threshold"),
such BHCA Member, or its Affiliate, as the case may be, shall be permitted to
transfer that portion of its Membership Interest as is necessary to reduce its
percentage ownership to the Ownership Threshold, notwithstanding any contrary
provision limiting transfer herein or in any agreement among the Members, and
the Company shall cooperate to the extent reasonably request by the BHCA Member
at the BHCA Member's expense in the discovery of a purchaser for such portion of
such BHCA Member's Membership Interests; provided, however, that if such BHCA
Member, or its Affiliate, as the case may be, is unable within 60 days to
transfer such portion of its Membership Interests, the Company will take such
action as such BHCA Member may reasonably request to reduce such BHCA Member's
percentage ownership to the Ownership Threshold, at the BHCA Member's expense.
10.6 Legend on Certificates. The certificates representing the Units
shall bear the following legend:
"THE UNITS OF MEMBERSHIP INTEREST REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO AN OPERATING AGREEMENT, A COPY OF
WHICH IS ON FILE AT THE ADMINISTRATIVE OFFICE OF THE
COMPANY. THE UNITS OF MEMBERSHIP INTEREST MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED,
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HYPOTHECATED, OR OTHERWISE DISPOSED OF EXCEPT AS EXPRESSLY
PROVIDED BY THE TERMS OF THE OPERATING AGREEMENT."
10.7 Dispositions Not in Compliance with this Article Void. Any
attempted disposition of a Unit of Membership Interest, or any part thereof, not
in compliance with this Article X shall be void ab initio and without force and
effect and shall not bind the Company or the other Members.
ARTICLE XI
DISSOLUTION AND WINDING UP
11.1 Dissolution. The Company shall be dissolved and its affairs wound
up, upon the first to occur of any of the following events (each of which shall
constitute a Dissolution Event):
(a) the expiration of the term of the Agreement, unless the
Company is continued with the consent of Members holding at least a
majority of the Membership Interests; or
(b) the unanimous written consent of all of the Members,
without regard to whether or not a Member is a BHCA Member.
11.2 Effect of Dissolution. Upon dissolution, the Company shall not be
terminated and shall continue until the winding up of the affairs of the Company
is completed and a certificate of cancellation has been filed with the Office of
the Secretary of State of the State of Delaware.
11.3 Distribution of Assets on Dissolution. Upon the winding up of the
Company, the Members acting together (or such Person(s) designated by the
Members representing at least a majority of the Membership Interests) shall take
full account of the assets and liabilities of the Company, shall liquidate the
assets (unless the Members determine that a distribution of any Company Property
in-kind would be more advantageous to the Members than the sale thereof) as
promptly as is consistent with obtaining the fair value thereof, and shall apply
and distribute the proceeds therefrom in the following order:
(a) first, to the payment of the debts and liabilities of
the Company to creditors, including Members who are creditors, to the
extent permitted by law, in satisfaction of such debts and liabilities,
and to the payment of necessary expenses of liquidation;
(b) second, to the setting up of any reserves which the
Members may deem necessary or appropriate for any anticipated
obligations or contingencies of the Company arising out of or in
connection with the operation or business of the Company. Such reserves
may be paid over by the Members to an escrow agent or trustee selected
by the Members to be disbursed by such escrow agent or trustee in
payment of any of the aforementioned obligations or contingencies and,
if any balance remains at the expiration of such period as
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the Members shall deem advisable, shall be distributed by such escrow
agent or trustee in the manner hereinafter provided;
(c) third, to the Members pro rata in accordance with and to
the extent of their positive Capital Account balances, if any;
(d) then, to the Members in accordance with their Membership
Interests.
Liquidation proceeds shall be paid within 60 days of the end of the
Company's taxable year in which the liquidation occurs. Such distributions shall
be in cash or Property (which need not be distributed proportionately) or partly
in both, as determined by the Board.
If at the time of liquidation the Members shall determine that an
immediate sale of some or all Company Property would cause undue loss to the
Members, the Members may, in order to avoid such loss, defer liquidation.
11.4 Winding Up and Filing Certificate of Cancellation. Upon the
commencement of the winding up of the Company, a certificate of cancellation
shall be delivered by the Company to the Secretary of State of the State of
Delaware for filing. The certificate of cancellation shall set forth the
information required by the Act. The winding up of the Company shall be
completed when all debts, liabilities and obligations of the Company have been
paid and discharged or reasonably adequate provision therefor has been made, and
all of the remaining Property of the Company has been distributed to the
Members.
ARTICLE XII
TRINITECH STOCK ISSUANCE AND PURCHASE OPTION
12.1 Trinitech Stock Issuance. As consideration for the Option (as
defined in Section 12.2 below) Trinitech shall, no later than upon its execution
and delivery of this Agreement, deliver to each Non-Trinitech Member the number
of shares of common stock of Trinitech set forth on such Member's respective
signature page hereto. Such shares will not initially be registered under the
Securities Act, and shall bear a legend to such effect, in the form determined
by Trinitech.
12.2 Trinitech Purchase Option. Trinitech shall have the option (the
"Option"), at any time and from time to time, to purchase the Units of
Membership Interest of the Non-Trinitech Members, such that Trinitech may
increase its Membership Interest to no more than 80% of the total Membership
Interest. Trinitech may exercise the Option through the exchange of one share of
Trinitech for each Unit to be purchased, subject to adjustment in the event of
any split, combination, reclassification or other adjustment to the capital
structure of Trinitech. Any Units purchased pursuant to the Option shall be
considered purchased pro rata from the Non-Trinitech Members according to their
Membership Interests.
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ARTICLE XIII
MISCELLANEOUS
13.1 BHCA Membership Interest. Except as otherwise provided herein, for
the purposes of calculating the percentage Membership Interest in connection
with any vote required herein, each BHCA Member shall be deemed to have a
Membership Interest which shall be the lesser of (i) such BHCA Member's
Membership Interest or (ii) 4.99% of the total Membership Interest. Neither a
BHCA Member nor its Affiliates may request that such BHCA Member's Membership
Interest be increased unless such increase is permissible under the BHCA and the
Company may rely on a representation made by a BHCA Member to the Company to
such effect. Notwithstanding the foregoing, a BHCA Member's Membership Interest
shall never exceed such Member's Membership Interest.
13.2 Notices. Notices to the Company shall be sent to the
Administrative Office of the Company. Notices to the Members shall be sent to
the addresses set forth on their respective signature page. Any Member may
require notices to be sent to a different address by giving notice to the other
Members in accordance with this Section 13.2. Any notice or other communication
required or permitted hereunder shall be in writing, and shall be deemed to have
been given with receipt confirmed if and when delivered personally, given by
prepaid telegram or mailed first class, postage prepaid, delivered by courier,
or sent by facsimile, to such Members at such address.
13.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes any prior agreement or understanding between
them respecting the subject matter of this Agreement.
13.4 Saving Clause. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
13.5 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.6 Governing Law. The Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
13.7 No Rights of Creditors and Third Parties under Agreement. The
Agreement is entered into among the Company and the Members for the exclusive
benefit of the Company, its Members and their successors and assignees. The
Agreement is expressly not intended for the benefit of any creditor of the
Company or any other person. Except and only to the extent provided by
applicable statute, no such creditor or any third party shall have any rights
under the Agreement or any agreement between the Company and any Member with
respect to any Capital Contribution or otherwise.
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13.8 General Interpretive Principles. For purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Agreement include the plural
as well as the singular, and the use of any gender herein shall be deemed to
include the other gender;
(b) accounting terms not otherwise defined herein have the
meanings given to them in the United States in accordance with GAAP consistently
applied;
(c) references herein to "Sections," "paragraphs" and other
subdivisions without reference to a document are to designated Sections,
paragraphs and other subdivisions of this Agreement;
(d) a reference to a paragraph without further reference to
a Section is a reference to such paragraph as contained in the same Section in
which the reference appears, and this rule shall also apply to other
subdivisions;
(e) the words "herein," "hereof," "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular provision; and
(f) the term "include" or "including" shall mean without
limitation by reason of enumeration.
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IN WITNESS WHEREOF, the parties hereto have hereunto set
their hands as of the Effective Date.
INVESTOR*
UBS (USA) Inc.
/s/ R.H. Mills, Managing Director
- ---------------------------------
/s/ Per Dyrvik
- --------------
Address: 677 Washington Boulevard
Stamford, CT 06912
USA
Membership Interest: 25,000 Units
Capital Contribution: $2,000,000
Number of Shares of Trinitech Systems, Inc.
issued in exchange for the Option 125,000 Shares
-------
*BHCA SPECIAL MEMBER
NYFIX MILLENNIUM, L.L.C.
By: /s/ Peter K. Hansen
-----------------------
Peter K. Hansen
Chairman
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IN WITNESS WHEREOF, the parties hereto have hereunto set
their hands as of the Effective Date.
INVESTOR
/s/ Illegible
- -----------------------------
Address: ING Barings LLC
55 East 52nd Street
New York, New York 10055
Membership Interest: 25,000 Units
Capital Contribution: $2,000,000
Number of Shares of Trinitech Systems, Inc.
issued in exchange for the Option 125,000 Shares
-------
NYFIX MILLENNIUM, L.L.C.
By: /s/ Peter K. Hansen
----------------------------
Peter K. Hansen
Chairman
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IN WITNESS WHEREOF, the parties hereto have hereunto set
their hands as of the Effective Date.
INVESTOR*
SOCIETE GENERAL INVESTMENT CORPORATION
/s/ Illegible
- --------------------------------
Address: 1221 Avenue of the Americas
New York, New York 10020
Membership Interest: 25,000 Units
Capital Contribution: $2,000,000
Number of Shares of Trinitech Systems, Inc.
issued in exchange for the Option 125,000 Shares
-------
*BHCA SPECIAL MEMBER
NYFIX MILLENNIUM, L.L.C.
By: /s/ Peter K. Hansen
----------------------------
Peter K. Hansen
Chairman
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IN WITNESS WHEREOF, the parties hereto have hereunto set
their hands as of the Effective Date.
INVESTOR
LEHMAN BROTHERS INC.
By: /s/ Robert Shafir
-------------------------------
Name: Robert Shafir
Title: Managing Director
Address: 3 World Financial Center
200 Vesey Street
New York, New York 10285
Membership Interest: 25,000 Units
Capital Contribution: $2,000,000
Number of Shares of Trinitech Systems, Inc.
issued in exchange for the Option 125,000 Shares
-------
NYFIX MILLENNIUM, L.L.C.
By: /s/ Peter K. Hansen
-----------------------------
Peter K. Hansen
Chairman
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IN WITNESS WHEREOF, the parties hereto have hereunto set
their hands as of the Effective Date.
INVESTOR
MSDW Equity Investments Ltd.
By: /s/ Daniel H. Hallahan
-------------------------------
Daniel H. Hallahan
Address: MSDW Equity Investments Ltd.
Maples Calder
Ugland House
P.O. Box 309
Cayman Island
Membership Interest: 25,000 Units
Capital Contribution: $2,000,000
Number of Shares of Trinitech Systems, Inc.
issued in exchange for the Option 125,000 Shares
-------
NYFIX MILLENNIUM, L.L.C.
By: /s/ Peter K. Hansen
-----------------------------
Peter K. Hansen
Chairman
-25-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set
their hands as of the Effective Date.
INVESTOR
DB U.S. FINANCIAL MARKETS HOLDING CORPORATION
By: /s/ Gary T. Handel By: /s/ James O. Wilhelm
-------------------------------- ----------------------------
Gary T. Handel James O. Wilhelm
Vice President and Treasurer Assistant Secretary
Address: 31 West 52nd Street
New York, New York 10019
Attn: Tom Curtis, Legal Dept.
Membership Interest: 25,000 Units
Capital Contribution: $2,000,000
Number of Shares of Trinitech Systems, Inc.
issued in exchange for the Option 125,000 Shares
-------
NYFIX MILLENNIUM, L.L.C.
By: /s/ Peter K. Hansen
--------------------------------
Peter K. Hansen
Chairman
-26-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set
their hands as of the Effective Date.
INVESTOR
SANDFORD C. BERNSTEIN & CO., INC.
By: /s/ Lewis A. Sanders
-------------------------------
Lewis A. Sanders
Chairman
Address: 767 Fifth Avenue
New York, New York 10153
Membership Interest: 25,000 Units
Capital Contribution: $2,000,000
Number of Shares of Trinitech Systems, Inc.
issued in exchange for the Option 125,000 Shares
-------
NYFIX MILLENNIUM, L.L.C.
By: /s/ Peter K. Hansen
-----------------------------
Peter K. Hansen
Chairman
-27-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set
their hands as of the Effective Date.
NYFIX, INC. (formerly Trinitech Systems, Inc.)
By: /s/ Peter Kilbinger Hansen
---------------------------------------
Name: Peter Kilbinger Hansen
Title: Chairman of the Board and President
Address: 333 Ludlow Street
Stamford, CT 06902
Membership Interest: 175,000
Capital Contribution: $2,000,000
NYFIX MILLENNIUM, L.L.C.
By: /s/ Peter Kilbinger Hansen
----------------------------------------
Name: Peter Kilbinger Hansen
Title: Chairman
-28-
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 333-95285.
/s/ Arthur Andersen LLP
Stamford, Connecticut
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,565,649
<SECURITIES> 0
<RECEIVABLES> 7,213,820
<ALLOWANCES> 125,000
<INVENTORY> 1,303,658
<CURRENT-ASSETS> 11,455,730
<PP&E> 8,571,738
<DEPRECIATION> 2,698,701
<TOTAL-ASSETS> 38,828,025
<CURRENT-LIABILITIES> 6,942,745
<BONDS> 0
<COMMON> 15,903,302
0
0
<OTHER-SE> 29,869,377
<TOTAL-LIABILITY-AND-EQUITY> 38,828,025
<SALES> 3,715,479
<TOTAL-REVENUES> 12,209,451
<CGS> 3,765,587
<TOTAL-COSTS> 11,015,285
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221,711
<INCOME-PRETAX> 1,096,428
<INCOME-TAX> 94,400
<INCOME-CONTINUING> 1,002,028
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 41,609
<NET-INCOME> 960,419
<EPS-BASIC> .07
<EPS-DILUTED> .06
</TABLE>
